Saga Annual Report 2018 | Quarterlytics

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Saga plc

Annual Report and Accounts

Year ended 31 January 2019

Our business
at a glance

Our strategy
in action

Highlights

Strategic Report
1
2 Our business at a glance
4 Chairman’s Statement
6 Group Chief Executive Officer’s

Strategic Report
10 Market overview
12 Our business model
14 Strategic Priorities 2018/19
16 Key performance indicators
18 Strategic Priorities 2019/20
20 Our strategy in action
26 Non-financial information

statement

28 Corporate responsibility
34 Our principal risks and

uncertainties

38 Operating and Financial Review

Governance
52 Corporate Governance Statement
52 Chairman’s introduction

to governance

54 Key Board statements
58 Leadership
64 Board of Directors
66 Effectiveness
68 Nomination Committee Report
70 Accountability
75 Audit Committee Report
79 Risk Committee Report
82 Relations with shareholders
83 Directors’ Remuneration Report
83 Remuneration Committee
Chair’s Annual Statement
86 Remuneration Summary Report
98 Fairness, diversity and wider
workforce considerations
108 Annual Report on Remuneration
113 Directors’ Report
117 Statements of responsibilities
118 Independent Auditor’s Report

to the members of Saga plc

Financial Statements
127 Consolidated income statement
128 Consolidated statement
of comprehensive income
129 Consolidated statement
of financial position
130 Consolidated statement
of changes in equity
131 Consolidated statement

of cash flows

132 Notes to the consolidated
financial statements

192 Company financial statements
of Saga plc balance sheet
193 Company financial statements

of Saga plc statement
of changes in equity
194 Notes to the Company

financial statements

Additional information
198 Shareholder information
199 Glossary – Alternative
Performance Measures

200 Glossary

Find out more
www.saga.co.uk

A note from
our Chairman

Our strategy
in action

Saga plc exists to help our customers
lead the life they want to lead.
In 2019/20, the Company is refocusing
its strategy to return to its heritage
as a direct to consumer brand, with
Membership at its core.

Financial highlights1

Operational highlights

(Loss)/Profit before tax from
continuing operations (£m)

Dividend per share
(pence)

Number of members of
Saga Possibilities

1.1m

2018: 0.536m

Average product holding

1.4

2018: 1.4

Brand net promoter score (NPS)

Brand NPS was established in 2018.

(174.4%)

2019

(134.6)

2018

2017

180.9

193.3

(55.6%)

2019

2018

2017

4.0

9.0

8.5

Underlying Profit Before Tax
(£m)1

Available operating cash flow
(£m)1

(5.4%)

2.9%

2019

2018

2017

180.3

190.6

187.4

2019

2018

2017

180.6

175.5

217.6

Basic earnings per share
for continuing operations
(pence)

(210.7%)

2019

(14.5)

2018

2017

13.1

14.1

Underlying earnings per share
(pence)1

(5.1%)

2019

2018

2017

13.1

13.8

13.7

Debt ratio (net debt to Trading
EBITDA1 )

1.7x

2019

2018

2017

1.7x

Note:
1 Alternative Performance Measure (APM) – refer to the Glossary on page 199 for definition

1.9x

and explanation

Strategic ReportSaga plcAnnual Report and Accounts 2019Our business at a glance

Saga is a specialist provider of
products and services for people
aged 50 and over. For 65 years
our customers have been at the
heart of everything we do.

Insurance

The Insurance business is the largest part of
the Saga Group. It provides tailored products
including the recently launched fixed price
insurance product.

•
•

Insurance Retail Broking
Insurance Underwriting

Retail Broking
Underlying Profit
Before Tax1
(£m)

£105.8m

(2017/18: £130.7m;
(19.1%))

Underwriting Underlying
Profit Before Tax1
(£m)

£86.7m

(2017/18: £79.3m; +9.3%)

Policy Count2

2,204k

(2017/18: 2,274k; (3.1%))

Underlying
reserve releases
(£m)

£77.9m

(2017/18: £60.0m;
+29.8%)

Pure COR3

99.7%

(2017/18: 97.8%; +1.9ppt)

Insurance p 40-43

Notes:
1 Alternative Performance Measure (APM) –

refer to the Glossary on page 199 for definition
and explanation

2 Combined buildings and contents home core policies

count as one policy

3 Please refer to page 42 of the Operating and

Financial Review for how this measure is calculated
and defined

Saga plcAnnual Report and Accounts 2019Travel

The Travel business is at the heart of the
Saga brand and it is from these origins that
the business evolved. We take passengers all
over the world on package holidays, escorted
tours, river cruises, and ocean cruises.

• Saga Cruises
• Saga Holidays
• Titan
• Destinology

Underlying Profit
Before Tax1
(£m)

£21.1m

(2017/18: £20.6m;
+2.4%)

Travel p 43-44

Passengers – Holidays

176k

(2017/18: 184k; (4.3%))

Passengers – Cruise

26k

(2017/18: 24k; +8.3%)

Emerging
Businesses

Emerging Businesses includes new
development areas.

• Saga Personal Finance
• Saga Healthcare

Underlying Profit Before Tax
(£m)1

£3.1m

(2018: £0.8m; +287.5%)

Emerging Businesses p 44-45

Strategic ReportSaga plcAnnual Report and Accounts 2019Chairman’s Statement

“ Getting back to growth will
require exceptional commitment
and execution from everyone
at Saga. From what I have seen
since I joined, I am confident the
business will rise to the challenge.”

Patrick O’ Sullivan
Chairman

Saga plcAnnual Report and Accounts 2019Strategy
Over the following pages we set out fundamental changes
to our strategy. This will see Saga return to its heritage as a
company that delivers high-quality, differentiated products
and services that our customers cannot get elsewhere.

Performance in 2018
Results for last year are in line with our expectations.
While we are reporting another very strong year
from Insurance Underwriting, Retail Broking has been
disappointing. Travel maintained profitability but parts
of Tour Operations remain under pressure. At a time when
our target demographic market continues to grow overall,
our volumes have declined.

Your Board believes that the new strategy responds
to these challenges.

Dividend and Goodwill impairment
In the near-term, a combination of margin pressures and
other factors mean that profitability will be significantly
below that of recent years and also below our previous
expectations. As a result we have had to make some
difficult decisions.

The Board has proposed a final dividend per share of 1.0p
and a full year dividend per share of 4.0p, compared to 6.0p
and 9.0p respectively in the prior year. We are targeting
a sustainable payout ratio of around 50% of earnings over
the next few years.

We have also re-assessed the carrying value of the goodwill
relating to the Group’s Insurance operations. This has
resulted in a non-cash impairment charge of £310.0m,
representing 22% of the Insurance goodwill, and has led to
an overall loss before tax for the financial year 2018/19 of
£134.6m and a loss after tax of £162.0m.

While the decisions to reduce our dividend and impair
Insurance goodwill are disappointing, the Board believes
that these actions are essential to address our challenges,
allow for the product investments needed and enable the
Group to return to sustainable growth.

Julie Hopes joined the Board in October 2018. Julie has
taken over the Chair of our Retail Broking business from
Bridget McIntyre, who retired from the Board in October
2018. Julie’s experience in Insurance will be invaluable
as we continue to develop this part of our business.
Eva Eisenschimmel joined the Board in January 2019. Eva will
work with us to make sure our customers are at the heart of
everything we do. Gareth Hoskin joined the Board in March
2019. Once approved, Gareth will act as Chair for Acromas
Insurance Company Limited, our in-house underwriter.

I would like to express my sincere appreciation for the
contribution of those who left the Board during the year
and extend a warm welcome to those who have joined us.

The future
While there are challenges to address, the business is well-
positioned to grow. We have 2.1m customers and offerings
in Cruise, PMI, Savings and Life Time Mortgages that
are excellent examples of what we are aiming for. We are
launching new products in Insurance, the first of which are
home and motor products that include a three year fixed
price offer. Our Travel strategy is to become a specialised
operator, focusing on Cruise and differentiated experiences
in Tour Operations. While it’s early days for our Membership
programme, we now have 1.1m members, a strong
proposition, and are seeing a steady increase in the level of
member engagement.

It has been a challenging and pivotal year for the business.
On behalf of the Board, I wish to thank all of our employees
sincerely for their exceptional effort in helping us reset
our direction and for their advocacy of our customers.
Without them, we could not look forward to the future
with confidence.

Getting back to growth will require exceptional commitment
and execution from everyone at Saga. From what I have
seen since I joined, I am confident the business will rise to
the challenge.

Changes to the Board
A number of changes have been made to the Board this
year. I joined as Chairman in May, replacing Andrew Goodsell
who served as Chairman since 2004.

Patrick O’ Sullivan
Chairman
3 April 2019

James Quin replaced Jonathan Hill as Group Chief Financial
Officer in January 2019. He brings with him extensive
insurance experience and he will be key in delivering the
new strategy.

Strategic ReportSaga plcAnnual Report and Accounts 2019Group Chief Executive Officer’s Strategic Report

‘‘ We will focus Saga on its heritage
as a direct to consumer brand
with Membership at its core,
delivering highly differentiated,
competitively priced products
to our customers and members.’’

Lance Batchelor
Group Chief Executive Officer

Saga plcAnnual Report and Accounts 2019Summary
A lot has been achieved in the five years since Saga’s IPO:
net debt has been reduced by more than £300m; our old
IT platforms have been largely replaced; a new cruise ship
has been designed and built and another is coming; our
Membership programme has been launched and over a
million members have signed up; and the Travel division
has grown from £5m to over £20m in Underlying Profit
Before Tax.

I also want to be clear about what we have not addressed.
If we look back to what made the Company successful, it
was products specifically designed for our demographic,
that were competitively priced and built great brand loyalty.
Since then Saga has been focused overly on the short-term.
At the same time, in the more commoditised parts of the
insurance and travel markets, our customers are now able to
buy basic and cheap products very easily on-line. The end
result has been a steady decline in the number of customers
over a period in which our demographic has grown.

The last year brought the long-term trends Saga has been
grappling with even more sharply into focus. Our Insurance
business in particular has been facing new challenges.
Although we saw another very strong result from our
Underwriting business and good progress in Cruise in 2018,
results in Retail Broking have been below our expectations.
And while Tour Operations maintained profitability, parts of
that business are under pressure both in terms of volumes
and margins.

In response, we are making a bold and fundamental change
to our strategy to return the whole business to our heritage.
That is, an organisation offering differentiated products
and services that will give our customers and members
a compelling reason to come to us and stay with us:

• We are changing our approach to selling insurance.
This will move our Insurance business from one that,
like the majority of the industry, wins new customers
on price and recoups initial losses through increased
renewal pricing. Instead, we will offer a differentiated
insurance product on the basis of unique and attractive
features. The significance of this change should not be
underestimated in today’s insurance market.

• Our Cruise offering is a brilliant example of a product that
is already highly differentiated and competitively priced.
The transition to two new ships and resultant upgrade in
the offering is an example of how we are changing Saga.
We need to do the same thing in Tour Operations, and
move faster to become a differentiated, niche provider
of great customer experiences. This might mean that
overall volumes remain at current levels, but we expect
our margins to increase in line with those of best in class
specialist travel companies, reflecting the quality of
the product.

• We will invest more in supporting our new product

propositions. We have started this and are seeing some
green shoots from our first TV advertising campaign.
• We will wrap all of this in our Membership proposition,
Saga Possibilities, to help us build loyalty and multi-
product holdings, and as a means of attracting
new customers.

The combination of pressures on the Insurance business and
investment to support this change in approach mean that
our profitability will, in the near-term, be significantly below
the level of recent years. As a result, we have had to make
some difficult decisions. We have reduced the dividend
and impaired the goodwill on our balance sheet, and we are
reporting a loss for the 2018/19 financial year.

This is painful in the short-term but I firmly believe it is the
right course of action for both customers and shareholders
in the longer-term. It also ensures we have a robust balance
sheet to support growth in customers, profits and attractive
cash flows.

I will now explain the background to our performance, and
the actions we are taking, in more detail.

A fundamental shift in our Retail
Broking business
Our broking business has experienced some significant
challenges over the past five years. These include:

• the increasing dominance of price comparison sites
• the impact of regulatory changes
• under investment in our direct proposition
•

insufficient investment in marketing.

The result has been a decline in profit and policies.

Although we held policy numbers flat in 2018/19, we acquired
an increasing number of customers from price comparison
sites and direct new business declined from 67% to 51% of
total new business volumes. This business is more expensive
to acquire than direct and has lower profit margins.

It is clear that to grow customers and profitability we need
to give our customers more reasons to come to Saga direct
and to remain with us. We also anticipate a significant
industry response to the regulatory focus on renewal
pricing. We are taking steps to show customers the benefit
of loyalty through our change in approach. This move is an
essential step towards creating the right perception of Saga
Insurance among our customers.

Strategic ReportSaga plcAnnual Report and Accounts 2019Group Chief Executive Officer’s Strategic Report
continued

The first major step will be the launch of a highly
differentiated home and motor insurance product that
guarantees the same premium for three years providing
there are no claims in the period, and that there is no change
to insurance premium tax. This will only be available to
customers who come to us direct. We have been piloting this
since November and have sold over 5,000 policies to new
customers. It has proved to be extremely popular: over 60%
of those offered it have opted for the fixed price insurance.

We are also changing our approach to renewal pricing.
This is in recognition of the fact that the industry is going
to go through a period of major change. We also want
to encourage our customers to see more of a benefit in
remaining with Saga for the long-term.

The change in strategy is expected to create a platform
for future growth in policies and profits. In the near-term,
however, the combination of margin pressures, the change
in approach to renewal pricing and our investment in new
propositions will lead to a decline in broking profitability
compared to 2018/19.

Our Travel strategy
In 2018, the Travel division had its fifth successive year of
profit growth, beating £21m Underlying Profit Before Tax for
the first time. However, Brexit is putting a clear dampener
on customers’ willingness to commit to holidays in 2019.
This has been partially mitigated by growth in our trade
channels, albeit from a low base.

We have seen the extraordinarily rapid build, to schedule,
of Spirit of Discovery, our first ever purpose built cruise
ship during 2018. Spirit of Discovery will carry her first
passengers in July 2019. Our second new ship, Spirit
of Adventure, is due to be delivered in summer 2020.
Forward bookings for both ships are on track. They are each
expected to deliver c.£40m EBITDA per annum. This will
be transformational for the future profit trajectory of our
Travel business.

Our strategy in Tour Operations will be to accelerate our
move away from undifferentiated, low value products,
such as short haul, to higher value, more differentiated
segments, such as escorted tours, third party cruises
and river cruises. We are starting to renew our river ship
fleet, and have recently ordered two purpose built vessels
on long-term lease agreements. While we do not expect
significant growth in Tour Operating revenues, this forward
transformation is expected to lead to improved margins in
the next few years.

Our Membership strategy
Our Membership programme, Saga Possibilities, launched
in Autumn 2017. We have over one million members and the
number is growing every week. We will continue to build our
Membership proposition and engagement as we seek to
make that our key route to customers.

The next phase will focus on increasing the engagement
of existing members, growing member numbers, and
cross-selling through the Membership programme. A recent
trial to sell Travel to Insurance customers via Membership
generated c. 900 passengers in 100 days, 34% of whom
were first-time buyers. We will seek to build on this in 2019.
The bigger Possibilities becomes, the better the deals and
opportunities we will be able to find for our members.

It is still early days, but the initial signs, evidenced by the
launch of Dining Possibilities in October, are that we have
started to see engagement increase.

The Saga brand
We have an exceptionally high level of prompted brand
awareness: 87% of our target market knows Saga. For many
of our customers, this translates to strong brand affinity,
trust in our products, a high level of repeat bookings in
Travel, and retention in Insurance. However, we need to
improve consideration (people who know the brand and are
more likely to buy a Saga product) and our new strategy is
designed to do this.

Offering such new and unique products allows us to do
something we haven’t done for many years. We launched
some new television adverts at the end of last year that we
will continue to run in 2019. Advertising is important both
to drive sales of our new Insurance and Cruise services, but
also to ensure that our potential customers appreciate that
we are doing things differently.

The early impact of our higher profile has been encouraging.
The combination of new product offerings and increased
advertising is expected to deliver further benefits.

Saga plcAnnual Report and Accounts 2019Looking forward
The Group strategy is to focus Saga on its heritage as a
direct to consumer, membership-led brand. We want to be
known as a company that delivers highly differentiated,
competitively priced products to our customers and
members. The fundamental change in strategy in Insurance
is a significant start in the execution of that strategy and is
the culmination of much work behind the scenes.

We proved in 2018 that our Cruise strategy is working and
we will accelerate our efforts in Tour Operations to match
the progress we’ve made in Cruise.

We will continue to build our Membership proposition
and engagement as we seek to make that our key route
to customers.

I would like to thank the many people across the business
who have helped us develop our new strategy over the past
six months. I am confident that the far reaching changes set
out above are both essential and bold enough to address
the long-term challenges we have faced. I am also confident
that these changes will give our customers and Possibilities
members a compelling reason to come to us and stay
with us.

Lance Batchelor
Group Chief Executive Officer
3 April 2019

Strategic ReportSaga plcAnnual Report and Accounts 2019Market overview

Saga operates in a dynamic
environment across multiple
sectors to meet the needs
of its target demographic,
the UK’s over 50s.

Saga regularly reviews the trends and factors influencing our
customers and markets to identify opportunities and risks
and ensure we remain agile.

The Saga customer
Saga’s target market is one of the most affluent and
influential in the UK. The needs of this demographic are
continuously evolving, driven by longer periods in both
employment and retirement. In 2018, the UK’s over 50s
totalled 24.9m and represented close to 40% of the entire
UK population. The growth of this demographic is expected
to continue and is predicted to total c.30m individuals
by 2044.

This demographic holds 75% of the UK’s household wealth.
The pursuit of more active lifestyles continues to be a key
trend. Fifty-four percent1 of the UK’s total expenditure
on leisure, culture, food, recreation and health is made by
this segment.

Saga continues to invest in strengthening its customer
insight and ability to stay abreast of changing
sentiments and behavioural traits of its target customer.
This investment ensures that, as a business, Saga continues
to evolve to ensure its relevance amongst today’s over 50s.

Projected growth of the UK’s over 50s

c . 7m i n c r e a s e
m
4
9
2

m
9

6
2

m
8

1
3

m
0
0
2

m
1

8
1

m
2

3
2

m
9
4
2

Vulnerable customers
Saga recognises that some of our customers need
more attention than others. There are dedicated teams
throughout the business to ensure that vulnerable
customers are identified and given what help they need.
For example, Saga has had active pricing processes in place
for several years and increasing numbers of long-standing
customers, who may be perceived as vulnerable, have seen
their renewal premium either frozen or reduced as a result.

Competition for customers
Saga competes for business with many providers within the
sectors in which it operates. Whilst our brand as the over
50s specialist in the UK is particularly strong, Saga does
not have a monopoly. Competition for customers continues
to increase notably in the more commoditised parts of
the insurance and travel markets, where customers are
able to buy simple and cheap products very easily on-line.
In this landscape, it is increasingly important that Saga
offers differentiated products and services that will give its
customers and Possibilities members a compelling reason to
come to us and stay with us.

Regulatory developments
Saga operates within an evolving regulatory landscape.
Aspects of this, such as General Data Protection Regulation
(GDPR), cover all of Saga’s business. Other aspects
cover the Group’s Insurance, Travel and Personal
Finance businesses.

The Insurance business is regulated by both the Financial
Conduct Authority (FCA) and the Gibraltar Financial
Services Commission and the Travel business by the
Civil Aviation Authority (CAA), the European Economic
Community (EEC), Package Travel Regulations and the
Association of British Travel Agents (ABTA).

1993

2003

2014

2018

2024

2034

2044

50-64

65-74

75+

1 Office for National Statistics, ‘Family spending in the UK: April 2017 to March 2018’

Saga plcAnnual Report and Accounts 2019

2018/19 was a very active year for the insurance regulatory
landscape. The FCA implemented new requirements
relating to how retail general insurance products are sold,
and launched an extensive market study into industry
pricing practices. The insurance market is one of the most
competitive sectors in the UK with high levels of switching
and significant introductory discounts leading to most
people shopping around for the best deal. For those
customers who do not shop around it is crucial that insurers
have active pricing processes.

Saga welcomes the approach of the FCA and expects
this to lead to significant change across the industry
in the coming years. As a business which is focused on
direct distribution channels, with a higher number of older
customers and with a strategy that is increasingly focused
on rewarding customer loyalty, Saga will implement further
changes on a proactive basis.

As regulation across operating markets continues to evolve,
Saga strives to maintain strong relationships with its
regulatory bodies through continuous engagement.

Political developments
Brexit
At the date of finalising this report there is considerable
uncertainty as to how – and even whether – the UK will exit
from the EU, or at least as to when Brexit will take effect
and on what terms. There is corresponding uncertainty as
to the impact on Saga. The potential impacts on the Group
of Brexit, and more specifically a hard Brexit, have been
considered. Working groups have been held throughout the
year to identify, assess – and where possible – implement
mitigations for the risks of a hard Brexit. The range of
scenarios considered includes the additional administration
processes and costs associated with running a travel tour
operating business, supply chain delays for motor repairs
and prolonged disruption to local roads caused by delays
at the Port of Dover and Eurotunnel. The impact to date has
been a decline in forward bookings in our Tour Operations
business as Brexit uncertainty impacts consumer
willingness to commit to holidays in 2019. The Group will
continue to closely monitor the political developments, and
adapt mitigation plans accordingly.

Strategic ReportSaga plcAnnual Report and Accounts 2019Business model

Saga exists to help our
customers lead the life they
want to lead and to enable
and inspire new possibilities.

Our sources
of value

There are several core assets that are central to the
functioning of our business model and the execution
of our strategy. These include:

Brand strength
In a highly competitive environment, the Saga brand can
be a key differentiator. We recognise that the strength
of our brand supports our direct marketing model, drives
purchases and improves retention.

Our people
Our people are core to our brand. We continue to invest
in building a high-performance and high-support
culture. We encourage our people to be brave and to
challenge each other to deliver service excellence to
our customers.

Our customers
At the heart of our business model is our drive to know
more about our customers’ wants and needs so we are
best placed to serve them.

Membership
We continue to invest in our Membership programme,
Possibilities, strengthening our ability to gain unique
insights into the evolving traits of our demographic,
while deepening our relationship with them.

Proprietary data and technology
We have invested in renewing and refreshing our
systems capabilities and in strengthening our ability
to capture insights at every point of contact with our
customers. Our Membership programme enables us to
develop our understanding of our target demographic
and their changes in behaviour over time. This helps us
tailor our offering to existing and potential customers.

Supplier partnerships
Our supplier relationships are fundamental to our
business model. Our partners benefit from our brand,
customer knowledge and access to an attractive
demographic. Access to specialist skills, knowledge
and capital help us deliver the best outcome for
our customers.

Financial strength
Saga’s capital efficient business model means we
are highly cash generative as much of our profit after
tax is converted into cash. This provides the flexibility
to balance investment in the brand with customer
growth, debt reduction and the delivery of cash returns
to shareholders.

Underpinned by our people, culture and values

We exist to help our customers lead the life they want
to lead and to enable and inspire new possibilities.
Our values are who we are and how we work – they are
brought to life every day by our people. We believe every
interaction – whatever form it takes - reflects our values.

Our values can be summarised as, ‘The Saga Way:’

• We must see the world through our customers’ eyes,

so we can exceed expectations.

• Nothing is too much for our customers.

Saga plcAnnual Report and Accounts 2019 Refer to Corporate responsibility
on pages 28-33 for further details

Delivered through
the Saga model

Creating value for
our stakeholders

1 A great brand

Saga is a trusted brand which
achieves over 87% recognition
from the UK’s over 50s.

2 Differentiated products

We listen to our 2.1m customers
and our 1.1m Possibilities
members to design and
deliver highly differentiated,
competitively priced products
which meet their needs.

3 Unique route to market

Saga’s proprietary database,
Membership programme and
marketing model provide
direct access to both existing
and new customers across
multiple channels.

4 Outstanding service

Our customers and Possibilities
members know what good
service looks like, expect the
best, and recognise it when they
get it. We monitor feedback and
the quality of customer service
provided by our in-house and
third party teams.

Saga is committed to maximising
value for our key stakeholders.

Measurement:
• Employee engagement score

Customers and Possibilities
members
Our customers and members of
Saga Possibilities are at the heart
of everything we do. We design
bespoke products and services
that help them lead the life they
want to lead. Supported by our
exceptional service, we seek to
develop multi-decade relationships
with our customers.

Community
Saga is committed to supporting
the communities in which it
operates through charitable giving,
employee volunteer programmes
and minimising the negative
impact our operations have on
the environment. We are proud
to represent and campaign on
behalf of our customers on a range
of issues that affect the UK’s
over 50s.

Measurement:
• NPS
• Number of Possibilities members
• Average products held

Measurement:
• Charitable donations
• Volunteer hours

Employees
Our success relies on having
highly engaged employees who
are committed to delivering
exceptional service to our
customers. We invest in building
the capabilities of our people
and embedding a positive, high-
performance, high-support culture
across our organisation.

Shareholders
Saga aims to enhance long-term
value to shareholders by returning
the business to sustainable growth
and targeting a dividend payout
ratio of around 50% of earnings
over the next few years.

Measurement:
• Dividend payout ratio
• Underlying Earnings Per Share

• We work as one team to serve the needs of

our customers.

• We trust and challenge each other to be brave and

to do the right thing.

To support the successful delivery of our strategy,
we are committed to building a high-performance
and cohesive culture across the organisation which
promotes talent, diversity and ongoing development.

Underpinned by our people, culture and values

Strategic ReportSaga plcAnnual Report and Accounts 2019Strategic Priorities 2018/19

Strategic
Priorities
2018/19

The Group’s progress against its
2018/19 strategic priorities provides
a platform for growth which supports
the refocused strategy.

Further details of the 2019/20
strategic priorities, which underpin
Saga’s strategy to refocus on its
heritage as a direct to consumer
brand, with Membership at its core,
are detailed on pages 18-19.

Notes:
1 Alternative Performance Measure – refer
to the Glossary on page 199 for definition
and explanation

1. Becoming increasingly
customer centric

2. Growing our Retail
Insurance and Travel
businesses

Strategic priorities for
2018/19
In 2018/19 the Group focused on
becoming a unique Membership
organisation for the UK’s over 50s
with a high affinity brand.

Strategic priorities for
2018/19
We focused on accelerating growth
in our divisions by investing to attract
new customers and improve margins.

Strategic delivery
• We grew the base of our
Membership programme,
Possibilities, to 1.1m members.
• We maintained sign-up rates to

Possibilities at 84%.

• We continued to develop the

Membership proposition, adding
some of the UK’s biggest brands
to our offering.

• We strengthened the Membership
proposition, and introduced Dining
Possibilities in October 2018 and
Travel Possibilities earlier in the year.

• The expansion of our Membership

offering has supported engagement
growth: 180,000 members
interact with us and this number is
steadily growing.

• We introduced NPS as our primary
customer satisfaction measure.
The Group score is 25.

• Average product holdings were flat

at 1.4.

Strategic delivery
• We stabilised the Retail Broking
policy count and held Saga-
branded home and motor insurance
policy numbers flat. Retail Broking
profitability declined 19.1% to
£105.8m.

• The Travel division delivered its fifth
successive year of profit growth,
beating £21m Underlying Profit
Before Tax for the first time.

• We rationalised our product offering
in Tour Operations. The focus on
higher-margin escorted touring,
river and ocean cruise products led
to a 5.1% increase in gross margin
per passenger, offsetting a decline
in passenger numbers.

• We broadened our competitive

footprint with the expansion of our
third party motor panel. Third party
share of new motor business
increased to 30% in 2018/19
(2017/18: 22%).

• We invested in the development of
a pipeline of highly differentiated
and innovative new product
propositions in Retail Broking
and Travel.

• We successfully piloted our new

motor and home insurance product,
three year fixed price, and sold over
5,000 policies at a sign-up rate of
60% since the start of the pilot in
October 2018.

3. Investing for future growth

4. Maintaining our efficient

5. Developing

operating model

our people

Strategic priorities for

2018/19

In 2018/19 we continued to build

We focused on delivering operational

Our people are central to the Saga

demand for our new ships, launched

efficiencies and performance

brand. Following a challenging year,

our new retail insurance platform and

excellence across our businesses to

we focused on increasing employee

supported investments to strengthen

ensure that we operate in the most

engagement and building a culture

our brand, Membership proposition and

efficient way while preserving the

which promotes talent and diversity,

new product development.

customer experience.

engenders winning and fosters

high performance.

Strategic delivery

• Construction of our first ever

• Continued strong cash generation

• Employee engagement fell to

purpose built cruise ship, Spirit of

Discovery, remains on track and

of £180.6m, representing 78.1% of

Trading EBITDA1 (2018: 70.0%).

70% following the organisational

changes made in December 2017.

on budget. We continue to prepare

• Delivered Group wide cost and

• We continued to invest in

for her maiden cruise in July 2019.

efficiency improvements resulting in

leadership development.

Our second new ship, Spirit of

a £10.2m reduction to our cost base.

Over 500 leaders are now working

Adventure, remains on track for

• Continued focus on embedding

through an intensive leadership

delivery in summer 2020.

a culture of customer service

• We continue to build demand for our

excellence across the Group.

development programme.

• We delivered a range of

apprenticeship programmes to

support entry level recruitment and

accelerate development of our mid-

level managers.

ships. Forward bookings remain on

track and continue to support our

ambitious plans.

• We delivered on our technology

investments and enhanced our

operating platforms:

– We successfully re-platformed

our motor product on Guidewire

with home to follow in 2019.

– We successfully developed our

Travel reservation platform,

Tigerbay, to be launched 2019.

• We continued to invest in the

Saga brand with the launch of an

integrated creative advertising

campaign across TV, press, digital

media and direct marketing –

spanning our holidays, cruise and

insurance products.

• We supported the acceleration of

our shift towards higher-value, more

differentiated travel segments

with the renewal of our river cruise

fleet. We have committed to two

purpose built vessels on long-term

lease arrangements.

Saga plcAnnual Report and Accounts 20191. Becoming increasingly

customer centric

2. Growing our Retail

Insurance and Travel

businesses

Strategic priorities for

2018/19

In 2018/19 the Group focused on

becoming a unique Membership

We focused on accelerating growth

in our divisions by investing to attract

organisation for the UK’s over 50s

new customers and improve margins.

with a high affinity brand.

Strategic delivery

• We grew the base of our

Membership programme,

Possibilities, to 1.1m members.

• We maintained sign-up rates to

Possibilities at 84%.

Strategic delivery

• We stabilised the Retail Broking

policy count and held Saga-

branded home and motor insurance

policy numbers flat. Retail Broking

profitability declined 19.1% to

• We continued to develop the

£105.8m.

Membership proposition, adding

• The Travel division delivered its fifth

some of the UK’s biggest brands

to our offering.

successive year of profit growth,

beating £21m Underlying Profit

• We strengthened the Membership

Before Tax for the first time.

proposition, and introduced Dining

• We rationalised our product offering

Possibilities in October 2018 and

in Tour Operations. The focus on

Travel Possibilities earlier in the year.

higher-margin escorted touring,

• The expansion of our Membership

river and ocean cruise products led

offering has supported engagement

to a 5.1% increase in gross margin

growth: 180,000 members

per passenger, offsetting a decline

interact with us and this number is

in passenger numbers.

steadily growing.

• We broadened our competitive

• We introduced NPS as our primary

footprint with the expansion of our

customer satisfaction measure.

third party motor panel. Third party

The Group score is 25.

• Average product holdings were flat

at 1.4.

share of new motor business

increased to 30% in 2018/19

(2017/18: 22%).

• We invested in the development of

a pipeline of highly differentiated

and innovative new product

propositions in Retail Broking

and Travel.

• We successfully piloted our new

motor and home insurance product,

three year fixed price, and sold over

5,000 policies at a sign-up rate of

60% since the start of the pilot in

October 2018.

3. Investing for future growth

4. Maintaining our efficient
operating model

5. Developing
our people

Strategic priorities for
2018/19
In 2018/19 we continued to build
demand for our new ships, launched
our new retail insurance platform and
supported investments to strengthen
our brand, Membership proposition and
new product development.

Strategic priorities for
2018/19
We focused on delivering operational
efficiencies and performance
excellence across our businesses to
ensure that we operate in the most
efficient way while preserving the
customer experience.

Strategic priorities for
2018/19
Our people are central to the Saga
brand. Following a challenging year,
we focused on increasing employee
engagement and building a culture
which promotes talent and diversity,
engenders winning and fosters
high performance.

Strategic delivery
• Continued strong cash generation
of £180.6m, representing 78.1% of
Trading EBITDA1 (2018: 70.0%).
• Delivered Group wide cost and

efficiency improvements resulting in
a £10.2m reduction to our cost base.

• Continued focus on embedding
a culture of customer service
excellence across the Group.

Strategic delivery
• Employee engagement fell to

70% following the organisational
changes made in December 2017.

• We continued to invest in
leadership development.
Over 500 leaders are now working
through an intensive leadership
development programme.

• We delivered a range of

apprenticeship programmes to
support entry level recruitment and
accelerate development of our mid-
level managers.

Strategic delivery
• Construction of our first ever

purpose built cruise ship, Spirit of
Discovery, remains on track and
on budget. We continue to prepare
for her maiden cruise in July 2019.
Our second new ship, Spirit of
Adventure, remains on track for
delivery in summer 2020.

• We continue to build demand for our
ships. Forward bookings remain on
track and continue to support our
ambitious plans.

• We delivered on our technology
investments and enhanced our
operating platforms:
– We successfully re-platformed
our motor product on Guidewire
with home to follow in 2019.
– We successfully developed our
Travel reservation platform,
Tigerbay, to be launched 2019.

• We continued to invest in the

Saga brand with the launch of an
integrated creative advertising
campaign across TV, press, digital
media and direct marketing –
spanning our holidays, cruise and
insurance products.

• We supported the acceleration of

our shift towards higher-value, more
differentiated travel segments
with the renewal of our river cruise
fleet. We have committed to two
purpose built vessels on long-term
lease arrangements.

Strategic ReportSaga plcAnnual Report and Accounts 2019Key performance indicators

In 2018/19, the Group used
the following key performance
indicators (KPIs) to track and
measure the financial and
operating performance of the
business against its strategy.

Saga will review and
update its KPIs to
ensure they remain an
effective measure of
progress and delivery
against its strategy to
return to its heritage
as a direct to consumer
brand with Membership
at its core.

Underlying Profit Before Tax (£m)

Underlying earnings per share (pence)

Debt ratio

Number of members

m
6
0
9
1
£

m
4
7
8
1
£

m
3
0
8
1
£

(5.4%)

p
8
3
1

p
7
3
1

p
1
3
1

(5.1%)

Definition
Refer to the Glossary on page 199 for
definition and explanation.

Purpose
This measure is a meaningful
representation of the Group’s
underlying trading performance
as it excludes non-cash derivative
adjustments and one-off financial
impacts that are not expected to recur.

Performance
Refer to the Operating and Financial
Review on page 39.

2019 2018 2017

Definition
Refer to the Glossary on page 199 for
definition and explanation.

Purpose
This measure is linked to the Group’s
KPI, Underlying Profit Before Tax,
and represents what management
considers to be the underlying
shareholder value generated
in the period.

Performance
Refer to the Operating and Financial
Review on page 39.

2019 2018 2017

Dividend per share (pence)

Available operating cash flow (£m)

Average products held

Brand net promoter score

p
0
9

p
5
8

(55.6%)

p
0
4

2019 2018 2017

Definition
Calculated as cash returns per
ordinary share.

Purpose
This measure highlights an element
of shareholders’ return.

Performance
Refer to the Operating and Financial
Review on page 50.

m
6
0
8
1
£

m
5
5
7
1
£

m
6
7
1
2
£

2.9%

Definition
Refer to the Glossary on page 199 for
definition and explanation.

Purpose
This measure indicates the cash
generation of the business.

2019 2018 2017

Performance
Refer to the Operating and Financial
Review on pages 45-46.

1.7x

Definition

The ratio of bank debt net of available

cash to Trading EBITDA.

Purpose

This measure represents the Group’s

financial flexibility.

2019 2018 2017

Refer to the Operating and Financial

2019 2018

Performance

Review on page 48.

1.4

Definition

2019 2018

is tracking against its aim to increase

2019

Calculated as the total number of

core Saga products held per customer.

This definition has been revised to

the same basis as our policy numbers

within Retail Broking.

Purpose

This metric indicates how the Group

multiple product holdings within its

customer base, supporting the Group’s

wider objective of improving the

lifetime value of its customers.

The Group held average products flat

Performance

at 1.4.

105.2%

Definition

Number of members of the Group’s

Membership programme, Possibilities.

Purpose

This metric is an important measure

to track the Group’s plan to grow its

membership base and become a

membership-led organisation.

Performance

Reaching over 1 million members, the

Group has met its unofficial target for

the year.

Definition

Saga Group.

Purpose

to others.

Performance

Calculated based on customer survey

responses weighted by business

units to be representative of the

This metric is an index that measures

the willingness of customers to

recommend products or services

Brand NPS was established in 2018

and was measured at 25. The Group

aims to increase NPS scores across the

business and for Saga as a whole.

Saga plcAnnual Report and Accounts 2019

Underlying Profit Before Tax (£m)

Underlying earnings per share (pence)

Debt ratio

Number of members

(5.4%)

(5.1%)

x
9
1

x
7

x
7
1

1.7x

Definition
The ratio of bank debt net of available
cash to Trading EBITDA.

Purpose
This measure represents the Group’s
financial flexibility.

0
0
0
0
0
1

0
0
0
6
3
5

2019 2018 2017

Performance
Refer to the Operating and Financial
Review on page 48.

2019 2018

Definition

Refer to the Glossary on page 199 for

definition and explanation.

Purpose

This measure is a meaningful

representation of the Group’s

underlying trading performance

as it excludes non-cash derivative

adjustments and one-off financial

impacts that are not expected to recur.

Performance

Refer to the Operating and Financial

Review on page 39.

Definition

Refer to the Glossary on page 199 for

definition and explanation.

Purpose

This measure is linked to the Group’s

KPI, Underlying Profit Before Tax,

and represents what management

considers to be the underlying

shareholder value generated

in the period.

Performance

Refer to the Operating and Financial

Review on page 39.

105.2%

Definition
Number of members of the Group’s
Membership programme, Possibilities.

Purpose
This metric is an important measure
to track the Group’s plan to grow its
membership base and become a
membership-led organisation.

Performance
Reaching over 1 million members, the
Group has met its unofficial target for
the year.

Dividend per share (pence)

Available operating cash flow (£m)

Average products held

Brand net promoter score

(55.6%)

2.9%

4
1

2019 2018 2017

Refer to the Operating and Financial

2019 2018 2017

Refer to the Operating and Financial

2019 2018

Definition

Calculated as cash returns per

ordinary share.

Purpose

This measure highlights an element

of shareholders’ return.

Performance

Review on page 50.

Definition

Refer to the Glossary on page 199 for

definition and explanation.

Purpose

This measure indicates the cash

generation of the business.

Performance

Review on pages 45-46.

5
2

2019

1.4

Definition
Calculated as the total number of
core Saga products held per customer.
This definition has been revised to
the same basis as our policy numbers
within Retail Broking.

Purpose
This metric indicates how the Group
is tracking against its aim to increase
multiple product holdings within its
customer base, supporting the Group’s
wider objective of improving the
lifetime value of its customers.

Performance
The Group held average products flat
at 1.4.

Definition
Calculated based on customer survey
responses weighted by business
units to be representative of the
Saga Group.

Purpose
This metric is an index that measures
the willingness of customers to
recommend products or services
to others.

Performance
Brand NPS was established in 2018
and was measured at 25. The Group
aims to increase NPS scores across the
business and for Saga as a whole.

Strategic ReportSaga plcAnnual Report and Accounts 2019

Strategic Priorities 2019/20

Strategic Priorities
2019/20

Saga is minded to focus on the
following strategic priorities – ‘our
touchstones’ – as it returns to its
heritage as a direct to consumer
brand, with Membership at its core.

1. Relaunch Retail Broking
with a compelling direct
proposition

2. Complete the
transformation of Cruise

3. Accelerate the
transformation of our
Tour Operations business

We will accelerate the transformation
of our Tour Operations business to a
specialist travel company by focusing
on higher-margin escorted touring and
river cruises.

In short-haul we will focus on selected
high-quality propositions and
solo travel.

Membership is providing a low cost
acquisition channel and is making
a growing contribution to Travel
revenues. Thirty-eight percent of
those who purchase a holiday via
Saga Possibilities are first time
Travel customers.

•

Increase in the Underlying Profit
Before Tax margin.
Increase in NPS score.

Our new strategy in Insurance will take
us back to our heritage by focusing
on selling differentiated products and
services direct to our customers.

The delivery of two new, purpose built
cruise ships in July 2019 and August
2020 will complete the transformation
of our Cruise business.

These ships will increase our total
capacity by 74% – from 1,150 to 1,998
passengers. They will have ‘best in
class’ onboard facilities and state of
the art technology. All cabins will have
a balcony and 20% of cabins will be for
single occupancy.

The first step towards this is the launch
of direct only, three year fixed price
motor and home insurance. This allows
our customers to ‘fix’ their price for
three years (subject to claims and IPT).

We will deliver value to existing
customers via an improved claims
service-based proposition and three
year fixed price insurance; and we
will move towards a flatter renewal
pricing structure.

Growth will be enabled by our
Membership programme, Saga
Possibilities, which creates a different
route to direct sales; and by expanding
our motor and home panels in 2019.

Measuring success over the medium-term

• EBITDA per ship.
•

Increase in the Underlying Profit
Before Tax margin.
Increase in NPS score.

•

Increase in motor and home
insurance sales through
direct channels.
Increase in the percentage
of home new business on the
higher cover level.

• Decrease in operating costs

per policy.
Increase in customer retention.
Increase in NPS score.

•
•

4. Increase usage of and

engagement with our

Membership programme,

Saga Possibilities

5. Complete implementation

6. Develop our people

of key IT platforms

Membership is becoming an

increasingly important part of our

business. It provides an additional

marketing channel and a way to

Our systems are key to our

ability to personalise and target

We will focus on increasing employee

engagement and on building a culture

communications to our customers,

which promotes talent and diversity

improve the experience for members

and fosters high-performance.

engage with our most loyal customers

of Possibilities, our customers

more frequently.

and employees, and achieve

operational efficiencies.

In two trials we have proved that

Membership is key to growing multiple

We will continue to deliver key IT

product holdings. It is also helping to

platforms to support delivery of our

increase retention in Insurance and is

strategy in 2019/20.

making a strong contribution to Travel.

On average, Possibilities members

have longer relationships with Saga

than other customers and hold more

products with us.

Saga Possibilities can become our

main route to our customers and

our focus in 2019 will be on growing

member engagement.

•

Increase in prompted

brand consideration.

• Complete the rollout of Adobe

•

Improvement in the sustained

Marketing Cloud.

engagement score.

•

Increase in the number of regularly

• Fully optimise the ‘MySaga’ digital

•

Implementation of Phase 2 of

engaged Possibilities members.

customer journey.

the leadership development

•

Increase in the number of customers

•

Implement the IT platforms required

programme and targeted

with more than one product holding.

to enable the data strategy and

development programmes for our

analysis ‘data lake’.

high performers.

• Migrate home products on to the

•

Increase in female representation in

Guidewire platform.

our 1-2 year succession pipeline.

• Go-live with Tigerbay in our Tour

Operations business.

Saga plcAnnual Report and Accounts 20191. Relaunch Retail Broking

with a compelling direct

2. Complete the

transformation of Cruise

proposition

3. Accelerate the

transformation of our

Tour Operations business

Our new strategy in Insurance will take

The delivery of two new, purpose built

We will accelerate the transformation

us back to our heritage by focusing

cruise ships in July 2019 and August

of our Tour Operations business to a

on selling differentiated products and

2020 will complete the transformation

specialist travel company by focusing

services direct to our customers.

of our Cruise business.

on higher-margin escorted touring and

river cruises.

The first step towards this is the launch

These ships will increase our total

of direct only, three year fixed price

capacity by 74% – from 1,150 to 1,998

In short-haul we will focus on selected

motor and home insurance. This allows

passengers. They will have ‘best in

high-quality propositions and

our customers to ‘fix’ their price for

class’ onboard facilities and state of

solo travel.

three years (subject to claims and IPT).

the art technology. All cabins will have

a balcony and 20% of cabins will be for

Membership is providing a low cost

We will deliver value to existing

single occupancy.

acquisition channel and is making

a growing contribution to Travel

revenues. Thirty-eight percent of

those who purchase a holiday via

Saga Possibilities are first time

Travel customers.

Measuring success over the medium-term

•

Increase in motor and home

• EBITDA per ship.

•

Increase in the Underlying Profit

•

Increase in the Underlying Profit

Before Tax margin.

•

Increase in NPS score.

Before Tax margin.

•

Increase in NPS score.

customers via an improved claims

service-based proposition and three

year fixed price insurance; and we

will move towards a flatter renewal

pricing structure.

Growth will be enabled by our

Membership programme, Saga

Possibilities, which creates a different

route to direct sales; and by expanding

our motor and home panels in 2019.

insurance sales through

direct channels.

•

Increase in the percentage

of home new business on the

higher cover level.

• Decrease in operating costs

per policy.

•

Increase in customer retention.

Increase in NPS score.

4. Increase usage of and
engagement with our
Membership programme,
Saga Possibilities

Membership is becoming an
increasingly important part of our
business. It provides an additional
marketing channel and a way to
engage with our most loyal customers
more frequently.

In two trials we have proved that
Membership is key to growing multiple
product holdings. It is also helping to
increase retention in Insurance and is
making a strong contribution to Travel.

On average, Possibilities members
have longer relationships with Saga
than other customers and hold more
products with us.

Saga Possibilities can become our
main route to our customers and
our focus in 2019 will be on growing
member engagement.

•

Increase in prompted
brand consideration.
Increase in the number of regularly
engaged Possibilities members.
Increase in the number of customers
with more than one product holding.

5. Complete implementation
of key IT platforms

6. Develop our people

We will focus on increasing employee
engagement and on building a culture
which promotes talent and diversity
and fosters high-performance.

Our systems are key to our
ability to personalise and target
communications to our customers,
improve the experience for members
of Possibilities, our customers
and employees, and achieve
operational efficiencies.

We will continue to deliver key IT
platforms to support delivery of our
strategy in 2019/20.

• Complete the rollout of Adobe

Marketing Cloud.

• Fully optimise the ‘MySaga’ digital

•

customer journey.
Implement the IT platforms required
to enable the data strategy and
analysis ‘data lake’.

• Migrate home products on to the

Guidewire platform.

• Go-live with Tigerbay in our Tour

Operations business.

•

Improvement in the sustained
engagement score.
Implementation of Phase 2 of
the leadership development
programme and targeted
development programmes for our
high performers.
Increase in female representation in
our 1-2 year succession pipeline.

Strategic ReportSaga plcAnnual Report and Accounts 2019Our strategy in action

Over 1 million
members and growing…
Launched in September
2017, Possibilities
is the Membership
programme for Saga.

It offers its members access to exclusive experiences,
unique events, and curated offers.
When asked, 84% of customers choose to join the
programme. The success in activating customers has led
to a membership base of over 1.1m Possibilities members.
More than 90% of members have provided marketing
consent in line with GDPR requirements.

Having gained marketing permissions, members’
engagement with Possibilities emails is the highest
across the Group. Unique open rates exceed 37% and the
unsubscribe rate is 0.25%.

Since launch, there have been over 430,000 entries for over
300 events, including ticket offers and ballots to unique
live music events, experiences, activities, arts and culture.
Through member insight and feedback, we have added a
number of features to the programme, namely Dining, Travel
and Entertainment Possibilities.

Saga plcAnnual Report and Accounts 2019Dining Possibilities
A portfolio of restaurant brands providing discounts and
added value offers. Since launch in October 2018, over
70,000 vouchers have been downloaded by members
across 1,100 restaurants.

Travel Possibilities
Offers across Saga’s Travel and Cruise portfolio are
having a positive and growing contribution to Travel
revenues. To date, Travel Possibilities has delivered over
1,600 passengers, of whom more than a third are first
time bookers.

Entertainment Possibilities
Newly launched to provide exclusive member ticket offers
combined with a ‘price promise’, plus added extras at
theatres nationwide. Entertainment Possibilities will also
feature additional opportunities such as back stage tours
and ‘meet the cast’.

Possibilities members can enjoy:
• discounts and special treats at more than 1,000
restaurants nationwide, such as Café Rouge,
Beefeater, Côte Brasserie and Bella Italia

• exclusive deals on theatre tickets for a range of
shows including War Horse and Les Miserables,
with a price promise guarantee

• the chance to win free balloted tickets

to bespoke events and ‘money can’t buy’
experiences, such as Lulu and The Gruffalo
• great savings on a range of Saga Insurance

products, holidays and cruises

• other fantastic offers from partners such as

Hello Fresh and Bloom & Wild.

The future of Possibilities
Our programme of events and experiences will be
expanded, with more exclusive events focused on
members’ passions.

In addition to building more experiences for
members, additional focus will be placed on
delivering greater value through the expansion
of Dining Possibilities, offering more brands in
more locations, broadening the Travel Possibilities
programme to offer more destinations, and, having
reviewed the performance of Entertainment
Possibilities, adding more shows and experiences.

Having established both the offers and experiences
component of Possibilities, the forthcoming year
will see the launch of member Communities.
This will be a forum on which members can share
their experiences and knowledge and access
unique and relevant content aligned to the pursuit
of their passions.

Strategic ReportSaga plcAnnual Report and Accounts 2019Our strategy in action
continued

A fundamental shift in
our Insurance model

We are relaunching our strategy in Retail Broking to focus
on selling compelling, differentiated products direct to
our customers. To grow the number of customers and
profitability of our Retail Broking business, we need to give
our customers more reasons to come direct to Saga and to
remain with us.

Each element of the strategy is designed to foster growth in
direct channels:

• Developing new, innovative and truly compelling

•

insurance propositions, that are available exclusively
through our direct channels, and which deliver the highest
and most relevant levels of cover available in the market.
Invest in delivering an emotive and appealing new
marketing campaign through media channels
that enables us to effectively reach our target
customer segments.

• Leading the way by being the first UK insurer to truly
reward loyalty, with a unique three year fixed price
embedded into our direct insurance propositions.

These three elements, combined with the benefits that Saga
Insurance customers will enjoy through Possibilities, will
ensure that not only are we providing choice and excellent
levels of cover, but a customer proposition that is more
about value than just price.

The first major step in our direct distribution strategy is the
relaunch of our motor and home insurance products.

We are introducing new levels of cover to both our motor and
home insurance propositions, which will only be available
direct from Saga.

These new cover levels will include not only exclusive,
differentiated cover features, unique in the UK insurance
market, but also a unique three year fixed price.

We know that the uncertainty of future insurance premiums
is a key concern for our customers, so we have developed
our three year fixed price, to give customers the opportunity
to ‘fix’ their price for three years.

“ The price guarantee was
a deciding factor.”

“ You are finally respecting
loyalty, rather than favouring
new customers.”

3-Year
Fixed
price

Saga plcAnnual Report and Accounts 2019In practice for our customers, this means that for
three years, if nothing changes*, neither will their
insurance premium.

We think that our fixed price feature will enable us to stand
out from the crowd in a heavily commoditised market, as
we focus on rewarding, rather than penalising, the loyalty
of insurance customers.

“ It’s great to be able to lock
in my next two years
insurance premiums.”

Our three year fixed price is the result of a new programme
focused on innovation, and we will be the first UK insurer
to offer fixed price in the UK motor insurance market.

“ This is UNIQUE!”

Our initial customer research has shown us that our
customers love our three year fixed price.

During customer trials, over two thirds of people offered
a fixed price policy chose it over our standard motor and
home insurance pricing plans.

* not making a claim, receiving a conviction or changes in the rate of insurance premium tax

Strategic ReportSaga plcAnnual Report and Accounts 2019Our strategy in action
continued

Launching a new era in
boutique, British cruising

Update on sales targets:
The bookings for both
Spirit of Discovery and Spirit of
Adventure continue to support the
Group’s ambitious plans:

• Spirit of Discovery has

achieved 78%
of our sales target for
2019/20 departures1.
• Spirit of Adventure has

achieved 25%
of our sales target for
2020/21 departures1.

July 2019 will herald a new era in
British cruising as we launch our luxury
boutique ship, Spirit of Discovery.
Just 14 months later, her sister ship,
Spirit of Adventure, will be launched in
August 2020.

Our new ships will feature the design,
cuisine and levels of service you
expect from the world’s finest boutique
hotels. But these ‘hotels’ are able
to take Saga guests to an array of
destinations around the world.

Both ships will have a bold and
adventurous style that’s a
testament to high-quality design
and a representation of the best
of British innovation and flair.

They will complete the transformation
of our award winning Cruise
business for both current and future
Saga customers.

WINNER
BEST VALUE-FOR-MONEY
CRUISE LINE

WINNER
BEST FOR SOLO TRAVELLERS
(OCEAN OR RIVER)

Note:
1 Spirit of Discovery and Spirit of Adventure are
planned to launch in July 2019 and August
2020, respectively. Sales targets cover the
period from launch to the end of the financial
year (31 January) and are consistent with
those previously disclosed. Illustrations and
descriptions are artists’ impressions of how
we imagine the ship will look on completion.
Plans and décor are subject to change

Spirit of Discovery

March 2019

May 2019

Exterior and Interior

Crew

May 2019

Conveyancing

June 2019

Sea trials

20 June 2019

Final delivery

Work started to finish the
fixtures and fittings on
Spirit of Discovery

The crew come aboard
the new ship

Spirit of Discovery cruises
along the River Ems during
a fireworks display

The ship takes to the seas
for operational and speed
tests

Meyer Werft sign the ship
over to Saga

Saga plcAnnual Report and Accounts 2019The Amalfi
restaurant, one of
the three speciality
venues aboard
Spirit of Adventure

Every cabin
comes
with a balcony
as standard

The Coast to Coast
restaurant, one of
the three speciality
venues aboard
Spirit of Discovery

Music legend
Jools Holland
is the patron
of The Club
aboard Spirit
of Discovery

Spirit of Discovery

Spirit of Adventure

5 July 2019

10 July 2019

27 March 2019

Naming ceremony

Maiden cruise

Steel cutting

June 2019

Keel laying

August 2020

Maiden cruise

The 13 night
inaugural cruise
departs from Dover

A ceremony signalling the
start of production on Spirit
of Adventure

Including ‘lucky’ coins
placed into the hull

The 17 night inaugural cruise
departs from Dover

Strategic ReportSaga plcAnnual Report and Accounts 2019Non-financial information statement

The Company aims to comply with the new Non-Financial Reporting Directive requirements. The table below sets out where
relevant information can be found within this annual report and summarises how the impact of processes and policies
are tracked.

Reporting
requirement
1.

Environmental
matters

Policies
• Environmental and
sustainability policy

2. Employees

• Voluntarily report our energy
performance figures to the
Carbon Disclosure Project,
see page 31

• Data protection policies
• Diversity and dignity policy
• Employee handbook
• Health and safety policies
• Personal standards and

ethics policy

• Transgender policy
• Whistleblowing and open-

door policy

3. Human rights

• Data protection policies
• Data retention and
inventory policy

• Modern slavery statement

Monitored through
• Annual Board review
• Risk committees throughout

the Group

• Audit Committee – regular

whistleblowing reports
• Audit Committee chair is

whistleblowing champion and
provides an annual report to
the Board

• Data Governance Forum
(chaired by the Head of
Data Operations)
• Employee surveys
• Health & Safety Committee
(chaired by the Chief Risk
and Compliance Officer,
a member of the Group
Executive Committee)

• People Committee
• Data Governance Forum
• Modern slavery policy and
statement reviewed and
approved by the Board

and policy

• Risk Committees throughout

the Group

4. Social matters

• Charitable donations policy
• Corporate social

responsibility policy

• Corporate Social

Responsibility Committee
• Customer outcomes forums

• Seeking and representing
views of our customers

throughout the Group
• Saga Charitable Trust

Relevant information
• Carbon/Greenhouse Gas
emissions, pages 31-33
• Waste reduction, page 31
• We anticipate that the launch
of our new ships will see a
significant reduction in our
emissions, see page 31

• Business model, pages 12-13
• Chairman’s statement,

pages 4-5

• Developing our people,

pages 15 and 28

• Diversity and dignity policy,
pages 28, 69 and 98-107

• Employee engagement, page 28
• Gender diversity, pages 28-29
Investing in our employees,
•
page 28

• People and culture, page 28

• Human rights (including

approach taken to modern
slavery), page 29

• Charity partnership with
The Silver Line, page 30

• Community and social, page 30
• Customers and members
representation, page 30

• Saga Charitable Trust, page 30
• Saga Populus Panel, page 30
• Vulnerable customers, page 10
• Volunteering, fundraising,

matched giving and grants,
page 30

Saga plcAnnual Report and Accounts 2019Monitored through
• Financial Crime, Information

Security and Data Protection
Committee (chaired by the
Group Chief Financial Officer)

• Regular reports to the Audit
Committee and Supplier
Risk Committee (chaired
by the Chief Risk and
Compliance Officer)

Relevant information
• Anti-bribery and anti-
corruption, page 29

• Audit Committee Report,

pages 75-78

• Supplier partnerships, page 12

Reporting
requirement
5.

Anti-corruption
and anti-bribery

Policies
• Anti-bribery and anti-

corruption policy

• Anti-facilitation of tax

evasion policy
• Anti-fraud policy
• Anti-money laundering and
terrorist financing policy

• Anti-sanctions policy
• Competition policy
• Conflict of interest policies
(employees and Directors)
• Contracts governance policy
• Legal risk framework policy
• Personal standards and

ethics policy

• Supplier risk management
• Tax strategy
• Treasury policy

6. Business model

• Business model, pages 12-13

Principal risks
and impact of
business activity

• Group risk policy
• Subsidiary risk policies

• Business Continuity

• Business interruption risk,

Committee (chaired by Chief
Risk and Compliance Officer)

pages 36-37

• External regulatory landscape

• Risk Committee
• Subsidiary board audit and

or political change risk,
pages 36-37

risk committees

• Macro-economic climate risk,

Non-financial
KPIs

pages 36-37

• Operation efficiency/change/
innovation risk, pages 36-37
• Principal risks and uncertainties,

pages 34-37

• Risk Committee Report,

pages 79-81

• Carbon/Greenhouse Gas
emissions, pages 31-33

• Customer satisfaction, page 17
• Employee engagement, page 28
• Supplier partnerships, page 12
• Vulnerable customers, page 10
• Volunteering and fundraising,

page 30

Strategic ReportSaga plcAnnual Report and Accounts 2019Corporate responsibility

Saga’s approach to responsible business practices
is governed by our Board. Group Executive members
are accountable for delivering our main workstreams.
They ensure the delivery of long-term sustainability for
our customers, our people and other stakeholders, including
our shareholders whilst considering the impact we have
on our community, society and the environment.

People and culture
Our People Strategy has evolved this year in response
to business challenges. There is an enhanced focus on
driving for performance and building leadership capability
throughout the business.

Investing in our employee capabilities
Twice-yearly talent reviews ensure we have the right
people in the right roles across the business. We have given
particular focus to our Leadership Team roles this year,
ensuring clear development and succession plans are in
place. This work has enabled multiple talent moves and
promotions. Our leadership development programme has
been a key enabler of leadership capability. Q2 of 2018 saw
us launch the Future Leaders Programme to 300 first line
managers, through our own learning and development team.

We have continued to support the development of
our people by accessing learning available via the
Apprenticeship Levy. Over 100 employees are currently
working through formal qualification programmes across a
range of disciplines including: Leadership and Management,
Team Leading, Digital Marketing, HR, Finance, Project
Management and IT. Our learning and development team
continues to offer a range of skills-based courses to
employees through our Learning Hub.

The impact of the development programmes is monitored
and assessed through employee’s objectives and the
performance development review process.

Building employee engagement
We continue to focus on employee engagement. We have
worked hard to communicate openly and well with our

employees as we recognise effective communication
is a key part of building stronger levels of employee
engagement. We share business news, successes and
updates with employees every week and provide monthly
updates on key priorities. In 2018, a full programme of
roadshows was carried out by the Group Chief Executive
Officer to share the revised business strategy and build
confidence in the future success of Saga. A series of
roadshows along with listening groups were hosted by
the Group Executive.

Work was carried out to set up a People Committee to cover
all areas of the business with the aim of gathering the views
and opinions of Saga’s workforce and providing feedback
to the Board. The first meeting took place in January 2019.
Our overall employee engagement scores fell to 70% in
2018/19 (2017/18: 77%). Whilst a significant improvement
was seen in leadership roles, overall engagement reflected
the impact of the organisational changes that were made
in December 2017. The key actions taken in 2018 centred
on enablement, specifically of IT systems, software and
resource. A heavy investment was made in our IT systems,
including an insurance database, SID, 1Insurer in our claims
handling business, (CHMC), and a new travel platform.

We demanded a lot from our employees’ performance in
2018, and in recognition of their contribution to the business,
we awarded Free Shares up to the value of £300 to all
eligible employees for the fourth year in a row.

We have continued to embed our reward principles and
have kept our pay and benefits competitive and fair while
managing costs. We consulted on changes to our pension
schemes and proposed changes that were more sustainable
for the organisation in the long-term. We have kept our
defined benefit scheme open to new colleagues and
encourage our employees to keep saving.

Gender diversity
We continue to support the Government’s commitment
to address the gender pay gap through annual reporting.

Gender diversity January 2019

Board1
Senior managers2
Employees3
All

Notes:
1 Directors of the Company including executive and non-executive
2 All divisional directors, and employees with strategic input and influence
3 All Saga employees (excluding Directors and senior managers)

Male

Female

Actual
5
107
1,700
1,812

%
62
64
43
44

Actual
3
60
2,245
2,308

%
38
36
57
56

Total
8
167
3,945
4,120

Saga plcAnnual Report and Accounts 2019Health 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.
This includes:

risk assessments and control measures

•
• systems for reporting all accidents, incidents and

near misses

• training programmes
• adequate resources
• employee consultation forums, including health and

safety committees

• adequate supervision and planning processes in respect

of maintenance works and contractor activities

• audit programmes to measure our performance and
compliance with our policies, procedures and training
• support services to protect our employees’ physical and

mental health.

This policy applies to all business operations within the
Saga Group. 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.

We are a proud member of the 30% Club because we see
gender diversity as a business imperative.

Diversity and an employee base that brings different
perspectives, backgrounds and ways of thinking is very
important to our business. Fair consideration is given to all
applications, including from those with disabilities. We make
all reasonable efforts to be able to continue to employ those
who become disabled during employment.

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.

The Group is committed to transparency within our supply
chain. We have carried out risk assessments and conducted
due diligence on our material suppliers. Full details are
included in our annual statement which is published
as stipulated under the UK Modern Slavery Act 2015.
This statement summarises our actions to address the risk
of modern slavery and human trafficking within our own
operations and those of our suppliers.

Anti-bribery and anti-corruption
Saga has a zero tolerance approach to bribery and
corruption. An anti-bribery and anti-corruption policy is
in operation throughout the Group to ensure compliance
with the Bribery Act 2010. We undertake regular risk
assessments of our activities and destination markets,
and design suitable procedures to mitigate the risk of
bribery and corruption. These include undertaking due
diligence before entering into new business acquisitions,
material supplier contracts and joint ventures. Saga’s
Financial Crime, Data and Information Security Committee
monitors the effectiveness of our policy and procedures,
and oversight is provided by the Audit Committee as set
out in the Committee report on page 77.

Strategic ReportSaga plcAnnual Report and Accounts 2019Corporate responsibility
continued

Community and social
We are proud of our commitment to the communities in
which we operate. During 2018/19, we strengthened our
community support by introducing a local funding grant
scheme. This allows UK registered charities, Community
Amateur Sports Clubs (CASCs) and Charitable Incorporated
Organisations (CIOs) within a 20-mile radius of Saga’s
offices to apply for funding.

We have introduced an employer-supported volunteer
scheme by giving each Saga Group employee a day a year
out of the office to volunteer. In 2018/19 our employees
volunteered over 500 hours of community service to
support local charities. The aim is to make a real difference
to our communities by offering our employees both physical
and skills-focused volunteer opportunities.

In 2016, we announced a three year partnership with The
Silver Line, the UK’s only 24-hour helpline for isolated older
people. Through the support of customers, employees
and the business, Saga gave almost £330k worth of
support to The Silver Line in the 2018/19 year. A number of
fundraising activities are planned for the final year, including
a charity auction onboard one of the Spirit of Discovery
shakedown cruises.

Titan Travel, Destinology and Bennetts form part of the
Group. They continue to support charities which resonate
with their brands or with which their employees have a
strong connection. This year, Titan continued to support the
Golden Lions Children’s Trust, Destinology raised funds for
the Bolton Hospice, Vine House and Urban Outreach, Bolton
and Bennetts supported Sue Ryder, Thorpe Hall Hospice and
Myton Hospice.

Our customers and employees undertook various
fundraising activities during the year. Silver Fortnight, which
took place during May 2018 in aid of The Silver Line, included
challenge events, office-based fundraising and an on-line
auction. The first £15k raised was matched by Saga.

Match funding of employee fundraising has proved very
popular and is extended to employee payroll giving when
in aid of The Silver Line. Our workplace lottery gathered
momentum during the year and generated a donation of
£10.5k for The Silver Line.

In September 2018 we held our first Charity Awards Event to
acknowledge and celebrate the contribution our employees
make to charitable giving. Employees were able to nominate
themselves or a colleague in ‘Fundraiser of the Year’ and
‘Volunteer of the Year’ categories.

Saga was pleased to take part in the Comic Relief and
Children in Need appeal nights by volunteering the use of its
contact centres. Saga employees volunteered their time to
process telephone donations made during the appeal nights.

In 2018, we received Silver status for our support of the
armed forces. As a signatory to the Corporate Covenant,
we have policies that support employees who are members
of the reserve forces or whose spouses serve in our armed
forces. Saga made donations to The Gurkha Welfare Trust,
SSAFA, The Royal British Legion and The Royal Navy and
Royal Marines Charity.

We continue to cover the UK overheads of the Saga
Charitable Trust, registered charity number: 291991.
The Trust provides grants to charities working in developing
countries visited by our holidaymakers. Eleven grants
totalling over £200k were awarded by the Trust.
Projects included an outreach healthcare programme in
Cambodia, training to deliver parent workshops in South
Africa, equipment to furnish an IT laboratory in Zimbabwe
and the running costs of a leprosy referral centre in India.
The Saga Charitable Trust also acts as a conduit for funds
raised for our national charity partner, The Silver Line, and
our local funding grants.

We made considerable efforts during 2018 to understand
how our responsible business activities can be improved
in the future. As members of Business in the Community,
we participated in the pilot of their Responsible Business
tracker and look forward to building on the results in 2019.

Social matters
We have represented the views of our customers and
members on a wide range of issues that affect the nation’s
over 50s including stamp duty exemptions for downsizing,
pensions freedoms employment, age discrimination in the
workplace and an increase in the number of solo travellers.
Saga is strictly non-political, but we do survey the opinions
of our members through the Saga Populus Panel – the
largest poll of over 50s opinion. This poll has been running for
more than 10 years, giving us enhanced unique insight into a
wide range of views that are important to our members and
the wider demographic.

Saga plcAnnual Report and Accounts 2019Environmental
Emissions
We voluntarily report our energy performance figures to
the Carbon Disclosure Project (CDP) and this year have
maintained a B grade despite more stringent criteria
applied by CDP. Continuous improvement in our energy
management has been achieved through an ongoing
programme to optimise the performance of our office
buildings and the behaviours of our staff.

Our biggest contributor to emissions is our shipping fleet.
We anticipate a significant reduction in emissions following
the launch of Spirit of Discovery in 2019 and Spirit of
Adventure in 2020. Within our offices we continue to be
committed to procuring green electricity and to ensuring
that our suppliers are REGO backed to confirm the origins
of the renewables in the mix of electricity provided. We have
continued to use electrified maintenance vehicles as an
important part of our maintenance fleet.

Our Group-wide Greenhouse gas emissions report is on
pages 32-33.

Waste management
We are proud that in Kent, where most of our staff are
based, we have, for many years, partnered with waste
management companies who recycle most of our waste.
A proportion of our waste is incinerated and the energy
from that is recovered and put back into the energy
grid. In 2018/19 the Group recycled 88% and incinerated
12% of all office waste. No office waste in Kent goes to
landfill and we continue to look at ways to improve our
waste management.

On our vessels we have reduced single use plastic by
bottling our own water in glass bottles and eliminating all
plastic straws. We are also challenging the main suppliers
to our ships to eradicate single use packaging.

Estate management
Saga owns approximately 42 acres of land. We actively
manage these estates and continue to replace and plant
new or replacement trees to maintain a diverse range of
flora and fauna around our offices.

In addition, we encourage wildlife through log falls, owl and
other species bird boxes and timber-totem hulks which
provide perfect nesting habitat for bats. We also engage
with the local parish council at Sandgate and other local
societies to promote use of our site for events in support
of local community activities. Work has started on a
community garden project engaging local volunteers.

Strategic ReportSaga plcAnnual Report and Accounts 2019Corporate responsibility
continued

Greenhouse gas emissions
This section of the annual report has been prepared in
accordance with our regulatory obligation as a listed
company to report greenhouse gas (GHG) emissions
pursuant to section 7 of The Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013.

Our total GHG emissions have increased by 1% during
the 2018/19 financial year compared to the year before.
Saga PLC has emitted a total of 101,307 tCO2e from fuel
combustion (Scope 1 direct) and electricity purchased
for our own use (Scope 2 indirect). This is equivalent to
83.7tCO2e per £m customer spend.

The overall increase in emissions is largely due to an
increase in marine fuel, natural gas, and refrigerant gas
consumption. This has been offset however, by the
third consecutive yearly decrease in our emissions from
electricity consumption.

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
customer spend
Scope 2 (market-based)*
Scope 3

2018/19
Emissions
98,047 tCO2e
3,260 tCO2e
101,307 tCO2e

2017/18
Emissions**
95,013 tCO2e
4,053 tCO2e
99,067 tCO2e

83.7
260 tCO2
1,825 tCO2

82.0
221 tCO2
2,758 tCO2

* Emissions from the consumption of electricity outside the UK and

emissions from purchased electricity calculated using the market-based
approach using supplier-specific emission factors are reported in tCO2
rather than tCO2e due to the availability of emission factors

**2017/18 emissions have now been verified to ISO 14604-3 standard by

our sustainability partner Carbon Credentials. They have been restated
here based on the verification findings thanks to improvements in
calculation methodology

The table below shows our GHG emissions for the year
ended 31 January 2019.

Figure 1: Total location-based emissions (2018/19)

Scope 1

Scope 2 (location-based)

Scope 3

95%

Saga plcAnnual Report and Accounts 2019Methodology
We quantify and report our organisational GHG emissions in
alignment with the GHG Protocol, which includes alignment
with the Scope 2 Guidance (reporting Scope 2 purchased
electricity using both the location-based and the market-
based methodology).

The 2018 UK Government GHG Conversion Factors for
Company Reporting have been applied to calculate Scope
1, Scope 2 (location-based) and Scope 3 emissions from
corresponding activity data. Supplier-specific emissions
factors have been applied for the calculation of Scope
2 market-based emissions.

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.

The GHG sources that constitute our operational boundary
for the 2018/19 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 and from taxis,
transmission and distribution losses associated with
electricity consumption.

Saga is now in its third year of disclosing diesel used in non-
road machinery and its second year of disclosing business
travel in taxis and transmission and distribution losses
associated with electricity consumption. As in previous
years, Scope 3 business travel emissions from rail and air
have been identified, but not included in our disclosure due
to a lack of accurate data. Emissions from energy paid for
in service charges have been excluded due to lack of data
and immateriality.

Assumptions and estimations
In some instances, where data is missing, values have been
estimated using either an extrapolation of available data
from the reporting period or data from 2017/18 as a proxy.

Energy procurement decisions
The graph below shows Saga’s Scope 2 emissions from
purchased electricity, which have been calculated
using both the location-based and the market-
based methodologies.

Figure 1: Scope 2 electricity emissions by reporting type

e
₂
O
C
t
3
5
0
4

e
₂
O
C
t
0
6
2
3

6000

4000

2000

e
₂
O
C
t

1
2
2

e
₂
O
C
t
0
6
2

Scope 2
(location-based)

Scope 2
(market-based)*

2017/18 Emissions

2018/19 Emissions

Saga purchases 92% of its electricity from a 100%
renewable supply from Haven Power. As in previous years,
the dual reporting of our emissions in this way demonstrates
that we are making efforts to reduce our climate impact
through the purchase of electricity generated from
cleaner sources.

CDP
Saga made the decision in 2015 to respond to The CDP
Climate Change Questionnaire to better understand
and manage its climate-related impacts, risks, and
opportunities. Since 2016, Saga’s response has consistently
scored a ‘B’, despite the increasingly stringent and
challenging nature of the questionnaire.

Strategic ReportSaga plcAnnual Report and Accounts 2019

Our principal risks and uncertainties

Risk governance
The Board has agreed systems and processes to govern
our approach to risk management These systems
encompass ensuring that 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 that a suitable risk culture is embedded
throughout Saga. Our approach and these processes are
set out in more detail in the Accountability section of the
Corporate Governance Statement on pages 70-74.

Risk appetite and tolerances
Our risk appetite, reviewed annually, defines the amount
and sources of risk we are willing to accept in aggregate 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 a low appetite for volatile earnings and have
established limits representing the maximum amount of
acceptable variation in earnings during our planning cycle.

Conduct
We recognise that our continued success depends on the
maintenance of our brand, and our reputation for quality
service. We strive to eliminate any systemic unfair customer
outcomes as a result of failures in the product, marketing,
sales and service delivery systems and processes.

Customer growth
Our goal is to know as many of our target customers as
possible. We therefore have a low appetite for actions or
events which lead to restricted growth or reduction in the
number of our target customer contacts.

We 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 the need
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.

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 that
we feel we have the expertise to underwrite and manage
and will accept non-life insurance risks in which we have
relevant expertise.

We enter into certain reinsurance arrangements to reduce
our exposure to large losses and any potential deterioration
in claims development.

Commercial performance risk
We operate in a dynamic business environment and
accept that we are exposed to a number of commercial
performance risks. We seek to grow our business in areas
which present sustainable growth opportunities and in which
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. We consider opportunities that arise in areas
in which we have expertise and establish suitable risk
tolerances in each case.

Saga plcAnnual Report and Accounts 2019Operational risk
We actively seek some logistical risks in areas in which
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. We only engage in regulated
activities if we have the expertise to manage them
effectively. We define our risk appetite for certain specific
areas of operational risk as follows:

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 our
employees, customers, and others who may be affected by
our activities.

Information security and cyber threat
We recognise the need to utilise technology to achieve
our business objectives. We are, however, focused on
maintaining a robust and secure IT environment. We place
particular importance on avoiding loss of customer,
employee and other business confidential data, and
interruption of customer service. We have zero appetite
and very low tolerance for risks that could breach our
security measures and threaten the security of our
systems and data.

Legal and regulatory risk
We recognise that regulatory and legislative compliance is
essential and we have no appetite for material or systemic
breaches of regulatory or legislative requirements.

Separate risk appetite statements and risk tolerance
thresholds have been created for each business in Saga,
customised to their 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.

Pages 34-37 indicate the principal risks facing the Company,
including those that would threaten its business model,
future performance, solvency or liquidity, and also include
the actions taken to manage these risks. The principal risks
reflect the revised strategy of the Company and continue
to be dominated by external risks from the regulatory and
political landscape and internal risks in the delivery of our
strategic priorities.

Strategic ReportSaga plcAnnual Report and Accounts 2019Our principal risks and uncertainties
continued

PRU Category

Strategic Priorities
Linkage

Risk Description

Mitigations

Future

Outlook

Cybercrime

Operational efficiency/
change/innovation

Insurance landscape

Macro-economic climate

Business interruption

Travel landscape

Cybercrime attacks cause breach or loss of
sensitive data assets and prevent achievement
of objectives.

The volume and complexity of business changes
and priorities across the Group are not managed
effectively or are not delivered due to insufficient
resource or performance by third party partners.

Inability to compete effectively with insurance
competitors due to higher than expected net
rates from the panel or lack of differentiated and
compelling insurance propositions.

The outcome of Brexit and its effect on the
economic and political environment impacts on
businesses across the Group.

Reputational damage arising from ineffective
handling of interruption incidents, particularly in the
Travel division.

Inability to drive demand to deliver the growth of
core customers and first-time buyers.

External regulatory landscape
or political change

The landscape of legislation faced by the Group
and within the various industries within which it
operates is extensive, which increases the risk of
non-compliance with laws and changes to laws.

Continued investment in industry leading tools and technologies to prevent

cyber-attacks, benchmarking and external penetration tests.

Oversight and prioritisation provided by the Group Change Management

Function; external and internal independent assurance reviews of key projects;

Board and Group Executive review and oversight of key project metrics including

quality and delivery measures.

Quota share arrangement; claims spend closely monitored; anti-fraud detection

controls to get better net rates from the panel; ‘rapid result’ trials and product

innovation focused on customers’ needs.

Brexit risks are monitored across the Group; action taken to minimise potential

disruption to Tour Operations and Cruise businesses.

Full and regularly tested emergency plans in place for all Tour Operations

businesses; full resilience review and plans in place for the ships; New ship in 2019.

Continued focus on trading and marketing efficiency and customer propositions;

Possibilities paid for Membership launched; cross-sell opportunities from

Possibilities Membership scheme; new Insurance proposition and products; new

cruise ships to increase first-time buyers.

Legal team in place with industry experience; review of key legal risks by 2nd and

3rd line of defence functions; external lawyers used.

The cost of customer acquisition is higher than
budgeted due to a decrease in direct marketing
permissions as a result of GDPR.

Possibilities Membership scheme; above the line advertising and investment

for 2019.

Changes in regulation could impact on the
profitability of our products.

Continued investment in pricing strategy; product governance reviews of

products for value for money; new insurance products and propositions.

Saga plcAnnual Report and Accounts 2019

Linkage

Cybercrime

Operational efficiency/

change/innovation

Insurance landscape

Cybercrime attacks cause breach or loss of

sensitive data assets and prevent achievement

of objectives.

The volume and complexity of business changes

and priorities across the Group are not managed

effectively or are not delivered due to insufficient

resource or performance by third party partners.

Inability to compete effectively with insurance

competitors due to higher than expected net

rates from the panel or lack of differentiated and

compelling insurance propositions.

The outcome of Brexit and its effect on the

economic and political environment impacts on

businesses across the Group.

Reputational damage arising from ineffective

handling of interruption incidents, particularly in the

Travel division.

PRU Category

Strategic Priorities

Risk Description

Mitigations

Future
Outlook

Key

Continued investment in industry leading tools and technologies to prevent
cyber-attacks, benchmarking and external penetration tests.

Oversight and prioritisation provided by the Group Change Management
Function; external and internal independent assurance reviews of key projects;
Board and Group Executive review and oversight of key project metrics including
quality and delivery measures.

Quota share arrangement; claims spend closely monitored; anti-fraud detection
controls to get better net rates from the panel; ‘rapid result’ trials and product
innovation focused on customers’ needs.

Macro-economic climate

Brexit risks are monitored across the Group; action taken to minimise potential
disruption to Tour Operations and Cruise businesses.

Business interruption

Travel landscape

Inability to drive demand to deliver the growth of

core customers and first-time buyers.

External regulatory landscape

or political change

The landscape of legislation faced by the Group

and within the various industries within which it

operates is extensive, which increases the risk of

non-compliance with laws and changes to laws.

Full and regularly tested emergency plans in place for all Tour Operations
businesses; full resilience review and plans in place for the ships; New ship in 2019.

Continued focus on trading and marketing efficiency and customer propositions;
Possibilities paid for Membership launched; cross-sell opportunities from
Possibilities Membership scheme; new Insurance proposition and products; new
cruise ships to increase first-time buyers.

Legal team in place with industry experience; review of key legal risks by 2nd and
3rd line of defence functions; external lawyers used.

The cost of customer acquisition is higher than

budgeted due to a decrease in direct marketing

permissions as a result of GDPR.

Possibilities Membership scheme; above the line advertising and investment
for 2019.

Changes in regulation could impact on the

profitability of our products.

Continued investment in pricing strategy; product governance reviews of
products for value for money; new insurance products and propositions.

1 Relaunch Retail
Broking with a
compelling direct
proposition

2 Complete the
transformation
of Cruise

3 Accelerate the
transformation
of our Tour
Operations
business

4 Increase

usage of and
engagement with
our Membership
programme,
Saga Possibilities

5 Complete

implementation of
key IT platforms

6 Develop our people

Strategic ReportSaga plcAnnual Report and Accounts 2019

Operating and Financial Review

The Group has reported Underlying Profit Before Tax of £180.3m, a decrease of 5.4% in comparison to the prior year.
While this is in line with previously issued guidance, and Underlying Profit Before Tax of the Travel division is in line with
expectations, Insurance results have been mixed. Specifically, Underwriting has benefited from an exceptionally high level
of reserve releases but this has been offset by reduced profitability from the Retail Broking business.

Given the long-term trends faced by the business, and the more recent challenges in Retail Broking, the Board and the
management team have undertaken a thorough review of the outlook and strategy for the Group. This review has led to two
main conclusions:

• The Group needs to refocus its strategy, returning to Saga’s heritage as a direct to consumer brand with Membership

at its core.

• Due to the ongoing pressures on broking margins; and anticipated reductions in renewal pricing, the future profitability

of Retail Broking, and the Group as a whole, will in the near-term be significantly lower than previously projected.

The reduction in earnings expectations for Retail Broking has led to a re-assessment of the carrying value of the goodwill
relating to the Group’s Insurance operations, resulting in a non-cash impairment charge of £310m, and leading to an overall
loss before tax of £134.6m, and a loss after tax of £162m.

The Group reassessed the level of the dividend and future dividend policy, considering projected debt levels over the next
five years. While Saga continues to benefit from a highly cash generative business model, and a secure and long-term capital
structure, action is being taken now to retain the Group’s financial strength and flexibility. This has led the Board of Directors
to propose a reduction in the final dividend per share from 6.0p to 1.0p, which reduces the full year dividend per share from
9.0p to 4.0p. The Group is now targeting a payout ratio of around 50% of earnings over the next few years.

While these are difficult steps, the Group starts the 2019/20 year with a clear direction and is investing to support its
new strategy.

Operating Performance
Group Income Statement

£m
Revenue2
Underlying Profit Before Tax3

Total Retail Broking (earned)
Underwriting
Total Insurance
Travel
Emerging Businesses
Central Costs
Net finance costs4

Net fair value gains/(losses) on derivatives
Debt issue costs
Restructuring costs
Impairment of cruise ships
Impairment of goodwill
(Loss)/profit before tax from continuing operations
Tax expense
Loss after tax for the year from discontinued operations
(Loss)/profit after tax
Basic earnings per share:
Underlying earnings per share from continuing operations3
Earnings per share from continuing operations
Earnings per share

12m to
Jan 2019
841.5

105.8
86.7
192.5
21.1
3.1
(18.5)
(11.7)
180.3
1.0
–
–
(5.9)
(310.0)
(134.6)
(27.4)
–
(162.0)

13.1p
(14.5p)
(14.5p)

Growth
(2.2%)

(19.1%)
9.3%
(8.3%)
2.4%
287.5%
21.5%
6.4%
(5.4%)

(174.4%)
19.2%

(216.2%)

(5.1%)
(210.7%)
(216.4%)

12m to
Jan 2018
(restated)1
860.2

130.7
79.3
210.0
20.6
0.8
(26.7)
(12.5)
190.6
(0.6)
(4.3)
(4.8)
–
–
180.9
(33.9)
(7.6)
139.4

13.8p
13.1p
12.5p

Notes:
1 The Group has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments and is reporting its performance for the 12 months
to 31 January 2019 against a restated comparative period for the 12 months to 31 January 2018 under these new standards. For further details, see note 37 on
pages 189-191

2 Revenue is stated net of ceded reinsurance premiums earned on business underwritten by the Group of £136.0m (2018: £139.9m)
3 Alternative Performance Measure – refer to the Glossary on page 199 for definition and explanation
4 Net finance costs exclude net fair value gains/(losses) on derivatives and IAS19R pension interest costs

Saga plcAnnual Report and Accounts 2019The Group’s business model is based on providing high-quality and differentiated products to its target demographic,
predominantly focused on Insurance and Travel.

The Insurance business operates mainly as a broker, sourcing underwriting capacity from selected third party insurance
companies, and, for motor and home, also from the Group’s in-house underwriter. Travel is comprised of Tour Operating and
Cruising. The Cruise business is undergoing a significant transformation, with the replacement of its two existing ships over
the next 18 months. Emerging Businesses are at an earlier stage of development, and principally comprise Personal Finance
and domiciliary Healthcare.

Revenue
Revenue decreased by 2.2% to £842m (2018: £860m) due to a decrease in Retail Broking revenues, as lower-margin new
business policies replaced higher-margin renewal policies, partially offset by increases in Cruising revenue. Total customer
spend3 with Saga was broadly stable at £1,210m (2018: £1,209m). This includes gross written premiums and insurance
premium tax.

Total customer spend3 reconciles to revenue as follows:

£m
Total customer spend3
Net premiums paid to insurance underwriters
Insurance premium tax
Revenue2

12m to
Jan 2019
1,210.1
(296.6)
(72.0)
841.5

12m to
Jan 2018
(restated)
1,208.8
(278.3)
(70.3)
860.2

Growth
0.1%

(2.2%)

Underlying Profit Before Tax3
Underlying Profit Before Tax decreased by 5.4% to £180.3m (2018: £190.6m).

This was primarily due to a £24.9m reduction in Retail Broking, resulting from a decline in margins and a £8.0m reduction in
the ‘written to earned’ benefit, offset by a £7.4m increase in Underwriting, and a £5.9m improvement in Emerging Businesses
and Central Costs.

Net finance costs in the year were £11.7m, a decrease of 6.4% on the previous year (2018: £12.5m). This was due to an
increase in capitalised borrowing costs, due to down-payments on the new cruise ships.

Loss before tax from continuing operations
Loss before tax from continuing operations was £134.6m for the year, mainly resulting from the £310m impairment of
goodwill relating to the Group’s Insurance operations. In addition, a review of the residual values of the two existing cruise
ships at 31 January 2019 has resulted in a non-cash impairment charge of £5.9m. The prior year included costs associated
with the unamortised facility fees of previous banking facilities and one-off restructuring costs.

Tax expense
The Group’s tax expense for the year was £27.4m (2018: £33.9m) representing an effective tax rate of 19.4% before the
impairment of goodwill and release of associated deferred tax (2018: 18.7%). The increase in the effective tax rate is due to
one-off corporation and deferred tax releases in the prior year.

Discontinued operations
The loss after tax from discontinued operations in the prior year related to the impairment of all remaining deferred
consideration from the sale of Allied Healthcare, which completed in the year ended 31 January 2016.

Earnings per share
The Group’s underlying Earnings Per Share from continuing operations were 13.1p (2018: 13.8p). The Group’s Earnings Per
Share were a loss of 14.5p (2018: profit of 12.5p). Earnings Per Share from continuing operations for the same period of a loss
of 14.5p (2018: profit of 13.1p).

Strategic ReportSaga plcAnnual Report and Accounts 2019Operating and Financial Review
continued

Retail Broking
The Retail Broking business provides tailored insurance products and services, principally motor, home, private medical and
travel insurance. Its role is to price the policies and source the lowest cost of risk, whether through the panel of home and
motor underwriters or through solus arrangements for private medical and travel insurance. The Group’s in-house insurer,
Acromas Insurance Company Limited (AICL), sits on the motor and home panels and competes for that business with other
panel members on equal terms. If underwritten by a third party, the product is presented as a Saga product and the Group
will always manage the customer relationship.

Retail Broking profit before tax on a written basis (which excludes the impact of the written to earned adjustment) reduced
to £106.6m from £123.5m, and on an earned basis (which includes the impact of the written to earned adjustment) reduced
to £105.8m from £130.7m. As previously indicated, prior year results on an earned basis benefited from a £7.2m ‘written to
earned’ accounting adjustment that was one-off in nature.

The reduction in profit before tax on a written basis was due to a £24.6m reduction in written gross profit, after also
deducting marketing expenses. This was partially offset by a £7.7m improvement in other operating expenses, as the Group
achieved cost saving targets. The reduction in written gross profit, after marketing expenses, is due mainly to home and
motor insurance (£19.1m), with a lower impact from other business (£5.5m). The decline in other broking is due to recognition
of a one-off loss on a specific contract.

The lower gross margin, after marketing expenses, on home and motor insurance is due to a £11m decline in Saga branded
new business profitability, a £5m reduction in Saga branded renewal profitability, and a £3m decline in Bennetts and Direct
Choice. The decline in renewal profitability was expected and is mainly a function of a decline in the size of the renewal book
due to lower new business sales in the prior year, as well as a reduction in motor insurance persistency.

During the 2018/19 year, the Group consciously sought to increase Saga branded home and motor new business to stabilise
the overall policy count after several years of decline. While this was broadly achieved, the cost of doing so was significantly
higher than expected. This was mainly because of an increase in lower-margin business sourced from price comparison
websites, a decline in motor direct new business, an increase in customer acquisition costs and competitive market
conditions, among other factors.

The challenges across the Broking business are not new and have in practice been building in recent years. Nonetheless,
the experience of the last 12 months has demonstrated that these challenges require a fundamental change of approach.
While a further reduction in margins is expected from 2018/19 levels in the next year, the Group is now implementing
a detailed strategic plan that will create a stronger platform for future growth in both policy count and profits.

12m to Jan 2019

Motor
Broking

Home
Broking

Other
Broking

132.9
219.0
351.9

30.7
7.5
27.9
43.7
109.8

107.6
(20.9)

161.4
0.0
161.4

123.0
4.1
127.1

43.7
2.9
10.6
17.3
74.5

74.5
(7.1)

44.4
0.1
0.1
24.2
68.8

55.9
(8.8)

12m to Jan 2018 (restated)

Motor
Broking

Home
Broking

Other
Broking

Total

Growth

417.3
223.1
640.4

118.8
10.5
38.6
85.2
253.1

6.0%
(13.8%)
(1.8%)

(20.6%)
4.0%
(5.4%)
13.4%
(8.2%)

105.4
254.0
359.4

42.3
7.1
28.9
39.5
117.8

Total

393.6
258.7
652.3

149.7
10.1
40.8
75.1
275.7

164.3
0.0
164.3

123.9
4.7
128.6

54.5
0.2
0.1
21.7
76.5

52.9
2.8
11.8
13.9
81.4

81.4
(6.0)

238.0
(36.8)

(8.9%)
(3.7%)

115.3
(17.5)

64.6
(12.0)

261.3
(35.5)

(51.9)

(22.3)

(20.4)

(94.6)

7.5%

(58.5)

(22.7)

(21.1)

(102.3)

34.8

45.1

26.7

106.6

(13.7%)

39.3

52.7

31.5

123.5

(0.8)

–

(0.8)

(111.1%)

3.6

–

7.2

34.0

45.1

26.7

105.8

(19.1%)

42.9

56.3

31.5

130.7

£m
GWP

Broked
Underwritten

Broker revenue
Instalment revenue
Add-on revenue
Other revenue
Written revenue

Written gross profit
Marketing expenses
Other operating
expenses
Written Underlying
PBT
Written to earned
adjustment
Earned Underlying
PBT

Saga plcAnnual Report and Accounts 2019Thousands
Number of policies
sold5

Core
Add-ons

Core policies sold5
Saga branded
Non-Saga branded

Core policies sold6
Saga branded
Non-Saga branded

Third party panel
share 7

12m to Jan 2019

12m to Jan 2018 (restated)

Motor
Broking

Home
Broking

Other
Broking

Total

Growth

Motor
Broking

Home
Broking

Other
Broking

Total

1,237
1,488
2,725

964
273
1,237

23.7%

683
560
1,243

683
–
683

1,190
–
1,190

284
10
294

284
–
284

2,204
2,058
4,262

1,931
273
2,204

2,438
273
2,711

(3.1%)
(3.9%)
(3.5%)

(2.5%)
(6.8%)
(3.1%)

(2.0%)
(6.8%)
(2.5%)

1,281
1,572
2,853

988
293
1,281

679
559
1,238

679
–
679

1,186
–
1,186

314
10
324

314
–
314

2,274
2,141
4,415

1,981
293
2,274

2,488
293
2,781

6.7%

17.0%

5 Combined buildings and contents home core policies count as one policy
6 Combined buildings and contents home core policies count as two policies
7 Third party Underwriter share of the motor panel for Saga branded policies

Motor Broking
Gross written premiums decreased by 2.1% due to a 3.4% reduction in core policies, partially offset by an increase in average
gross written premiums. Gross written premiums from business underwritten by AICL decreased by 13.8% to £219.0m
(2018: £254.0m), reflecting the growing maturity of the panel.

Written gross profit minus marketing expenses was £86.7m (2018: £97.8m), contributing £70/policy (2018: £76/policy).
The decline was due to the higher proportion of new business in the overall motor book, together with lower profitability of
new business. The lower profitability of new business was due to: a higher proportion of new business from price comparison
websites; the impact of GDPR on direct channels; and a highly competitive market. This impact was partially offset by
a stable contribution from the renewal book, with a small increase in profit per policy offset by a lower number of renewal
policies as persistency reduced to 62.0% (2018: 65.4%).

Written marketing expenses have increased by 19.4%, reflecting an increase in new business volumes and a change in mix
towards price-comparison websites. This has led to marketing costs per policy increasing to £17 compared to £14 in the
prior year.

Overall written Underlying Profit Before Tax has decreased by 11.5% to £34.8m (2018: £39.3m).

The reduction in the written to earned adjustment in the current period is due to the Group no longer underwriting any add-
on motor products following the outsourcing of underwriting these products at the end of 2016.

Home Broking
Gross written premiums decreased by 1.8% due to lower average gross written premiums on a stable number of core policies.

Written gross profit minus marketing expenses was £67.4m (2018: £75.4m), on a per policy basis this was £99/policy
(2018: £111/policy). The decline was due to lower margins on the renewal book as net rates increased and a higher proportion
of new business. As was the case with the motor product, the highly competitive market, change in channel mix and an
increase in the acquisition costs from direct channels impacted new business profitability.

Written marketing expenses have increased by 18.3%, reflecting an increase in new business volumes, a change in mix
towards price-comparison websites and an increase in acquisition costs for direct business. This has led to marketing costs
per policy increasing to £10 compared to £9 in the prior year.

The reduction in the written to earned adjustment in the current period is due to the Group no longer underwriting any add-
on home products following the outsourcing of the underwriting of these products at the end of 2016.

Strategic ReportSaga plcAnnual Report and Accounts 2019Operating and Financial Review
continued

Other Broking
Other insurance broking business is primarily comprised of private medical insurance (PMI) and travel insurance.
These products have been designed for Saga customers and play an important role in deepening the Group’s relationship
with them.

The Group incurred a £5.1m loss on the PMI product, as a result of the adverse impact of prior year claims experience on
profit share arrangements. Increasing claims frequency also had a smaller impact on current year trading. Following changes
to policy terms, including an approach that improves customer outcomes and usually reduces costs, claims experience has
now improved. As a result, this charge is not expected to recur.

Travel insurance profitability was marginally up against the prior year due to a higher contribution per policy, offset by lower
policy volumes. This was due to lower new business volumes in an extremely competitive market.

Other revenue includes the results of the credit hire business, which has performed well in the year.

Insurance underwriting

£m
Net earned premium
Other revenue
Revenue
Claims costs
Reserve releases
Claims handling and levies

Gross profit
Operating expenses
Investment return
Quota share net cost
Underlying Profit Before Tax
Reported loss ratio
Expense ratio
Reported COR
Pure COR

12m to Jan 2019

12m to Jan 2018 (restated)

Reported
80.8
12.5
93.3
(73.1)
71.1
(6.3)
(8.3)
85.0
(2.5)
4.2
0.0
86.7
2.1%
9.4%
11.6%
87.8%

(124.0)
10.3
(113.7)
108.6
(6.8)
11.5
113.3
(0.4)
4.3
(5.7)
1.8
–

Quota
Share Underlying
204.8
2.2
207.0
(181.7)
77.9
(17.8)
(121.6)
85.4
(6.8)
9.9
(1.8)
86.7
50.1%
11.9%
62.0%
99.7%

Growth
(5.0%)
(78.2%)
(8.2%)
6.0%
29.8%
18.3%
21.6%
21.1%
(23.6%)
(39.6%)
14.3%
9.3%
(9.0%)
(0.2%)
(9.2%)
1.9%

Reported
84.2
14.8
99.0
(79.0)
60.0
(9.0)
(28.0)
71.0
(2.3)
10.6
0.0
79.3
19.2%
11.4%
30.6%
91.2%

Quota
Share Underlying
215.5
(131.3)
10.1
4.7
225.6
(126.6)
(193.3)
114.3
60.0
0.0
(21.8)
12.8
(155.1)
127.1
70.5
0.5
(5.5)
3.2
16.4
(5.8)
(2.1)
2.1
79.3
–
59.1%
12.1%
71.2%
97.8%

A
B
C
D
E

(B+C)/A
(D+F)/A
(E+F)/A
(E+F-C)/A

Number of earned policies

839k

(8.4%)

916k

The Group’s in-house underwriter AICL continues to play an important role on the motor panel, providing a source of
competitively priced risk, primarily focused on lower risk drivers. AICL also underwrites a portion of the home panel, although
all the risk in the home insurance business is passed on to a third party insurance company.

Excluding the impact of the quota share reinsurance agreement, Underwriting revenue decreased by 8.2% to £207.0m
(2018: £225.6m) as AICL wrote a lower number of policies, as external panel members won a greater share compared with the
prior year.

Also excluding the impact of the quota share, the Underwriting business saw an increase in the pure combined operating
ratio to 99.7% (2018: 97.8%). This was due to higher than average returns on profit and loss sharing agreements in the
prior year.

Saga plcAnnual Report and Accounts 2019Reserve releases of £77.9m (2018: £60.0m) have resulted in a reported combined operating ratio of 62.0% (2018: 71.2%),
excluding the impact of the quota share treaty. The Group retains economic interest in motor reserve releases. To the extent
they are commuted under the quota share arrangement they are recognised within ‘other revenue’ as a profit share.

£m
Motor insurance
Home insurance
Other insurance

12m to Jan 2019

12m to Jan 2018

Reported
68.0
0.2
2.9
71.1

Quota
Share Underlying
77.7
0.2
–
77.9

(9.7)
–
2.9
(6.8)

Growth

29.8%

Reported
64.0
(1.2)
(2.8)
60.0

Quota
Share Underlying
64.0
(1.2)
(2.8)
60.0

–
–
–
–

The high level of reserve releases in both financial years is due to continued strong claims management and favourable
claims development experience. In particular, experience on large and small personal injury claims has been very positive.

In addition, £30m of the reserve releases in the year have arisen from recognition of improved development patterns within
the actuarial ‘best estimate’ reserving methodology (2018: £20m). While there has been no change in the reserve margin
held over best estimate in percentage terms, the declining level of absolute reserves, the changes made to best estimate
reserving, and the unusually low level of large reported losses in the year mean that it is highly unlikely that reserve releases
will continue at 2017/18 or 2018/19 levels.

The release of prior year reserves for home and other insurance, and the strengthening of reserves in the prior year for these
lines of business, are in respect of products sold by third parties for which the Group has in place profit and loss sharing
agreements such that the associated impact on profit is negligible.

The investment return decreased by £6.5m to £9.9m (2018: £16.4m). This was largely due to a profit on sale of bonds in the
prior year, coupled with a lower yield on a smaller investment portfolio. The lower yield resulted from historical fixed income
investments that have matured, as the funds are reinvested at current market rates. Total investments have reduced as
surplus solvency capital has been released, which is due to continued favourable claims experience.

Travel

£m
Revenue
Gross profit
Marketing expenses
Other operating expenses
Investment return
Underlying Profit Before Tax
Average revenue per passenger (£)
Holidays passengers (’000)

Stays
Escorted tours
River cruise
Third party ocean cruise

Cruise passengers (’000)
Cruise passenger days (’000)
Load factor
Per diems (£)

12m to Jan 2019

12m to Jan 2018 (restated)

Tour
Operations
360.8
70.2
(19.3)
(36.8)
0.1
14.2
2,050

80
64
22
10
176

Cruise
96.6
23.1
(9.5)
(6.8)
0.1
6.9
3,715

26
334
82%
262

Total
Travel
457.4
93.3
(28.8)
(43.6)
0.2
21.1
2,264

80
64
22
10
176
26
334
82%
262

Tour
Operations
360.5
69.8
(18.4)
(37.4)
0.1
14.1
1,959

86
67
21
10
184

Growth
1.9%
0.5%
(9.9%)
5.6%
0.0%
2.4%
4.9%

(7.0%)
(4.5%)
4.8%
0.0%
(4.3%)
8.3%
3.4%
(1.2%)
5.2%

Cruise
88.2
23.0
(7.8)
(8.8)
0.1
6.5
3,675

24
323
83%
249

Total
Travel
448.7
92.8
(26.2)
(46.2)
0.2
20.6
2,157

86
67
21
10
184
24
323
83%
249

The Travel business has had another solid year of trading. It achieved growth in both revenue and profit, which are up by 1.9%
and 2.4%, respectively.

Strategic ReportSaga plcAnnual Report and Accounts 2019

Operating and Financial Review
continued

The Tour Operations business generated revenue of £360.8m (2018: £360.5m) with 5.1% higher gross margin per passenger
offsetting 4.3% lower departing passenger numbers. The product range offered in the year has been rationalised to reduce
short haul stays in favour of higher margin escorted touring, river and ocean cruise products. Gross profit margin was 19.5%
(2018: 19.4%). The marketing spend within Tour Operations increased by £0.9m compared to the previous year to drive
passenger bookings in 2019, partly offset by other operating cost efficiency savings.

Underlying Profit Before Tax from Tour Operations is slightly higher than the prior period at £14.2m (2018: £14.1m), with
a stable net profit margin of 3.9%.

The Saga Cruise business delivered a 9.5% increase in revenue to £96.6m (2018: £88.2m) reflecting an increase in passenger
days of 11k including fewer maintenance days and an increase in per diems as demand for Saga Pearl II in her final year was
higher than expected. There were no scheduled maintenance days in the year compared with 19 days of maintenance on the
Saga Pearl II and 20 days of maintenance on the Saga Sapphire in the prior year.

Underlying Profit Before Tax from the Cruise business was £6.9m (2018: £6.5m). Revenue per diem improvements have offset
£2m of additional fuel costs, net of fuel hedges, arising from higher market prices in the year. The increased marketing spend
was expected and supports demand for the new ships. This was offset by cost savings from operational efficiencies.

Forward Travel sales
Tour Operations booked revenue for 2019/20 is currently 3.4% down on prior year and has been impacted by the recent
market weaknesses particularly in short haul holidays. Brexit uncertainty has been a significant contributor to this shortfall
and booked revenues were 7.6% down in the 12 weeks to 23 March 2019. However, the mix of business continues to move to
higher margin and more differentiated products, notably escorted tours, rivers and third party ocean cruising.

Cruise ticket revenues and passengers for 2019/20 departures are up 17.7% and 17.8% respectively. This reflects the
requirement to fill the additional capacity of the first new ship, Spirit of Discovery, as the Saga Pearl II exits service.
The increase in capacity days is 19% weighted to quarters 3 and 4 as the business sees the full impact of the larger
new 999 berth vessel.

Trading to week ended 23 March 2019

Tour operations revenue (£m)
Tour operations passengers (‘000)
Cruise ticket revenue (£m)
Cruise passenger days (’000)

Emerging Businesses and Central Costs

2019/20 departures

2020/21 departures

2019/20
271.1
126.9
92.0
347.7

Growth
(3.5%)
(7.6%)
17.8%
17.8%

2018/19
280.7
137.3
78.1
295.1

2019/20
22.6
7.7
43.3
167.3

Growth
41.3%
42.6%
2.1%
4.9%

2018/19
16.0
5.4
42.4
159.5

£m
Revenue:
Personal Finance
Healthcare
Media – Saga
Magazine & printing
Other
Total revenue
Gross profit
Operating
expenses
Profit on sale
of property
Share of loss on
joint venture
IAS19R pension
charge
Net finance costs
Underlying Profit/
(Loss) Before Tax

12m to Jan 2019

Emerging

12m to Jan 2018 (restated)

Emerging

Businesses Central Costs

Total

Growth

Businesses Central Costs

Total

8.2
6.0

18.6
–
32.8
13.8

–
–

–
1.3
1.3
2.2

8.2
6.0

18.6
1.3
34.1
16.0

6.5%
7.1%

31.9%
(40.9%)
15.2%
6.0%

7.7
5.6

14.1
0.6
28.0
13.0

–
–

–
1.6
1.6
2.1

7.7
5.6

14.1
2.2
29.6
15.1

(10.7)

(30.4)

(41.1)

(17.8%)

(10.0)

(24.9)

(34.9)

–

–
–

3.9

–

(0.4)
(11.7)

3.9

–

(0.4)
(11.7)

92.7%
6.4%

–

(2.2)

–
–

–

(5.5)
(12.5)

–

(2.2)

(5.5)
(12.5)

3.1

(36.4)

(33.3)

16.8%

0.8

(40.8)

(40.0)

Revenue from Emerging Businesses (which includes Personal Finance, Healthcare Services and the Media businesses)
increased by 17.1% to £32.8m (2018: £28.0m), which was largely due to increased revenue from the Group’s mailing business.

Saga plcAnnual Report and Accounts 2019Profit from Emerging Businesses improved by £2.3m to £3.1m (2018: £0.8m), which was mainly due to £2.2m of losses in the
prior year from the impairment of the discontinued Investment Services joint venture.

Central operating expenses increased to £30.4m (2018: £24.9m) reflecting higher depreciation and amortisation from the
investment in IT platforms over the past two years, increased investment in Membership, and also due to a significantly
reduced management bonus payout for the 2017/18 financial year.

Following the restructuring programme at the end of 2017, the central cost base reduced by £5m, and those savings were
passed on to the trading divisions in the form of lower recharges for shared services.

Central costs also include some one-time impacts in both years. For the 2018/19 year this relates to a one-off £3.9m profit
on disposal from the sale of one of the Group’s properties. The preceding year was adversely impacted by an exceptional
£5.5m IAS19R pension charge following the completion of the triennial review of the Group’s defined benefit pension scheme.

Cash flow and liquidity
Available operating cash flow3 is made up of the unrestricted cash flows from Retail Broking, Emerging Businesses and
Central Costs, plus any dividends paid by restricted businesses, AICL and Travel. As well as a regulatory restriction on the
cash within the Travel business, the initial instalments for the Spirit of Discovery and Spirit of Adventure have until now been
funded from Travel cash. Therefore, until both ships are delivered, Travel is not expected to contribute to the Group’s available
operating cash flow.

The Group delivered a strong cash flow performance in the year to 31 January 2019, achieving an available operating cash
flow of £180.6m, 78.1% of Trading EBITDA. Operating cash flow increased by £5.1m compared to the previous year, due to
increased dividends from AICL and a positive working capital inflow that is expected to reverse in the 2019/20 financial
year. This was partially offset by the reduction in available Trading EBITDA, which is due to reduced earnings from the Retail
Broking business.

As a result of the high level of underwriting profitability, AICL dividends increased from £70m in the year to 31 January 2018
to £85m in the last financial year. Although AICL’s solvency II coverage remains strong at 148% (2018: 171%), reduced levels
of reserve releases will lead to a reduction in future dividend payouts.

Offsetting this was a £6.5m subordinated loan to the Travel business to maintain its regulatory solvency capital whilst
investment in the new ships continues. The Group injected a further £25m of cash into the Travel business in February 2019
to support the funding of the two ships.

Available Cash Flow

£m
Retail Broking Trading EBITDA3
Underwriting Trading EBITDA3
Travel Trading EBITDA3
Emerging Businesses and Central Costs Trading EBITDA3
Group Trading EBITDA3
Less Trading EBITDA3 relating to restricted businesses
Intra-group transfers from restricted businesses
Working capital and non-cash items
Capital expenditure funded with available cash
Available operating cash flow3
Available operating cash flow %

12m to
Jan 2019
116.7
87.2
41.1
(13.7)
231.3
(128.3)
78.5
19.9
(20.8)
180.6
78.1%

Growth
(17.0%)
10.4%
6.5%
(9.0%)
(7.7%)
(9.1%)
12.1%
1,758.3%
20.9%
2.9%

12m to
Jan 2018
(restated)
140.6
79.0
38.6
(7.6)
250.6
(117.6)
70.0
(1.2)
(26.3)
175.5
70.0%

Strategic ReportSaga plcAnnual Report and Accounts 2019Operating and Financial Review
continued

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
Non-trading costs
Interest paid
Tax paid

Net cash released from restricted divisions
Include capital expenditure funded from available cash
Available operating cash flow3

Trading EBITDA reconciles to (loss)/profit after tax as follows:

£m
Trading EBITDA3
Depreciation & amortisation (excluding acquired intangibles)
Non-trading costs
Amortisation of acquired intangibles
Pension charge IAS19R8
Net finance costs4
Underlying Profit Before Tax3
Net fair value gains/(losses) on derivatives
Debt issue costs
Restructuring costs
Impairment of cruise ships
Impairment of goodwill
(Loss)/profit before tax from continuing operations
Tax expense
Loss after tax for the year from discontinued operations
(Loss)/profit after tax

12m to
Jan 2019
£m
138.0

12m to
Jan 2018
(restated)
£m
135.2

(68.7)
5.5
13.3
34.8
(15.1)
78.5
(20.8)
180.6

Growth
(7.7%)

(5.4%)

(174.4%)
19.2%

12m to
Jan 2019
231.3
(33.0)
(2.3)
(3.6)
(0.4)
(11.7)
180.3
1.0
–
–
(5.9)
(310.0)
(134.6)
(27.4)
–

(162.0)

(216.2%)

(56.0)
8.7
11.1
32.8
(3.4)
70.0
(26.3)
175.5

12m to
Jan 2018
(restated)
250.6
(33.9)
(3.4)
(4.7)
(5.5)
(12.5)
190.6
(0.6)
(4.3)
(4.8)
–
–
180.9
(33.9)
(7.6)
139.4

8 Pension charge IAS19R includes the additional non-cash pension service costs in excess of employer contributions made in the year and the non-cash pension

interest cost that are both required under IAS19R

Balance sheet

Goodwill

£m
Insurance, excluding Bennetts
Insurance, Bennetts
Travel, excluding Destinology
Travel, Destinology

31 Jan
2019
1,088.6
13.6
59.8
13.0
1,175.0

31 Jan
2018
1,398.6
13.6
59.8
13.0
1,485.0

The Group has tested all goodwill for impairment at 31 January 2019. The impairment test compares the recoverable amount
of the goodwill of each cash generating unit (CGU) with its carrying value. The goodwill associated with the Bennetts and
Destinology businesses have been considered separately, as these businesses represent separate CGUs.

The recoverable amount of each CGU has been determined based on a value-in-use calculation using cash flow projections
from the Group’s five year plan to 2023/24, and after allowing for certain stress test scenarios.

Saga plcAnnual Report and Accounts 2019Based on this analysis, the Group remains comfortable that there is headroom over and above the carrying value of the
goodwill of Bennetts, and for the Travel Operations.

However, based on the new plans for the Insurance business, excluding Bennetts, there has been a material reduction in the
carrying value of the business compared to the valuations undertaken in previous years. In addition, once certain stress
scenarios are considered in relation to the insurance cash flows, for example, relating to the selected risk discount rate, as
well as the expected return from new strategic investments, the Group has determined that the recoverable amount of the
goodwill of the Insurance business, excluding Bennetts, is below the previous carrying value. The Group’s results therefore
include an impairment of the insurance goodwill, excluding Bennetts, in the amount of £310m.

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 £82.3m compared with the previous year, to £392.8m as at 31 January 2019
(2018: £475.1m). As at 31 January 2019, 99% of the financial assets held by the Group were invested with counterparties with
a risk rating of BBB or above, which is broadly in line with the previous year and reflects the stable credit risk rating of the
Group’s counterparties. In February 2018, the Group made changes to its investment policy which have resulted in more BBB
rated invested funds and a reduction in the number of unrated invested funds.

BBB
£m

Unrated
£m

Risk rating

Total
£m

At 31 Jan 2019
Underwriting investment portfolio:

Deposits with financial
institutions
Debt securities
Money market funds
Loan funds

Total invested funds
Hedging derivative assets
Total financial assets

At 31 Jan 2018 (restated)
Underwriting investment portfolio:

Deposits with financial
institutions
Debt securities
Money market funds
Equities
Hedge funds
Loan funds
Unlisted equity shares

Total invested funds
Hedging derivative assets
Total financial assets

AAA
£m

–
14.8
37.1
–
51.9
–
51.9

AAA
£m

–
28.9
153.2
–
–
–
–
182.1
–
182.1

AA
£m

50.8
140.3
–
–
191.1
–
191.1

A
£m

–
41.2
–
–
41.2
32.6
73.8

18.5
83.9
–
–
102.4
0.8
103.2

–
–
–
6.2
6.2
–
6.2

AA
£m

A
£m

BBB
£m

Unrated
£m

60.8
119.0
–
–
–
–
–
179.8
–
179.8

54.7
11.5
–
–
–
–
–
66.2
37.8
104.0

–
–
–
–
–
–
–
–
0.6
0.6

–
–
–
31.4
7.5
6.4
1.7
47.0
–
47.0

69.3
280.2
37.1
6.2
392.8
33.4
426.2

Risk rating

Total
£m

115.5
159.4
153.2
31.4
7.5
6.4
1.7
475.1
38.4
513.5

Strategic ReportSaga plcAnnual Report and Accounts 2019Operating and Financial Review
continued

Insurance reserves
Analysis of insurance contract liabilities at 31 January 2019 and 31 January 2018 is as follows:

£m
Reported claims
Incurred but not reported10
Claims handling provision
Total claims outstanding
Unearned premiums
Total

12m to Jan 2019

12m to Jan 2018 (restated)

Gross
280.4
103.0
9.2
392.6
98.0
490.6

Reinsurance
Assets9
(73.5)
(17.7)
0.0
(91.2)
(5.6)
(96.8)

Net
206.9
85.3
9.2
301.4
92.4
393.8

Gross
306.5
149.3
10.6
466.4
115.0
581.4

Reinsurance
Assets9
(76.1)
(17.9)
0.0
(94.0)
(6.2)
(100.2)

Net
230.4
131.4
10.6
372.4
108.8
481.2

9 Excludes funds-withheld quota share agreement (please refer to note 25 on page 178 for further detail)
10

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 £87.4m as at 31 January 2019 from
the previous year end due to a £23.5m reduction in reported claims reserves, a £46.1m reduction in IBNR claims reserves and
a £16.4m lower unearned premium reserve. The reduction in IBNR claims reserves is mainly due to favourable experience on
large and small personal injury claims, as well as the recognition of improved development patterns within actuarial ‘best
estimate’ reserving methodology.

Financing
Continued strong cash flows have enabled the Group to continue to maintain a stable debt ratio of 1.7x compared to
31 January 2018. The Group’s net debt has decreased by £40.7m to £391.3m from £432.0m as at 31 January 2018. It is made
up as follows:

Net debt3
Corporate bond
Term loan
Revolving credit facility
Less available cash11
Net debt

Maturity date
May 2024
May 2022
May 2023

31 Jan 2019
£m
250.0
160.0
30.0
(48.7)
391.3

31 Jan 2018
£m
250.0
180.0
15.0
(13.0)
432.0

11 Refer to note 22 of the financial statements for information as to how this reconciles to a statutory measure of cash

The Group has extended the term of the revolving credit facility to May 2023.

The Group has amended the covenants in the revolving credit facility and term loan. The new financial covenants will be
tested against the Group earnings and net debt excluding the earnings and debt associated with the new cruise ships.
On this basis the net debt to EBITDA covenant is 3.5x until August 2021 and 3.0x thereafter.

The Group has committed to an additional financial covenant that the Cruise cash flows will meet the Cruise debt service
costs. This will only be tested if the Group (ex-Cruise) is within 0.5x of the Group covenant.

There are no financial covenants associated with the corporate bond.

Saga plcAnnual Report and Accounts 2019Pensions
Over the year, the valuation of the Group’s pension scheme has strengthened on an IAS19R basis by £4.2m to a deficit of
£2.8m (2018: deficit £7.0m):

Saga Scheme
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability

12m to
Jan 2019
£m
312.4
(315.2)
(2.8)

12m to
Jan 2018
£m
307.3
(314.3)
(7.0)

The strengthening has been driven by a £5.1m increase in the fair value of the scheme assets to £312.4m (2018: £307.3m).
This was partially offset by an increase in the scheme liabilities of £0.9m to £315.2m (2018: £314.3m), driven by a slight fall in
corporate bond yields over the period. This also includes the Group’s estimate of the cost of equalising Guaranteed Minimum
Pensions, which served to increase the scheme liabilities by £0.1m.

Net assets
Since 31 January 2018, total assets and liabilities have reduced by £345.5m and £84.3m respectively, resulting in an overall
decrease in net assets of £261.2m.

The decrease in total assets is the result of a £310m impairment of goodwill and a decrease in financial assets of £87.3m,
which coincides with the release of surplus solvency capital from the Group’s underwriting business. This was partly offset by
an increase in property plant and equipment of £20.5m, primarily due to the fourth stage payment for the Spirit of Discovery
of £13.4m and the second stage payment for the Spirit of Adventure of £15.5m, and an increase in cash and short-term
deposits of £39.7m as the Group held surplus cash in advance of making the third stage payment for the Spirit of Adventure
in early February 2019.

The decrease in total liabilities reflects a £90.8m reduction in gross insurance contract liabilities in line with further positive
claims experience in the year, and a decrease in financial liabilities of £11.5m as a result of a decrease in bank overdrafts.
This was partially offset by an increase in trade and other payables of £21.8m due to an increase in policies underwritten by
third party underwriters.

Regulation
The Group operates within an evolving regulatory landscape. Aspects of this, such as GDPR, cover all of Saga’s business.
Other aspects cover the Group’s Insurance, Travel and Personal Finance operations.

For the Insurance business in particular, the last year has been very active. The FCA has implemented new requirements
relating to how retail general insurance products are sold, and has launched an extensive market study into industry
pricing practices.

As other insurers have noted, the insurance market is very competitive with high levels of switching and significant
introductory discounts which lead to people shopping around for the best deal. For those customers who don’t shop
around it is crucial that insurers have active pricing processes. Saga has had these measures in place for several years and
increasing numbers of long-standing customers have seen their renewal premium either frozen or reduced as a result.

Saga welcomes the approach of the FCA and expects this to lead to a significant change across the industry in the coming
years. As a business which is focused on direct distribution channels, with a higher number of older customers, and with a
strategy that is increasingly focused on rewarding customer loyalty, the Group is anticipating implementing further changes
on a proactive basis. These steps are expected to reduce the near-term profitability of the Retail Broking business.

Strategic ReportSaga plcAnnual Report and Accounts 2019Operating and Financial Review
continued

Brexit
At the date of this report there is considerable uncertainty as to how and even whether the UK will exit from the EU, or
at least as to when it will take effect and on what terms. Accordingly there is corresponding uncertainty as to the effect
on the Group. The potential impacts on the Group of Brexit, and more specifically a hard Brexit, have been considered.
Working groups have been in place through the year to identify, assess and where possible, implement mitigations for
the risks of a hard Brexit. The range of scenarios considered includes the additional administration processes and costs
associated with running a travel tour operating business, supply chain delays for motor repairs and prolonged disruption to
local roads caused by delays at the Port of Dover and Eurotunnel. The Group will continue to monitor political developments,
and adapt mitigation plans accordingly.

Dividends
In light of the challenges in the recent financial year and revised earnings projections for the next five years, the Board has
undertaken a detailed evaluation of the dividend policy.

Within this assessment, the Board has taken account of several positive factors. Specifically, Saga’s business model
remains highly cash generative, absolute levels of leverage have been reduced successfully since the 2014 IPO, and none
of the Group’s debt is due to mature for another three years. This is further supported by recent changes to the terms of the
covenants within the term loan and revolving credit banking facility, which provide the Group with greater financial flexibility.

At the same time, while operating results for the 2018/19 financial year have in the aggregate been in line with expectations,
the Group expects a significant reduction in Underlying Profit Before Tax for 2019/20, both in absolute terms and when
compared to previous projections. This is mainly attributable to a change in the profitability of Retail Broking, which is likely
to be significantly lower than was previously expected.

As explained above, this is primarily a reflection of existing margin pressures and expected reductions in renewal
pricing. The shortfall in comparison to previous plans is not due to Underwriting, where a decline in reserve releases was
already anticipated.

Further, while the Board has a high level of confidence in the revised strategy, and a level of prudence has been factored into
plan projections, the future dividend policy needs to balance cash returns to investors with the objective of maintaining a
stable and secure balance sheet. This is particularly important given the increase in debt that will result from the addition
of two new ships, while cruise cash flows are expected to cover debt and interest repayments on the ships, and to enable
a resumption of capital repatriations from the Travel business from the end of the 2021/22 financial year.

In balancing these objectives, the Board is of the view that a medium-term payout ratio of around 50% is appropriate.
This will offer an attractive dividend for investors, while maintaining a ‘peak’ debt to EBITDA ratio of below 4x with Cruise
on a pro forma basis, and reducing the overall Group leverage ratio to 2x over the next few years.

The Board is also of the view that a proactive approach to managing leverage is important, leading to a proposal to reduce
the final dividend per share from 6.0p to 1.0p.

Financial priorities for 2019/20
As a result of lower margins in Insurance, a change in approach to renewal pricing, lower reserve releases and investment
in new products, Underlying Profit Before Tax for the 2019/20 financial year is expected to be between £105m – £120m.
The Group’s new strategy will set a platform for renewed growth in both customers and profits.

The key priority for the Group is the implementation of the direct strategy in Retail Broking, including additional marketing
spend and the launch of the new three year fixed price product. This is expected to be evident in lead-indicator KPIs such
as mix of business, and in take-up of ‘premium’ products. Higher policy numbers are expected from 2020/21 due to growth
in new business and improved customer retention. Gross margins per policy are projected to be fairly stable in motor, but to
reduce in home.

Saga plcAnnual Report and Accounts 2019Although reserve releases are likely to be significantly lower in Underwriting than in 2018/19, continued strong claims
management and favourable claims experience is expected to support a further positive contribution in the next few years.
In the medium-term, the anticipated reported combined ratio, before the impact of the quota share, will be around 97%,
subject to normal large loss volatility. Work is underway to widen the AICL underwriting ‘footprint’.

In common with the experience of the travel industry as a whole, bookings at the start of this year have been impacted
by various factors, including uncertainties relating to Brexit. Beyond this short-term issue, the focus of the business will be
on moving away from undifferentiated, low value products (for example, short haul) to higher-margin, more differentiated
products, such as escorted tours and river cruises. This is expected to lead to modest growth in passenger numbers, but a
significant improvement in margins.

Cruise bookings and per diem rates remain in line with expectations for both 2019/20 and 2020/21 departures. Each new ship
is expected to generate EBITDA of £40m, and profit before tax of £20m. This should lead to materially higher cruise earnings
in the next two years.

The Group continues to focus on improving efficiency and expects to hold overhead costs as broadly flat in absolute terms,
other than a modest investment to support the growth of the Healthcare business.

The Strategic Report was approved by the Board and signed on its behalf by Lance Batchelor, Group Chief Executive
Officer on 3 April 2019

Strategic ReportSaga plcAnnual Report and Accounts 2019Corporate Governance Statement
Chairman’s introduction to governance

“ It is important that our governance
framework supports us as we strive
to return to our heritage as a direct
to consumer brand with Membership
as its core.”

Committee considered how Group strategy would impact
principal risks and uncertainties and discussed our risk
appetite and tolerance levels. This analysis played an
important part in the stress testing used in the formation of
the viability statement (see page 54). The Audit Committee
considered the process and the viability statement itself,
provided assurance that appropriate systems, controls
and processes were in place and advised the Board that
it supported the statement that the annual report is ‘fair,
balanced and understandable’. Details can be found in the
Audit Committee Report on pages 75-78.

Board composition and changes
The year has seen changes in Board composition.
I succeeded Andrew Goodsell as Chairman in May 2018,
following his retirement. James Quin joined as Group Chief
Financial Officer on 1 January 2019, replacing Jonathan
Hill who left the Company in September 2018. Julie Hopes
replaced Bridget McIntyre as a Non-Executive Director
in October 2018 (and has assumed the position of Chair
of Saga Services Limited) and we also welcomed Eva
Eisenschimmel and Gareth Hoskin as additional Non-
Executive Directors (with effect from 1 January 2019 and
11 March 2019 respectively). Gareth will also act as Chair for
Acromas Insurance Company Limited.

For details of the processes for selection and appointment,
see page 69.

We comply with the recommendation in the UK Corporate
Governance Code 2016 (Code) that at least half of our
Board members are independent Non-Executive Directors.
For full details of Board composition see pages 64-66.

Our people
Our people are our future leaders and brand ambassadors.
Talent development and succession planning is discussed in
detail by the Nomination Committee and the Board during
the year, including biannual formal reviews. The Board is
committed to developing our employees and creating a
culture in which employees are encouraged to ‘be brave
and challenge’. During the year we launched a leadership
degree, continued the rollout of the Saga Way leadership
development programme to our wider group of senior
leaders and introduced the concept of ‘rapid results’ trials,
to encourage innovative and creative thinking. We awarded
eligible employees Free Shares for the fourth year running to
reward their hard work and encourage a sense of ownership
of the business.

Dear Shareholder,
It is important that our governance framework continues
to provide support as we strive to return to our heritage as
a direct to consumer brand with Membership as its core.
Governance must create the conditions so that our future
strategic priorities (as outlined on pages 18-19) can be
brought to life.

We spent time as a Board discussing how we could set the
tone from the top, encourage long-term thinking and identify
the ‘touchstones’ (see page 18) that should form the basis
of our reporting, discussions and monitoring. The quality of
data is important to us, so that we gain meaningful insight
into what our customers want and how we can grow our
Insurance and Travel businesses.

The Board also spent time considering how investment in the
Saga brand would allow us to continue to offer differentiated
products and to be innovative and disruptive in the market.
It was clear that focus on attracting new customers and
growing our Retail Insurance and Travel businesses would
need to include consideration of how our customers
experience our service. Board discussion has focused on
how investment decisions will lead to future growth.

Details of Board activities during the year and how the
governance structure supported key decisions, such as the
decisions to invest in our IT capabilities and to charter new
river cruise ships, can be found on pages 60-61.

The Audit, Nomination, Risk and Remuneration Committees
also played important roles throughout the year. The Risk

Saga plcAnnual Report and Accounts 2019Environmental, social and governance
We considered the framework of current policies and
processes relating to responsible business practices.
Group Executive members were allocated accountability
for main work streams, including environmental issues,
stakeholder considerations and implications to the brand
and Membership propositions.

Our governance framework is reviewed by the Board every
year against best practice and regulatory requirements.
We conducted our third externally facilitated Board and
Committee evaluation during the year. The exercise focused
on areas identified during last year’s review as opportunities
for further development. The review concluded that good
progress had been made, there was a clearer view of risk and
areas of importance were highlighted in pre-read papers.
There was also greater emphasis on focusing on the long-
term. The Board discussed the findings of the review and
concluded that the business will continue to set out credible
plans for the long-term future of the Group; consider the
impact of decisions on stakeholders in more detail; focus on
competition and what differentiates Saga; and assess the
impact of advances in technology and artificial intelligence.
A full explanation of the evaluation exercise can be found on
pages 66-67.

While we have reported against the 2016 Code, we are
mindful that the UK Corporate Governance Code 2018
applies to the Company from 1 February 2019 and so we
conducted a gap analysis to identify necessary action.
Our terms of reference for all Committees and a document
summarising matters reserved for the Board were updated
where necessary to reflect new requirements. A summary of
action taken is provided on page 57.

As a result of the new Corporate Governance Code and
the findings of the evaluation, the Board is focused on
‘touchstones’. It is driving to put our Possibilities members
at the heart of our discussions. This is achieved partly by
designating Eva Eisenschimmel as the Non-Executive
Director responsible for championing the customer. This will
ensure that customer views and opinions are communicated
to the Board as a whole. Eva will also provide guidance
and act as a sounding board for all aspects of customer
experience across the Group.

The Remuneration Committee discussed how its
responsibilities would change in order to review wider
workforce remuneration and related policies and ensure
the alignment of incentives and rewards with culture. As a
result, we formed a ‘People Committee’ and agreed that
Gareth Williams should be the designated Non-Executive
Director for employee-related matters. He will ensure that
employee views and opinions are communicated to the
Board as a whole. Gareth will attend the People Committee
at least twice a year to observe the discussions relating
to remuneration, reward and recognition, employee
engagement, development, training and talent, the working
environment and the Saga Way, and to answer any
questions that the employee representatives may have.
This will help ensure that workforce policies and practices
are consistent with the Company’s values and support its
long-term sustainable success. Further details can be found
in our Remuneration Report on pages 101-102.

Key features

Our internal governance procedures must
support our strategic priorities

Corporate governance statement:

• Governance: an explanation of how governance
works to support our strategic priorities as we
seek to become an increasingly Membership-led
organisation and invest for growth.

• Performance: how performance is reviewed to

ensure that long-term relationships are developed
with our stakeholders.

• Customers: work to recognise the current and
future value of customers and where to focus
efforts and investment, including a more targeted
contact strategy and work to consider how
much more efficient and effective our database
could be.

• Possibilities: how to ensure that our Membership
scheme delivers what our members really want.

• Growth: how to grow our Insurance and Travel

businesses and invest in our capabilities.

• Financial performance.

For more details see pages 18-19.

A summary of how we have applied the principles of the
2016 Code is set out overleaf. Our approach to leadership
is detailed on pages 58-63, effectiveness on pages 66-
67, accountability on pages 70-74, and relations with
shareholders on page 82.

Culture
I recognise that in the current challenging trading
environment, a strong cultural framework is key. A sound
governance framework will remain vital in supporting our
people. It will ensure we focus on our stakeholders and on
the right things to deliver our strategy.

Our shareholders and our AGM
Our Executive Directors, Senior Independent Director and
I met with key shareholders throughout the year, heard
from our brokers and discussed how we could improve
communication and explain our strategy. At our fourth AGM
at our head office in Folkestone, Kent on 21 June 2018, all
resolutions were passed with a significant majority and all
Directors standing for re-election were re-appointed. I hope
to welcome you to our AGM scheduled for 19 June 2019.

Patrick O’ Sullivan
Chairman
3 April 2019

GovernanceSaga plcAnnual Report and Accounts 2019Key Board statements

Compliance
statement

Viability
statement

The Board is committed to high standards of corporate governance and manages Saga’s
operations in accordance with the Code. A full version of the Code can be found on the Financial
Reporting Council’s (FRC) website at www.frc.org.uk. The Company applied the principles and
complied with all of the relevant provisions of the Code throughout the year.

The Directors have considered the viability of the Group over the five-year period to January 2024
and have concluded there to be a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over this period.

The Directors have determined the five-year period to January 2024 to be an appropriate period
over which to assess the Group’s viability, as this period:

a) is consistent with the planning horizon over which the Directors normally consider the future

performance, capital and solvency requirements of the business
b) includes the delivery of the contracted new ships in 2019 and 2020
c)

includes the refinancing of senior bank facilities which took place in 2017, maturing in four to
six years

d) includes consideration of Brexit.

In making this statement, the Directors have considered the resilience of the Group, taking account
of its current position, the principal risks facing the business in severe but plausible scenarios, and
the effect of any mitigating actions. The Directors have considered each of the Group’s principal
risks and uncertainties (PRUs) detailed on pages 34-37 and the potential impact of these risks on
the business model, future performance, solvency and liquidity over the period. The Directors have
also taken into account the availability of the Group’s senior banking facilities, which do not mature
until 2022 and are considered to be sufficient to meet the Group’s needs.

Our list of PRUs derived from our robust review of risks was reviewed with risk owners, Group Finance
and Group Risk, to consider which risks might threaten the Group’s ongoing viability. All of the PRUs
have been considered and severe but plausible outcomes for each have been identified. The financial
impact in terms of both profit and cash of each outcome has been quantified along with their
likelihood of occurrence. Assessments of potential financial impact were derived from both internal
calculation and examples of similar incidents in the public domain.

The three largest sensitivities in terms of financial impact were identified as the following:

1. General insurance regulation.
2. A no-deal Brexit.
3. A failure to deliver on our Insurance strategy.

Three scenarios were then modelled for the assessment period: the impact of any one of the three
largest sensitivities individually, as if each were certain to occur and were mutually exclusive of one
another; the estimated financial impact for a reasonably possible combination of all sensitivities
occurring at the same time, by reference to the estimated probability of each one occurring;
and a reverse stress test considering what PRU, or combination of PRUs, might lead to breach of
performance and cash flow solvency thresholds. The outcome of this modelling confirmed that none
of the top three PRUs would compromise the Group’s viability. The reverse stress test demonstrated
that the likelihood of a combination of PRUs causing us to breach performance and insolvency
thresholds was remote.

As set out in the Audit Committee Report on pages 75-78, the Directors have reviewed and
discussed the rationale and conclusions of management’s viability testing.

Saga plcAnnual Report and Accounts 2019Going concern

Fair, balanced and
understandable

Assessment of risk

The Group’s business activities, together with the factors likely to affect its future development
and performance, its exposure to risk and its management of these risks, details of its financial
instruments and derivative activities, and details of other financial and non-financial liabilities,
are described throughout the annual report (see principal risks and uncertainties on pages 34-37;
Operating and Financial Review on pages 38-51; accountability on pages 70-74; Audit Committee
Report on pages 75-78; Risk Committee Report on pages 79-81; and notes on pages 132-197).

The Group has access to sufficient cash and other financial resources, a large renewing income
stream from insurance policies and high-repeat purchase levels from customers of its other
products, and long-term contracts with a number of suppliers across different industries. As a
consequence, the Directors believe that the Group is well-placed to successfully manage its
business risks.

The Directors have a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. It is therefore appropriate to adopt the
going concern basis in preparing the financial statements.

In accordance with the principles of the Code, the Board has established arrangements to evaluate
whether the information presented in the annual report is fair, balanced and understandable.
Having taken advice from the Audit Committee, the Board considers the annual report and accounts,
taken as a whole, are fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company’s position and performance, business model and strategy.

Through the risk cycle detailed on page 72, the Board is able to confirm that it has carried out a
robust assessment of the principal risks facing the Company, including those which would threaten
our business model, future performance, solvency or liquidity, in accordance with section C 2.1 of
the Code.

Statement of review

The risk management process detailed on pages 70-74 was in place for the year under review and
up to the date of approval of this report.

The Board has conducted a review of the effectiveness of Saga’s risk management and internal
control systems, including all material financial, operational and compliance controls, and concluded
that these are acceptable.

GovernanceSaga plcAnnual Report and Accounts 2019Key Board statements
continued

The Company applied the main principles
of the Code as follows:
A. Leadership
A1 The role of the Board
The Board met formally seven times during the year.
The schedule of matters reserved for the Board (detailed
on page 58) was reviewed on 25 September 2018. There is
a clear governance structure throughout the Group, which
sets out delegated authorities.

A2 Division of responsibilities
There is a clear division of responsibilities between
the Chairman and the Group Chief Executive Officer.
The Chairman is responsible for the leadership and
effectiveness of the Board. The Group Chief Executive
Officer is responsible for leading the day to day
management of the Group within the strategy set by
the Board. A document clarifying these divisions and
the role of the Senior Independent Director was reviewed
and approved by the Board on 1 November 2018.
This document is reviewed annually by the Board.

A3 The Chairman
The Chairman sets the agenda for meetings, manages
the meeting timetable (in conjunction with the Company
Secretary) and facilitates open and constructive dialogue
during the meetings, with particular focus on strategic
issues. The Chairman promotes constructive relations
between Executive and Non-Executive Directors.

A4 Non-Executive Directors
The Non-Executive Directors provide objective, rigorous and
constructive challenge to management and meet regularly
without the Executive Directors. The Senior Independent
Director acts as a sounding board for the Chairman,
leads an evaluation of the Chairman’s performance and
is available for meetings with major shareholders.

B. Effectiveness
B1 The composition of the Board
The Nomination Committee is responsible for regularly
reviewing the composition of the Board, considering
succession planning and evaluating the skills, knowledge
and experience required of Board candidates.

B2 Appointments to the Board
The appointment of new Directors to the Board is led by
the Nomination Committee and the process is such that
candidates are selected on merit and with due regard
for the benefits of diversity, in all forms. This included the
search for a successor to the Chairman. Further details of
the activities of the Nomination Committee can be found
on pages 68-69.

B3 Commitment
On appointment, Directors are notified of the time
commitment expected from them. External directorships,
which may impact on the existing time commitments of
the Executive Directors, must be agreed beforehand with
the Chairman.

B4 Development
A tailored programme is set up when a Director joins the
Board and this is ongoing to ensure that Directors’ skills
and knowledge are regularly updated and refreshed.

B5 Information and support
The Chairman, in conjunction with the Company
Secretary, ensures that all Board members receive
accurate and timely information and are kept informed
on all governance matters.

B6 Evaluation
The Board conducted an externally facilitated annual
evaluation of its own performance and that of its
Committees and individual Directors, as set out on
pages 66-67.

B7 Re-election of Directors
All Directors are subject to annual re-election by
shareholders at the Company’s AGM.

C. Accountability
C1 Financial and business reporting
The Board has established arrangements to ensure that
reports and other information published by the Group are
fair, balanced and understandable. The Strategic Report is
set out on pages 1-51 inclusive and this provides information
about the performance of the Group, the business model,
strategy and PRUs relating to the Group’s future prospects.

C2 Risk management and internal control
The Board sets out the Group’s risk appetite and risk policy.
The effectiveness of the Group’s risk management and
internal control systems is reviewed annually. The activities
of the Risk Committee, which assists the Board with its
responsibilities in relation to the management of risk, are
summarised on pages 79-81.

C3 Audit Committee and auditors
The Board has delegated a number of responsibilities to
the Audit Committee, which is responsible for overseeing
the Group’s financial reporting processes, internal
controls and the work undertaken by the external auditor.
The principal activities of the Audit Committee are set
out on pages 75-78.

The Chairs of the Risk and Audit Committees are Board
members and provide regular updates to the Board
regarding Committee business.

Saga plcAnnual Report and Accounts 2019D. Remuneration
D1 The level and components of remuneration
The Remuneration Committee is responsible for setting
levels of remuneration which will attract, retain and motivate
Board members. Remuneration is structured to link it to both
corporate and individual performance, so that the interests
of management are aligned with those of shareholders and
the long-term success of the Company.

E2 Constructive use of general meetings
The Board sees the AGM as an important opportunity
to meet shareholders. The Chairman and Chairs of
each Committee are available for questions during the
formal part of the business and the Board (and senior
management) are available after the meeting.

Details of how the Board engages with shareholders can be
found on page 82.

D2 Procedure
Details of the work of the Remuneration Committee and
the Remuneration Policy can be found in the Directors’
Remuneration Report on pages 83-112 inclusive.

E. Relations with shareholders
E1 Dialogue with shareholders
The Board actively engages with shareholders and values
opportunities to meet with them. The Chairman has direct
contact with our major shareholders and ensures that the
Board is kept informed of shareholder views and that all
Directors are in touch with shareholder opinion. The Senior
Independent Director also meets with major shareholders
during the year and the Non-Executive Directors receive
analyst and broker briefings.

Action taken as a result of a review of the UK Corporate Governance Code 2018

Audit and Risk
Committees

A review of the current practices and procedures showed that the Company is compliant with the
UK Corporate Governance Code 2018.

Nomination
Committee

The remit was expanded (and terms of reference updated) to include:

• additional reporting responsibilities for the annual report and accounts
• oversight of the development of a diverse pipeline for succession and reporting on progress

on diversity

• a formal process for Director appointments to note consideration of other demands on

Directors’ time and significant commitments (with an indication of time involved)

• Directors are required to obtain Board approval before accepting additional

external appointments.

Remuneration
Committee

The remit was expanded (and terms of reference updated) to include a review of workforce
remuneration and related policies and alignment of incentives and rewards with the Company’s
risk appetite, culture, strategy and purpose.

The Company’s remuneration policies and practices are being reviewed to ensure they are
aligned with the Company’s culture and strategy. Formal channels for providing feedback by
the workforce on reward, incentives and conditions and how these address any pay gaps and
pay ratios has been established by the formation of a People Committee. Gareth Williams was
selected as our Non-Executive Director for employee-related matters.

More information can be found in our Remuneration Report on pages 83-112.

GovernanceSaga plcAnnual Report and Accounts 2019A review of our strategic objectives and financial
performance takes place at each Board meeting. The Board
is responsible for, and provides, the overall direction for
management, debating our strategic priorities and setting
Saga’s values and standards.

A fundamental part of this role is to consider the balance of
interests between our stakeholders including shareholders,
our customers, our employees and the communities in which
we work.

The Board also provides oversight and supervision of Saga’s
operations, ensuring:

• successful implementation of agreed strategy
• sound planning and competent management
• a solid system of internal control and risk management
• adequate accounting and other records
• compliance with statutory and regulatory obligations.

Details of the Board’s activities during the year can be found
on pages 60-61.

Leadership

Culture
The Saga People Action Plan addresses themes identified
by our employee pulse surveys, which are conducted
throughout the year. The leadership development
programme was rolled out to the senior leaders in the
business during the year to ensure that this group were
aligned on delivering growth. Further investment in
developing our people was made with the launch of the
leadership degree, for which 50 individuals have enrolled
to date.

All Directors, members of the Group Executive Committee
and persons discharging managerial responsibilities
(PDMRs) receive training on an ongoing basis. During the
year, the Directors received regular updates on topics
including the Market Abuse Regulation, General Data
Protection Regulation (GDPR) and other relevant regulatory
changes. Training has been built into the Board and
Committee annual plan for 2019/20 and is scheduled to
include PDMR refresher training, the threat of cybercrime
and GDPR.

Directors make ongoing visits to business areas to ensure
that they remain close to what Saga does and to see first-
hand how strategy works in practice and how boardroom
discussions translate to the front line of the business.

Our Board
There is an articulated set of matters which are reserved for
the Board and these are reviewed annually. The last review
took place on 25 September 2018. Matters reserved for the
Board include the following:

• Any decision likely to have a material impact on Saga
from any perspective including, but not limited to,
financial, operational, strategic or reputational.

• The strategic direction of the overall business, objectives,
budgets and forecasts, levels of authority to approve
expenditure, and any material changes to them.

• The commencement, material expansion, diversification

or cessation of any of Saga’s activities.
• Saga’s regulatory, financial and material

operational policies.

• Changes relating to Saga’s capital, corporate,

management or control structures.

• Material capital or operating expenditure outside

pre-determined tolerances or beyond the
delegated authorities.

• Major capital projects (including post-investment reviews

where not considered in detail by the Audit or Risk
Committees or where the Board decides a full review is
required), corporate action or investment by Saga that
will have, or is likely to have, a financial cost greater than
the amount set out in the relevant contract approval
processes from time to time.

• Any contract which is material strategically or by reason
of size, not in the ordinary course of business, or outside
agreed budgetary limits or that relates to joint ventures
and material arrangements with customers or suppliers.

Saga plcAnnual Report and Accounts 2019Board attendance during the year
The Board and Committees have a scheduled forward programme of meetings. During the year, the Board met formally
on seven occasions. In addition, meetings were convened as necessary to approve strategic matters and a strategy event
was held in November at which annual and five-year plans for each of the businesses were presented to the Board and
discussed. The Chairman meets regularly with the Senior Independent Director and Non-Executive Directors outside of
formal meetings.

Member
Patrick O’ Sullivan1

Lance Batchelor

James Quin2

Orna NiChionna

Role
Chairman (leadership, Board governance, set the agenda and facilitate
open Board discussions, performance and shareholder engagement)
Group Chief Executive Officer (develop strategy for Board approval
and Group performance)
Group Chief Financial Officer (Group financial performance,
including creation of the budget and five-year plans for
recommendation to the Board)
Senior Independent Director (sounding board for Chairman, lead
evaluation on Chairman, alternative contact for shareholders)

Independent Non-Executive Directors:
Eva Eisenschimmel3
Gareth Hoskin6
Julie Hopes4
Ray King
Gareth Williams

Participate in, assess, challenge and monitor Executive Directors’
delivery of the strategy (within risk and governance structures),
financial controls and integrity of financial statements, and Board
diversity. Evaluate and appraise the performance of Executive
Directors and senior management.

Former Directors:
Andrew Goodsell
Jonathan Hill
Bridget McIntyre5

Chairman
Group Chief Financial Officer
Non-Executive Director

Maximum
number of
meetings
5

Attendance
5

1
0
2
7
7

1
5
5

1
0
2
7
7

0
5
5

Notes:
1 Andrew Goodsell resigned as Chair on 30 April 2018. Patrick O’ Sullivan was appointed as Chairman on 1 May 2018
2 Jonathan Hill resigned as Group Chief Financial Officer on 28 September 2018. James Quin was appointed as Group Chief Financial Officer on 1 January 2019
3 Eva Eisenschimmel was appointed on 1 January 2019
4 Julie Hopes was appointed on 1 October 2018
5 Bridget McIntyre retired on 31 October 2018
6 Gareth Hoskin was appointed on 11 March 2019

The Company Secretary attends all meetings as secretary to the Board. Other executives, members of senior management
and external advisers are also invited to attend Board meetings, to present items of business and provide insight into key
strategic issues. The Company Secretary assists the Chairman of the Board and Committee Chairs in planning for each
meeting and ensures that Board and Committee members receive information and papers in a timely manner.

GovernanceSaga plcAnnual Report and Accounts 2019Leadership
continued

Board activities during the year
The content of all Board meetings remains aligned to strategy and the key drivers of performance. Meetings are structured
to enable the Board to support executive management on the delivery of strategy within a transparent and robust
governance framework as illustrated on pages 62-63. The table below sets out the key areas of focus for the Board’s
activities and topics discussed during the year.

Areas of Board focus:

Strategy

People & culture

Stakeholder engagement

Governance

Investing in our capabilities

Regular updates were provided by management on strategic and commercial
priorities, including the development of the new brand strategy and updates on the
Possibilities programme. The possible impact of Brexit was discussed.
The Board received regular updates on talent and succession plans, reward structures
and Group HR policy. We established a People Committee to facilitate ongoing
dialogue and transparency with our employees.
We considered the views of, and impact of decisions on, our stakeholders.
We maintained an active dialogue with our shareholders throughout the year
responding to enquiries via our Investor Relations team and held meetings with
investors and financial analysts to discuss business performance and strategy.
The Executive Directors, the Chairman and the Senior Independent Director held
meetings with key shareholders.
Regular reports were provided by the Board’s principal Committees, with oversight
of the governance and risk management frameworks. We reviewed our risk appetite
and tolerance levels and thresholds against the strategy. The Group’s modern slavery
policy and statement were approved and published.
The Board received updates from management on the performance of the business
and on financial performance and how investment would lead to growth.

Saga plcAnnual Report and Accounts 2019Customer centricity

People

• Discussed how the Possibilities proposition could

be developed to provide greater insight into
customer needs and wants (refer to pages 19-21).
• Reviewed the marketing permissions centre and
considered how this would continue to comply
with the GDPR.

• Considered how Insurance could be better aligned
to what customers want – delivery of Insurance
the Saga Way.

• Terms of reference for a People Committee were
agreed, so that the Board would hear the views of
the wider workforce (refer to pages 101-102).

• Held a biannual review of talent development and

succession planning.

• Agreed the award of Free Shares to eligible

•

employees under the Share Incentive Plan (SIP) for
the fourth year running.
Invited senior executives to Board meetings to
gain a deeper understanding of each business and
our culture.

Governance in action

Investment

Growth

• Considered how platforms could deliver flexibility
and efficiencies – for customers and employees
(refer to pages 15 and 19).

• Discussed the new insurance platform, how this
would increase product differentiation, improve
call centre and back office efficiencies and enable
cross-selling and customer retention.

• Discussed and approved the proposition to replace
existing river ship charters (giving customers what
they want and increasing our ability to compete).

• Reviewed our products and offerings to ensure

that they truly were differentiated and enabled us
to compete.

• Discussed how to grow the Retail Insurance and

Travel businesses (refer to pages 14-15).

• Monitored progress of the build of our new ship,
Spirit of Discovery (refer to pages 15 and 24-25).

GovernanceSaga plcAnnual Report and Accounts 2019Leadership
continued

The Board’s responsibilities

The Nomination Committee’s
responsibilities
• Providing recommendations on the
size, structure and composition of
the Board.

• Succession planning.
• Evaluating the skills, knowledge,
independence and diversity of
the Board.
Identifying and nominating
candidates to fill Board vacancies.

•

• Reviewing Board performance
evaluation results in relation to
Board composition.

• Strategic direction of the Group.
• Setting values and standards (in accordance

with the ‘keep doing’ ethos).

• Considering the needs of our stakeholders,

including shareholders, employees
and customers.

• Ensuring compliance with statutory and

regulatory obligations.

• Managing risk and control.

The Audit Committee’s
responsibilities
• Monitoring the integrity of
financial statements and
reporting procedures.

• Reviewing internal audit work plan.
• Monitoring, reviewing and

challenging the effectiveness
of the Internal Audit and
Finance functions.

• Assessing the adequacy and

effectiveness of the Company’s
internal controls and audits.

• Reviewing Saga’s annual and half
year financial statements and
accounting policies.

• Approving the remuneration

and terms of engagement, and
determining independence of the
external auditor.

• Monitoring the scope of the

annual audit and the extent of
non-audit work undertaken by
external auditors.

• Providing recommendations on the
fair, balanced and understandable
assessment, going concern and
viability statements.

• Ensuring that whistleblowing and
anti-fraud systems are in place
within Saga.

The Nomination Committee Report is
on pages 68-69

The Audit Committee Report is
on pages 75-78

The Executive Committee reports
directly to the Board via the Group
Chief Executive Officer and Group
Chief Financial Officer and is
responsible for:

•

implementing strategy as determined
by the Board

• executive management – monitoring

trading against strategy

• cultural leadership and people
development and day to day
operational management

• managing risk and conduct, reviewing

Group risk and internal audit and

compliance plans

•

reporting any potential or actual

breaches of regulation or policy to

the Board.

Saga plcAnnual Report and Accounts 2019The Board’s responsibilities

• Strategic direction of the Group.

• Setting values and standards (in accordance

with the ‘keep doing’ ethos).

• Considering the needs of our stakeholders,

including shareholders, employees

and customers.

• Ensuring compliance with statutory and

regulatory obligations.
• Managing risk and control.

The Risk Committee’s responsibilities
• Advising the Board on the Group’s
overall risk appetite, tolerance
and strategy.

• Overseeing and advising the

Board on current risk exposures
and future risk strategy.

• Reviewing risk assessment and

management procedures.

• Monitoring principal business risks.
• Reviewing the adequacy and

effectiveness of risk management
and identification systems and of
the compliance function.
• Reviewing and monitoring
management’s response
to the Chief Risk and
Compliance Officer’s findings
and recommendations.
• Providing qualitative and

quantitative advice to the
Remuneration Committee on
risk weightings.

• Reviewing (on an annual basis)

reports received from the Money
Laundering Reporting Officer
relating to the adequacy and
effectiveness of the Company
and its subsidiaries’ anti-money
laundering systems and controls.

The Remuneration Committee’s
responsibilities
• Setting and monitoring the

Remuneration Policy for senior
executives, considering relevant
legal and regulatory requirements
and all relevant factors to ensure
alignment with the delivery of
value over the long-term.

• Recommending and monitoring
remuneration packages for
Executive Directors, the Chairman
and senior management.
• Working with the Nomination

Committee regarding workforce
structure, reward, incentives
and conditions.

• Reviewing workforce remuneration

and incentive programmes
ensuring alignment with Company
culture and strategy.

• Determining all aspects of share-
based incentive arrangements.

• Reviewing and administering
employee share schemes.
• Setting key performance

indicators for the Annual Bonus
Plan and long-term incentives.

• Preparing an Annual

Remuneration Report.

The Risk Committee Report is
on pages 79-81

The work of the Remuneration
Committee is included on pages 83-112
and is incorporated by reference

Board responsibilities –
allocation of time

Strategy and business
performance

c. 55%

c. 15%

Financial reporting and
controls (including
dividend policy)
Oversight of risk and
management
People, culture and
c. 10%
Board effectiveness
Corporate governance c. 10%

c. 10%

The Executive Committee reports

directly to the Board via the Group

Chief Executive Officer and Group

Chief Financial Officer and is

responsible for:

•

implementing strategy as determined

by the Board

• executive management – monitoring

trading against strategy

• cultural leadership and people

development and day to day

operational management

• managing risk and conduct, reviewing
Group risk and internal audit and
compliance plans
reporting any potential or actual
breaches of regulation or policy to
the Board.

•

GovernanceSaga plcAnnual Report and Accounts 2019Board of Directors

Composition of the Board

Key to Committees

Chairman

Executive Directors

Non-Executive Directors

– Audit Committee

– Executive Committee

– Nomination Committee

– Remuneration Committee

– Risk Committee

– Committee Chair

1. Patrick O’ Sullivan
N
Chairman

Appointed
Independent Non-Executive Director
and Chairman on 1 May 2018

Skills, competencies
and experience

Patrick has a wealth of experience in the
financial and insurance industry gained from
a number of senior roles he held at the Bank of
America, Goldman Sachs, Financial Guaranty
Insurance Company and Barclays/BZW.
Patrick spent 12 years at Zurich Insurance
Group, where he held positions including
CEO of Eagle Star Insurance Company,
CEO of UK General Insurance, Group Chief
Financial Officer and Vice Chairman of the
Management Board. Previous Non-Executive
roles have included Chairman of Old Mutual
plc and the UK’s Shareholder Executive,
Deputy Governor of the Bank of Ireland, Senior
Independent Director at Man Group plc and
Chairman of the Audit Committee at Collins
Stewart plc and Cofra Group AG.

Other roles

Patrick is also Chairman of ERS (syndicate
218), a Lloyd’s market specialist motor insurer
(appointed April 2013).

2. Lance Batchelor
E
Group Chief Executive Officer

3. James Quin
E
Group Chief Financial Officer

Appointed
Group Chief Executive Officer on 14 April 2014

Appointed
Group Chief Financial Officer on 1 January 2019

Skills, competencies
and experience

James joined us from Zurich Insurance
Group, where his most recent role was UK
Chief Financial Officer, spanning the UK
Property & Casualty and Life Insurance
operations. James is a seasoned insurance
executive with over 28 years of senior
leadership experience, primarily within Zurich,
Citigroup Global Markets, Lehman Brothers
and PricewaterhouseCoopers. James has
extensive strategic, investor and operational
finance experience within the insurance
industry and is a valuable member of the
Leadership Team.

James is an associate of the Institute of
Chartered Accountants in England and Wales.

Joined March 2014

Skills, competencies
and experience

Lance has worked in consumer-facing
businesses and brand-centric roles throughout
his career, focusing on creating products that
are tailored to the customer. He holds an MBA
from Harvard Business School and began his
career as a Royal Navy submarine officer. He
went on to hold senior marketing positions at
Procter & Gamble, Amazon.com and Vodafone,
before becoming CEO of Tesco Mobile
between 2008 and 2011 and CEO of Domino’s
Pizza Group plc between 2011 and 2014.
Lance brings a wealth of senior operational
experience in listed companies to his role
at Saga. Since he joined as Chief Executive
Officer in 2014, the business has grown its
underlying core profits, invested in the growth
of passengers and policies, commissioned
the build of two new ships, introduced a motor
broking panel, launched its Membership
programme, Possibilities, and replaced most
of its key IT systems.

Other roles

Lance is a Non-Executive Director on the
Royal Navy Board, (appointed October 2018)
and a Trustee of the charity The White Ensign
Association (appointed November 2014).

Saga plcAnnual Report and Accounts 20194. Orna NiChionna
A N R RI
Senior Independent Non-Executive
Director

Appointed
Senior Independent Non-Executive Director on
31 March 2017

Independent Non-Executive Director on
29 May 2014

Skills, competencies
and experience

Orna joined the Board in May 2014 on listing.
She has significant experience in strategy
and new concept development and launch,
business turnaround, logistics redesign
and supply chain management. She was
subsequently appointed as Senior Independent
Non-Executive Director for Saga in March 2017.
Previously, Orna was Senior Independent Non-
Executive Director of HMV plc, Northern Foods
plc and Bupa and a Non-Executive Director of
Bank of Ireland UK Holdings plc and Bristol &
West plc. She is a former Partner at McKinsey
& Company, where her client portfolio included
many consumer-facing clients. Orna brings a
wealth of varied and valued skills to the Board
along with considerable experience in other
Non-Executive Director roles.

Other roles

Orna is currently Senior Independent
Non-Executive Director and Chair of the
Remuneration Committee of Royal Mail
plc (appointed June 2010), Non-Executive
Director and Chair of the Remuneration
Committee at Burberry Group plc (appointed
January 2018), Deputy Chair of the National
Trust (appointed January 2014) and Trustee
of Sir John Soane’s Museum (appointed
January 2012).

7. Gareth Hoskin
A RI
Independent Non-Executive Director

Appointed
Non-Executive Director on 11 March 2019

Skills, competencies
and experience

Gareth joined the Saga Board in March 2019.
He brings a wealth of experience from nearly
20 years with Legal & General in a variety of
roles, latterly as a main Board Director and
CEO International, where he was responsible
for the North American, European, Middle East,
Indian and Far East insurance markets. Prior
to that he held a variety of roles in finance,
retail marketing and HR. Before joining Legal
& General, Gareth worked at PwC for 12 years,
where he trained as an accountant and later
specialised in insurance.

Other roles

Gareth is currently Audit Chair and Senior
Independent Director at Leeds Building
Society (appointed November 2015). He is also
Trustee, Non-Executive Director and Chair of
the Audit and Risk Committees at Diabetes
UK (January 2015).

5. Eva Eisenschimmel
N R
Independent Non-Executive Director

6. Julie Hopes
R RI
Independent Non-Executive Director

Appointed
Independent Non-Executive Director on
1 January 2019

Appointed
Independent Non-Executive Director on
1 October 2018

Skills, competencies
and experience

Eva brings over 30 years of experience as
a brand and marketing professional. She
was previously a Non-Executive Director
(and a member of the Audit, Nomination,
Remuneration and Risk Committees) of Virgin
Money plc until its acquisition by CYBG plc.
Prior to this she was Managing Director of
Marketing, Brands and Culture at Lloyds
Banking Group plc, Chief Customer Officer
at Regus plc, and Chief People and Brand
Officer at EDF Energy. Eva has also held
senior positions at Allied Domecq and British
Airways, where she was responsible for the
Executive Club, with three million members at
the time.

Other roles

Julie brings a wealth of insurance experience
coupled with over 20 years in a variety of
roles, at Co-operative Insurance, RSA and
Tesco Bank, specialising in general insurance
and predominantly in personal lines. Julie is
highly customer-focused, with a breadth of
functional, membership and affinity experience
and a track record of driving growth.

Most recently, Julie was a Non-Executive
Director of Co-Operative Insurance, where
she chaired the Risk Committee and was
a member of the Audit and Remuneration
Committees. Prior to this, she was the CEO of
The Conservation Volunteers (2012 to 2016),
a UK community volunteering charity. Julie
is an associate with the Chartered Institute
of Bankers.

Eva is currently Chief of Staff at Lowell
(appointed February 2016).

Other roles

8. Ray King
A N R RI
Independent Non-Executive Director

Appointed
Non-Executive Director on 29 May 2014

Skills, competencies
and experience

Ray has a strong background in business
and financial management. He has led a
business similar to Saga, as Group Chief
Executive of Bupa from 2008 to 2012 and as
Chief Financial Officer from 2001 to 2008.
His earlier executive roles included Director
of Group Finance and Control at Diageo
plc, Group Finance Director of Southern
Water plc and senior roles at ICI plc. Ray has
previously been a Non-Executive Director at
the Financial Reporting Council, Infinis Energy
plc and Friends Provident plc and a Reporting
Panel Member of the Competition and
Markets Authority. Ray’s significant financial
experience and his Non-Executive Director
experience (including that of chairing audit
committees), are all immensely helpful and
valued by the Board.

Other roles

Ray is currently a Non-Executive Director
of Rothesay Holdco UK Ltd (appointed April
2014) and of its regulated subsidiary, Rothesay
Life plc (appointed April 2014).

Julie is currently a Non-Executive Director
of both Police Mutual, (appointed May
2014) where she chairs the Remuneration
Committee and is a member of the Risk,
Nominations and With Profits Committees,
and West Bromwich Building Society
(appointed April 2016), where she chairs the
Remuneration Committee and is a member of
the Risk and Nominations Committees.

9. Gareth Williams
A N R RI
Independent Non-Executive Director

Appointed
Non-Executive Director on 29 May 2014

Skills, competencies
and experience

Gareth’s expertise is in all aspects of human
resource and people strategy, which he
gained from his previous positions including
Human Resources Director of Diageo plc
(where he also had oversight responsibility
for corporate relations) and a series of key
positions in human resources at Grand
Metropolitan plc. Gareth’s contributions
to the Board and its Committees bring a
unique perspective to discussions, drawn
from his experience of working at Director
level in a consumer-facing organisation
and his knowledge of corporate relations,
management development and resourcing.

Other roles

Gareth is currently a Non-Executive Director
of WNS (Holdings) Limited (appointed
January 2014).

GovernanceSaga plcAnnual Report and Accounts 2019Effectiveness

The members of the Board
The Board considers its overall size and composition to be
appropriate, having regard in particular to the independence
of character, integrity, differences of approach and
experience of all the Directors. We give due regard to the
benefits of diversity in its widest sense for the current and
future Board composition.

We consider that the skills and experience of our individual
members, particularly in the areas of insurance, financial
services, consumer services, brand management, strategy
and risk management, are fundamental to the pursuit of
our objectives. In addition, the experience of members of
the Board in a variety of sectors and markets is invaluable
to Saga.

Independence of Non-Executive Directors
The Board considers all of the current Non-Executive
Directors to be independent of Saga’s executive
management and free from any business or other
relationships that could materially interfere with the exercise
of their independent judgement or objective challenge of
management. These Directors are Eva Eisenschimmel, Julie
Hopes, Gareth Hoskin, Ray King, Orna NiChionna, Patrick O’
Sullivan and Gareth Williams.

Changes to the Board
Andrew Goodsell resigned from the Board and his position
as Non-Executive Director and Chairman on 30 April
2018. He was replaced as Non-Executive Director and
Chairman by Patrick O’ Sullivan, who was selected due to his
experience in growing businesses in the financial services
and insurance industry. The Board was of the opinion that
Patrick’s leadership would be invaluable as we invested in
growing the customer base to deliver profit growth across
the business.

During the year we made three appointments to the
Board. The Nomination Committee discussed optimum
Board composition and the skills required to take the
business forward. In March 2018, we announced that
Jonathan Hill intended to resign from the Board and step
down from his position as Group Chief Financial Officer.
The process to recruit a replacement was led by Orna
NiChionna as Senior Independent Director and overseen
by the Nomination Committee. On 20 September 2018, we
announced that the Board had approved the Nomination
Committee’s recommendation to appoint James Quin as
Group Chief Financial Officer with effect from 1 January
2019. James was selected due to his extensive strategic,
investor and operational finance experience within the
insurance industry.

In September 2018, we announced that Julie Hopes had
been appointed to the Board as a Non-Executive Director
with effect from 1 October 2018, replacing Bridget McIntyre.

In December we announced that Eva Eisenschimmel
had been appointed to the Board as a Non-Executive
Director with effect from 1 January 2019. More details on
the appointment process can be found in the Nomination
Committee Report on pages 68-69.

We continue to comply with the Code’s recommendation
that at least half of our Board members are independent
Non-Executive Directors. For full details of Board
composition, see pages 64-65.

Annual re-election
The Directors are standing for election or re-election at the
AGM. The Board’s view is that each of the Directors standing
for re-election should be re-appointed and that Julie Hopes,
Gareth Hoskin, James Quin and Eva Eisenschimmel, who are
standing for election, should be appointed. We believe that
they have the skills required for the Board to discharge its
responsibilities, as outlined in each of their biographies set
out on pages 64-65.

Board effectiveness review
The effectiveness of the Board is vital to the success of the
Group. At the year end, the Board undertakes an evaluation
process to assess how it, its Committees and individual
Directors are performing.

2017/18 review
The 2017/18 review was carried out by Independent Audit
Limited, based on Independent Audit Limited’s analysis of a
self-assessment.

The review concluded that the Board felt that information
and the way issues were brought to the Board had improved
and provided the right opportunity for discussion.

The action plan arising from the 2017/18 evaluation included:

•

improving the structure of the information provided, to
make sure that the Board receives a clear picture of how
performance links to key drivers
improving Board papers, so that these consistently
benefited from good summaries, positioning and analysis
to help the Board ensure that growth and initiatives were
on track.

2018/19 review
The Board agreed that the 2018/19 review should also be
carried out by Independent Audit Limited, as this would
provide a consistent approach and allow for effective
tracking against the previous year’s action plan.
Independent Audit Limited does not have any other
connection to the Company.

Saga plcAnnual Report and Accounts 2019The review was an analysis of a self-assessment. This was
focused on assessing progress in the areas identified during
last year’s review as opportunities for further development.
Independent Audit Limited circulated a questionnaire to all
Directors so that they could express their views on areas
such as:

• how value is built and how strategy is considered and

presented to investors

• how well we understand our customers and use data to

gain valuable insight

• how we stay alert to the competition
• how investment would be made in the Possibilities

programme and brand awareness

• the risk associated with technology, projects and

delivery of strategy

• the performance of the Committees and

Committee Chairs.

A report prepared by Independent Audit Limited was
presented and discussed by the Board. As a result of this in-
depth discussion, a Board development plan was agreed.

The review concluded that good progress had been made,
there was a clearer view of risk and areas of importance
were highlighted in pre-read papers. There was greater
emphasis on focusing on the long term.

There remains scope for further strengthening of:

• setting out credible plans for the long-term future of

the Group

Board development plan for 2019/20
The Board will continue to ensure that agreed ‘touchstones’
remain at the centre of Board discussions and are aligned
to strategy. Quality of data will be paramount to ensure
that key drivers of performance are closely monitored.
Risk management will continue to link directly to strategic
drivers and PRUs. Off-site strategy days are used to set
and reflect on progression of the Company’s strategy.
These sessions also allow the Board to discuss the strategic
priorities for the year ahead.

Process for Board and
Committee evaluation

Company Secretary, Chairman and Independent
Audit Limited discuss actions identified from
last year’s evaluation and areas of focus for
the 2018/19 review

Questionnaire prepared by Independent
Audit Limited and circulated to Directors

• considering the impact of decisions on stakeholders in

Report produced by Independent Audit Limited

more detail

• focusing on competition and what differentiates Saga
• assessing the impact of digital and artificial intelligence.

As a result of cascading the results of the evaluation to
the Group Executive, a good dialogue was established to
support delivery of the strategy.

The Senior Independent Director and the Non-Executive
Directors also evaluated the Chairman’s performance and
the Senior Independent Director provided feedback to
the Chairman.

Review/discussion with Chairman and
Company Secretary

Discussed at Board (including feedback to
Committee Chairs)

Action plans prepared

GovernanceSaga plcAnnual Report and Accounts 2019Nomination Committee Report

Dear Shareholder,
I am pleased to present this report from the Nomination
Committee on what has been a year in which we have
made significant changes to Board composition. Since I
assumed responsibility as Chair of the Committee from
Orna NiChionna on 18 May 2018, we have been focused
on ensuring that we have the right skills and experience
in place at Board level. I was delighted that this resulted
in the appointments of Julie Hopes, Eva Eisenschimmel
and Gareth Hoskin as Non-Executive Directors and
James Quin as Group Chief Financial Officer. Julie chairs
the Saga Services Limited board, our largest regulated
subsidiary, following the retirement of Bridget McIntyre and
Gareth will act as chair of our AICL board, providing useful
oversight of these key areas of our business. Our Board is
currently comprised of 33% female to 67% male Directors.
Succession planning and talent development at and below
Board level remains a key consideration, recognising the
importance of this in supporting the delivery of our strategy.

General information
Summary of Committee’s remit

• To review the structure, size and composition

(including the skills, knowledge, independence,
experience and diversity) of the Board and to make
recommendations with regard to any changes.
• To prepare a description of the role, capabilities

and expected time commitment required
for appointments.

• To consider succession planning and talent

development for Executive Directors and other
senior executives and to ensure a progressive refresh
of the Board.

• To review the results of the Board performance

evaluation process that relate to the composition
of the Board.

Committee terms of reference were approved by the Board
on 25 September 2018 and are available on our website at
www.corporate.saga.co.uk/about-us/governance

What we have done during the year

Time spent on matters

c.40%

Board composition
Executive succession
and talent development c.35%
c.10%
Board evaluation
c.15%
Diversity

Committee composition and attendance

Member
since

Member
Patrick O’ Sullivan
(Chair) 1
18/05/18
Andrew Goodsell2 24/09/15
Ray King
29/05/14
Bridget McIntyre3 01/01/16
29/05/14
Orna NiChionna
29/05/14
Gareth Williams

Max.
possible

meetings Attendance

4
3
7
5
7
7

4
0
7
4
7
7

Notes:
1 Patrick O’ Sullivan was appointed on 1 May 2018
2 Andrew Goodsell resigned on 30 April 2018
3 Bridget McIntyre retired on 31 October 2018

At the beginning of the year, the Committee consisted
of independent Non-Executive Directors and the
previous Chairman. Following the appointment of Patrick
O’ Sullivan as Committee Chair, all members were
independent. From 1 November 2018, three independent
Non-Executive Directors and the Chairman have formed
the Committee. Since the year end we have appointed
Eva Eisenschimmel as a Committee member.

Committee evaluation
An evaluation of the Committee’s effectiveness took
place during the year, as part of the Board effectiveness
review (for details see pages 66-67). The review indicated
that the Committee had had good discussion about
Board skill requirements, diversity and management
development. It was felt that a future area of focus
was the succession pipeline to ensure that it supported
a strong and diverse management team.

Saga plcAnnual Report and Accounts 2019Succession planning and talent development
The Committee has continued to oversee the development
of Group Executive Committee members and senior
management. An established talent review framework is in
place, which identifies potential successors for each role, a
pipeline of candidates for the Executive and a development
process. Diversity is considered as part of this discussion.

The Committee recognised the importance of the Board
having access to senior management meeting individuals in
the talent pool. Arrangements were made for the Board to
meet these individuals and they were invited to attend Group
Executive meetings to gain an understanding of the skills
required to operate at a senior level .

Diversity
The Company has a diversity and dignity policy in place
to provide equal opportunity for all individuals including
in relation to protected characteristics of individuals.
This policy applies to the Group, including the Board of
Directors, and is communicated to all staff. All employees
are expected to co-operate in making this policy effective
and to adhere to it and report any breaches of the policy,
whether actual or perceived, to their line manager or to
human resources.

Whilst consideration is given to diversity as part of the
appointment process, individuals (including executives
and Board members) are selected, promoted and treated
according to their ability, merits and the requirements
of the relevant position. The policy does not set specific
targets. This equal opportunities policy entails taking
practical steps to promote a working environment in which
all employees are treated with dignity and respect, free from
discrimination and harassment.

Terms of reference
Committee terms of reference were reviewed against best
practice. The impact of the UK Corporate Governance
Code 2018 was also considered. As a result, the terms
of reference were amended to provide for consideration
of the length of service of the Board as a whole and the
need for a progressive refresh of its members; reference to
diversity ‘of perspective, including gender, social and ethnic
backgrounds’; implementation of the diversity policy; the
need for gender balance in senior management; and the
need to develop a diverse pipeline in succession planning.

Patrick O’ Sullivan
Chair, Nomination Committee

Board evaluation
Committee members also discussed the findings of the
report produced by Independent Audit Limited in relation to
the composition of the Board. Based on the self-assessment,
it was felt that the Committee had a detailed understanding
of the appropriate Board and the Board Committees’
structure, size and composition. We also concluded that the
selection process for the Chairman, Group Chief Financial
Officer and Non-Executive Directors had resulted in a Board
comprised of the skills needed to take the Group forward.

Board composition
Our terms of reference set out how we recruit and appoint
Directors to the Board. They stipulate that we will use
open advertising or the services of external advisers to
facilitate a search for the best possible candidates. In last
year’s report, we confirmed that MWM Consulting had
been appointed by the Committee to provide support in
searching for a new Chairman and we explained the process
involved. The Committee recommended my appointment as
Chairman, which was subsequently approved by the Board.

Following my appointment, the Committee considered
the skills needed to support delivery of the strategy.
We concluded that there was a need to appoint a Non-
Executive Director with strong insurance experience and a
focus on customer outcomes, who would succeed Bridget
McIntyre as a Board Director and Chair of Saga Services
Limited. In addition, we identified the need to appoint a
Non-Executive Director with both insurance and commercial
experience, who would also chair AICL, and a Non-Executive
Director with strong consumer experience, particularly
in optimising customer journeys, marketing and brand
awareness. MWM Consulting was involved in appointing
all of the Non-Executive Directors.

Following the resignation of Jonathan Hill as Group
Chief Financial Officer, a search was instigated for his
replacement. Spencer Stuart was involved in this process.
Neither MWM Consulting or Spencer Stuart have any other
connection with the Company.

Job specifications were carefully crafted to reflect the
requirements for each role, including time commitment and
experience. A shortlist was considered for each role and
a series of interviews with all members of the Committee
and the Group CEO followed for preferred candidates.
References were obtained and terms of appointment
were considered. Candidates were assessed against
their strategic skill set, experience, and personality and
fit. Consideration was also given to diversity and whether
individuals being considered for the Non-Executive roles
met the independence criteria set out in the Code.

Re-election and election of Directors
During the year, the Committee considered the profiles of
the Directors and recommended to the Board that all should
be put forward for re-election or election at the 2018 AGM.
Individuals did not participate in the discussion when their
own re-appointment was being considered.

After the year end, but prior to the publication of this annual
report, the Committee considered each Director’s contribution
and the time commitment necessary to perform their duties.
A recommendation was made to the Board that all Directors
be put forward for re-election (or election) at the 2019 AGM.

GovernanceSaga plcAnnual Report and Accounts 2019Accountability

Risk management and internal control

Saga plc Board

•
•
•

Group
Audit and Risk
Committees

Top down:
•

Group risk policy
and strategy
Group risk appetite
Principal risk oversight
Group compliance
oversight

Business Audit,
Risk and Compliance
Committee

Bottom up:
•

•

Business risk appetite
deﬁnition and policy
Identiﬁcation,
assessment and
mitigation of business-
speciﬁc risks
Upward review and
reporting of all risk
exposures, key
residual risks and risk
mitigation activities

Group CEO

Business
board

Business
Executive
Committee

Business Risk
Committee

Board assessment of risk management
and internal control
The Board has ultimate responsibility for the Group’s risk
management and internal control, and for the Company’s
risk culture. In accordance with section C 2.3 of the Code,
the Board is responsible for reviewing the effectiveness of
risk management and control systems, ensuring that:

• there is an ongoing systematic process for identifying,
evaluating and managing the principal risks faced by
the Company

• this system has been in place for the year under review
and up to the date of approval of the annual report
and accounts

• the system is regularly reviewed by the Board
• the system accords with the FRC guidance on risk
management, internal control and related financial
and business reporting.

During 2018, the Board has directly, or through delegated
authority to the Risk and Audit Committees, overseen
and reviewed the development and performance of risk
management activities and practices and internal control
systems in the Group. The Board has agreed risk policies,
risk appetite and the strategic approach to risks and it has
overseen the identification and mitigation of emerging and
principal risks. Details regarding the involvement of the Risk
and Audit Committees in the development and review of risk
management and internal control systems can be found in
the Risk and Audit Committee Reports on pages 79-81 and
75-78 respectively.

Saga plcAnnual Report and Accounts 2019Risk management and control is achieved through
application of the ‘three lines of defence’ model as follows:

Saga’s ‘three lines of defence’ risk governance model

Governing body/Board/Audit Committee

Senior management

1st line of
defence

Management
controls

Internal control
measures

2nd line of
defence

Financial control

Security

Risk management

Compliance

Health and safety

3rd line of
defence

Internal
audit

E
x
t
e
r
n
a

a
u
d

i
t

R
e
g
u

a
t
o
r
s

1st line of defence – Business managers and staff are
responsible for identifying and managing risk in line with
agreed risk appetite, risk policies and procedures.

2nd line of defence – Independent oversight is provided
by the various control functions. Duties include advice on
Group and business risk appetites, independent review
and challenge of the rating of key risks, and approach and
adequacy of business risk management strategies. The 2nd
line of defence is also responsible for reporting on the
management of PRUs to the Risk Committee and Board.

3rd line of defence – Internal audit provides independent
assurance on the operation and effectiveness of internal
control throughout the Group, including consideration
of the effectiveness of the risk management process.
The 3rd line of defence reports to the Board by way of the
Audit Committee.

The spread and variety of business operations require
risk and internal control issues to be considered at both
specialist business level and aggregated Group level.
Risk and internal control oversight is provided by all
Committees and key concerns are raised to the Audit and
Risk Committees and ultimately to the Board, if required.

GovernanceSaga plcAnnual Report and Accounts 2019
Accountability
continued

Risk management framework
Group risk management is an iterative cycle of activities, comprising the following:

Group risk management
policy and strategy
(including risk appetite)

Business risk
policies

Business risk
appetite

Roles, responsibilities
and objectives

Risk assessment
and key risk
indicator identiﬁcation

Governance

Communication

Risk review
(ongoing)

Saga high-level
risk management
process and cycle

Risk control
assessment

Infrastructure

Risk reporting
Group CEO and Group
Risk Committee to the Board

Challenge

Framework foundations

Elements of the risk management process and cycle

Key elements of the framework

The Financial Crime, Data and Information Security Committee provides an
additional forum to consider specialist risks arising in these areas.

Saga plcAnnual Report and Accounts 2019Risk monitoring
All risk registers are independently reviewed by the risk
team to test for completeness of risk and control capture,
effective testing of key control measures, and recording and
reporting of any exceptions and overdue actions.

Process feedback
Outputs from the risk management cycle are fed back to
the Risk Committee to assist with the revision of the Group
risk management policy and framework. They may also be
used to inform future iterations of the Group’s strategy.

Independent process assurance
Saga’s Internal Audit function provides independent
assurance of the effectiveness of the risk management
procedures at both Group and business levels.

A statement confirming that the Board has carried out
a robust assessment of risks is on page 55.

Internal control
Internal audit acts as the 3rd line of defence within Saga’s
risk management framework. The objective of internal audit
is to help protect the assets, reputation and sustainability
of the organisation by providing independent, reliable,
valued and timely assurance to the Board and executive
management. To preserve the independence of internal
audit, the Head of Internal Audit’s primary reporting line is
to the Chair of the Audit Committee, and the Internal Audit
team is prohibited from performing operational duties for
the business.

All activities of the Group fall within the remit of internal
audit and there are no restrictions on the scope of internal
audit’s work. Internal audit fulfils its role and responsibilities
by delivering the annual, risk-based audit plan. Each audit
provides an opinion on the control environment and details
of issues found. Internal audit works with the businesses to
agree the remedial actions necessary to improve the control
environment, and these are tracked to completion. The Head
of Internal Audit submits reports to, and/or attends, Board
and Audit Committee meetings for the subsidiary Saga
businesses, as well as meetings of the Audit Committee.

Identification of risk appetite
Saga defines risk appetite as the amount and sources of
risk which we are willing to accept in aggregate in pursuit of
our strategy. Group risk appetite is reviewed annually and
derived from our strategic objectives. It is used as a measure
against which all of our current and proposed activities can
be tested. Group risk appetites and tolerances are further
defined within the principal risks and uncertainties section
(pages 34-37).

Business risk appetites are separately crafted. These may
be different to Group appetites but cannot exceed them.

Risk policies
Saga has a Group risk policy that defines our risk
management strategy, framework, governance structures,
and detailed assessment and mitigation processes.
Individual business policies are also created, these are
customised to reflect specific business characteristics but
still consistent with the overall risk management framework.
All risk policies are reviewed at least annually and approved
at business or Group boards as appropriate.

Risk and control assessment
Each Saga business is responsible for identifying and
managing its risks, which are captured on risk registers and
also include associated controls and incidents. Risks are
rated in terms of probability and impact on both an inherent
and a residual basis and are graded on a red, amber, yellow
and green scale.

Risk review and reporting
Risk reports are reviewed at business risk committees,
which are attended by key 1st and 2nd line of defence
managers. An aggregated Group view of the principal risks
is subject to independent review by the Risk Committee.
Explicit consideration is also given as to whether risks lie
within or outside our risk appetite. Any risk close to appetite
limits on a residual basis is examined to ensure that our
desired risk/reward balance is maintained.

Significant control weaknesses or failures are escalated to
the Board of the individual business or, if of sufficient scale
and seriousness, to the Risk Committee. Each subsidiary
risk committee considers cross-Group risks and incidents to
ensure the risk of contagion is minimised.

Risk oversight
Independent oversight of the risk management process
is provided by the Chief Risk and Compliance Officer,
the risk team, the compliance team, the Risk Committee
and, ultimately, the Board. All business CEOs certified
compliance with the risk management framework at the
year end.

GovernanceSaga plcAnnual Report and Accounts 2019The accounts production process ensures that there is a
clear audit trail from the output of the Group’s financial
reporting systems, through the conversion and consolidation
processes, to the Group’s financial statements.

The outcome of this modelling confirmed that none of the
top three PRUs would compromise the Group’s viability.
The reverse stress test demonstrated that the likelihood of
a combination of PRUs causing us to breach performance
and insolvency thresholds was remote.

As set out in the Audit Committee Report on pages 75-78,
the Directors have reviewed and discussed the rationale and
conclusions of management’s viability testing.

Statement of review
As a result of its consideration and contribution to risk
management and internal control activities, the Board is
satisfied that the risk management and internal control
systems in place remain effective.

The Board’s statement of review of the effectiveness of
Saga’s risk management and internal control systems is
contained on page 55.

Accountability
continued

Financial reporting
The Group maintains a control environment that is regularly
reviewed by the Board. The principal elements of the
control environment include comprehensive management
and financial reporting systems and processes, defined
operating controls and authorisation limits, regular Board
meetings, clear subsidiary board and operating structures,
and an Internal Audit function.

Internal control and risk management systems relating to
the financial reporting process and the process for preparing
consolidated accounts ensure the accuracy and timeliness
of internal and external financial reporting.

The Group undertakes an annual strategy process
which updates the plan for the next five years and
produces a detailed budget for the next financial year.
Detailed reforecasts are performed by each area of the
Group every month and are consolidated to provide an
updated view of expected performance for the current year.
Each reforecast covers the income statement and cash flow
and balance sheet positions, phased on a monthly basis
through to the end of the financial year. This year the Group
has developed a revised strategy that will set a platform for
renewed growth in both customers and profits.

Regular weekly and monthly reporting cycles allow
management to assess performance and identify
risks and opportunities at the earliest opportunity.
Trading performance is formally reviewed on a weekly basis
by the management of the trading subsidiaries, and monthly
by the management of the Group. Performance is reported
to the Board at each Board meeting. Performance is
assessed against budget and against the latest forecast.

The Group has an established and well-understood
management structure with documented levels for
the authorisation of business transactions and clear
bank mandates to control the approval of payments.
Control of the Group’s cash resources is operated by
a centralised Treasury function.

Internal management reporting and external statutory
reporting timetables and delivery requirements are well-
established and documented. Control of these is maintained
centrally and communicated regularly.

The Group maintains computer systems to record and
consolidate all of its financial transactions. These ledger
systems are used to produce the information for the
monthly management accounts, and for the annual
statutory financial statements. The trading subsidiaries
within the Group prepare their accounts under Financial
Reporting Standard (FRS) 101.

Saga plcAnnual Report and Accounts 2019Audit Committee Report

Dear Shareholder,
I am pleased to report on the Audit Committee’s activities
during the year to January 2019. This has been another
busy year, as the Group continues to invest in new customer
acquisition and operating systems, new ships, improving
operating efficiency and developing the Possibilities
Membership scheme. Against this background, the
Committee provided independent scrutiny of the processes
in place to monitor the Group’s financial reporting and
control environment. While the business remains in an
environment of constant change, the Committee’s prime
focus is to ensure that internal controls remain robust.

General information
Summary of Committee’s remit
Our main purpose is to assist the Board and discharge
its responsibilities for monitoring the:

•
integrity of the Company’s financial statements
• adequacy and effectiveness of the Company’s
internal financial controls and other internal
control systems

• effectiveness, performance and objectivity of
the Company’s Internal Audit function and the
external auditors.

The Committee’s terms of reference were approved by
the Board on 25 September 2018 and are available on
our website at www.corporate.saga.co.uk/about-us/
governance

What we have done during the year

Time spent on matters

Financial statements

c.25%

Internal ﬁnancial
controls

Internal audit

Business reviews

External audit

c.20%

c.15%

c.20%

Committee composition and attendance

Member
Ray King (Chair)
Bridget McIntyre1
Orna NiChionna
Gareth Williams

Member
since
29/05/14
01/01/16
29/05/14
29/05/14

Max.
possible

meetings Attendance
5
2
5
5

5
3
5
5

Note:
1 Bridget McIntyre retired on 31 October 2018

All members are independent Non-Executive Directors.
The Board is satisfied that I have recent and relevant
financial experience and competence in accounting.
This reflects my professional qualification as a chartered
accountant and relevant experience during my career
including running a business (as CEO and prior to that
as CFO) similar to Saga. The Board is also satisfied
that the Committee members possess an appropriate
level of independence and offer a depth of financial
and commercial experience across various industries,
including the sector in which the Company operates.
The Board of Directors’ biographies on pages 64-65
contain details of each Committee member’s skills and
experience. During the year, the Committee held private
meetings with external auditors and the Head of Internal
Audit. I also had regular update meetings with them.
Since the year end we have appointed Gareth Hoskin as
a Committee member.

GovernanceSaga plcAnnual Report and Accounts 2019Audit Committee Report
continued

Committee evaluation
An evaluation of the Committee’s effectiveness took
place during the year, as part of the Board effectiveness
review (for details see page 66-67). Overall, the Committee
concluded that it has acted in accordance with its terms
of reference and that it has ensured the independence,
objectivity and effectiveness of the external and
internal auditors.

The relationship with the external auditor continues to
support a detailed examination of the critical issues and
annual report and accounts.

We are encouraging authors of papers to be concise and
use executive summaries to bring out key messages.

Reporting
Interim and full year results
The interim and full year results were reviewed, together
with papers summarising the process, the appropriateness
and application of key accounting policies, and the areas of
significant judgement, including how those judgements were
made. Reports were also received from KPMG throughout
the year. The report on the full year results included specific
focus on areas identified as having significant audit risk or
other audit emphasis.

Key areas of focus
• Valuation of insurance contracts’ liabilities. The analysis
prepared by management was reviewed alongside that
of the Group’s external auditor. The Committee also
examined the governance of the reserving process.

• Valuation of the parent company’s investment in

subsidiaries. The Committee reviewed and challenged
the recoverability of the carrying value of the investment
in subsidiaries held in the balance sheet of the Saga
plc entity. The review confirmed that an impairment
of £1,036m was required (for more information see
page 196).

• Valuation of goodwill. The Committee reviewed

and challenged the impairment assessments of the
recoverability of goodwill. The review confirmed that
impairment of £310m was required (for more information
see page 160).

• Valuation of the Group’s ships. The Committee

considered a valuation report on the existing fleet of
ships as compared with their carrying value and received
a progress update on their sale.

• Adoption of IFRS 9, IFRS 15 and IFRS 16. The Committee
considered how the adoption of new reporting standards
effective from 1 February 2018 (IFRS 9 and IFRS
15) affected the Group’s financial statements and
associated disclosures, as included in the annual report.
The Committee also considered an assessment of the
estimated impact of IFRS 16, which becomes effective
from 1 February 2019.

Accounting policy changes were reviewed and approved.
The Committee reviewed and supported the key
accounting judgements.

The Committee was satisfied that the key accounting
choices and judgements were appropriate and served to
provide a true and fair view of the Company’s financial
statements and advised the Board in order for the
appropriate statement to be made (page 55).

Fair, balanced and understandable
At the request of the Board, the Committee has considered
whether, in its opinion, this annual report and accounts,
taken as a whole, is fair, balanced and understandable
and whether it provides the information necessary for
shareholders to assess the Group’s performance, business
model and strategy.

We advised the Board that we supported the statement
made on page 55 after considering whether:

• key messages were given suitable prominence
• the report clearly described business performance

and presented a balanced view of the opportunities
and challenges

• the reporting on the business segments, significant

issues and key judgements in the narrative
was consistent with the disclosures in the
financial statements

• the KPIs were disclosed at an appropriate level
• the definitions were provided, the basis for their use
was explained and that reconciliations were made
of alternative performance measures to the closest
International Financial Reporting Standards (IFRS)
measure in the financial statements.

The Committee has also reviewed and supported the going
concern statement as set out on page 55.

Viability statement
The viability statement and the Group’s methodology for
production of its viability statement are set out on page 54.

Our review took account of the Company’s current position
and PRUs (as reviewed and approved by the Risk Committee
(see pages 34-37)) and the methodology used to provide
for an assessment of ongoing viability. We specifically
considered the relevant assessment time horizon,
associated severe but plausible potential outcomes and the
appropriateness of the scenarios modelled. We confirmed
to the Board that we considered that it was reasonable for
the Directors to make the viability statement as set out on
page 54.

Saga plcAnnual Report and Accounts 2019Audit and control
Financial controls
Key financial controls were included in the Internal Audit
programme and the outcome was reviewed by the
Committee. The Group Financial Controller provided an
update on accounting issues and key aspects of financial
controls at every meeting.

Financial crime
We reviewed policies covering financial crime (including
anti-bribery, anti-corruption and anti-fraud) to ensure
they are fit for purpose and comply with the most recent
legislation. A regular financial crime report (summarising
key themes from the Financial Crime, Data and Information
Security Committee’s meetings) was considered.
We noted the actions taken to improve the detection and
management of fraud, particularly in regard to credit card
and insurance fraud.

Whistleblowing and open door reporting
We received a report on incidents at each meeting
and concluded that all cases had been investigated
independently with appropriate follow-up action.
No material issues were identified. The whistleblowing and
open door policy and procedures were reviewed and I was
appointed as the Group’s whistleblowing champion. My role
is to oversee and ensure the integrity, independence and
effectiveness of the Company’s policy and procedures,
including those intended to protect people who raise issues
from being victimised.

Internal Audit
This department consists of eight people with a broad range
of skills and is headed by Lynn Fournier, Head of Internal
Audit, appointed during the year. Audit skills are sourced
externally for specialised audits. Taking the internal audits
conducted throughout the year and implementation of
the internal audit plan into account, we are satisfied that
the Internal Audit function had appropriate resources
throughout the year. The Head of Internal Audit is a regular
attendee at Committee meetings and provides regular
reports on the progress of the Internal Audit monitoring plan.

A proposal from the Head of Internal Audit to enhance
the Internal Audit planning methodology so it becomes
more adaptive to business needs was considered and
approved by the Committee. We approved the Internal
Audit Charter. This is available on the Saga website at
www.corporate.saga.co.uk/about-us/governance

Internal Audit work is risk-based, covers both financial and
non-financial controls, and included reviews of:

•

implementation of new operating systems for both the
Insurance and Travel businesses to ensure they remained
on track to deliver expected benefits (in terms of cost,
time and quality)

• cybersecurity – a review of key systems and processes

•

to protect Group IT assets from cybercrime
IT Disaster Recovery – a review of the Group’s restoration
procedures and in-built system resilience when a serious
disruptive event occurs

• business key controls – a review of the key risks and

controls in place for selected number of businesses within
the Group

• GDPR – included a review while the changes were being
implemented to ensure compliance with new regulations
and an end-to-end post-implementation review to ensure
continuing GDPR compliance.

We monitored the responsiveness of management to the
internal auditor’s findings and recommendations and found
these to be appropriate.

The Committee considered whether the assurance provided
by the Risk, Compliance and Internal Audit teams provided
satisfactory coverage of the Group’s risk environment and
concluded that it did. This included reviewing the results of
the internal auditor’s work and the assurance from Internal
Audit on its 3rd line of defence review of the functioning of
the risk management framework.

An external review of the effectiveness of the Internal
Audit function (in line with the recommendations of the IIA
Standards) was conducted during the financial year ended
31 January 2017. The Committee will consider in due course
when it is appropriate to undertake a further external review.

Subsidiary committees
We received an annual update on activities from the
independent Non-Executive Directors who chair the
Saga Services, Saga Personal Finance and AICL audit
committees. These included a review of the governance
arrangements to ensure that the appropriate level of
oversight and a sufficient level of transparency were in
place. Minutes from these meetings were also reviewed
at each meeting.

External audit
Following the competitive tender process in 2016, KPMG was
appointed as the Company’s external auditor in June 2017
and re-appointed in June 2018. The current audit partner
Stuart Crisp has been in place since its appointment.
We considered and approved KPMG’s engagement terms
and fee proposal for 2018/19. The Company has complied
with the Statutory Audit Services Order 2014 for the
financial year under review.

GovernanceSaga plcAnnual Report and Accounts 2019Audit Committee Report
continued

Audit planning
KPMG presented an audit plan for the financial year,
together with an outline of its risk assessments, materiality
thresholds and planned approach. The key aspects of the
plan are set out in the Independent Auditor’s Report on
pages 118-126.

The Committee considered the audit scope, materiality
and coverage, areas of audit focus and KPMG’s planned
response to identified significant audit risks, taking size,
complexity and susceptibility to fraud/error into account.

Audit quality and effectiveness of external auditors
To assess the effectiveness of the external auditors, we
considered and discussed:

• our perception of the external auditor’s understanding

and insights into the Group’s business model

• how KPMG approached key areas of judgement and the

extent of challenge

• the quality of the external auditor’s reporting to the

Committee and its overall efficiency

• the content of the external auditor’s management
letter and the management’s responsiveness to
recommendations therein

• feedback from management, who were asked to

complete an evaluation survey on the audit process and
their interaction with the audit team and audit partners
during the year.

We discussed the FRC audit quality inspection report (dated
June 2018), and KPMG’s quality improvement plan. Further,
as part of the routine procedures, the FRC selected for audit
quality review KPMG’s audit of Saga plc’s accounts for the
year to 31 January 2018. We discussed the findings with
the external auditor and were pleased there was nothing
material to disclose.

Auditor independence and non-audit services
The objectivity and independence of KPMG was reviewed
by the Committee and confirmed by the auditor throughout
the year in a letter to the Committee.

A robust non-audit fee policy is in place. This includes
a list of non-audit services where we are satisfied
that the external auditor can carry out those services
without affecting its role as external auditor. There are
clear approval levels where the Committee Chair (or the
whole Committee) is required to authorise assignments.
Competitive tendering is used for substantial work.

We noted that KPMG will discontinue the provision of non-
audit services to FTSE 350 companies (other than those
required by law or closely related to the audit).

A policy on employment of former employees of the
external auditor was also reviewed during the year and
approved on 12 September 2018. This policy complies with
the FRC’s Guidance on Audit Committees and Revised
Ethical Standard.

The audit fees payable to KPMG in respect of the year
ended 31 January 2019 were £1.3m (2018: £1.2m) and non-
audit service fees incurred were £0.2m (2018: £0.2m) for
work to review the Group’s half year results. This equates
to a non-audit to audit fee ratio of 0.14 (2018: 0.20).
A summary of fees paid to the external auditor is set out
in note 4 to the consolidated financial statements on
page 154.

The Committee is satisfied that the audit continues to be
effective and provides an appropriate independent and
objective challenge to senior management.

Ray King
Chair, Audit Committee

Saga plcAnnual Report and Accounts 2019Risk Committee Report

Dear Shareholder,
I am pleased to present our report, which summarises the
activities of the Risk Committee during the year. We have
increased our focus on some specific items including
supplier risk management; the threat of a cybercrime
attack; the implications of Brexit; conduct risk; and
regulatory scrutiny of pricing practices in the insurance
industry. We continued to measure and discuss principal
risks and uncertainties (PRUs), aiming to ensure that
processes were aligned with strategy. We also reviewed the
way in which information was presented to us, to ensure
that the Committee had better visibility of risks and key
performance indicators (KPIs) in each business area as well
as on an aggregate basis. This review was reflected in the
revised risk policy approved by the Board during the year.

Throughout the year, the Committee received regular
updates from senior management across the Group. We will
continue to review the impact that our risk management
approach has on the way the business operates in a
continually changing environment. I was also pleased
that Helen Webb, Chief Risk and Compliance Officer, was
appointed to the Group Executive Committee during the
year, as this will ensure that risk remains at the heart of
strategic discussions and decisions.

General information
Summary of Committee’s remit
Our main purpose is to assist the Board in discharging its
responsibilities for monitoring:

• the Group’s overall risk appetite, tolerance

and strategy

• the risk assessment processes that inform the

Board’s decision making process

• the effectiveness of the Group’s risk management
systems and compliance management procedures

• the Group’s capability to identify and manage

new risk

• any material breaches of risk limits and adequacy

of proposed action.

Committee terms of reference were approved by the
Board on 25 September 2018 and are available on
our website at www.corporate.saga.co.uk/about-us/
governance

What we have done during the year

Time spent on matters

Management
and reporting

Risk strategy,
policy and appetite

Compliance

Business reviews

c.25%

c.30%

c.15%

c.30%

Committee composition and attendance

Member
since

Member
Orna NiChionna
29/05/14
(Chair)
29/05/14
Ray King
Bridget McIntyre1 01/01/16
Gareth Williams 29/05/14

Max.
possible

meetings Attendance

5
5
3
5

5
5
2
5

Note:
1 Bridget McIntyre retired on 31 October 2018

All members are independent Non-Executive Directors.
Since the year end we have appointed Julie Hopes and
Gareth Hoskin as Committee members.

Committee evaluation
An evaluation of the Committee’s effectiveness
took place during the year, as part of the Board
effectiveness review (for details, see page 66-67).
The review indicated that the Committee’s work is
comprehensive, with an increased focus on Group-wide
risks. Suggested development areas included continuing
to test approaches that can help the Committee to fully
consider enterprise-wide risks and the need to link these
to strategy.

GovernanceSaga plcAnnual Report and Accounts 2019Risk Committee Report
continued

Management and reporting
At each meeting, we considered a detailed risk report.
These reports included a summary of the principal risks
of the Group, including those that would threaten the
business model, future performance, solvency or liquidity.
We recommended to the Board that the appropriate
statement regarding robust assessment of principal risks
facing the Group could be made (see page 55).

We also reviewed the risks relating to each business area’s
performance and arising from incidents, particularly those
relating to significant control failures or weaknesses.
We reviewed and discussed these incidents in the context of
their risk framework to identify causes, necessary actions,
lessons learnt and monitoring requirements. All business
CEOs certified compliance with the risk management
framework at the year end.

In co-ordination with the Audit Committee, a review of the
effectiveness of the risk management framework took
place during the year, as part of the wider review of risk
management and internal control. This was considered by
the Committee. The Committee concluded that a robust
risk management framework was in place and that a good
risk and control culture was apparent across the Group
with a continuous improvement approach. The Committee
recommended to the Board that the appropriate part of the
statement could be made (see page 55).

The insurance programme for the Group was considered,
including whether any additional cover was required,
specifically in relation to the threat of cybercrime and
the reintroduction of sanctions in the USA against Cuba.
We noted that the cover in relation to the Cruise business
would be monitored, to ensure it remained appropriate for
the new ships.

Risk strategy, policy and appetite
The risk reporting framework continues to provide a holistic
approach that is tangibly linked to the Company’s strategy.
This is reconciled with the viability statement.

Changes and additions to the PRUs list were scrutinised
in line with agreed strategy and the results of this process
are shown in the Strategic Report on pages 34-37.
These formed the basis of the scenario testing used for the
production of the viability statement (see page 54). Our risk
management processes are described on pages 70-74.
These are designed to manage rather than eliminate risk of
failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss.

Our discussions also considered conduct risk as an
essential part of our review. We reviewed how our business
decisions and behaviour could impact our customers,
affect our reputation or undermine the integrity of the
financial markets.

Risk appetites and tolerances were reviewed continually,
including those that are outside of agreed risk appetite.
We concluded that where this was the case, the probability
of occurrence was very low and that existing mitigating
actions were appropriate. We remain satisfied that controls
are in place, meaning that the risk of significant failing
across the business model is unlikely.

The Group risk policy was reviewed during the year and
while no material changes were proposed, it was presented
in a simplified format, to clarify the tone from the top
and to provide a high-level view of the approach to
risk management.

We discussed key change management projects and how
the benefit of each would be measured. We were assured
that planned projects were subject to appropriate risk
mitigation and management. The Committee noted that
where acceptable risk was taken as projects progressed, it
was carefully monitored. We concluded that there are no
systemic issues with any change management projects and
that the Committee has good oversight in terms of roles
and planning.

The risk associated with the IT systems within the Group
was discussed and it was noted that a replacement HR
system was being considered.

IT risk and protection of data are important areas of focus
for us to consider as a Committee, both in terms of cyber-
risk and regulatory compliance. IT operations are structured
to form dedicated teams, structured around business
processes and project delivery.

The cyber and information security strategy for the
Group is reviewed regularly, together with consideration
of vulnerability management of information systems
and IT crisis management and communication plans.
Strategies are in place to deal with malware and
ransomware threats: these are kept under constant review
and development as the threat evolves. The toolkit released
by the National Cyber Security Centre and Saga’s response
was discussed.

Saga plcAnnual Report and Accounts 2019Data quality was recognised as an area of focus.
We continued to monitor how the GDPR (which came
into force in May 2018) will affect how we do business.
The Committee noted that a Data Governance Forum had
been established to ensure the proactive management of
the risks presented by these regulations.

A review of legal risk and action taken to mitigate this took
place. The Committee concluded that it was important for
each business to continue to have appropriate controls to
manage legal risk.

Supplier risk management continues to be an ongoing
process, with contracts above a certain threshold being
subject to a review process, resulting in enhancement to due
diligence processes and a focus by the organisation on the
risks associated with larger suppliers and those that carry
reputational risk.

Compliance
At every meeting a Group regulation report was received,
which included the status of the monitoring plan for
the financial regulated businesses. The relationships of
individual businesses with regulators, management of
incidents and the impact of the FCA annual business
plan were considered and discussed. Material changes to
compliance regulations were noted and the FCA Market
Study was discussed.

Business reviews
Each of our meetings included a presentation from one or
two of the divisional CEOs and senior members of the team
to discuss in detail the risk and compliance issues in their
business, prioritised according to risk ratings in the Group’s
risk register.

Reviews of individual businesses during the year included
the following:

Saga Services Limited
• Considered regulatory reform and the FCA Market Study.
• Reviewed the business challenges, including the impact

of GDPR and market conditions.

• Discussed the challenges of ensuring that the culture
within Saga Services Limited was fully aligned with
their strategy.

Travel
• Heard how the business model and Holidays

transformation plan would deliver in the long-term.
• Discussed the revised structure of the division, its

governance, and issues of transformation and change.
• Considered the principal risks and noted the potential

effects of Brexit and steps taken to plan for this.
• Reviewed customer health, safety and emergency

procedures and lessons learnt from Travel-
related incidents.

Cruise
• Discussed the logistics of launching the Spirit of

Discovery, including the need to have the necessary
procurement in place and recruitment/training of staff.
• The Committee was satisfied that sufficient resource

had been deployed to ensure as far as possible that the
delivery schedule remained on track.

Saga Money
• Discussed core products in the savings and equity

release markets and how demand would be managed to
ensure there was no reputational damage to the Group.

• Considered how product offerings provided an

opportunity to grow relationships with customers
and how these would link to the Possibilities
Membership scheme.

AICL
• Discussed how the processes for reserve releases and

Solvency II could support best practice.

• Reviewed supplier risk and potential operational changes

on the horizon.

CHMC
• Discussed a programme of system fixes to reduce the

number of defects.

• Heard how the claims process was audited

and monitored.

Orna NiChionna
Chair, Risk Committee

GovernanceSaga plcAnnual Report and Accounts 2019Relations with shareholders

Shareholder communication
We plan a shareholder communication strategy for each
year, to ensure that we maintain a relationship with our
shareholders based on trust and to help them understand
how we plan to grow the business and the effect of
decisions made.

We understand the importance of maintaining open and
regular dialogue with our shareholders – many of whom
are our loyal customers. We welcome feedback at any time
during the year and the AGM provides the opportunity for
our shareholders to meet the Board and senior management
of the Group.

Lance Batchelor, Group Chief Executive Officer, and James
Quin, Group Chief Financial Officer, lead communications
with our shareholders assisted by our Director of Investor
Relations. In addition, the Chairman and Senior Independent
Director met with major shareholders during the year and
provided feedback to the Board.

Saga has a diverse shareholder register which is formed of
both institutional and retail ownership, the latter numbering
over 170,000, and a number of analysts who follow
the Company. We set ourselves the target of providing
information to our shareholders that is timely, clear and
concise. This includes a clear explanation of key strategic
events and developments, results and announcements
of acquisitions.

In addition to the AGM, we:

Wider communication
We also:

• arrange face-to-face presentations of full year and half
year results at which the Group Chief Executive Officer
and management team are available for discussions
• hold telephone briefings for analysts in conjunction with

key financial announcements

• organise face-to-face and telephone meetings for

analysts with the management team
• hold presentations with bank sales teams
• conduct tours of Saga’s operations for analysts.

The Director of Investor Relations reports on all shareholder
and wider market matters and provides regular updates
to the Chairman and Non-Executive Directors by way
of face-to-face briefings, email updates and an Investor
Relations Report, which is discussed at each Board meeting.
This includes reference to the views of key shareholders,
including their concerns. The Board is provided with analyst
and broker briefings.

We recognise that our brokers have an important role
in communicating our message to our shareholders.
Our corporate brokers, J.P. Morgan Cazenove and Numis
Securities Limited, attend Board meetings twice a year to
discuss market sentiment towards the Company from both
an institutional investor and competitor perspective. J. P.
Morgan Cazenove is a joint financial adviser with Goldman
Sachs International, which also has direct access to the
Board and provides regular feedback.

• have regular meetings with key shareholders
• arrange face-to-face presentations of full year and half
year results by the Group Chief Executive Officer and
Group Chief Financial Officer

The Board is kept fully up to date on the views of
shareholders and analysts through:

• broker attendance at Board meetings to provide

• hold telephone briefings in conjunction with key

honest feedback

financial announcements

• publish live and post-event webcasts of

key presentations

• add presentations to our website to allow shareholders

to gain an insight into how our trading performance links
to strategy

• hold investor ‘road shows’, investor days, briefings and ad
hoc meetings on request, where calendar and regulatory
requirements allow

• conduct tours of Saga’s operations
• notify our shareholders of key financial

calendar information

• publish details of live webcasting services

for key presentations

• make past key presentations available via our

corporate website.

• composition of the shareholder register
• share price performance monitoring
• feedback from investor meetings, including key questions

and concerns
recommendations and expectations of sell-side analysts

•
• peer group news
• feedback from our professional and other external

advisers and market participants.

Annual General Meeting
The AGM will be held on 19 June 2019 at 11am at Enbrook
Park, Sandgate, Folkestone, Kent CT20 3SE. The Chairman
and Chairs of all Committees will be available to answer
questions during the formal business of the meeting.

The notice of the AGM contains an explanation of business
to be considered at the meeting. A copy will be available on
Saga’s website, www.corporate.saga.co.uk, in due course.

Saga plcAnnual Report and Accounts 2019Directors’ Remuneration Report
Remuneration Committee Chair Annual Statement
Remuneration Committee

Dear Shareholder,
The Committee is pleased that our Remuneration Policy
was approved by shareholders at the AGM in June 2018,
receiving a vote in favour of over 99.34%. The changes
we made were long-term in nature and were aimed at
further aligning our remuneration with best practice.
In particular, the following features were added to the
Remuneration Policy:

• Reduced maximum pension contribution for Executive
Directors from 20% of salary to 15% of salary for
existing Executive Directors and to 10% of salary for
newly appointed Executive Directors, in line with average
employee contributions.
Introduced a mandatory post-vesting two-year holding
period to the Long Term Incentive Plan (LTIP).
Increased minimum shareholding requirements to 250%
of salary for the Group Chief Executive Officer from
200%; and for the Group Chief Financial Officer from
150% to 200% of salary.

•

We believe that the Remuneration Policy reflects the long-
term goals of the business and market best practice, but we
will continue to monitor emerging FTSE 250 best practice
following the update to the UK Corporate Governance
Code (the ‘Code’) and consider any policy adjustments as
required. The 2017/18 Annual Report on Remuneration also
received votes in favour in excess of 99%. The Committee
is pleased shareholders recognised that the Executive
Directors’ decision to waive their entitlement to the annual
bonus was reflective of Company performance during the
2017/18 financial year.

Compliance with the new UK Corporate Governance Code
We have considered the compliance of our Remuneration
Policy in the context of the new Code which applies for
financial years beginning on or after 1 January 2019.
While we are not required to comply with the Code for the
year being reported on, the following table shows that we
are already substantially compliant with the new Code:

Key remuneration
element of the Code
Five-year period
between the
date of grant and
realisation for
equity incentives.
Phased release of
equity awards.

Discretion to
override formulaic
outcomes

Post-termination
holding
requirement
Pension alignment

Extended malus
& clawback

Company position
The LTIP meets this requirement.

The LTIP ensures the phased release
of equity awards through annual
rolling grants.
The Remuneration Policy contains the
ability to override formulaic outcomes
for both the Deferred Bonus Plan (DBP)
and the LTIP. The Committee has
exercised its judgement in respect of
the year being reported on.
We are introducing a one-year post-
termination shareholding requirement.

It is the Committee’s intention to bring
new Executive Directors in at a pension
contribution equivalent to the average
employee contribution (10% of salary).
The Committee does not intend to
change the provision for existing
Executive Directors.
The current malus and clawback
provision already exceeds the best
practice suggested in relation to the
new Code.

This report lays out the activities and decisions of the
Remuneration Committee over the past 12 months.
We believe these take full account of our actual
performance and the desire to deliver sustainable, long-
term value creation in the business. Where the Committee
has exercised its judgement or discretion this has been
clearly set out.

Company performance for the 2018/19 financial year
The implementation of our strategy (as outlined on pages
14-15) has been measured against the KPIs set out below:

• Underlying Profit Before Tax down 5.4% at £180.3m

(the measure used for assessing management bonus).

• Strong reserve releases but disappointing Retail

Broking result.

• Loss before tax of (£134.6m) after goodwill impairment

of £310m.

• Available operating cash flow of £180.6m.
• Net debt reduced to £391.3m with net debt to Trading

EBITDA at 1.7x.

• Execution of new IT platform in support of both Insurance

and Travel businesses.

• Good progress in Cruise and Tour Operations. Launch of

Spirit of Discovery on track with forward bookings
meeting expectations.

• Continued efficiency gains with like-for-like overhead

reductions of £10m.

• Upweighted investment in Membership and the

Saga brand.

GovernanceSaga plcAnnual Report and Accounts 2019Remuneration Committee Chair’s Annual Statement
continued

2018/19 bonus
Page 86 sets out the calculation based on the
predetermined performance criteria for the percentage of
salary earned under the Bonus Plan for 2018/19 by Lance
Batchelor (CEO) of 77.4% of salary (maximum 150%).
The Remuneration Committee, with the support of the
CEO, exercised its judgement to depart from this formulaic
determination of the bonus and award the CEO a reduced
bonus of 52.65% of salary and to provide the whole bonus as
an award of shares deferred for three years. The Committee
made this decision based on its view that whilst the PBT
targets for the Insurance business have been satisfied it
was intended that they be met more through Retail Broking
than reserve releases. The payment in deferred shares will
increase the alignment of the CEO to shareholders and
support a focus on the announced strategy and long-term
shareholder value. James Quin (CFO) received a bonus of
82.5% of salary equivalent to 6.9% of salary pro-rated for
one month given his start date of employment of 1 January
2019. The Committee felt that given the short period in
role and his excellent performance no change to the bonus
calculation should be made for the CFO.

2016 LTIP vesting
It is currently anticipated that 0% of the 2016 LTIP will vest
on 16 May 2019. The EPS performance condition resulted
in 0% of this proportion of the award vesting. No element
is currently expected to vest in respect of the Total
Shareholder Return (TSR) performance of the Company over
this performance period. The only Executive Director eligible
to receive this LTIP award was Lance Batchelor (CEO).

What we have done during the year – matters discussed,
decisions made, and actions taken
• Made grants in May 2018 under the Saga LTIP for the
Executive Committee and senior management of the
Company. Grant levels were consistent with our normal
award policy.

• Approved the award of Free Shares to all eligible

employees in July 2018.

• Reviewed the governance and processes of the three
Saga Share Plans in operation in the Company and
confirmed that they met the necessary standards and
were well-communicated.

• Supported base salary increases of 2.0% (average) for

the employee population. Executive Director salaries will
be frozen at their current level. The Board concurrently
agreed that Non-Executive Director fees would remain at
their current level.

• Reviewed and approved the bonus outcomes for 2018/19

as detailed above.

• Reviewed a risk evaluation for the subsidiary regulated

businesses, Saga Personal Finance Limited, Saga
Services Limited and AICL, and considered whether
they highlighted any material adverse activities,
decisions or outcomes that should impact subsidiary
or Group bonus calculations. We concluded that these
evaluations were robust and that there were no risk
issues to consider in determining bonus outcomes for
any of the regulated entities.

• Approved the business and personal objectives for

2018/19. These were considered in light of both overall
performance expectations for 2018/19 and our medium-
term business strategy. Details of the personal objectives
for the Executive Directors are on page 109.

• Noted the voting results on our Remuneration Report

at the 2018 AGM.

• Considered the operation of the Remuneration Policy

•

for 2019/20.
Introduced a one-year post-termination shareholding
requirement.

• Discussed how the Committee would review wider
workforce pay and ensure alignment of incentives
throughout the Company with its culture and strategy;
and approved terms of reference for a People
Committee to engage with employees. The Chairman
of the Remuneration Committee attended the People
Committee meeting on 23 January 2019. The next
engagement will be the day of the 2019 AGM.

• Reviewed and agreed the compensation package for the

new Group Chief Financial Officer, James Quin.

Changes to the Board
Jonathan Hill, our former Group Chief Financial Officer, left
Saga in September 2018.

Upon his departure from the Board, Jonathan’s unvested
awards under the LTIP and DBP lapsed in line with our
Remuneration Policy and he received no payments for loss
of office.

General information
Committee composition and attendance

Member
Member
since
Gareth Williams (Chair) 29/05/14
29/05/14
Ray King
Bridget McIntyre1
01/01/16
29/05/14
Orna NiChionna

Note:
1 Bridget McIntyre retired on 31 October 2018

Max.
possible

meetings Attendance
7
7
3
7

7
7
5
7

All members are independent Non-Executive Directors.
Since the year end we have appointed Eva Eisenschimmel
and Julie Hopes as Committee members.

The Committee receives assistance from Karen Caddick,
Group HR Director and Vicki Haynes, Company Secretary.
Our adviser (PwC) attends by invitation.

Summary of Committee’s remit
The Committee’s main purpose is to assist the Board in
discharging its responsibilities for:

•

reviewing the broad Remuneration Policy for the senior
executives
recommending and monitoring the level and structure of
remuneration for senior management

• governing all share schemes
•

reviewing any major changes in employee compensation
and benefit structures throughout the Company or Group.

Committee terms of reference were approved by the Board
on 31 January 2019 and are available on our website at
www.corporate.saga.co.uk/about-us/governance

Saga plcAnnual Report and Accounts 2019Looking ahead
We will keep our work under review, including assessing the
scope of our involvement in remuneration deliberations and
how we work with executives on such matters. We will also
be watching developments in the evolution of the corporate
governance environment and the impact of the new Code
on widening the remit of the Committee. Given that we
have now disclosed our gender pay data, we will be working
closely with executives on action planning to reduce the
gender pay gap by proactively addressing the demographic
and non-demographic reasons for the gap.

Shareholder consultation
We did not have an active shareholder consultation exercise
during 2018/19 as we had made no material changes to the
Remuneration Policy which received such strong shareholder
support at the 2018 AGM. The Policy approved at the 2018
AGM took into account the views of the Company’s key
shareholders. Given the evolving strategy of the business,
it is our intention to consult with shareholders on potential
changes to measures and targets in the LTIP. It is intended
this should be done in early May 2019. The final outcome will
be published on the Company website prior to the AGM on
19 June 2019.

Conclusion
I hope you find the information contained in this report
helpful, thoughtful and clear. I welcome any feedback from
the Company’s shareholders and you can contact me at
gareth.williams@saga.co.uk if you have any questions or
comments on this report. I look forward to hearing your
views and will be available to answer any questions at the
Company’s AGM, at which we will ask our shareholders to
approve the Directors’ Remuneration Report.

Gareth Williams
Chair, Remuneration Committee

This report has been prepared in accordance with Schedule 8 to The
Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 as amended in 2013, the provisions of the current Code
and the Listing Rules.

What we have done during the year

Time spent on matters

Remuneration policy c.20%

Regulatory
developments

Senior management
remuneration

Share schemes

Employee
compensation and
beneﬁt structures

c.25%

c.15%

Committee evaluation
An evaluation of the Committee’s effectiveness took
place during the year as part of the Board effectiveness
review (for details see pages 66-67). The review indicated
that the Committee covers the ground well and brings the
right issues to the table. It was felt that the proposals for
employee engagement had been well thought through.
In future there will be a focus on ensuring that there is a link
between strategy and incentives and that the remuneration
structure is optimised to reward and retain employees and
deliver long-term sustainable Company performance.

Structure of the report
• Chairman’s Annual Statement (pages 83-85).
• Summary Report (pages 86-97).
• Fairness, diversity and wider workforce considerations

(pages 98-107).

• Annual Report on Remuneration (pages 108-112).

Further evolution of this report
Saga is committed to best practice reporting and this
Report includes a number of additional disclosures in
line with creating an inclusive working environment and
rewarding employees throughout the organisation in a
fair manner. In making decisions on executive pay, the
Remuneration Committee considers wider workforce
remuneration and conditions. We believe that employees
throughout the Company should be able to share in the
success of the Company and to enable this we have a
Share Incentive Plan (SIP) through which employees can buy
shares and we also provide all employees with more than a
year’s service with Free Shares every year. We believe that
employees should have the opportunity to save for their
future and to this end we have in place an open defined
benefit pension scheme which operates on a career average
basis. The Company also has a matched contributions
defined contribution pension scheme, which allows people
to receive matching contributions of up to 10% of their
base salaries as pension benefits. This is aligned with the
Remuneration Policy for any new Executive Directors.

As part of our commitment to fairness, we introduced a
new section to this report last year which set out more
information on the pay conditions of our wider workforce,
the cascade of incentives throughout our business and
our CEO to employee pay ratio, our gender pay statistics,
and our diversity policy. This year we have expanded our
disclosures in preparation for the new Code. Whilst we
recognise there is much work still to do, we believe that
transparency is an important first step towards making
improvements in relation to these important issues.

GovernanceSaga plcAnnual Report and Accounts 2019Remuneration Summary Report

In this section, we summarise:

• the actual performance and remuneration outcomes for the 2018/19 financial year
• the Remuneration Policy which applied for the 2018/19 financial year; how it was operated and the proposed application

in 2019/20

• the link between our strategy for 2019/20 and the Remuneration Policy.

Actual performance and remuneration outcomes for 2018/19
How we have performed in 2018/19
Bonus (audited in conjunction with details on page 94)
The details of the performance conditions and outcomes against the targets for the annual bonus in respect of the 2018/19
financial year are shown in the table below.

Performance condition Weighting

Threshold
perform-
ance
required

Target
perform-
ance
required

Maximum
perform-
ance
required

Actual
perform-
ance

Group PBT1

55% £171.4m £180.0m £187.2m £180.0m

Group cash flow2

15%

Personal objectives
Total
Total calculated (£)

Total payable3 (£)

30%
100%

77.2%

72.2%
See page 109 for details of personal
objectives and their achievement

81.2%

72.7%

Annual
bonus
value for
threshold
and
maximum
perform-
ance
(% of max)
20%
100%
20%
100%
0%
100%

Annual bonus value
achieved (% of salary)

Percent-
age of
maximum
perform-
ance
achieved

Lance
Batchelor

James
Quin

60%

49.5%

3.4%

24.3%

5.4%

0.4%

22.5%
77.4%
£533,893

3.1%
6.9%
£25,686

£363,171

£25,686

Notes:
1 Defined as Underlying Profit Before Tax excluding derivatives, the impairment of goodwill and cruise ships, and in the prior year excluding restructuring costs

and debt issue costs

2 Defined as net available cash generation
3 See the Remuneration Committee Chair Annual Statement on pages 83-85 for an explanation of the difference

LTIP

KPIs

Threshold

Target

Maximum

Actual

2016 LTIP award as at year end 31 January 2019
EPS growth (p.a.)1
TSR
2017 LTIP award as at year end 31 January 2019
Basic Earnings Per Share (EPS) growth (p.a.)
Organic EPS2 growth (p.a.)
TSR
2018 LTIP Award as at year end 31 January 2019
Organic EPS growth (p.a.)
TSR
Return On Capital Employed (ROCE)3

5%
Median

5%
12%
Median

12%
Median
10.5%

1.1%
–
– Upper quartile Below median

12%

–
(1.1%)
(5.9%)
–
– Upper quartile Below median

12%
21%

21%

–
(16.9%)
– Upper quartile Below median
(10.1%)
–

11.5%

Percentage
of current
potential LTIP
vesting

0%
0%

0%
0%
0%

Notes:
1 Defined as PBT divided by the number of shares in issue
2 Defined as post-tax profit excluding the effect of reserve releases divided by the fully diluted number of shares in issue
3 Defined as earnings before interest and tax divided by the carrying value of shareholders’ equity plus long-term liabilities (debt)

Saga plcAnnual Report and Accounts 2019The 2016 LTIP will vest on 16 May 2019. The indications for the LTIP performance in the table above are as at 31 January 2019.
The relative TSR target for the 2016 LTIP is substantially (but not fully) completed as at 31 January 2019. The EPS target is
complete. The Committee has included the current position for the 2017 and 2018 LTIP awards to allow shareholders to see
the potential value in the long-term remuneration over the next three years. The final level of performance and corresponding
level of vesting of the LTIP awards will be dependent on the performance at the end of the relevant performance period.

Long-term performance
The following chart shows the single figure of remuneration for the CEO since Initial Public Offering (IPO) compared to
the Company’s TSR over the same period. The chart demonstrates that if the one-off buyout award made to the CEO
on recruitment is excluded, there has been strong correlation between returns to shareholders and the remuneration paid
to our CEO.

9
2
3
5
£

O
P

n
o
0
0
1
o
t
d
e
s
a
b
e
r
R
S
T

120

100

1
9
4
2
£

0
0
6
1
£

5
2
0
1
£

2
9
1
1
£

Jan 2014

Jan 2015

Jan 2016

Jan 2017

Jan 2018

Jan 2019

TSR index

CEO single ﬁgure (’000)

Single total figure of remuneration for Executive Directors for the 2018/19 financial year

Executive Directors

Lance Batchelor
(Group Chief Executive Officer)
James Quin
(Group Chief Financial Officer)
Jonathan Hill
(Former Group Chief Financial Officer)

Period
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18

Salary £
689,785
689,785
30,833
n/a
282,981
424,483

Taxable
benefits £
35,319
32,346
3,097
n/a
15,580
24,243

Bonus £
363,171
0
25,686
n/a
0
0

LTIP £
0
199,547
0
n/a
0
92,099

Pension £
103,468
103,468
3,083
n/a
42,448
63,672

Total £
1,191,743
1,025,146
62,699
n/a
341,009
604,497

Note: Jonathan Hill resigned from the Board on 28 September 2018 and was replaced by James Quin on 1 January 2019. Therefore only the remuneration paid to
them during the financial year is shown

For the full single figure table, please see page 108 in the Annual Report on Remuneration.

GovernanceSaga plcAnnual Report and Accounts 2019

Remuneration Summary Report
continued

Illustration and application of current Remuneration Policy in 2018/19
The following charts show the 2018/19 actual remuneration against the current Policy levels of remuneration for the
Executive Directors.

Group Chief Executive Ofﬁcer (Lance Batchelor)

Group Chief Financial Ofﬁcer (James Quin)

£m

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2
7
5
8
2
8
£

%
0
0
1

1
2
1

7
7
2

2
£

%
6
3

7
2

%
6
3

Minimum

Target

5
0
6

2
3
9

3
£

%
3
5

%
6
2

1
2

0
2
8
2
4
2

3
£

%
3
4

%
2
3

%
6
2

£m

1.8

1.5

1.2

0.9

0.6

0.3

0.0

9
1
0
9
1
4
£

%
0
0
1

3
4
7

1
9
1

1
£

%
0
3
%
0
7

9
1
5

6
3
4
1
£

%
9
3

%
2
3

%
9
2

9
1
5

9
2
0
1
£

%
2
3

7
2
%

1
4

9
1
0
4
1
7

1
£

%
9
4

7
2

%
4
2

1
5
2

7
2
7
£

%
2
4

%
8
5

Maximum

Maximum
(with 50% SP growth)

Actual

Minimum

Target

Maximum

Maximum
(with 50% SP growth)

Actual

LTIP

Bonus

Fixed elements

LTIP

Bonus

Fixed elements

To aid comparability we have used James Quin’s full year annualised package for his actual remuneration. His actual total
remuneration for 2018/19 is £62,699.

Under the Policy, the remuneration payable to each of the Executive Directors is based on salaries at the start of
2018/19, and is shown for three different performance scenarios: (i) minimum; (ii) target; and (iii) maximum. The elements
of remuneration have been categorised into three components: (i) fixed; (ii) annual bonus (deferred bonus); and (iii) LTIP.
In addition, for the purposes of comparison we have included the actual single figure remuneration paid in 2018/19. In line with
the new remuneration reporting regulations, we have also shown the maximum performance scenario with the effects of a
50% increase in share price on the value of the LTIP.

Saga plcAnnual Report and Accounts 2019The following table4 outlines the elements included in the illustration above:

Minimum
Included

Target
Included

Maximum
Included

Maximum
(with 50% SP growth)
Included

Element
Fixed

Annual bonus

Description
Salary, benefits
and pension1
Annual bonus
(including deferred
shares)

No annual variable

LTIP

Award under
the LTIP

No multiple year
variable

60% of maximum
bonus (target
performance is set
above budget)
60% of the
maximum award

100% of maximum
bonus2

100% of the
maximum award3

100% of the
maximum award3
plus the increase
in value resulting
from a 50% share
price growth

Notes:
1 Based on 2018/19 financial year salary, benefit payments and pension
2 Equating to 150% for the Group Chief Executive Officer and 125% for the Group Chief Financial Officer
3 Equating to 200% for the Group Chief Executive Officer and 150% for the Group Chief Financial Officer
4 Participation in the SIP has been excluded given the relative size of the opportunity levels

In accordance with the new regulations, share price growth has been added to the LTIP only for the ‘maximum (with 50%
share price growth)’ scenario. Dividend equivalents have not been added to deferred share bonus and LTIP share awards.

Pay at risk
The charts below set out the elements of the remuneration provided under the Policy which remain ‘at risk’. For example:

• payment is subject to continuing employment for a period (deferred shares and LTIP awards)
• performance conditions must still be satisfied (LTIP awards)
• elements are subject to clawback or malus for a period, over which the Company can recover sums paid or

withhold vesting.

Figures have been calculated based on the target performance scenario (fixed elements plus 60% of maximum annual
bonus and 60% of the maximum LTIP). The charts have been based on the same assumptions as set out above for the
illustrations of the application of the Remuneration Policy.

Malus is the adjustment of unvested awards in specific circumstances. Clawback is the recovery of vested awards or
payments in specific circumstances.

Group Chief Executive Ofﬁcer (Lance Batchelor)

Group Chief Financial Ofﬁcer (James Quin)

Annual bonus
£620,807

LTIP
£827,742

Annual bonus
£277,500

LTIP
£333,000

At risk

£1,448,549

Pension and beneﬁts £138,846

Salary

£689,785

At risk

£610,500

Pension and beneﬁts

£49,066

Salary

£370,000

GovernanceSaga plcAnnual Report and Accounts 2019Remuneration Summary Report
continued

Directors’ share interests (audited)
The following table and chart set out all subsisting interests in the equity of the Company held by the Executive and Non-
Executive Directors:

Shares held directly

Other shares held

Options4

Shareholding
requirement
(% salary)1

Current
shareholding
(% salary)2

Shares
counting
towards
shareholder
requirements3

Deferred
shares not
subject to
performance
conditions

LTIP interests
subject to
performance
conditions

LTIP interests
vested but
not yet
exercised

Beneficially
owned4

Vested

Unvested

Outstanding
interests in
the SIP

Shareholding
requirement
met?

250%

200%

–

111% 704,522

192,509

338,891 2,328,140

619,847 1,081,080 1,081,082

3,882

–

46% 179,375

179,375

–

130,000

27,027

28,567

32,433

–

– 5,532,960

–

7,245

–

n/a

Director

Executive

Directors

Lance
Batchelor5

James Quin

Jonathan Hill6

Non-Executive

Directors

Patrick

O’ Sullivan

Ray King

Orna

NiChionna

Gareth

Williams

Julie Hopes

Eva

Eisenschimmel

Andrew

Goodsell

Bridget

McIntyre

Notes:
1 Shareholding requirements are those that were in existence throughout the course of the year and as at 31 January 2019
2 Values not calculated for Non-Executive Directors as they are not subject to shareholding requirements
3 Shares counting towards shareholding requirements for Lance Batchelor is calculated on a net of tax basis for both the deferred shares (179,612) and vested

but not exercised LTIP interests (328,518)

4 Lance Batchelor – these represent IPO options with an exercise price of £1.85; 540,540 options vested on 29 May 2017; 540,540 options vested on 29 May

2018; and the remaining 1,081,082 options vest on 29 May 2019

5 Since the year end, Lance Batchelor has bought an additional 131 shares through the SIP. There have been no other changes to the shareholdings above
6 The figures for Jonathan Hill are as at his date of leaving of 28 September 2018

Saga plcAnnual Report and Accounts 2019Executive Directors are required to build up their shareholdings over a reasonable amount of time, which would normally be
five years, and then subsequently hold a shareholding equivalent to a percentage of base salary. The number of shares of the
Company in which current Directors had a beneficial interest and details of long-term incentive interests as at 31 January
2019 are set out below:

Lance Batchelor
(% of salary)

Shareholding
requirement

1,580,626 shares

Current shareholding
(as per table on page 90)

704,522 shares

Value of/gain on interests over shares
(i.e. unvested awards subject to
performance conditions)

James Quin
(% of salary)

Shareholding
requirement

Current shareholding
(as per table on page 90)

0 shares

Value of/gain on interests over shares
(i.e. unvested awards subject to
performance conditions)

0 shares

1,233,914 shares

678,277 shares

50%

100%

150%

200%

250%

300%

350%

400%

450%

Notes:
• The mid-market quoted share price of 109.10p as at 31 January 2019 has been used for the purpose of calculating the current shareholding (i.e. value of

beneficially owned shares and value of/gain on interests over shares) as a percentage of salary

• Value of/gain on interests over shares comprises unvested 2016, 2017 and 2018 LTIP awards for Lance Batchelor on a net of tax basis. The one-off IPO share

option award for the Group Chief Executive Officer has an exercise price of 185.00p hence there was no gain on these awards at 31 January 2019

• Unvested LTIP shares and options do not count towards satisfaction of the shareholding guidelines

Overall link to remuneration, equity and wealth of the Executive Directors
It is the Committee’s view that it is important when considering the remuneration paid in the year under the single figure to
take a holistic view of the Director’s total wealth linked to the performance of the Company. In the Committee’s opinion, the
impact on the total wealth of the Director is more important than the single figure in any one year; this approach encourages
Directors to take a long-term view of the sustainable performance of the Company – this is critical in a cyclical business.
The ability for the Directors to gain and lose dependent on the share price performance of the Company at a level which is
material to their total remuneration is a key facet of the Company’s Remuneration Policy.

The following table sets out the single figure for 2018/19, the number of shares held by the Group Chief Executive Officer at
the beginning and end of the financial year and the impact on the value of these shares taking the opening price and closing
price for the year. Shares held includes those owned outright as well as nil-cost options currently held under incentive plans
which have not yet vested.

Lance Batchelor

Shares
held
2018/19
at start
single figure
of year
£1,191,743 2,887,028

Shares held
at end
of year

Value of
shares at
start of year

Value of
shares at end

of year Difference
3,483,269 £3,360,500 £3,800,246 £439,746

The difference of £439,746 for the year shows that the CEO’s shareholding is meaningful in comparison to his single figure.
Hence a material proportion of the CEO’s wealth is tied to the share price of the Company, aligning him with the ownership
experience of other shareholders during the period. It should be noted that the increase in value is as a result of an increase in
the number of shares owned by the CEO during the year with the actual share price having fallen during the period (£1.164 on
31 January 2018, £1.091 on 31 January 2019).

GovernanceSaga plcAnnual Report and Accounts 2019Remuneration Summary Report
continued

Remuneration Policy and its implementation
Remuneration Policy
The new Remuneration Policy was passed at the Company’s AGM on 21 June 2018 and a condensed summary can be found
in this report. A full version of the Remuneration Policy can be found on pages 112-120 of the 2018 annual report available
on our website, www.corporate.saga.co.uk/media/1248/saga_ar18_drr.pdf and from the Company Secretary at Saga’s
registered office.

Remuneration philosophy
The Remuneration Policy and strategy are designed to stimulate sustainable, value-creating growth and performance for the
business and to reward Executives’ performance accordingly. The Company’s core principles of remuneration are to support:

• sustainable long-term value creation
• profitable growth and strong cash generation
• attraction and retention of high-calibre individuals.

The Committee will review the remuneration arrangements for the Executive Directors and the Executive Team annually,
drawing on trends and adjustments made to all employees across the Group and taking into consideration:

• our business strategy
• overall corporate performance
• market conditions affecting the Company
• the recruitment market in which Saga competes for talent
• broader remuneration practices within the Company
• changing views of institutional shareholders and their representative bodies.

Saga plcAnnual Report and Accounts 2019When determining the Remuneration Policy, specifically for the Executive Directors, the Remuneration Committee addressed
the following:

Factor
Clarity

Simplicity

Risk

Predictability

Proportionality

Alignment to
culture

How the Committee addressed it in the Remuneration Policy
The Company’s performance remuneration is based on supporting the implementation of the
Company’s strategy measured through key KPIs which are used for the bonus and LTIP. This provides
clarity to all stakeholders on the relationship between the successful implementation of the Company’s
strategy and the remuneration paid.
The Company operates a UK market standard approach to remuneration which is familiar to all
stakeholders.
The Remuneration Policy includes:
• setting defined limits on the maximum awards which can be earned
•
• aligning the performance conditions with the strategy of the Company
• ensuring a focus on long-term sustainable performance through the LTIP
• ensuring there is sufficient flexibility to adjust payments through malus and clawback and an

requiring the deferral of a substantial proportion of the incentives in shares for a material period of time

overriding discretion to depart from formulaic outcomes.

These elements mitigate against the risk of target-based incentives by:
•
• deferring the value in shares for the long-term which helps ensure that the performance earning

limiting the maximum value that can be earned

the award was sustainable and thereby discouraging short-term behaviours

• aligning any reward to the agreed strategy of the Company
• the use of an LTIP which supports a focus on the sustainability of the performance over the

•
•

longer term
reducing the awards or cancelling them if the behaviours giving rise to the awards are inappropriate
reducing the awards or cancelling them, if it appears that the criteria on which the award was based
do not reflect the underlying performance of the Company.

Shareholders were given full information on the potential values which could be earned under the plans
on their approval. In addition, all the checks and balances set out above under ‘Risk’ were disclosed at the
time of shareholder approval.
The Company’s incentive plans clearly reward the successful implementation of the strategy and
through deferral and measurement of performance over a number of years ensure that the Executive
Directors have a strong drive to ensure that the performance is sustainable over the long-term. Poor
performance cannot be rewarded due to the Committee’s overriding discretion to depart from the
formulaic outcomes under the incentive plans if they do not reflect underlying business performance.
A key tenet of the Company’s culture is a focus on customers and their experience. This is reflected
directly in the type of performance conditions used for the bonus. The focus on share ownership and
long-term sustainable performance is also a key part of the Company’s culture. In addition the measures
used in incentive plans support directly the implementation of the strategy.

The Remuneration Committee is satisfied that the Remuneration Policy operated as intended during 2018/19.

Remuneration Policy
The graphic below illustrates the time horizons for each of the key elements of our Policy.

Key elements of the Policy and time horizon

Year ending January

2020

2021

2022

2023

2024

Base salary
Benefits and pension
Annual bonus – cash
Annual bonus – deferred shares
LTIP
Shareholding requirement
All employee share plan
Chairman and Non-Executive Director fees

Key Performance period:

Vesting period:

Holding period:

(Ongoing)

GovernanceSaga plcAnnual Report and Accounts 2019
Remuneration Summary Report
continued

Details of each of these elements and their implementation are included in the table below, which provides the following
information:

• A summary of the key elements of the Remuneration Policy.
• The operation of the Policy in 2018/19 and its proposed operation in 2019/20.

Operation in 2018/19
Executive Directors did not receive
any increase in base salary on
1 February 2018 (all employee rise 2%).
James Quin replaced Jonathan Hill as
CFO on 1 January 2019 and his salary
was set at £370,000, below that of his
predecessor.

Proposed operation in 2019/20
Executive Directors will not receive
an increase on 1 February 2019 (all
employee rise 2%). As a result, the
salaries for the Executive Directors
remain as:
• Lance Batchelor: £689,785
• James Quin: £370,000

As a result, the salaries for the
Executive Directors are:
• Lance Batchelor: £689,785
• James Quin: £370,000
Standard benefits.

Executive Directors received the
following:
• Lance Batchelor: 15% of salary
supplement in lieu of pension.

• James Quin: 10% of salary

supplement in lieu of pension.

No change.

Maximum bonus opportunity:
• Group Chief Executive Officer –

No change.

150%

• Group Chief Financial Officer –

125%

Two thirds of the total bonus to be paid
immediately in cash and one-third
deferred into shares for three years.

The Committee is of the view that
targets for the 2019/20 annual bonus
are currently commercially sensitive
and these targets will be disclosed
retrospectively in the 2020 Annual
Report on Remuneration.

Performance measures were:
• Group PBT1 – 55%
• Group cash flow2 – 15%
• Personal objectives – 30%
(See page 86 and page 109 for full
details on the full year 18/19 targets).

Remuneration Policy element
Base salary
The Remuneration Committee ensures
that maximum salary levels are
positioned in line with companies of a
similar size to Saga in the comparator
group. The companies in the
comparator group are the constituents
of the FTSE 250.

In general salary increases for
Executive Directors will be in line
with the increase for employees.
Benefits
The Executive Directors receive
family private health cover, death in
service life assurance, a car allowance,
subsistence expenses and staff
discounts in line with other employees.
Pension
The maximum value of the pension
contribution allowance is 15%
of gross basic salary for current
Executive Directors and limited to
10% of salary for newly appointed
Executive Directors.
Annual bonus
The Remuneration Committee will
determine the maximum annual
participation in the Annual Bonus Plan
for each year, which will not exceed
150% of salary. The Remuneration
Committee can determine that part
of the bonus earned under the Annual
Bonus Plan is provided as an award
of shares under the Deferred Bonus
Plan. The maximum value of deferred
shares is 50% of the bonus earned and
the minimum will be one third of the
bonus earned. The main terms of these
awards are:
• minimum deferral period of

three years

• the participant’s continued

employment at the end of the
deferral period unless he/she is
a good leaver.

Saga plcAnnual Report and Accounts 2019Remuneration Policy element
LTIP
Awards are designed to incentivise the
Executive Directors over the longer-
term to successfully implement the
Company’s strategy.

Operation in 2018/19
2018 LTIP award:
Group Chief Executive Officer
received award of 200% of salary.
Outgoing Group Chief Financial
Officer did not receive an award.

Proposed operation in 2019/20
2019 LTIP award:
• Group Chief Executive Officer –

200% of salary

• Group Chief Financial Officer –

150% of salary

The structure for the proposed
performance measures for the 2019
LTIP will be subject to consultation
with shareholders and will be updated
as appropriate following that
consultation. The Company will notify
shareholders of the measures and
targets prior to the 2019 AGM.

Performance measures for the 2018
LTIP were:
• comparative TSR (40%),
• Organic EPS3 (30%) – growth of

12% p.a. for 25% of this element of
the award to vest with full vesting
occurring for EPS growth of 21% p.a.
• ROCE4 (30%) – 10.5% p.a. for 25%
of this element of the award to vest
with full vesting at 11.5% p.a.

• straight-line vesting to take place
from 25% to 100% of the award
introduction of a new two-year
holding period.

•

• Group Chief Executive Officer –

No change.

250% of salary

• Group Chief Financial Officer –

200% of salary

Introduction of one-year post-
termination shareholding requirement.
Saga will continue to provide all
employees the opportunity to
participate in all employee equity
arrangements.
No change.

No post-termination shareholding
requirement.
Saga continued to operate the SIP
for all employees in 2018, with a Free
Share award of £300 made in July
2018 to all eligible full-time employees.
No increase in the Board fee,
Committee Chair fee or Senior
Independent Director fee. Non-
Executive fees were, from 1 June 2018:
• Chairman fee: £325,000
• Board member fee: £63,672
• Committee Chair fee: £10,000
• Senior Independent Director fee:

£20,000

Shareholding requirement
The Remuneration Committee
sets formal shareholding guidelines
that will encourage the Executive
Directors to build up over a five-
year period, and then subsequently
hold, a shareholding equivalent to
a percentage of base salary.
Post-shareholding requirement

All employee share plan
The Company operates an HMRC SIP.

Chairman and Non-Executive Director
fees
The fees for Non-Executive Directors
are set at broadly the median of the
comparator group.

In general, the level of fee increase
for the Non-Executive Directors will
be set taking account of any change
in responsibility and will take into
account the general rise in salaries
across the UK workforce.

Notes:
1 Defined as Underlying Profit Before Tax excluding derivatives, the impairment of goodwill and cruise ships, and in the prior year, excluding restructuring costs

and debt issue costs

2 Defined as net available cash generation
3 Defined as post-tax profit excluding the effect of reserve releases divided by the fully diluted number of shares in issue
4 Defined as earnings before interest and tax divided by the carrying value of equity plus net debt

GovernanceSaga plcAnnual Report and Accounts 2019Remuneration Summary Report
continued

The link between our strategy for 2019/20 and the Remuneration Policy
The table below summarises the purpose of our Remuneration Policy and its linkage to our corporate strategic objectives.
The Group’s strategy is laid out on pages 18-19. The key elements of the Company’s strategy and how its successful
implementation is linked to the Company’s remuneration are set out in the following table:

Complete the
transformation
of Cruise
Ensure delivery
of two new
purpose built
cruise ships in
July 2019 and
August 2020.

Relaunch Retail
Broking with a
compelling direct
proposition
Sell
differentiated
products and
service to our
customers.

Launch three-
year price for
car and house
insurance.

Improved
claims service.

Framework

Increase
usage of and
engagement with
our Membership
programme, Saga
Possibilities
Grow and
leverage
membership
and the
Possibilities
programme
to enhance
customer
engagement
and loyalty.

Accelerate the
transformation
of our Tour
Operations
business
Focus the
business on
higher-margin
escorted
travel and river
cruises.

In short haul
prioritise
high-quality
properties and
solo travel.

Complete
implementation
of IT platforms
Ensure we
have the IT
platforms to
deliver great
customer
outcomes and
deliver our
commercial
objectives.

Developing
our people
Build on
employee
culture which
promotes
fairness, talent
and inclusion
and enables
a high-
performing
business.

Increase car
and house
insurance sales
through direct
channels.

Achieve
targeted future
bookings in
2019/20 for
both ships.

PBT and
operating
cash flow.

Increase
customer
retention.

PBT and
operating
cash flow.

Increase Tour
Operations
margin.

PBT and
operating
cash flow.

Leverage
membership
to enhance
Holiday and
Insurance
sales.

Operational
objectives.

Deliver the
benefits
from our
investments in
our Insurance
Claims
Management
and Travel
platforms.

Operational
objectives.

Improve
employee
engagement.

Enhance
diverse
succession.

Operational
objectives.

Remuneration
Policy
Fixed
remuneration
(salary,
benefits and
pension)
The Company
provides
competitive
levels to
attract and
retain talent
required to
successfully
deliver on
our business
strategy.
Annual bonus
metrics
Maximum
annual bonus
opportunity is
150% of salary.
• Two thirds
of the total
bonus to
be paid
immediately
in cash.
• One third
deferred
in shares for
three years.

Saga plcAnnual Report and Accounts 2019Framework

Accelerate the
transformation
of our Tour
Operations
business
Increase the
underlying
profit before
tax margin.

Increase NPS.

Relaunch Retail
Broking with a
compelling direct
proposition
Increase car
and house
insurance sales
through direct
channels.

Complete the
transformation
of Cruise
Achieve
targeted EBITA
per ship.

Increase NPS.

Increase
customer
retention.

Increase NPS.

Increase the
underlying
profit before
tax margin.

Remuneration
Policy
LTIP metrics1
Maximum
annual award
is 200% of
salary.

Awards will
vest at the end
of three years
subject to the
achievement
of stretching
targets.

Increase
usage of and
engagement with
our Membership
programme, Saga
Possibilities
Increase
prompted
brand
consideration.

Increase
the number
of regularly
engaged
customers.

Increase in
the number
of customers
with more than
one product
holding.

Complete
implementation
of IT platforms
Implement the
IT platforms
required to
deliver the
three-year
strategy.

Fully optimise
the ‘My
Saga’ digital
customer
journey.

Developing
our people
Improve our
engagement
score.

Increase female
representation
in our 1 to 2
year succession
pipeline.

Implementation
of phase 2 of
the leadership
development
programme.

Note:
1 The Company will be consulting with shareholders on the structure of proposed LTIP metrics for 2019

GovernanceSaga plcAnnual Report and Accounts 2019Fairness, diversity and wider workforce considerations

Contents
This section of the Annual Report on Remuneration deals with the following:

• The Committee’s report:

– on wider workforce pay policies and whether the approach to executive remuneration is consistent
– on the alignment of the incentives operated by the Company with its culture and strategy.

• General pay and conditions in the Company.
• Gender and diversity.
• Comparison metrics on executive and employee remuneration.

As part of our commitment to fairness, we have introduced this section which sets out more information on our wider
workforce pay conditions, our CEO to employee pay ratio, our gender pay statistics, and our diversity policy. Whilst we
recognise there is much work still to do, we believe that transparency is an important first step towards making
improvements in relation to these important issues.

Our employees
Saga is committed to creating an inclusive working environment and to rewarding our employees throughout the
organisation in a fair manner. In making decisions on executive pay, the Remuneration Committee considers wider workforce
remuneration and conditions. We believe that employees throughout the Company should be able to share in the success of
the Company. To this end we have a SIP in place that employees can contribute to annually or monthly. We issue Free Shares
to employees on an annual basis as part of our overall approach to reward and recognition. We believe that employees
should have the opportunity to save for their futures and to this end we recently carried out a full review of our pension
arrangements following which we retained an open defined benefit (DB) scheme, though restructured to ensure affordability,
and significantly enhanced our defined contribution arrangements. We also introduced a monthly savings product to enable
our employees to save through payroll.

Committee Report
Process
In order for the Committee to review the wider workforce pay, policies and incentives, reports are regularly considered at the
Remuneration Committee meetings, setting out key details of remuneration throughout the Company. The following table
sets out a summary of the information received by the Committee at the end of the financial year:

Element of remuneration
Alignment with
remuneration principles

Salary

Saga plc
One of Saga’s reward principles is to create fair and flexible reward structures for all
Saga employees. In the past two years we have reviewed and redesigned most of our
compensation and benefit structures in line with this principle.
For full year 18/19 Saga has awarded an annual 2% pay review.

Employees rated as ‘achieving’ will receive 2%; higher performers will receive a higher rate
up to a maximum of 3.6%.

Our annual pay review in February is managed centrally, with recommendations for the
Group being presented to the Group Executive in December.

National Living Wage
For most employees, we maintain a 20p uplift between minimum pay levels and the
National Living Wage. MetroMail has maintained an uplift of 5p to reflect our approach to
allow flexibility in our reward structures and to sustain financial viability.

Saga plcAnnual Report and Accounts 2019Element of remuneration
Bonus

Saga plc
Saga operates three separate bonus schemes, which have different methods of
calculation (excluding Group Executives’ bonus):

1. Top Team Bonus Scheme
2. Management Bonus Scheme
3. Company Bonus Scheme.

Our Top Team Bonus Scheme is based on Group and divisional profit and cash
performance.

Our Management Bonus and Company Bonus Schemes are based on the performance in
three areas:

• Group profit: Group PBT, reported at the end of the financial year
• Divisional profit: Divisional PBT for the employing division, reported at the end of the

•

year (Group roles are based solely on Group profit)
Individual contribution: performance against the bonus objectives set at the start of
the financial year.

Our Top Team Bonus Scheme levels range between 40% and 60% of salary.

Management Bonus Scheme levels range between 10% to 20% depending on the level
within Saga.

Company Bonus Scheme levels range between 0% and 7.5% of salary.

Bonuses are paid annually in May subject to Company results.
Sales and commission schemes operate in the following companies within the Saga
Group: Saga Services (including Bennetts), ST&H, Destinology, Saga Healthcare, Saga
Personal Finance and Titan Travel.

The method of calculation varies dependent on business area and product. The majority
of these plans are paid monthly.

Governance of the sales and commission plans is managed at a divisional Board or
Executive Committee level.

We review these schemes regularly to ensure they adhere to our reward principles and
support good customer outcomes.

There are adequate recovery provisions in place for all plans to deal with payments
made in error or in breach of our values. These provisions are communicated to all
eligible employees.

Sales & commission plans

GovernanceSaga plcAnnual Report and Accounts 2019Fairness, diversity and wider workforce considerations
continued

Element of remuneration
LTIP

Saga plc
The LTIP is currently only available to Group Executive, Top Team roles or in exceptional
circumstances senior management. These are awarded annually.

Malus and clawback provisions are in place.

The vesting period is three years. Our Executive Directors are subject to an additional
two-year holding period.

Eligible employees:

Level
Group Chief Executive Officer
Group Chief Financial Officer
Group Executive
Top Team

Note:
1 As at 31 January 2019

Number of
eligible
employees1
1
1
5
64

Award type
Group shares
Group shares
Group shares
Group shares

Targeted
ranges
200%
150%
60%-100%
40%, 50%, 60%

Pension

Saga operates two pension schemes, a DB scheme and a defined contribution (DC)
scheme. Membership figures (as at 31 January) 2019 are as follows:

• DB scheme:
• DC scheme:

1,315
1,887

The current contributions rates are as follows:

Saga Pension Scheme (DB)
Employees can choose to join our DB scheme when reaching three years’ service with
the Company. The standard accrual is 1/75th with a contribution rate of 8.7% which is
matched by the Company. Members have the option to trade up or trade down. The trade
down rate is 1/90ths with a contribution rate of 7% employee and 7.5% employer.

To trade up they can choose either 1/60th or 1/50th accrual and the contribution rate is
8.7% plus an age-related additional contribution. The employers’ contribution is capped
at 8.7%.

This scheme is not open to resort reps or our carer population.

Saga Workplace Pension Scheme (DC)
To be eligible for autoenrolment employees need to be aged over 22 and with earnings of
over £10k per annum.

• Less than 12 months’ service:

4% of qualifying earnings (employees can pay more but employer contribution is fixed
at 4%).

• Over 12 months’ service:

4.5% of basic salary (employees can pay more but employer contribution is fixed
at 4.5%).

• Over three years’ service:

option to increase to an employer-matched maximum of 6% (employees are also
eligible to join Saga Pension Scheme (DB)).

• Over five years’ service:

option to increase to an employer matched maximum of 10%.

100

Saga plcAnnual Report and Accounts 2019The Remuneration Committee receives feedback from employee surveys and now feedback from the new People
Committee which will meet regularly throughout the year. The first People Committee meeting was held in January 2019
following an election process for the representatives who sit on it and who are drawn from all areas of our business.

Alongside its review of the wider workforce remuneration, the Remuneration Committee considers the approach applied to
the Executive Directors and senior management. In particular, the Committee is focused on ensuring the approach to the
remuneration of the Executive Directors and senior management is consistent with that applied to the wider workforce.

Overview of findings
The key findings of the Committee’s review for this financial year are as follows:

• Salary increases for employees across the Company are being applied on an equitable basis. Average increases are

considered when setting salary increases for the Executive Directors.

• The majority of employees have the ability to share in the success of the Company through incentive compensation.
In line with market practice, the level of incentive compensation and whether it is paid solely in cash or in a mixture of
cash and deferred shares depends on the level of seniority of employees. The incentive approach applied to the Executive
Directors aligns with the wider Company policy on incentives; which is:
– to have a higher percentage of at risk performance pay the more senior the employee
– to increase the amount of incentive deferred, provided in equity and/or measured over the longer term the more senior

the employee.

• The following table shows the cascade of incentives throughout the Company:

Competitive pay and cascade of incentives

Organisational level
Group Chief Executive Officer
Group Chief Financial Officer
Executive Team
Executive Team
Executive Team
Directors3
Senior leadership
Other bonused employees
Non-bonused employees

Maximum
bonus
percentage
of salary
150%
125%
100%
80%
60%
60%
40%
20%
n/a

Maximum
proportion
of bonus
payable in
cash
67%2
67%2
67%2
100%
100%
100%
100%
100%
n/a

Maximum
proportion
of bonus
deferrable
in shares
33%2
33%2
33%2
0%
0%
0%
0%
0%
n/a

Maximum
LTIP award
200%
150%
100%
80%
60%
60%
40%
n/a
n/a

Employee1
1
1
6
1
1
12
56
2,525
1,467

SIP
3
3
3
3
3
3
3
3
3

Notes:
1 Employees of the Group as at 31 January 2019
2 The maximum level of deferral of bonus in shares for these employees is 50%. Minimum deferral has been set at 33%
3 Director defined as a statutory Executive Director of any board of the Group other than Executive Directors of the plc Board or members of the Executive Team

• Equity participation is offered to all employees of the Company through the SIP. Senior employees are eligible for LTIP and

•

deferred shares.
In line with the Company’s wider policy on pay, all employees have the opportunity to participate in a Company pension
arrangement.

• They also receive benefits appropriate to their level of seniority.

101

GovernanceSaga plcAnnual Report and Accounts 2019Fairness, diversity and wider workforce considerations
continued

The alignment between Company strategy and culture is demonstrated in the table of incentives below:

Strategy
The link to strategy is set out on
pages 96-97.

Bonus plans

SIPs

LTIP

Culture
Focus on how performance is delivered as well as
the actual performance. Customer metrics are an
integral approach to incentivisation as is a careful
calibration of risk.

At senior levels in the organisation a proportion of
the bonus is deferred for the long-term to support
a share ownership culture in the Company and a
focus on long-term performance.
All sales plans are designed to produce positive
customer outcomes and to ensure levels of risk
are mitigated.
The LTIP focuses on long-term sustainable
performance which is part of the culture of the
Company. The retention of shares for the longer
term also supports a shared ownership culture in
the Company.

Conclusion
In summary the Committee is satisfied that the approach to remuneration across the Company is consistent with the
Company’s principles of remuneration. In the Committee’s opinion the approach to executive remuneration aligns with wider
Company pay policy and there are no anomalies specific to the Executive Directors.

The following sets out a summary of the Company’s general policies:

Communication with employees
The Group’s employees are kept informed of its activities and performance through a series of Director-led staff briefings
at key points during the year and the circulation of corporate announcements and other relevant information to staff which
is supplemented by updates on the intranet. These briefings also serve as an informal forum for employees to ask questions
about the Company.

From January 2019, Saga has set up a People Committee which is comprised of 18 elected members who act as
representatives from all areas of the business. The People Committee exists to achieve the following:

improved employee engagement across the Group and confidence in the leadership of the business

•
• a structured and recognised mechanism for collective consultation/feedback which meets the UK Corporate Governance

Code and our legislative responsibilities including but not limited to pay review

• a regular forum for open discussion and debate which is representative of our whole workforce
• supplement our regular engagement surveys by providing an important two-way dialogue with our employees and

demonstrate where actions are being taken where appropriate
improve and enhance our current working environment
improve and help define our culture at Saga.

•
•

102

Saga plcAnnual Report and Accounts 2019Equal opportunities
The Company is committed to an active equal opportunities policy from recruitment and selection, through training and
development, to performance reviews and promotion. All decisions relating to employment practices are objective, free from
bias and based solely upon work criteria and individual merit. The Company is responsive to the needs of its employees,
customers and the community at large. We are an organisation which uses everyone’s talents and abilities, where diversity
is valued. The Company remains supportive of the employment and advancement of disabled persons and ensures its
promotion and recruitment practices are fair and objective. The Company encourages the continuous development and
training of its employees and the provision of equal opportunities for the training and career development of all employees.

Area
Pay
comparisons

Considerations
CEO ratio
We have set out:

Our CEO to average employee pay ratio for 2018/19 is 48:1. To give context to this ratio, we have set
out below a chart tracking the CEO to average employee pay ratio since 2014/15 alongside Saga’s TSR
performance since IPO.

300

250

200

150

100

258:1

116:1

78:1

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Saga TSR

FTSE 250 TSR

CEO average employee pay ratio

40:1

48:1

FTSE 250 index. The graph shows the TSR generated by both the movement in share value and the
re-investment over the same period of dividend income. The Remuneration Committee considers that
the FTSE 250 is the appropriate index because the Company has been a member of this since IPO.
This graph has been calculated in accordance with the Listing Regulations. It should be noted that the
Company listed on 23 May 2014 and therefore only has a listed share price for the period of 23 May
2014 to 31 January 2019.

In summary there is significant volatility in Group Chief Executive Officer pay, and we believe that this
is caused by the following:

• Our Group Chief Executive Officer pay is made up of a higher proportion of incentive pay than that
of our employees, in line with the expectations of our shareholders. This introduces a higher degree
of variability in his pay each year which affects the ratio.

• The value of long-term incentives which measure performance over three years is disclosed in

pay in the year it vests, which increases the Group Chief Executive Officer pay in that year, again
impacting the ratio for that year.

• Long-term incentives are provided in shares, and therefore an increase in share price over the three

years magnifies the impact of a long-term incentive award vesting in a year.

• We recognise that the ratio is driven by the different structure of the pay of our Group Chief

Executive Officer versus that of our employees, as well as the make-up of our workforce. This ratio
varies between businesses even in the same sector. What is important from our perspective is
that this ratio is influenced only by the differences in structure, and not by divergence in fixed pay
between the Group Chief Executive Officer and wider workforce.

• Where the structure of remuneration is similar, as for the Executive Committee and the Group Chief

Executive Officer, the ratio is much more stable over time.

103

GovernanceSaga plcAnnual Report and Accounts 2019Fairness, diversity and wider workforce considerations
continued

Area

Pay
comparisons
continued

Considerations

Employee and Executive Committee ratios
The table below sets out the total remuneration delivered to the Group Chief Executive Officer using
the methodology applied to the single total figure of remuneration. The Remuneration Committee
believes that the remuneration payable in its earlier years as a private company to the Executive
Chairman does not bear comparative value to that which has been and will be paid to the Group
Chief Executive Officer, and has therefore chosen only to disclose remuneration for the Group Chief
Executive Officer:

Group Chief Executive Officer
Total single figure
Annual bonus payment level
achieved (percentage of
maximum opportunity)
LTIP vesting level achieved
(percentage of maximum
opportunity)
Ratio of CEO
single total
remuneration
figure to all
employees4,5,6
Ratio of single total
remuneration figure shown to
Executive Committee members

25th percentile

75th percentile

Median7

2018/19

2014/15
£1,191,743 £1,025,1461 £2,490,617 £1,600,287 £5,328,7022

2015/16

2016/17

2017/18

35.1%

67.5%

78.6%

80.7%

0%3

26.0%

65.6%

59:1

48:1

36:1

8:1

40.1

33.1

n/a

116.1

n/a

n/a8

n/a

78.1

n/a

3:1

4:1

2:1

n/a8

n/a

258.1

n/a

3:1

Notes:
1 For 2017/18 the final value of the 2015 LTIP award as at vesting date is shown which has been restated from the 2017/18 annual

report. The share price at vesting date of 30 June 2018 was 125.6p

2 The Group Chief Executive Officer joined the Company on 24 March 2014. The remuneration shown is therefore not for the full

financial year. Included within the single figure is a cash award of £4m with vesting based on continued employment. Twenty five
percent immediately on the IPO, 25% on the first anniversary of the award and 50% on the second anniversary; this was part of the
buyout on the recruitment of the Group Chief Executive Officer to compensate for awards lapsing on his ceasing employment with
his former employer

3 Based on indicative vesting as at 31 January 2019. The award will vest on 16 May 2019. The final vesting outcome will be stated in

the 2019/20 annual report

4 The fall in the ratio in 2017/18 is due to the forfeiture of bonus by the Group Chief Executive Officer and the relatively low payout on
the LTIP. This reflects the fact that shareholders want Executives to have a higher proportion of pay at risk and this is reflected in
the volatility in the chart. The percentage change in Group Chief Executive Officer remuneration set out in the table below shows
that year-on-year when the volatility of payouts from equity-based awards is excluded that the changes in remuneration for the
Group Chief Executive Officer and average employee are broadly in line. This demonstrates that the underlying compensation
ratio is not increasing year-on-year

5 The increase in ratio for 2018/19 is due to the Group Chief Executive Officer receiving a bonus in 2018/19. This increase has

remained low due to a relatively low bonus and LTIP payout

6 For the employee ratio Saga has chosen to use Option B, identifying employees using our gender pay gap data. This was the
preferred option due to the availability of data for our many UK-based, overseas and part-time employees for whom single
total figure data is difficult to calculate. Figures have been completed for 2017/18 and 2018/19 using the April 2017 and April
2018 gender pay gap data. In order to mitigate any anomalies, 11 individuals have been identified at each percentile point from
the gender pay gap data, and the median of pay in the year up to 31 January 2018 and 31 January 2019, for these employees
calculated in line with the single total figure methodology. For employees who participate in a defined benefit scheme, the value
of the pension for the purposes of total pay has been estimated based on the individual’s accrual rate and length of service
7 The median ratios shown for 2014/15, 2015/16 and 2016/17 have been recalculated to allow a comparison to the 2017/18 and

2018/19 figures which have been calculated in line with the methodology prescribed by the regulations

8 There was no LTIP or share option plan operated prior to listing

The employee pay figures used to calculate the ratio are:

2018/19

2017/18

Salary
Total pay
Salary
Total pay

25th percentile
£18,360
£20,253
£17,144
£21,496

Median
£22,448
£24,919
£22,065
£25,427

75th percentile
£29,655
£33,235
£25,220
£30,950

104

Saga plcAnnual Report and Accounts 2019Area

Pay
comparisons
continued

Considerations

Percentage change in Group Chief Executive Officer remuneration
The following table sets out the change in the remuneration paid to the Group Chief Executive Officer
from 2017/18 to 2018/19 compared with the average percentage change for employees.

The Group Chief Executive Officer’s remuneration disclosed in the table below has been calculated
to take into account base salary, taxable benefits excluding pension, and annual bonus (including any
amount deferred).

The employee pay has been calculated using the following elements: annual salary – base salary
and standard monthly allowances; taxable benefits – car allowance and private medical insurance
premiums; annual bonus – Company bonus, management bonus, commission and incentive payments.

£ Salary

£ Taxable benefits

£ Bonus

Percent-
age

2018/19

2017/181

change 2018/19

2017/18

Percent-
age
change

2018/19 2017/18

Percent-
age
change

Group
Chief
Executive
Officer1
Average
per
employee

689,785 689,785

0% 35,319

32,346

9%2

363,171

n/a

28,418

28,719

-1%3

993

928

7%2

2,971

1,822

63.1%

Notes:
1 2017/18 figure has been revised to include our port representatives and casual drivers
2 The increase in benefits is driven by HMRC annual increases to the company car tax and fuel benefit charge as reported on P11D
3 Decrease in average salary due to number of redundancies in 2017 and 2018

Background
Gender pay reporting legislation came into force in April 2017 and requires all UK employers with
250 or more employees to publish annual information illustrating pay differences between male and
female employees.

We welcomed the opportunity to report our findings last year and saw it as an opportunity to test the
effectiveness of our existing reward strategies and embraced this as an opportunity to drive our focus
on diversity forward.

Our 2018 results demonstrate that we have broadly maintained our overall position when we compare
our figures against our 2017 reportable numbers. This is somewhat encouraging given the significant
changes in our Leadership Team and the employee base during 2018. As a result, much of the
narrative in our 2018 report is consistent with what was reported in 2017. There are also some positive
improvements within our reportable numbers such as a decrease in our non-demographic pay gap,
which suggest the closer focus on pay and addressing individual pay discrepancies against the market
median has had a positive impact on closing the actual difference in pay between men and women.

Our reward principles fully support the work on gender pay and we are confident that men and women
are paid fairly and equally for doing equivalent jobs across our business. Our full report with all our
reportable entities disclosure figures can be found at www.saga.co.uk

105

GovernanceSaga plcAnnual Report and Accounts 2019Fairness, diversity and wider workforce considerations
continued

Area

Pay
comparisons
continued

Considerations
Definitions
Difference between gender pay and equal pay:

• A gender pay gap is the difference between average male and female pay for an organisation,

regardless of nature of work. This means that gender distribution across grades will be a significant
driver of any gap.

• An equal pay gap, on the other hand, refers to an unlawful pay gap between male and female

employees carrying out the same roles with the same experience and skills.

The ‘gender pay gap’ is a metric that measures the difference in average hourly pay across all men and
women across an organisation, by reference to both the mean and median figures.

• The ‘mean’ is an arithmetic average of a set of numbers. The mean calculation considers basic

average pay/bonus across all of our employees.

• The median is the number in the middle of a set of ordered numbers. The median calculation

focuses on those employees in the middle of pay/bonus ranges, thereby reducing the impact of our
highest and lowest paid employees. The ‘median’ calculation reduces the very significant impact
of our most senior male employees, in order to provide a gender pay gap figure which is much more
representative of the majority of our employees.

Saga Group gender pay gaps
The gaps in both pay and bonus continue to be driven by an over-representation of male employees in
our senior highly paid roles, which has the impact of increasing the average male salary across Saga
(and therefore driving the overall pay gaps).

Whilst both the median pay for females and males in 2018 increased, the male median pay increased at
a higher rate, hence our relative increase of 2.7%. Several factors contributed to this including:

• senior male hires
• a large proportion of females being excluded from the calculation (we must exclude employees who

do not receive normal pay due to sickness, unpaid absence or maternity)

• a decrease in the number of overall employees included in the report with 67% of these being female.

Due to our bonus being linked to base pay, we expect to see a similar correlation in both sets of
reportable numbers. The significant change in mean bonus is largely due to the high-value share award
to our Chief Executive in 2017, which had a significant impact on our overall gap in 2017.

The tables below show our mean and median hourly pay and bonus gaps, based on April 2018
payroll data.

20.7%

21.5%

8.3%

5.7%

2017

2018

Mean hourly pay gap

2017

2018

Median hourly pay gap

106

Saga plcAnnual Report and Accounts 2019Area

Pay
comparisons
continued

Considerations

63.6%

45.5%

22.5%

23.6%

2017
2018
Mean bonus gap

2017
2018
Median bonus gap

Addressing representation is a long-term objective of our gender pay workstream. We are passionate
about creating a diverse and inclusive culture where everyone succeeds; as such we continue to focus
on creating opportunities with our senior leadership team and strengthening our succession pipeline.

What we are doing at Saga to close the gap
We are committed to continually developing and improving our gender pay position. Our demographic
analysis has shown that the key driver of our gaps is a lack of female representation in our most senior
roles. This is therefore a crucial area of focus for us, and one which we are confident that the initiatives
below will help to tackle.

• Review our grading structure and introduce published salary banding for all roles across Saga.
• The promotion of flexible working opportunities and part-time roles across all roles at Saga

regardless of seniority.

• Provision of on-site childcare for Head Office employees.
• Targeted development programmes for high performers of all backgrounds, including mentorships,

executive shadowing, internal and external training.

Diversity policy

Creating a thriving and diverse workforce is a high priority for our business. A diverse workforce means
we are attracting the best people and that the business is benefiting from broad experience and a
range of different backgrounds and skill sets.

Saga employs enthusiastic, committed and well-trained people. We recognise the benefits of diversity
of skills, knowledge and independence, as well as gender, ethnicity and sexual orientation and are fully
committed to an active Equal Opportunities Policy covering recruitment and selection, training and
development, performance reviews and promotion. All decisions relating to employment practices are
objective, free from bias and based solely upon work criteria and individual merit.

See Strategic Report for more information on pages 28-29.

107

GovernanceSaga plcAnnual Report and Accounts 2019Annual Report on Remuneration

Single total figure of remuneration (audited)
Executive and Non-Executive Directors
The table below sets out the single total figure of remuneration and breakdown for each Director in respect of the 2018/19
financial year. Comparative figures for the 2017/18 financial year have also been provided. Figures provided have been
calculated in accordance with Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 as amended in 2013.

Salary/
fees
£

Taxable
benefits1
£

Period

Bonus4
£

LTIP2
£

Pension3
£

Total
£

Executive Directors
Lance Batchelor
(Group Chief Executive Officer)

2018/19
2017/18
James Quin5 (Group Chief Financial Officer) 2018/19
2017/18
2018/19
2017/18

Jonathan Hill5
(Group Chief Financial Officer)

Non-Executive Directors
Patrick O’ Sullivan6 (Chairman)

Andrew Goodsell7 (Chairman)

Ray King (Non-Executive Director, Audit
Committee Chair)

Orna NiChionna (Senior Independent Non-
Executive Director, Risk Committee Chair)

2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
Bridget McIntyre10 (Non-Executive Director) 2018/19
2017/18

Gareth Williams (Non-Executive Director,
Remuneration Committee Chair)

Eva Eisenschimmel9
(Non-Executive Director)

Julie Hopes8 (Non-Executive Director)

689,785
689,785
30,833
n/a
282,981
424,483

243,750
n/a
71,527
284,240
73,672
73,256
96,710
95,756
36,224
n/a
5,306
n/a
73,672
73,256
120,568
136,512

35,319
32,346
3,097
n/a
15,580
24,243

0
n/a
10,858
45,488
0
0
0
0
0
n/a
0
n/a
0
0
0
0

363,171
0
25,686
n/a
0
0

0
199,547
0
n/a
0
92,099

103,468 1,191,743
103,468 1,025,146
62,699
n/a
341,009
604,497

3,083
n/a
42,448
63,672

0
n/a
0
0
0
0
0
0
0
n/a
0
n/a
0
0
0
0

243,750
n/a
82,385
329,728
73,672
73,256
96,710
95,756
36,224
n/a
5,306
n/a
73,672
73,256
120,568
136,512

Notes:
1 The types of benefits provided included family private health cover, death in service life assurance, a car allowance or company car, subsistence expenses and

staff discounts in line with other employees

2 Values shown for 2018/19 represent the indicative vesting of the 2016 award. The performance period of the TSR element of the award is due to be tested in

May 2019, the value in the table above assumes zero vesting under the TSR element based on performance to year end. For 2018/19 the final value of the 2015
LTIP award as at vesting date is shown which has been restated from the 2018/19 annual report. The share price at vesting date of 30 June 2018 was 125.6p

3 Reflects the value of the pension supplement
4 See the Chair of Remuneration Committee’s Annual Statement for the details of the Committee’s deliberations on bonus
5 James Quin joined the Board on 1 January 2019, replacing Jonathan Hill who left the Company on 28 September 2018
6 Patrick O’ Sullivan was appointed Chairman on 1 May 2018
7 Until his retirement as Chairman on 30 April 2018, Andrew Goodsell continued to receive taxable benefits which are legacy arrangements from his employment

as Executive Chairman and comprise a leased car with associated fuel, and healthcare

8 Julie Hopes joined the Board on 1 October 2018
9 Eva Eisenschimmel joined the Board on 1 January 2019
10 Bridget McIntyre retired from the Saga plc Board on 31 October 2018

108

Saga plcAnnual Report and Accounts 2019Annual bonus3
See page 86 for details of the financial performance conditions and their level of satisfaction which are incorporated into this
Annual Report on Remuneration by reference.

The following table sets out the details of the personal objectives for the Group Chief Executive Officer:

Name
Lance Batchelor
Group Chief
Executive Officer

Weighting
10%

Objective
Deliver Saga
growth agenda

James Quin
Group Chief
Financial Officer

10%

Deliver Olympic
business case

10%

Build employee
engagement

Introduction
to Saga,
governance and
responsibilities

Delivery
of required
financials
Deliver Saga
growth agenda

Details
Deliver budgeted growth agenda through:
•

increase in Insurance policy numbers from
2,769k to 2,785k

• achieve persistency rates of 77.1% for

home and 65.2% for motor

• deliver Tour Operation and Cruise

passenger growth from 211k to 224k

• deliver 10% growth in cross-sell.

Achievement
of objective
2%
Partially
achieved

Deliver business case for Spirit of Discovery
and Spirit of Adventure through:
• delivery of 2019/20 detailed annual plan
consistent with the agreed business case
• deliver on track revenue per capacity day

of £235

• deliver on track ship operating cost per

capacity day of £115.

Build Saga as an admired place to work by
increasing overall employee engagement.
Focus on improving underlying sustainable
engagement by 5%.
Positive engagement with the Business,
Board and CEO to ensure:
• full understanding of Saga’s strategy
• full understanding of Saga’s governance

and risk appetite including the
responsibilities at the Group and
regulated entities level

• full understanding of the Saga customer

and customer experience

• Saga values, culture and how these are

embedded in the Company.

Delivery of 2018/19 financial reporting

Delivery of 2019/20 business plan
and strategy

9%
Achieved

4%
Partially
achieved

10%
Achieved

Notes:
1 The bonus paid to the CEO was adjusted – see the Chair of the Remuneration Committee’s Annual Statement on pages 83-85
2 The bonus paid to James Quin (the new Group CFO) was pro-rated to reflect that he had only been employed by the Company since 1 January 2019
3 No bonus was paid to Jonathan Hill, the departed Group CFO

109

GovernanceSaga plcAnnual Report and Accounts 2019Annual Report on Remuneration
continued

Long-term incentives vested in 2018/19 (audited)
The LTIP awards granted on 30 June 2015 vested on 30 June 2018. The final vesting percentage was 26%, in line with the
estimate disclosed in the 2017/18 annual report.

The below table confirms the vesting of the 2015 LTIP award for Lance Batchelor:

Name
Lance Batchelor

Award
level (% of
salary)
200%

Portion
of EPS
vesting
52%

Portion
of TSR
vesting
0%

Total
vesting
(as % of
award)
26%

LTIP value for
single figure
£199,547

For the 2017/18 annual report, the average share price for the final quarter of 2017/18 of 146.8p was used to estimate the
value of the award. Now that the share price on vesting as well as final number of awards vesting is known, the LTIP value
above and in the single figure table have been restated. The value of the award has been calculated using the share price at
vesting date of 125.6p. No discretion has been exercised by the Committee in determining the level of LTIP vesting.

Long-term incentives vesting in respect of 2018/19 performance (audited)
The LTIP awards granted on 16 May 2016 have not yet vested but as performance was substantially completed during the
2018/19 financial year, an estimate of the vesting and the indicative value of the awards has been provided below. This figure
will be updated in the 2020 Annual Report on Remuneration to reflect the final vesting outcome and the actual share price
on the date of vesting (currently in line with the Regulations the average share price for the last quarter of the financial year
has been used). The 2016 LTIP is equally weighted between EPS and relative TSR performance conditions. The EPS growth
is measured to the 2018/19 year end and the three year TSR condition concluding on 16 May 2019. The EPS over the period
has grown by 10% p.a. against the range of 7-12% p.a. equating to a vesting of 0% of the EPS element. The Company has
assessed relative TSR performance against the FTSE 250 (excluding real estate and investment trusts) to 31 January 2019.
Saga ranked below the median equating to an indicative vesting of 0%. The table below presents the indicative vesting of
the 2016 LTIP award for Lance Batchelor.

Name

Lance Batchelor

Award level (%
of salary)
200% of
salary

Portion of EPS
vesting

Estimate of
TSR vesting1

Estimate of
total vesting
(as % of
award)

Indicative LTIP
value for single
figure2

£0

Notes:
1 Based on TSR performance against the peer group to 31 January 2019
2 Value based on the Company’s final quarter average share price to 31 January 2019 of 108.15p

Long-term incentives awarded in 2018/19 (audited)
The table below sets out the details of the long-term incentive awards granted in the 2018/19 financial year where vesting
will be determined according to the achievement of performance conditions that will be tested in future reporting periods:

Name
Lance Batchelor

Award type
LTIP

Basis on which
award made
Annual

Face value of
award
£1,379,570

Shares
awarded
1,015,136

Percentage of
award vesting
at threshold
performance
25%

Maximum
percentage of
face value that
could vest
100%

The awards were granted on 1 May 2018; the face value is calculated with reference to the share price on 1 May 2018 of
135.90p. The awards will vest, subject to the level of performance achieved, on 1 May 2021. For performance conditions see
page 86.

110

Saga plcAnnual Report and Accounts 2019Pension entitlements (audited)

Accrued Pension

Single figure numbers

Name
Lance Batchelor

Age at
31/01/2019
55

Jonathan Hill

31/01/2019 01/02/2018
£6,213

Pensionable
service at

2 years,
9 months
1 year,
10 months

Pension
salary
supplement1
£103,468

Value x20
over year2
£0

31/01/2019
£6,213

Extra information
disclosed under 2013
Directors’ Remuneration
Regulations

Total
pension
benefits
£103,468

Normal
retirement
age
65

£3,156

£42,448

£0

£42,448

Notes:
1 Pension salary supplement paid is 15% of the Executive Director’s base salary
2 Reflects the growth in the Executive Director’s pension accrued in the Saga Pension Scheme over the year multiplied by 20, less the contributions by the Executive

Payments to past Directors/payments for loss of office (audited)
There were no payments to past Directors or payments for loss of office during the financial year.

Directors’ share interests
Directors’ share interests are discussed in the Summary Report on page 90 and are incorporated into this Annual Report on
Remuneration by reference.

Performance graph and table
The TSR performance graph and single figure of remuneration for the CEO are set out in the section of the report headed
Fairness, diversity and wider workforce considerations and are incorporated into this Annual Report on Remuneration
by reference.

Percentage change in remuneration of Director undertaking the role of Chief Executive Officer
This information is set out in the section of the report headed Fairness, diversity and wider workforce considerations and are
incorporated into this Annual Report on Remuneration by reference.

Fees retained for external Non-Executive Directorships
Executive Directors may hold positions in other companies as Non-Executive Directors and retain the fees. Lance Batchelor
is a Trustee of the charity the White Ensign Association; in January 2019, he was appointed as a Non-Executive Director on
the Board of the Royal Navy. He does not receive a fee for his position with the White Ensign Association. He does receive a
fee for the Navy Board position of £15,000 per annum. James Quin holds no external Directorships.

Implementation of policy
Implementation of policy is discussed in the Summary Report and is incorporated into this Annual Report on Remuneration
by reference.

Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2018/19 financial year and 2017/18 financial year
compared with other disbursements. All figures provided are taken from the relevant company accounts.

Profit distributed by way of dividend
Total tax contributions1
Overall spend on pay including Executive Directors

Disbursements
from profit
in 2018/19
financial year
(£m)
100.9
74.6
123.9

Disbursements
from profit
in 2017/18
financial year
(£m)
98.5
75.1
136.7

Percentage
change
2.4%
-0.7%
-9.3%

Note:
1 Total tax contributions include corporation tax, national insurance contributions, VAT and air passenger duty

111

GovernanceSaga plcAnnual Report and Accounts 2019Annual Report on Remuneration
continued

Shareholder voting at the AGM
A new Directors’ Remuneration Policy was put to a binding vote and the Chairman’s Annual Statement and the Annual
Report on Remuneration were subject to an advisory vote at the AGM on 21 June 2018. Below we outline the voting
outcomes in respect of approving the Directors’ Remuneration Report and approving the Directors’ Remuneration Policy.
Overall both the Remuneration Policy and Report received overwhelming support from shareholders.

Resolution
To approve the Directors’
Remuneration Report
To approve the Directors’
Remuneration Policy

% of
votes

Votes for

cast Votes against

% of
votes
cast

Votes cast in
total

% of
issued
share
capital

voted Votes withheld

708,342,888

99.34

4,703,239

0.66 714,727,672

63.6%

1,681,545

710,588,229

99.49

3,637,508

0.51 714,727,672

63.8%

501,935

The Committee, therefore, intends to make no change to the Policy or its implementation for 2019/20.

Advisers to the Remuneration Committee
During the financial year, PwC advised the Remuneration Committee on all aspects of the Remuneration Policy for Executive
Directors and members of the Executive Team. PwC also provided the Company with tax and assurance work during the
year. The Remuneration Committee reviewed the nature of the services provided and was satisfied that no conflict of
interest exists or existed in the provision of these services. PwC were appointed by the Remuneration Committee, and
the Committee is satisfied that the advice provided is independent. PwC is a member of the Remuneration Consultants
Group and the voluntary code of conduct of that body is designed to ensure objective and independent advice is given
to remuneration committees. Fixed fees of £80,000 (2017/18: £51,250) were provided to PwC during the year in respect of
remuneration advice received. The increase from the prior year is due to additional support in relation to the renewal of the
Remuneration Policy.

Gareth Williams
Chair, Remuneration Committee
3 April 2019

112

Saga plcAnnual Report and Accounts 2019Directors’ Report

Management report
The Directors’ Report, together with the Strategic Report set out on pages 1-51, form the Management Report for the
purposes of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R.

Statutory information contained elsewhere in the annual report
Information required to be part of this Directors’ Report can be found elsewhere in the annual report as indicated in the table
below and is incorporated into this report by reference.

Information
Likely future developments in the business of the Company or its subsidiaries
Corporate social responsibility
Greenhouse gas emissions
Employees (employment of disabled persons, employee engagement and policies)

Location in annual report
Pages 1-51
Pages 28-33
Pages 32-33
Pages 15 and 28

Corporate Governance Statement
Directors’ details (including changes made during the year)
Related party transactions
Diversity
Share capital
Viability statement
Going concern and Fair, balanced and understandable statement
Employee share schemes (including long-term incentive schemes)
Financial instruments: information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
Additional information

Pages 52-82
Pages 59 and 64-66
Not applicable
Pages 28 and 69
Note 29 on page 182
Page 54
Page 55
Note 32 on pages 184-185
Notes 2.3, 18 and 19 on pages 133-144,
162-165 and 167-172
Pages 198-201

Disclosure table pursuant to Listing Rule (LR) 9.8.4C
The following table provides references to where the information required by Listing Rule 9.8.4C R is disclosed:

Listing Rule
9.8.4(1)
9.8.4(2)

Listing Rule requirement
Interest capitalised by the Group and any related tax relief
Unaudited financial information (LR 9.2.18R)

9.8.4(4)

9.8.4(5)

9.8.4(6)

9.8.4(7)
9.8.4(8)

9.8.4(9)

9.8.4(10)

9.8.4(11)

9.8.4(12)

Long-term incentive schemes (LR 9.4.3R)

Directors’ waivers of emoluments

Directors’ waivers of future emoluments

Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash by any unlisted
major subsidiary undertaking
Parent company participation in a placing by a listed
subsidiary
Contract of significance in which a Director is or was
materially interested
Contract of significance between the Company (or one of
its subsidiaries) and a controlling shareholder
Waiver of dividends by a shareholder

9.8.4(13)

Waiver of future dividends by a shareholder

9.8.4(14)

Board statement in respect of relationship agreement with
the controlling shareholder

Disclosure
Note 17 on page 161
Operating and Financial Review,
pages 38-51
Directors’ Remuneration Report,
pages 83-112
Directors’ Remuneration Report,
pages 83-112
Directors’ Remuneration Report,
pages 83-112
Directors’ Report on page 116
Not applicable

Not applicable

Directors’ Report on page 116 (under
paragraph ‘Rights attaching to shares’)
Directors’ Report on page 116 (under
paragraph ‘Rights attaching to shares’)
Not applicable

113

GovernanceSaga plcAnnual Report and Accounts 2019Directors’ Report
continued

Results and dividends
The Group made a loss after taxation of £(162.0m) for
the financial year ended 31 January 2019. The Board paid
an interim dividend of 3.0p per share and proposes to
pay, subject to shareholder approval at the 2019 AGM,
a final dividend of 1.0p net per share in respect of the year
ended 31 January 2019.

The Directors have adopted a long-term sustainable
dividend policy (which is reviewed by the Board on an annual
basis). This will reflect the growth of the business while
retaining sufficient profits to fund investment and ensure
that there are sufficient capital reserves. Any decision
to declare and pay dividends is made at the discretion
of the Directors and depends on, among other things,
applicable law, regulation, restrictions, the Group’s financial
position, regulatory capital requirements, working capital
requirements, finance costs, general economic conditions
and other factors the Directors deem significant from
time to time.

Political donations
No political donations were made during the year.

Directors’ interests
A list of the Directors, their interests in the long-term
performance share plan, contracts and ordinary share
capital of the Company are given in the Directors’
Remuneration Report on pages 83-112.

Rules on appointment and replacement of Directors
All Directors will seek re-election at the AGM in accordance
with the Company’s articles of association and the
recommendations of the Code, with the exception of
Jonathan Hill, who has resigned from the Board with effect
from 28 September 2018, and Bridget McIntyre, who retired
from the Board on 31 October 2018, and Eva Eisenschimmel,
Julie Hopes, Gareth Hoskin and James Quin, whose
elections will be put to the shareholders at the AGM.

A Director may be appointed by ordinary resolution of the
shareholders in a general meeting following nomination by
the Board or a member (or members) entitled to vote at such
a meeting. In addition, the Directors may appoint a Director
to fill a vacancy or as an additional Director, provided that
the individual retires at the next AGM.

A Director may be removed by the Company in certain
circumstances set out in the Company’s articles of
association or by an ordinary resolution of the Company.

Directors’ indemnities and insurance
As at the date of this report, indemnities are in force under
which the Company has agreed to indemnify the Directors,
to the extent permitted by law and the Company’s articles
of association, in respect of all losses arising out of, or in
connection with, the execution of their powers, duties and
responsibilities, as Directors of the Company or any of
its subsidiaries. No amount was paid under any of these

indemnities or insurances during the year other than the
applicable insurance premiums. Directors’ and officers’
liability insurance is in place as at the date of this report,
at an amount which the Board considers adequate. This is
subject to an annual review.

Change of control – significant agreements
A number of agreements take effect, alter or terminate upon
a change of control of the Company, including following a
takeover bid, for example, insurance, commercial contracts
and distribution agreements. There are a number of
contracts and arrangements throughout the Group for which
the legal risk arising out of a change of control is closely
managed as part of the contractual governance process.

The Group’s corporate debt is unsecured and in place for
general purposes. It consists of a £250m seven-year public
listed bond at 3.375%, due to expire in May 2024, which has
101% put at change of control leading to a 1 notch credit
rating downgrade, a five-year £200m term loan expiring in
May 2022 and a £100m five-year revolving credit facility,
expiring in May 2023.

Twelve year Export Credit Agency backed funding is in place
to finance 80% of the cost of the Group’s two new ships.
These facilities will be drawn as ship builds complete and
are secured by way of a charge over the assets financed.
The Company has provided a guarantee for the ship debt.

In the event of a change of control the facilities would either
require repayment or renegotiation. If the ship financing
is terminated, significant break fees may be incurred.
Further details on banking facilities are shown in note 27 to
the consolidated financial statements on page 181.

The rules of the Company’s employee share plans generally
provide for the accelerated vesting and/or release of share
awards in the event of a change of control of the Company.

The Company does not have any agreements with Directors
or employees which would pay compensation in the event of
a change of control.

Conflict of interest
Each Director is obliged to disclose any potential or actual
conflict of interest in accordance with the Company’s
conflict of interest policy. The policy and declarations made
are subject to annual review and Directors are required
to update any changes to declarations as they occur.
Internal controls are in place to ensure that any related
party transactions are conducted on an arm’s length basis.

Share capital and interests in voting rights
The Company’s share capital (including movements during
the year) is set out on page 182. At the date of this report,
the Company’s issued share capital comprised a single
class of share capital which is divided into ordinary shares
of 1p each. As at 31 January 2019, 1,122,003,328 ordinary
shares of 1p each have been issued, are fully paid up and

114

Saga plcAnnual Report and Accounts 2019quoted on the London Stock Exchange. In July 2018, the Company issued 1,707,909 new ordinary shares of 1p each for
transfer into an Employee Benefit Trust to satisfy employee incentive arrangements. The new shares were admitted to
trading on 10 July 2018. This increased the Company’s issued share capital to 1,122,003,328 ordinary shares of 1p, of which
no shares are held in treasury.

In accordance with DTR 5.1, the Company has been notified of the following interests in the Company’s total voting rights as
at 31 January 2019:

Name
Majedie Asset Management Limited (owned by Majedie
UK Income Fund, Majedie Asset Management UK
Income Fund, Majedie Asset Management UK Equity
Fund, Majedie UK Equity Fund, Majedie Institutional
Trust and Discretionary Clients)

Artemis Investment Management LLP on behalf of
discretionary funds under management
BlackRock Inc.

Royal London Asset Management Limited (owned by
HSBC Global Custody Nominees (UK) Ltd)
Pelham Long/Short Master Fund Ltd (owned by Pelham
Long/Short Master Fund Ltd)
Aggregate of Standard Life Aberdeen plc affiliated
investment management entities with delegated voting
rights on behalf of multiple managed portfolios
Setanta Asset Management Limited

Date of
disclosure to
Company1
03/12/2015

Ordinary
shares
68,956,717

Percentage
of capital
6.17%

Nature
of holding
Indirect

23/03/2017

111,601,253

9.98%

Indirect

19/04/2018

56,195,022

5.01%

31/08/2018

55,282,337

4.9271%

Indirect,
Securities
Lending,
Contract for
Difference
Direct

22/11/2018

49,867,633

08/01/2019

157,793,867

04/02/2019

78,881,033

14.06%

4.44% Contract for
Difference
Indirect
Rights to recall
lent shares
Indirect

7.0304%

Note:
1 Since the date of disclosure to the Company, the interest of any person listed above in ordinary shares may have increased or decreased. No requirement to

notify the Company of any increase or decrease arises unless the holding passes a notifiable threshold in accordance with DTR 5.1

•

Information regarding other interests in voting rights provided to the Company pursuant to the FCA DTRs is published on
the Company’s website and a Regulatory Information Service. Notification was also received by the Company during the
year that Deutsche Bank AG and J. P. Morgan Chase & Co (owned by J. P. Morgan Securities plc) had notifiable interests
but these ceased to be notifiable interests and are not included in the table above.

• As at 3 April 2019, the Company had been notified, in accordance with the UK Listing Authority’s Disclosure Guidance and
Transparency Rules that the following shareholders held, or were beneficially interested in, 3% or more of the voting rights
in the Company’s issued share capital:

Name

BlackRock, Inc
Aggregate of Standard Life Aberdeen plc
affiliated investment management entities
with delegated voting rights on behalf of
multiple managed portfolios

Date of
disclosure to
Company

Ordinary
shares

Percentage of
capital

20/02/2019

56,398,638

5.02%

Nature
of holding
Direct Securities
Lending Contract
for Difference

29/03/2019

170,169,192

15.17%

Indirect

115

GovernanceSaga plcAnnual Report and Accounts 2019Directors’ Report
continued

Authority to allot/purchase own shares
A shareholders’ resolution was passed at the AGM on
21 June 2018 which authorised the Company to make
market purchases within the meaning of section 693(4) of
the Companies Act 2006 (the ‘Act’) (up to £1,120,295.41
representing 10% of the aggregate nominal share capital
of the Company following Admission). This is subject to a
minimum price of 1p and a maximum price of the higher
of 105% of the average mid-market quotations for five
business days prior to purchase or the price of the last
individual trade and highest current individual bid as derived
from the London Stock Exchange trading system.

The Company did not exercise this authority during the
year and it will expire at the forthcoming AGM. A special
resolution to authorise the Company to make market
purchases representing 10% of current nominal share
capital will be proposed. The authority to repurchase the
Company’s ordinary shares in the market will be limited to
£1,122,003.32 and will set out the minimum and maximum
price which would be paid.

The Directors of the Company were also granted authority
at the 2018 AGM to allot relevant securities up to a nominal
amount of £3,730,583. This authority will apply until the
conclusion of the 2019 AGM, at which shareholders will be
asked to grant the Directors authority (for the purposes of
section 551 of the Act) to allot relevant securities (i) up to an
aggregate nominal amount of £3,736,271; and, (ii) comprising
equity securities (as defined in the Act) up to an aggregate
nominal amount of £7,472,542 (after deducting from such limit
any relevant securities issued under (i) in connection with a
rights issue). These amounts will apply until the conclusion of
the AGM to be held in 2020 or, if earlier, 31 July 2020.

Special resolutions will also be proposed to give the
Directors authority to make non pre-emptive issues wholly
for cash in connection with rights issues and otherwise up
to an aggregate nominal amount of £561,001.66 and to
make non pre-emptive issues wholly for cash in connection
with acquisitions or specified capital investments up to an
aggregate amount of £561,001.66 .

Rights attaching to shares
The Company has a single class of ordinary shares in
issue. The rights attached to the shares are governed by
applicable law and the Company’s articles of association
(which are available at www.corporate.saga.co.uk/
media/1195/saga-plc-articles-of-association.pdf).

Ordinary shareholders have the right to receive notice,
attend and vote at general meetings; and receive a copy
of the Company’s report and accounts and a dividend
when approved and paid. On a show of hands, each
shareholder present in person, or by proxy (or an authorised
representative of a corporate shareholder), shall have one
vote. In the event of a poll, one vote is attached to each share
held. No shareholder owns shares with special rights as to
control. The notice of the AGM (Notice) states deadlines for
exercising voting rights and for appointing a proxy/proxies.

The Saga Employee Benefit Trust (the ‘Trust’) is an
Employee Benefit Trust which holds property, (the ‘Trust
Fund’) including inter-alia money and ordinary shares in the
Company, in trust in favour or for the benefit of employees
of the Saga Group. The Trustee of the Trust has the power
to exercise the rights and powers incidental to, and to act
in relation to, the Trust Fund in such manner as the Trustee
in its absolute discretion thinks fit. The Trustee has waived
its rights to dividends on ordinary shares held by the Trust.
Details of employee share schemes are set out in note 32 to
the consolidated financial statements.

Restrictions on the transfer of shares
Other than where imposed by law or regulation, or where
the Listing Rules require certain persons to obtain clearance
before dealing, there are no restrictions regarding the
transfer of shares in the Company. The Company is not
aware of any agreement which would result in a restriction
on the transfer of shares or voting rights.

Articles of association
Any amendment to the Company’s articles of association
may only be made by passing a special resolution of the
shareholders of the Company.

Research and development
The Group does not undertake any material activities in the
field of research and development.

Branches outside the UK
The Company does not have any branches outside the UK.

Post-balance sheet events
There were no post-balance sheet events.

Auditor
KPMG LLP has confirmed its willingness to continue in office
as auditor of the Company and resolutions for its
re-appointment and for the Audit Committee to determine
its remuneration will be proposed at the forthcoming AGM.

Annual General Meeting
The AGM will be held on 19 June 2019 at 11am at Enbrook
Park, Sandgate, Folkestone, Kent CT20 3SE. The Notice
contains an explanation of special business to be
considered at the meeting and will be available on our
website, www.corporate.saga.co.uk, in due course.

By order of the Board

V. Haynes
Company Secretary
3 April 2019
Saga plc (Company no. 08804263)

116

Saga plcAnnual Report and Accounts 2019Statements of responsibilities

Directors’ responsibilities
The Directors’ are responsible for preparing the annual
report and the Group and parent company financial
statements in accordance with applicable laws
and regulations.

Company law requires the Directors to prepare Group and
parent company financial statements for each financial
year. Under that law, they are required to prepare the Group
financial statements in accordance with International
Financial Reporting Standards as adopted by the European
Union (IFRSs as adopted by the EU) and applicable law,
and have elected to prepare the parent company financial
statements in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework.

Under company law, the Directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group
and parent company and of their profit or loss for that
period. In preparing each of the Group and parent company
financial statements, the Directors are required to:

• select suitable accounting policies and then apply them

consistently

• make judgements and estimates that are reasonable,

relevant, reliable and prudent

Disclosure of information to the auditor
Having made the requisite enquiries, so far as each of the
Directors is aware, there is no relevant audit information
(as defined by section 418(3) of the Act) of which the
Company’s auditor is unaware and the Directors have
taken all the steps they ought to have taken as Directors
to make themselves aware of any relevant audit
information and to ensure that the Company’s auditor
is aware of that information.

Maintenance of website
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.

Directors’ responsibility statement
Each of the Directors, who were in office at the date of this
report, whose names and responsibilities are listed on pages
59 and 64-65, confirm that, to the best of their knowledge:

• the financial statements, prepared in accordance with
the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole

• for the Group financial statements, state whether they

• the Management Report includes a fair review of the

development and performance of the business and the
position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.

We consider the annual report and accounts, taken as
a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess
the Group’s position and performance, business model
and strategy.

By order of the Board

V. Haynes
Company Secretary
3 April 2019
Saga plc (Company no. 08804263)

have been prepared in accordance with IFRSs as adopted
by the EU

• for the parent company financial statements, state
whether applicable UK accounting standards have
been followed, subject to any material departures
disclosed and explained in the parent company
financial statements

• assess the Group and parent company’s ability to

continue as a going concern, disclosing, as applicable,
matters related to going concern

• use the going concern basis of accounting unless

they either intend to liquidate the Group or the parent
company or to cease operations or have no realistic
alternative but to do so.

The Directors are responsible for keeping adequate
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable
accuracy at any time the financial position of the parent
company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are
also responsible for such internal control as they determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility
for taking such steps as are reasonably open to them to
safeguard the assets of the Group and hence to prevent and
detect fraud and other irregularities.

Under applicable law and regulations, the Directors are
also responsible for preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report and Corporate
Governance Statement that comply with that law and
those regulations.

117

GovernanceSaga plcAnnual Report and Accounts 2019Independent Auditor’s Report to the members of Saga plc

1. Our opinion is unmodified
We have audited the financial statements of Saga plc (‘the Company’ or ‘Group’ or ‘Parent’) for the year ended 31 January
2019 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income,
Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity and Consolidated Statement
of Cash Flows, Parent Company Statement of Financial Position, Parent Company Statement of Changes in Equity, and the
related notes, including the accounting policies notes.

In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at

31 January 2019 and of the Group’s loss for the year then ended

• the Group financial statements have been properly prepared in accordance with International Financial Reporting

Standards as adopted by the European Union

• the parent company financial statements have been properly prepared in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework and as applied in accordance with the provisions of the Companies
Act 2006

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as

regards the Group financial statements, Article 4 of the International Auditing Standards (‘IAS’) Regulation.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law.
Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate
basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.

We were first appointed as auditor by the shareholders on 22 June 2017. The period of total uninterrupted engagement
is for the two financial years ended 31 January 2019. We have fulfilled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited by that standard were provided.

Overview

Materiality: Group financial
statements as a whole

£6.8m (2018: £9.0m)
3.9% (2018: 5.0%) of normalised profit before tax from continuing operations

Coverage

Key audit matter

Event driven

98% (2018: 98%) of total profits and losses that made up Group loss before tax

vs 2018

New: The impact of uncertainties due to Britain exiting the European Union on
our audit

Recurring risks

Valuation of claims outstanding (gross and net)

Recoverability of Group goodwill and the parent company’s investment
in subsidiaries

118

Saga plcAnnual Report and Accounts 20192. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. We summarise below the key audit matters in arriving at our audit
opinion above, together with our key audit procedures to address those matters and our findings from those procedures in
order that the Company’s members as a body may better understand the process by which we arrived at our audit opinion.
These matters were addressed, and our findings are based on procedures undertaken, in the context of, and solely for the
purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate opinion on these matters.

The risk

Our response

The impact of
uncertainties due
to UK exiting the
European Union on
our audit

Refer to page 36
(principal risks),
page 54 (viability
statement) and
page 75 (Audit
Committee Report).

We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in planning
and performing our audits. Our procedures included:

• Our Brexit knowledge: We considered the Directors’

assessment of Brexit-related sources of risk for the Group’s
business and financial resources compared with our own
understanding of the risks. We considered the Directors’
plans to take action to mitigate the risks.

• Sensitivity analysis: When addressing valuation of claims
outstanding, the recoverability of Group goodwill and the
parent company’s investment in subsidiaries, and other
areas that depend on forecasts, we considered the Directors’
sensitivity analysis against our understanding of reasonably
possible adverse scenarios impacted by Brexit uncertainty
and, where forecasts cash flows are required to be
discounted, considered the need for adjustments to discount
rates for the level of any remaining uncertainty.

• Assessing transparency: As well as assessing individual

disclosures as part of our procedures on valuation of claims
outstanding, recoverability of Group goodwill and the parent
company’s investment in subsidiaries, we considered all of
the Brexit-related disclosures together, including those in the
Strategic Report, comparing the overall picture against our
understanding of the risks.

Our findings
As reported under valuation of claims outstanding,
recoverability of Group goodwill and the parent company’s
investment in subsidiaries, we found the resulting estimates to
be mildly cautious and related disclosures to be proportionate
and disclosures in relation to going concern to be proportionate.
However, no audit should be expected to predict the
unknowable factors or all possible future implications for a
company and this is particularly the case in relation to Brexit.

Unprecedented levels
of uncertainty
All audits assess and challenge
the reasonableness of estimates,
in particular as described in the
valuation of claims outstanding,
recoverability of Group goodwill
and the parent company’s
investment in subsidiaries below,
and related disclosures and the
appropriateness of the going
concern basis of preparation of
the financial statements. All of
these depend on assessments of
the future economic environment
and the Group’s future prospects
and performance.

In addition, we are required to
consider the other information
presented in the Annual Report
including the principal risks
disclosure and the viability
statement and to consider the
Directors’ statement that the
annual report and financial
statements taken as a whole is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the
Group’s position and performance,
business model and strategy.

Brexit is one of the most significant
economic events for the UK and at
the date of this report, its effects
are subject to unprecedented
levels of uncertainty of outcomes,
with the full range of possible
effects unknown.

119

GovernanceSaga plcAnnual Report and Accounts 2019Independent Auditor’s Report to the members of Saga plc
continued

The risk

Our response

Valuation of claims
outstanding (gross
and net)

Subjective valuation:
Claims outstanding represent the
largest liability for the Group.

(Gross £392.6 million;
2018: £466.4 million,
Net £182.8 million,
2018: £272.8 million)

Refer to page 75
(Audit Committee
Report), page
142 (accounting
policy) and page
177 (financial
disclosures).

Valuation of these liabilities is highly
judgmental, and requires a number
of assumptions to be made that
have high estimation uncertainty
and can have material impacts on
the valuation. Key assumptions
include expected loss ratios and
estimates of the frequency and
severity of claims, used to value
the liabilities, particularly those
relating to the amount and timing
of Incurred but not Reported
(‘IBNR’) claims.

Our control procedures included:

• Control design and operation: Testing, with the support of our
IT specialists, the design, implementation of key controls over
the completeness and accuracy of claims and premiums
data used in the calculation of IBNR claims (including both
current and prior year case reserve data). The controls
included reconciliations between data in the actuarial
reserving systems and data in the policy administration
systems. We tested controls through inspecting or re-
performing the Group’s reconciliations.

• We also tested the design and implementation of controls
over setting and monitoring of case reserves over large
bodily injury claims.

We involved our actuaries in performing the
following procedures:

Certain areas of the claims
outstanding balance contain
greater uncertainty, for example
third party bodily injury claims
exhibit greater variability and
are more long tailed than the
damage classes.

In particular the allowance made for
the current and potential propensity
change following the Ogden rate
change on Periodic Payment Order
(‘PPO’) reserves are very uncertain
and have a high reserving risk.

Similar estimates are required in
establishing the reinsurers’ share of
insurance provisions, in particular
share of IBNR claims.

A margin is added to the actuarial
best estimate (‘ABE’) of insurance
liabilities to make allowance
for risks and uncertainties that
are not specifically allowed
for in establishing the ABE.
The appropriate margin to recognise
is a subjective judgement and
estimate taken by the Directors,
based on the perceived uncertainty
and potential for volatility in the
underlying claims.

The valuation of claims outstanding
depends on complete and accurate
data about the volume, amount and
pattern of current and historical
claims since they are used to form
expectations about future claims.
If the data used in calculating IBNR,
or for forming judgements over key
assumptions, is not complete and
accurate then material impacts on
the valuation of claims outstanding
may arise.

• Evaluating the work of independent and internal actuaries:
Analysing and evaluating the results of reserving reports
issued by the internal and external actuaries, assessing the
competence of both parties and the appropriateness of their
methodology and reviewing their conclusions.

• Benchmarking assumptions: Evaluating the findings of the

internal and external actuaries. Through critical assessment
of these actuarial reports and supporting documentation,
including the use of benchmarking against market data and
through discussion with both sets of actuaries, we analysed
and challenged the differences in reserving methodology as
well as the key assumptions being used – including claims
frequency, claims severity, claims inflation, development
pattern, Ogden discount rates, PPO propensities, allowances
for subrogation and the impact of legislative and process
developments. Alternative projections were performed on the
bodily injury and third party property damage perils as these
were identified as the most material areas to be followed up
through the audit.

• Margin evaluation: Evaluating the appropriateness of the
management recommended margin held at year end.
In order to do this, we assessed the Directors’ approach,
and supporting analysis for margin to be held, having regard
to the allowance for uncertainties inherent in the data and
assumptions in developing the ABE. We then considered
the relative strength of the margin held versus the prior
period in order to be satisfied that no additional prudence
had been recognised in the level of overall reserves held
including margin.

Our other procedures included:

• Data comparisons: Tie back of the reconciliations of claims
data recorded in the claims administration systems to the
data used in the actuarial reserving calculations, to ensure
the integrity of the data used by the internal and external
actuaries in the actuarial reserving process and then ensured
that the output of the actuarial re-projections reconciles to
amounts recorded in the financial statements.
• Testing application of significant assumptions:

Corroborating a targeted sample of large loss case reserves,
to appropriate documentation such as reports from loss
adjusters or third party experts, to identify and test the
application of significant assumptions applied in determining
the level of case reserves and to verify valuation against
prescribed reserving methodology.

120

Saga plcAnnual Report and Accounts 2019The risk

Our response

Valuation of claims
outstanding (gross
and net) (cont.)

The effect of these matters is that,
as part of our risk assessment,
we determined that the valuation
of insurance contracts liabilities
has a high degree of estimation
uncertainty, with a potential range
of reasonable outcomes greater
than our materiality for the financial
statements as a whole, and possibly
many times that amount.

Recoverability of
Group Goodwill and
the parent company’s
investment in
subsidiaries

(Group goodwill:
£1,175.0 million;
2018: £1,485.0 million;
parent company’s
investment in
subsidiaries:
£1,069.8 million,
2018: £2,104.2 million)

Refer to page 75
(Audit Committee
Report), pages 136
and 194 (accounting
policy) and pages
159 and 196
(financial disclosures).

Forecast-based valuation:
Goodwill in the Group and the
carrying amount of the parent
company’s investment in
subsidiaries are significant and at
risk of irrecoverability if forecast
business performance for the
Group’s retail insurance broking
and travel businesses, in particular,
were to fall significantly short of
business plans. The estimated
recoverable amount of goodwill and
the parent company’s investment
in subsidiaries are subjective due to
the inherent uncertainty involved in
forecasting and discounting future
cash flows.

The effect of these matters is that,
as part of our risk assessment,
we determined that the valuation
of Group goodwill and the
parent company’s investment in
subsidiaries has a high degree
of estimation uncertainty, with
a potential range of reasonable
outcomes greater than our
materiality for the financial
statements as a whole, and possibly
many times that amount.

• Tests of detail: For a sample of individual large bodily injury
claims, we evaluated the level of review, oversight and third
party evidence available and the frequency of updates
against new information.

• Assessing the risk transfer elements of the reinsurance
contracts and the accuracy of a sample of reinsurance
recoveries recorded, including reinsurance recoveries
related to IBNR, against the terms of relevant
reinsurance agreements.

• Assessing transparency: Assessing whether the Group’s
disclosures about the degree of estimation uncertainty
and the sensitivity of the balance to changes in key
assumptions reflected the risks inherent in the valuation
of claims outstanding.

Our findings
We found that the assumptions and estimates were cautious
(2018: cautious) with proportionate (2018: proportionate)
disclosure of the sensitivities to changes in key assumptions
and estimates as inputs to the valuation.

Our procedures included:

• Control design: Evaluating the design and implementation

of the Group’s impairment assessment procedures, including
those controls over the approvals of business plans, including
as applied to the parent company.

• Historical comparisons: Assessing the reasonableness
of cash flow projections against historical performance.

• Benchmarking assumptions: Comparing the Group’s and the
parent company’s assumptions to externally derived data
in relation to key inputs such as projected economic growth,
competition, cost inflation and discount rates with the
support of our valuation specialists.

• Comparing valuations: Comparing and reconciling the sum
of the value-in-use for the Group’s cash generating units
and for the parent company investment in subsidiaries to the
market capitalisation of the Group and corroborating any
significant differences.

• Sensitivity analysis: Using our analytical tools to: assess
the sensitivity of the goodwill headroom and to conclude
on the appropriateness of the impairment recognised in
relation to the goodwill attributed to the Group’s Insurance
cash generating unit, having regard to reasonably
possible changes in key assumptions, both individually
and collectively; and to assess and conclude on the
appropriateness of the impairment recognised in relation
to the carrying value of the parent company’s investment
in subsidiaries.

• Assessing transparency: Assessing whether the Group
disclosures about the sensitivity of the outcome of the
impairment assessment to changes in key assumptions
reflects the risks inherent in the valuation of goodwill and
in the carrying value of the parent company’s investment
in subsidiaries.

Our findings
We found that the resulting estimates over the recoverable
amount of Group goodwill and of the parent company’s
investment in subsidiaries to be mildly cautious (2018 finding:
mildly optimistic) and, when taken with the estimates at the start
of the year, the effect on the reported loss for the year to be
cautious. We found the disclosures of the drivers of impairment
and the sensitivities of goodwill headroom and carrying value
of parent company investment in subsidiaries to changes in key
assumptions to be proportionate (2018: proportionate).

121

GovernanceSaga plcAnnual Report and Accounts 2019Independent Auditor’s Report to the members of Saga plc
continued

3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £6.8m (2018: £9.0m), determined with reference to
a benchmark of Group loss before tax, normalised to exclude this year’s impairment charge as disclosed in note 15a, of
£175.4m (2018: £178.7m), of which it represents 3.9% (2018: 5.0%).

Materiality for the parent company financial statements as a whole was set at £5.0m (2018: £2.5m), which represents 0.5%
(2018: 0.1%) of total assets. This is lower than the materiality we would otherwise have determined by reference to Company
total assets.

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.27m
(2018: £0.36m), in addition to other identified misstatements that warranted reporting on qualitative grounds.

Of the Group’s 14 (2018: 14) reporting components, we subject 4 (2018: 4) to full scope audits for Group purposes and 3
(2018: 4) to specified risk-focused audit procedures. The latter were not individually financially significant enough to require
a full scope audit for Group purposes, but did present specific individual risks that needed to be addressed. For the residual
components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no
significant risks of material misstatement within these.

The components within the scope of our work accounted for the percentages illustrated opposite.

The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The Group team approved the component materialities, which ranged from
£1.0m to £5.0m (2018: £1.1m-£4.5m), having regard to the size and risk profile of the Group across the components. The work
on 3 of the 14 components was performed by component auditors and the rest, including the audit of the parent company,
was performed by the Group team. The Group audit team performed specific procedures on the impairment of goodwill of
£310m which was excluded in arriving at the normalised Group profit before tax for the year as identified above.

The Group audit team met KPMG Gibraltar during 2018 and 2019 to assess the audit risks and strategy.
Telephone conference meetings were also held with KPMG Gibraltar. At these visits and meetings, the findings reported
to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then
performed by the component auditor.

122

Saga plcAnnual Report and Accounts 2019Normalised proﬁt before tax from continuing operations

£175.4m (2018: £178.7m)

Proﬁt before tax

Group materiality

Group materiality
£6.8m (2018: £9.0m)

£6.8m
Whole ﬁnancial
statements materiality
(2018: £9.0m)

£5.0m
Range of materiality
at 14 components
(£1.0m-£5.0m)
(2018: £1.1m-£4.5m)

£0.27m
Misstatements reported
to the Audit Committee
(2018: £0.36m)

Group revenue

Total proﬁts and losses that made up
the normalised Group proﬁt before tax

Group total assets

97%
(2018: 93%)

98%
(2018: 98%)

99%
(2018: 98%)

Full scope for Group
audit purposes 2019

Speciﬁed risk-focused
audit procedures 2019

Full scope for Group
audit purposes 2018

Speciﬁed risk-focused
audit procedures 2018

Residual components

94%

85%

Full scope for Group
audit purposes 2019

Speciﬁed risk-focused
audit procedures 2019

Full scope for Group
audit purposes 2018

Speciﬁed risk-focused
audit procedures 2018

Residual components

90%

82%

16%

Full scope for Group
audit purposes 2019

Speciﬁed risk-focused
audit procedures 2019

Full scope for Group
audit purposes 2018

Speciﬁed risk-focused
audit procedures 2018

Residual components

98%

95%

4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s
financial position means that this is realistic. They have also concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of
the financial statements (‘the going concern period’).

Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future
events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a
guarantee that the Group and the Company will continue in operation.

In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business
model, including the impact of Brexit, and analysed how those risks might affect the Group’s and Company’s financial
resources or ability to continue operations over the going concern period. The risks that we considered most likely to
adversely affect the Group’s and Company’s available financial resources over this period were:

• the ability of the Group’s trading businesses to deliver on business plans in the face of increasing market competition,

cost pressure and a significant change agenda

• the external regulatory landscape and the impact that the increased focus on General Insurance pricing practices may

have on future profitability

• the risk of a significant slowdown in the macro-economic environment, heightened by the increased risk of a disorderly

Brexit, with the consequential impacts on the Group’s trading businesses.

123

GovernanceSaga plcAnnual Report and Accounts 2019Independent Auditor’s Report to the members of Saga plc
continued

As these were risks that could potentially cast significant doubt on the Group’s and the Company’s ability to continue as
a going concern, we considered sensitivities over the level of available financial resources indicated by the Group’s financial
forecasts taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks
individually and collectively and evaluated the achievability of the actions the Directors consider they would take to improve
the position should the risks materialise. We also considered less predictable but realistic second order impacts, such as
the impact of Brexit and the erosion of customer or supplier confidence, which could result in a rapid reduction of available
financial resources.

Based on this work, we are required to report to you if:

• we have anything material to add or draw attention to in relation to the Directors’ statement on page 132 to the financial
statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant
doubt over the Group and Company’s use of that basis for a period of at least 12 months from the date of approval of the
financial statements

• the related statement under the Listing Rules set out on page 55 is materially inconsistent with our audit knowledge.

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

5. We have nothing to report on the other information in the annual report and accounts
The Directors are responsible for the other information presented in the annual report and accounts together with the
financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do
not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material misstatements in the other information.

Strategic Report and Directors’ Report
Based solely on our work on the other information:

• we have not identified material misstatements in the Strategic Report and the Directors’ Report
•
•

in our opinion the information given in those reports for the financial year is consistent with the financial statements
in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.

Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw
attention to in relation to:

• the Directors’ confirmation within the viability statement on page 54 that they have carried out a robust assessment of

the principal risks facing the Group, including those that would threaten its business model, future performance, solvency
and liquidity

• the principal risks and uncertainties disclosures describing these risks and explaining how they are being managed

and mitigated

• the Directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what

period they have done so and why they considered that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.

Under the Listing Rules we are required to review the viability statement. We have nothing to report in this respect.

Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are
inconsistent with judgments that were reasonable at the time they were made, the absence of anything to report on these
statements is not a guarantee as to the Group’s and Company’s longer-term viability.

124

Saga plcAnnual Report and Accounts 2019Corporate governance disclosures
We are required to report to you if:

• we have identified material inconsistencies between the knowledge we acquired during our financial statements audit

and the Directors’ statement that they consider that the annual report and financial statements taken as a whole is fair,
balanced and understandable and provides the information necessary for shareholders to assess the Group’s position
and performance, business model and strategy

• a corporate governance statement has not been prepared by the Company.

We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the
11 provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report in these respects.

Based solely on our work on the other information described above:

• with respect to the Corporate Governance Statement disclosures about internal control and risk management systems in

relation to financial reporting processes and about share capital structures:
– we have not identified material misstatements therein
– the information therein is consistent with the financial statements
in our opinion, the Corporate Governance Statement has been prepared in accordance with relevant rules of the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

•

6. We have nothing to report on the other matters on which we are required to report by

exception

Under the Companies Act 2006, we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been

received from branches not visited by us

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in

agreement with the accounting records and returns

• certain disclosures of Directors’ remuneration specified by law are not made
• we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 117, the Directors are responsible for: the preparation of the
financial statements including being satisfied that they give a true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud
or error; assessing the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or
the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities
or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities

Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial
statements from our general commercial and sector experience, through discussion with the Directors and other
management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence
and discussed with the Directors and other management the policies and procedures regarding compliance with laws and
regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of
non-compliance throughout the audit. This included communication from the Group to component audit teams of relevant
laws and regulations identified at Group level.

125

GovernanceSaga plcAnnual Report and Accounts 2019Independent Auditor’s Report to the members of Saga plc
continued

The potential effect of these laws and regulations on the financial statements varies considerably.

Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting
legislation (including related companies legislation), distributable profits legislation, taxation legislation and pension
legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the
related financial statement items.

Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could
have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines
or litigation or the loss of Group’s licences to operate. We identified the following areas as those most likely to have such
an effect: regulatory capital, regulatory compliance, recognising that there are operations of the Group authorised and
regulated by the Financial Conduct Authority (FCA) and the Civil Aviation Authority (CAA). We also identified certain
aspects of company legislation recognising the financial and regulated nature of the Group’s activities and its legal form.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry
of the Directors and other management and inspection of regulatory and legal correspondence, if any. Through these
procedures we became aware of actual or suspected non-compliance and considered the effect as part of our procedures
on the related financial statement items. The actual or suspected non-compliance was not sufficiently significant to our
audit to result in our response being identified as a key audit matter.

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from
the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required
by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of
irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all
laws and regulations.

8. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and the terms of our engagement by the Company. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to them in an auditor’s report, and the further matters we
are required to state to them in accordance with the terms agreed with the Company, and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions we have formed.

Stuart Crisp (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square London
E14 5GL

3 April 2019

126

Saga plcAnnual Report and Accounts 2019Consolidated income statement
for the year ended 31 January 2019

Revenue

Cost of sales

Gross profit

Administrative and selling expenses

Impairment of assets

Investment income

Finance costs

Finance income

Share of loss of joint ventures

(Loss)/profit before tax from continuing operations

Tax expense

(Loss)/profit for the year from continuing operations

Loss after tax for the year from discontinued operations

(Loss)/profit for the year

Attributable to:

Equity holders of the parent

Earnings Per Share:

Basic

Diluted

Earnings Per Share for continuing operations:

Basic

Diluted

Note

2019
£’m

2018
(restated)
£’m

841.5

860.2

(405.7)

(412.8)

435.8

447.4

(244.5)

(254.3)

(315.9)

0.7

–

7.6

(11.7)

(19.1)

1.0

–

1.5

(2.2)

(134.6)

180.9

(27.4)

(162.0)

(33.9)

147.0

–

(7.6)

(162.0)

139.4

(162.0)

139.4

(14.5p)

12.5p

12.4p

(14.5p)

13.1p

Revenue of £841.5m (2018: £860.2m) is stated net of ceded reinsurance premiums earned on business underwritten by the
Group of £136.0m (2018: £139.9m).

The notes on pages 132-191 form an integral part of these consolidated financial statements.

127

Financial StatementsSaga plcAnnual Report and Accounts 2019Consolidated statement of comprehensive income
for the year ended 31 January 2019

(Loss)/profit for the year

Other comprehensive income

Other comprehensive income to be reclassified to income statement
in subsequent years

Net gains/(losses) on hedging instruments during the period

Recycling of previous gains to income statement on matured hedges

Total net loss on cash flow hedges

Associated tax effect

Net losses on fair value financial assets during the period

Recycling of previous gains to income statement on sale of fair value financial assets
during the year

Total net loss on fair value financial assets

Associated tax effect

Total other comprehensive losses with recycling to income statement

Other comprehensive income not to be reclassified to income statement
in subsequent years

Re-measurement gains on defined benefit plans

Associated tax effect

Note

2019
£’m

2018
(restated)
£’m

(162.0)

139.4

0.5

(2.9)

(2.4)

0.4

(5.3)

(18.8)

(24.1)

4.1

(1.3)

(0.3)

–

(1.3)

0.2

(4.4)

(4.7)

0.8

(3.1)

(23.9)

2.1

(0.4)

10.2

(1.7)

Total other comprehensive gains without recycling to income statement

1.7

8.5

Total other comprehensive losses

Total comprehensive (losses)/income for the year

Attributable to:

Equity holders of the parent

(1.4)

(15.4)

(163.4)

124.0

(163.4)

124.0

The notes on pages 132-191 form an integral part of these consolidated financial statements.

128

Saga plcAnnual Report and Accounts 2019Consolidated statement of financial position
as at 31 January 2019

Assets

Goodwill

Intangible fixed assets

Property, plant and equipment

Financial assets

Deferred tax assets

Reinsurance assets

Inventories

Trade and other receivables

Assets held for sale

Cash and short-term deposits

Total assets

Liabilities

Retirement benefit scheme obligations

Gross insurance contract liabilities

Provisions

Financial liabilities

Deferred tax liabilities

Current tax liabilities

Contract liabilities

Trade and other payables

Total liabilities

Equity

Issued capital

Share premium

Retained earnings

Share-based payment reserve

Fair value reserve

Hedging reserve

Total equity

Total equity and liabilities

The notes on pages 132-191 form an integral part of these consolidated financial statements.

Signed for and on behalf of the Board on 3 April 2019 by

L. H. L. Batchelor
Group Chief Executive Officer

J. Quin
Group Chief Financial Officer

2019
£’m

2018
(restated)
£’m

Note

1,175.0

1,485.0

62.8

183.9

426.2

14.2

96.8

4.0

61.2

163.4

513.5

13.7

100.2

5.8

216.6

215.1

–

122.9

6.8

83.2

2,302.4

2,647.9

2.8

490.6

10.3

457.0

7.8

17.2

144.7

207.7

7.0

581.4

4.7

468.5

17.0

15.2

142.7

185.9

1,338.1

1,422.4

11.2

519.3

404.8

13.3

(1.8)

17.5

11.2

519.3

664.8

11.4

(0.7)

19.5

964.3

1,225.5

2,302.4

2,647.9

129

Financial StatementsSaga plcAnnual Report and Accounts 2019Consolidated statement of changes in equity
for the year ended 31 January 2019

Attributable to the equity holders of the parent

Issued
capital
£’m

Share
premium
£’m

Retained
earnings
£’m

Share-
based
payment
reserve
£’m

Fair value
reserve
£’m

Hedging
reserve
£’m

Total
£’m

At 1 February 2018 (as reported)

11.2

519.3

662.8

11.4

(0.6)

19.4

1,223.5

Effect of adoption
of IFRS 9 and 15

At 1 February 2018 (restated)

Loss for the year

Other comprehensive income/(losses)
excluding recycling

Recycling of previous gains to income
statement

Total comprehensive losses

Dividends paid (note 11)

Share-based payment charge (note 32)

Exercise of share options

At 31 January 2019

–

11.2

–

519.3

–

2.0

664.8

(162.0)

1.7

–

(160.3)

(100.9)

–

1.2

11.2

519.3

404.8

–

11.4

–

3.8

(1.9)

13.3

(0.1)

(0.7)

–

0.1

19.5

–

2.0

1,225.5

(162.0)

(1.1)

0.4

1.0

–

(1.1)

–

(2.4)

(2.0)

–

(2.4)

(163.4)

(100.9)

3.8

(0.7)

(1.8)

17.5

964.3

At 1 February 2017 (as reported)

11.2

519.3

607.8

15.6

3.3

38.0

1,195.2

Effect of adoption
of IFRS 9 and 15

At 1 February 2017 (restated)

Profit for the year

Other comprehensive income
excluding recycling

Recycling of previous gains to
income statement

Total comprehensive income

Dividends paid (note 11)

Share-based payment charge (note 32)

Exercise of share options

At 31 January 2018

–

11.2

–

519.3

–

0.1

607.9

139.4

8.5

–

147.9

(98.5)

–

7.5

–

15.6

–

4.0

(8.2)

(0.1)

3.2

–

1.5

39.5

–

1.5

1,196.7

139.4

(0.3)

(4.4)

3.8

(3.6)

(3.9)

–

(15.6)

(20.0)

–

(19.2)

124.0

(98.5)

4.0

(0.7)

11.2

519.3

664.8

11.4

(0.7)

19.5

1,225.5

The notes on pages 132-191 form an integral part of these consolidated financial statements.

130

Saga plcAnnual Report and Accounts 2019Consolidated statement of cash flows
for the year ended 31 January 2019

(Loss)/profit before tax from continuing operations

Loss before tax from discontinued operations

(Loss)/profit before tax

Depreciation, impairment and loss on disposal of property, plant and equipment

Amortisation and impairment of intangible assets

Share-based payment transactions

Accelerated amortisation of debt issue costs

Impairment of investment in joint venture

Impairment of financial assets

Profit on assets held for sale

Finance costs

Finance income

Share of loss of joint ventures

Interest income from investments

Movements in other assets and liabilities

Interest received

Interest paid

Income tax paid

Note

2019
£’m

2018
(restated)
£’m

(134.6)

180.9

–

(7.8)

(134.6)

173.1

25.1

329.6

3.6

–

(3.8)

11.7

(1.0)

–

(0.7)

(44.5)

185.4

0.7

(13.3)

(34.8)

20.0

18.5

3.0

4.3

1.9

6.6

–

14.9

(1.5)

0.5

(7.7)

(62.1)

171.5

7.4

(10.9)

(32.8)

Net cash flows from operating activities

138.0

135.2

Investing activities

Proceeds from sale of property, plant and equipment

Purchase of and payments for the construction of property, plant and equipment and
intangible assets

Net (purchase)/disposal of financial assets

Investment in joint venture

Net cash flows (used in)/from investing activities

Financing activities

Proceeds from exercise of share options

Payment of finance lease liabilities

Proceeds from borrowings

Repayment of borrowings

Debt issue costs

Dividends paid

Net cash flows used in financing activities (note 28)

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at the start of the year

Cash and cash equivalents at the end of the year

The notes on pages 132-191 form an integral part of these consolidated financial statements.

0.1

0.4

(63.0)

(36.9)

–

(99.8)

(82.5)

93.1

(1.0)

10.0

–

(2.0)

58.0

0.3

(1.1)

485.0

(63.0)

(520.0)

–

(100.9)

(5.1)

(98.8)

(107.9)

(139.7)

(69.7)

227.0

157.3

5.5

221.5

227.0

131

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements

1 Corporate information
Saga plc (the ‘Company’) is a public limited company incorporated and domiciled in the United Kingdom under the
Companies Act 2006 (registration number 08804263). The Company is registered in England and its registered office
is located at Enbrook Park, Folkestone, Kent CT20 3SE.

Saga Group offers a wide range of products and services to its customer base which includes general insurance products,
package and cruise holidays, personal finance products, domiciliary care services and a monthly subscription magazine.

2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union (EU), and with the Companies Act 2006.

The consolidated financial statements have been prepared on a going concern basis and on a historical cost basis except
as otherwise stated.

The Group’s consolidated financial statements are presented in pounds sterling which is also the parent company’s
functional currency, and all values are rounded to the nearest hundred thousand (£’m), except when otherwise indicated.
Each company in the Group determines its own functional currency and items included in the financial statements of each
entity are measured using that functional currency.

The preparation of financial statements in compliance with IFRS as adopted by the EU requires the use of certain critical
accounting estimates. It also requires Group management to exercise judgement in applying the Group’s accounting policies.
The areas where significant judgements and estimates have been made in preparing the financial statements and their
effect are disclosed in note 2.6.

This is the first set of the Group’s annual financial statements in which IFRS 15 Revenue from Contracts with Customers
and IFRS 9 Financial Instruments have been applied. Changes to significant accounting policies are described in
section 2.3 on pages 133-144.

2.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 31 January each year. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with an investee entity and has the ability to affect those returns through its power
over the investee entity. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another entity.

Subsidiary companies are consolidated using the acquisition method.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and
continue to be consolidated until the date when such control ceases.

In preparing these consolidated financial statements, any intra-group balances, unrealised gains and losses or income and
expenses arising from intra-group trading are eliminated. Where accounting policies used in individual financial statements
of a subsidiary company differ from Group policies, adjustments are made to bring these policies in line with Group policies.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of disposal, as appropriate. Where a subsidiary which constituted
a major line of business is disposed of or otherwise meets the requirements of IFRS 5 to be held for sale, it is disclosed as a
discontinued operation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling
interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment
retained is recognised at fair value.

132

Saga plcAnnual Report and Accounts 20192.3 Summary of significant accounting policies
Revenue from Contracts with Customers
The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ for the first time in the year ended 31 January
2019. The Group applied IFRS 15 retrospectively and the details of the new accounting policies for revenue recognition and
cost recognition are disclosed below.

a. Revenue recognition
Revenue represents amounts receivable from the sale or supply of goods and services provided to customers in the ordinary
course of business and is recognised to the extent that it is probable that the future economic benefits will flow to the Group
and the revenue can be reliably measured, regardless of when payment is received. The recognition policies for the Group’s
various revenue streams by segment are as follows:

i) Insurance
Insurance premiums received for risks underwritten by the Group are recognised on a straight-line time-apportioned basis
over the period of the policy. Any changes to premium arising as a result of adjustments to the underlying risk notified by the
policyholders are recognised over the remaining period of the policy from the effective date of notification.

Brokerage revenue received in connection with insurance policies not underwritten by the Group is recognised on inception
of the policy when the obligation to arrange insurance for the customer has been satisfied. The portion of insurance
premiums received for risks which are not underwritten by the Group that is passed to a third party insurer is not recognised
in the income statement.

Insurance premiums and sales revenues received in advance of the inception date of a policy are treated as advance
receipts and included as contract liabilities in the statement of financial position.

Premiums in respect of insurance policies underwritten by the Group that are live at the reporting date and which relate to
the period after the reporting date are treated as unearned and included in insurance contract liabilities in the statement
of financial position.

Changes to premiums are recognised on the effective date of a mid-term adjustment. For those policies that are
underwritten by the Group, these changes are recognised on a straight-line time-apportioned basis over the period
remaining on the policy. Reduction in premiums from mid-term cancellations are recognised on the effective date of the
cancellation. Fee income from mid-term adjustments and cancellations is recognised on the date which the mid-term
adjustment or cancellation occurs.

A provision is made for the potential for policies to cancel or lapse after the balance sheet date based on the historical
run rate for such an event. The provision is recognised as a reduction in revenue in the Group’s income statement and
as a provision in the Group’s statement of financial position.

Income from credit provided to customers to facilitate payment of their insurance premiums over the life of their policy is
treated as part of the revenue from insurance operations and recognised over the period of the policy in proportion to the
outstanding premium balance.

Profit commissions due under co-insurance or reinsurance arrangements are recognised and valued in accordance with the
contractual terms to which they are subject and on the same basis, where appropriate, as the related reinsured liabilities.

For revenue earned from credit hire and repair services for non-fault claims (‘credit hire’ and ‘credit repair’), the Group initially
recognises the associated financial asset at fair value, based on a historical assessment of debt recovery, including any
discounts offered retrospectively. Credit hire revenue is recognised from the date that a vehicle is placed on hire equally
over the duration of the hire. Credit repair revenue represents income from the recovery of the costs of repair of customers’
vehicles. Credit repair revenue is recognised when the work has been completed. Late payment penalties afforded under the
terms of the Association of British Insurers General Terms of Agreement (‘ABI GTA’) are recognised as they become payable
by the insurance company.

ii) Travel
Revenue from tour operations and cruise holidays where the Group does not operate the cruise ship is recognised in line
with the performance obligations that are included in a package holiday, namely the provision of flights, accommodation,
transfers and travel insurance. Revenue is recognised as and when each performance obligation is satisfied.

Revenue in respect of cruise holidays where the Group operates the cruise ship is also recognised in line with the
performance obligations being the cruise itself, flights (where applicable), travel insurance and transfers. The portion of
revenue allocated to the cruise itself is recognised on a per diem basis over the duration of the cruise in line with when the
performance obligation is satisfied. The portion of revenue allocated to each of flights (where applicable), travel insurance
and transfers is recognised as and when each performance obligation is satisfied.

An element of revenue which represents the non-refundable deposit received at the time of booking is recognised in the
income statement immediately in line with the prevailing rate of cancellation.

133

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

2.3 Summary of significant accounting policies (continued)
a. Revenue recognition (continued)
ii) Travel (continued)
Revenue from sales in resort, for example for optional excursions, or onboard a cruise ship operated by the Group, for example
bar sales or optional excursions, is recognised as it is earned.

Revenue from tour operations and cruising holidays received in advance of when each performance obligation is satisfied
is included as other liabilities in the statement of financial position.

iii) Emerging Businesses and Central Costs
Personal finance
Revenue from personal finance products is recognised when the customer contracts with the provider of the relevant
personal finance product where the revenue comprises a one-off payment by the provider of the product.

Where the personal finance product is one that delivers a recurring income stream, the present value of the future expected
revenue to be received is recognised when the customer contracts with the provider of the relevant personal finance product,
and it is highly probable that a significant reversal of revenue recognised will not occur.

Healthcare
Revenue from healthcare operations is recognised when services are provided to customers. The point of supply is generally
defined as the point at which a service user has received care services from the Group and which are usually provided on an
hourly basis.

Magazine subscriptions
Magazine subscription revenue is recognised on a straight-line basis over the period of the subscription. Revenue generated
from advertising within the magazine is recognised when the magazine is provided to the customer.

The element of subscriptions and advertising revenue relating to the period after the reporting date is treated as unearned
and included within contract liabilities in the statement of financial position.

Retirement villages
Sales commission from retirement villages is recognised on the legal completion of a property.

Printing and mailing
Revenue from printing and mailing services is recognised in line with the performance obligations within customer contracts.

b. Cost recognition
i) Direct costs
Costs directly associated with the revenues generated by the Group’s principal activities (excluding insurance underwriting)
are recognised in the income statement on a basis consistent with the relevant revenue recognition policy, unless it meets
the criteria of costs to obtain or fulfil a contract.

ii) Acquisition costs
Acquisition costs arising from the selling or renewing of insurance policies underwritten by the Group are recognised on a
straight-line time-apportioned basis over the period of the policy in which the related revenues are earned. The proportion
of acquisition costs relating to premiums treated as unearned at the reporting date are deferred and included as other
receivables in the statement of financial position.

Incremental costs of obtaining an insurance contract not underwritten by the Group, namely fees charged by
price-comparison websites are recognised as an asset on the statement of financial position. Such costs are amortised
in line with the pattern of revenue for the related insurance contract, which incorporate the propensity for that contract to
renew in future periods based on the prevailing rate of renewal for these types of contract. If the expected amortisation
period is one year or less, then incremental costs are expensed when incurred.

iii) Claims costs
Claims costs incurred in respect of insurance policies underwritten by the Group include claims made for losses reported as
occurring during the period together with the related handling costs, any adjustments to claims outstanding from previous
periods, and a provision for the estimated cost of claims incurred during the period but not reported at the reporting date.
Further detail is provided in note 25.

iv) Reinsurance costs
The Group undertakes a programme of reinsurance in respect of the policies which it underwrites. Outward reinsurance
premiums are accounted for in the same accounting period as the related inward insurance premiums and are presented
as a deduction from earned premium.

134

Saga plcAnnual Report and Accounts 20192.3 Summary of significant accounting policies (continued)
b. Cost recognition (continued)
v) Finance costs
Finance costs comprise interest paid and payable which is calculated using the effective interest rate method
and recognised in the income statement as it accrues. Accrued interest is included within the carrying value of the
interest-bearing financial liability in the statement of financial position. Finance costs also include debt issue costs which
are initially recognised in the statement of financial position and amortised over the life of the debt.

vi) Other expenses
Other expenses are taken to the income statement as incurred.

c. Recognition of other income statement items
i) Investment income
Investment income in the form of interest is recognised in the income statement as it accrues and is calculated using the
effective interest rate method. Fees and commissions which are an integral part of the effective yield of the financial asset
or liability are recognised as an adjustment to the effective interest rate of the instrument.

Investment income in the form of dividends is recognised when the right to receive payment is established. For listed
securities, this is the date that the security is listed as ex-dividend.

ii) Gains and losses on financial investments at fair value through profit or loss
Realised and unrealised gains and losses on financial investments are recorded as finance income or finance costs in the
income statement. Realised gains and losses on the sale of investments are calculated as the difference between net sales
proceeds and the original or amortised cost and are recorded on the date of sale. Unrealised gains and losses arising on
financial assets measured at fair value through profit and loss, which have not been derecognised as a result of disposal or
transfer, represent the difference between the carrying value at the year end and the carrying value at the previous year end
or the purchase value for investments acquired during the year, net of the reversal of previously recognised unrealised gains
and losses in respect of disposals made during the year.

iii) Non-trading items
Items which derive from events or transactions that are not representative of the underlying financial performance and
which are material, or if of a similar type are material in aggregate, are treated as non-trading. Non-trading items are charged
or credited to the income statement as appropriate and are not separated from the line item to which they relate on the face
of the income statement. Amounts attributable to non-trading items are in note 4b.

d. Taxes
i) Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from
or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date. Current income tax assets and liabilities also include adjustments in respect
of tax expected to be payable or recoverable in respect of previous periods. Current income tax relating to items recognised
in other comprehensive income and directly in equity is recognised in other comprehensive income or equity and not in the
income statement.

ii) Deferred tax
Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences and the
carry forward of unused tax credits and unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at
the reporting date. Deferred tax is charged or credited in the income statement, except when it relates to items charged
or credited in other comprehensive income or equity, in which case the deferred tax is recognised in other comprehensive
income or equity as appropriate.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

135

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

2.3 Summary of significant accounting policies (continued)
e. Foreign currencies
i) Transactions and balances
Transactions in foreign currencies are initially recorded by the Group at their respective functional currency spot rate at the
date that the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency spot rate of exchange ruling at the reporting date. Differences arising on settlement
or translation of monetary items are recognised in the income statement.

Non-monetary items that are measured at historical cost are translated using the exchange rate at the date of the initial
transaction. Non-monetary items measured at fair value are translated using the exchange rate at the date when the fair
value is determined. The gains or losses arising on translation of non-monetary items measured at fair value are treated in
line with the recognition of gains or losses arising on a change in the fair value of the item (i.e. the translation differences
on items whose fair value gain or loss is recognised in other comprehensive income or the income statement are also
recognised in other comprehensive income or the income statement respectively).

f. Intangible assets
Intangible assets acquired are measured on initial recognition at cost. Intangible assets acquired in a business combination
are measured at their fair value at the date of acquisition and, following initial recognition, are carried at cost less any
accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding internally
developed software, are not capitalised and the related expenditure is reflected in the income statement in the period in
which the expenditure is incurred.

The useful lives of intangible assets and goodwill are assessed as either finite or indefinite. Estimated useful lives are
as follows:

Goodwill

Brands

Customer relationships

Contracts acquired

Software

Indefinite

10 years

Over the life of the customer relationship

Over the life of the contract

3-10 years

Intangible assets with finite lives are amortised over their useful economic life on a basis appropriate to the consumption
of the asset and are assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and
are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised
in the income statement in the expense category that is consistent with the function of the intangible assets.

Intangible assets and goodwill with indefinite useful lives are not amortised but are tested for impairment annually, either
individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life
continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

136

Saga plcAnnual Report and Accounts 20192.3 Summary of significant accounting policies (continued)
g. Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred measured at acquisition date at fair value and the amount of any non-controlling
interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests
in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that is a financial instrument within the scope of IFRS 9 ‘Financial
Instruments’ is measured at fair value with the changes in fair value recognised in the income statement.

Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities is recognised as goodwill.
If the cost of acquisition is less than the fair values of the identifiable assets and liabilities of the acquired business, the
difference is recognised directly in the income statement in the year of acquisition.

Acquisition-related costs are expensed as incurred and included in administrative expenses.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to CGUs
at the point of acquisition and is reviewed annually for impairment.

h. Impairment of non-financial assets
The Group undertakes a full impairment review of the carrying value of goodwill at each reporting date. The Group also
assesses at each reporting date whether there is any indication that any other non-financial assets may be impaired. If such
an indication exists, the recoverable amount is estimated and compared with the carrying amount. If the recoverable amount
is less than the carrying amount, the asset is considered impaired and is written down to its recoverable amount and the
impairment loss is recognised immediately in the income statement.

In assessing value-in-use, estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair
value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified,
an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for
publicly traded companies or other available fair value indicators. The Group bases its impairment calculations on detailed
budgets, plans and long-term growth assumptions, which are prepared separately for each of the Group’s CGUs to which
individual assets are allocated.

i. Joint arrangements
The Group participates in joint arrangements where control of the arrangement is shared with another party. A joint
arrangement is classified as a joint operation or joint venture, depending on management’s assessment of the legal form and
substance of the arrangement.

The Group’s share of assets, liabilities, revenue, expenses and cash flows of joint operations are included in the consolidated
financial statements on a line-by-line basis, whereas the Group’s investment and share of results of joint ventures
are shown within single line items in the consolidated statement of financial position and the consolidated income
statement respectively.

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continued

2.3 Summary of significant accounting policies (continued)
j. Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Where an
item of property, plant and equipment comprises major components having different useful lives, they are accounted
for separately.

Assets in the course of construction at the balance sheet date are classified separately. These assets are transferred to
other asset categories when they become available for their intended use.

Depreciation is charged to the income statement on a straight-line basis so as to write off the depreciable amount of
property, plant and equipment over their estimated useful lives. The depreciable amount is the cost of an asset less its
residual value. Land and assets in the course of construction are not depreciated. Estimated useful lives are as follows:

Buildings, properties and related fixtures:

Buildings

Related fittings

Leasehold properties

Cruise ships

Computers

Plant, vehicles and other equipment

50 years

3-20 years

Over the period of the lease

2-15 years

3-6 years

3-10 years

Costs relating to cruise ship mandatory dry-dockings are capitalised and depreciated over the period up to the next
dry-docking where appropriate. All other repairs and maintenance costs are recognised in the income statement as incurred.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset
is derecognised.

Estimated residual values and useful lives are reviewed annually.

k. Non-current assets held for sale and discontinued operations
The Group classifies non-current assets as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. To be classified as held for sale, an asset must be available for immediate
sale in its present condition subject only to terms that are usual and customary for the sale of such assets, and the sale must
be highly probable. Sale is considered to be highly probable when management is committed to a plan to sell an asset and an
active programme to locate a buyer and complete the plan has been initiated at a price that is reasonable in relation to its
current fair value, and there is an expectation that the sale will be completed within one year from the date of classification.
Non-current assets classified as held for sale are carried on the Group’s statement of financial position at the lower of their
carrying amount and fair value less costs to sell.

Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount of
profit or loss after tax from discontinued operations in the income statement.

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Saga plcAnnual Report and Accounts 20192.3 Summary of significant accounting policies (continued)
l. Financial instruments
The Group has adopted IFRS 9 ‘Financial Instruments’ for the first time for the year ended 31 January 2019. The requirements
of IFRS 9 represent a significant change from IAS 39 ‘Financial Instruments: Recognition and Measurement’. As such, the
Group has changed its accounting policy and applied it retrospectively, for financial instruments as detailed below.

i) Financial assets
On initial recognition, a financial asset is classified as either amortised cost; fair value through other comprehensive income
(FVOCI); or fair value through profit and loss (FVTPL). The classification of financial assets under IFRS 9 is based on the
business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded
in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial
instrument as a whole is assessed for classification.

Initial recognition

Subsequent measurement

Amortised cost

A financial asset is measured at amortised cost
if it meets both of the following conditions and is
not elected to be designated as FVTPL:

FVOCI

FVTPL

•

It is held within a business model whose
objective is to hold assets to collect
contractual cash flows.
Its contractual terms give rise on specified
dates to cash flows that are solely payments
of principal and interest on the principal
amount outstanding.

A debt investment is measured at FVOCI if it
meets both of the following conditions and is not
elected to be designated as FVTPL:

•

It is held within a business model whose
objective is achieved by both collecting
contractual cash flows and selling
financial assets.
Its contractual terms give rise on specified
dates to cash flows that are solely payments
of principal and interest on the principal
amount outstanding.

On initial recognition of an equity investment
that is not held for trading, the Group may
irrevocably elect to present subsequent
changes in the investment’s fair value in other
comprehensive income. This election is made on
an investment-by-investment basis.

All financial assets not classified as amortised
cost or FVOCI as described above are classified
as FVTPL and held at fair value. This includes all
derivative financial assets.

On initial recognition, the Group may irrevocably
elect to designate a financial asset that
otherwise meets the requirements to be
measured at amortised cost or FVOCI as FVTPL
if doing so eliminates or significantly reduces
an accounting mismatch that would otherwise
arise. This election is made on an individual
instrument basis.

These assets are subsequently measured at
amortised cost using the effective interest
method. The amortised cost is reduced
by any impairment losses (see (ii) below).
Interest income, foreign exchange gains and
losses and impairments are recognised in
profit or loss as they are incurred. Any gain or
loss on derecognition is recognised in profit or
loss immediately.

Debt instruments are subsequently measured
at fair value. Interest income calculated using
the effective interest method, foreign exchange
gains and losses and impairments are recognised
in profit or loss. Other net gains and losses are
recognised in OCI. On derecognition, gains and
losses accumulated in OCI are recycled to profit
or loss.

Equity investments are measured at fair value.
Dividends are recognised as income in profit
or loss unless the dividend clearly represents a
recovery of part of the cost of the investment.
Other net gains and losses are recognised in OCI
and are never reclassified to profit or loss.

These assets are subsequently measured at fair
value. Net gains and losses, including any interest
or dividend income, are recognised in profit or
loss, unless such instrument is designated in a
hedging relationship (see (vi) below).

Derecognition
A financial asset is derecognised when the rights to receive cash flows from the asset have expired or when the Group has
transferred substantially all the risks and rewards relating to the asset to a third party.

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Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

2.3 Summary of significant accounting policies (continued)
l. Financial instruments (continued)
ii) Impairment of financial assets
The IFRS 9 expected credit loss (ECL) impairment model applies to financial assets measured at amortised cost and debt
investments at FVOCI.

The Group measures loss allowances at an amount equal to 12 month ECLs, except for the following, which are measured as
lifetime ECLs:

• Debt securities that are determined to have high credit risk at the reporting date.
• Other debt securities and bank balances for which credit risk has increased significantly since initial recognition.
• Trade receivables and contract assets that result from transactions within the scope of IFRS 15.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical
experience and informed credit assessment and including forward-looking information.

The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the definition of
‘investment grade’. The Group considers this to be BBB or higher as per Standard & Poor’s rating scale.

Measurement of ECLs
ECLs are measured as a probability-weighted estimate of credit losses. Credit losses are measured as the probability
of default in conjunction with the present value of the Group’s exposure. Loss allowances for ECLs on financial assets
measured at amortised cost are recognised as a provision in the statement of financial position with a corresponding charge
to the income statement. For debt instruments measured at FVOCI the loss allowance is recognised in the statement of
comprehensive income and does not reduce the carrying amount of the financial asset in the statement of financial position.

Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI
are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred. In such an event, the lifetime ECL will be recognised in lieu
of the 12 month ECL.

iii) Financial liabilities
Initial recognition and measurement
All financial liabilities are classified as financial liabilities at amortised cost on initial recognition except for derivatives, which
are classified at FVTPL, the gains or losses for which are recognised through other comprehensive income if the instrument
is designated as a hedging instrument in an effective hedge.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable
transaction costs.

The Group’s financial liabilities include trade and other payables, loans and borrowings, derivative financial instruments,
obligations under finance leases and hire purchase.

Subsequent measurement
After initial recognition, interest bearing loans and borrowings and other payables are subsequently measured at amortised
cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or
premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance
costs in the income statement.

Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the
income statement.

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Saga plcAnnual Report and Accounts 20192.3 Summary of significant accounting policies (continued)
l. Financial instruments (continued)
iv) Derivatives
Derivatives are measured at fair value both initially and subsequent to initial recognition. All changes in fair value of
non-designated derivatives are recognised in the income statement immediately. Changes in fair value of derivatives
designated as hedges are initially recognised in other comprehensive income until such a point that they are recycled to
profit or loss in the same period as the hedged item is recognised in profit or loss, or immediately if the hedged item is no
longer expected to occur.

Derivatives are presented as assets when the fair values are positive and as liabilities when the fair values are negative.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more
than 12 months and it is not expected to be realised or settled within 12 months.

v) Fair values
The Group measures financial instruments, such as derivatives and financial instruments not designated as a hedge
classified as FVOCI and at FVTPL, at fair value at each reporting date.

Fair value is the price that would be required to sell an asset or to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the principal market accessible by the Group for the asset or liability or,
in the absence of a principal market, in the most advantageous market accessible by the Group for the asset or liability.

The fair values are quoted market prices where there is an active market or are based on valuation techniques when there
is no active market or the instruments are unlisted. Valuation techniques include the use of recent arm’s length market
transactions, discounted cash flow analysis and other commonly used valuation techniques.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy based on the lowest level possible for each instrument.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

vi) Hedge accounting
The Group designates certain derivative financial instruments as cash flow hedges of certain forecast transactions.
These transactions are highly probable to occur and present an exposure to variations in cash flows that could ultimately
affect amounts determined in profit or loss.

The Group has elected to adopt the general hedge accounting model in IFRS 9. This requires the Group to ensure that hedge
accounting relationships are aligned with its risk management objectives and strategy and to apply a qualitative and
forward-looking approach to assessing hedge effectiveness.

The Group uses forward foreign exchange contracts and commodity swap contracts to hedge the variability in cash
flows arising from changes in foreign currency rates and oil prices respectively. For foreign exchange contracts, the Group
designates the fair value change of the full forward price as the hedging instrument in cash flow hedging relationships.
For commodity hedging, the Group designates the fair value change of the benchmark price. The effective portion of
changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of
equity. Any ineffective portion of the fair value gain or loss is recognised immediately within the income statement.

When a hedging instrument no longer meets the criteria for hedge accounting (through maturity, sale, or other termination),
hedge accounting is discontinued prospectively. If the hedged forecast transaction is still expected to occur, the associated
cumulative gain or loss remains in the hedging reserve and is recognised in accordance with the above policy when the
transaction occurs. If the hedged transaction is no longer expected to occur, the cumulative unrealised gain or loss is
recognised in the income statement immediately.

See note 37 for a reconciliation of the impact on the financial statements arising from the transition to IFRS 9.

141

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

2.3 Summary of significant accounting policies (continued)
m. Leases
Leases under which substantially all of the risks and rewards of ownership are transferred to the Group are finance leases.
All other leases are operating leases.

Assets held under finance leases are recognised at the lower of the fair value of the asset and the present value of the
minimum lease payments within property, plant and equipment on the statement of financial position and depreciated over
the shorter of the lease term or their expected useful lives. The interest element of finance lease payments represents a
constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease.

Operating lease rentals are charged to the income statement on a straight-line basis over the lease term.

Income arising from operating leases where the Group acts as lessor is recognised on a straight-line basis over the lease
term and is included in operating income.

n. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes
a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective
asset. All other borrowing costs are expensed in the period in which they occur.

Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

o. Cash and short-term deposits
Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term
deposits with a maturity of three months or less from their inception date.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash, short-term deposits
as defined above and short-term highly liquid investments (including money market funds) with original maturities of three
months or less which are subject to an insignificant risk of change in value, net of outstanding bank overdrafts.

p. Trade and other receivables
Trade and other receivables are initially recognised at their transaction price and subsequently measured at amortised cost.
Appropriate allowances for estimated irrecoverable amounts are recognised in the statement of profit or loss when there is
evidence that the asset is impaired. These are reversed when the triggering event that caused the impairment is reversed.

q. Inventories
Inventories are stated at the lower of cost and net realisable value. Costs include all costs incurred in bringing each product
to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected
to be incurred prior to completion and disposal.

r. Insurance contract liabilities
Insurance contract liabilities include an outstanding claims provision, a provision for unearned premiums and, if required,
a provision for premium deficiency.

Outstanding claims provision
The provision for outstanding claims is set on an individual claim basis and is based on the ultimate cost of all claims notified
but not settled less amounts already paid by the reporting date, together with a provision for related claims handling costs.
The provision also includes the estimated cost of claims incurred but not reported at the statement of financial position
date, which is set using statistical methods. The outstanding claims provision is not discounted for the time value of money
with the exception of claims settled as periodical payment orders (PPOs).

The amount of any anticipated reinsurance, salvage or subrogation recoveries is separately identified and reported within
reinsurance assets and insurance contract liabilities respectively.

Differences between the provisions at the reporting date and settlements and provisions in the following year (known as ‘run
off deviations’) are recognised in the income statement as they arise.

Provision for unearned premiums
The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that
have not yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are
charged, and is brought to account as premium income over the term of the contract in accordance with the pattern of
release from risk under the contract.

142

Saga plcAnnual Report and Accounts 20192.3 Summary of significant accounting policies (continued)
r. Insurance contract liabilities (continued)
Provision for premium deficiency
At each reporting date, the Group reviews its unexpired risks and a liability adequacy test is performed to determine whether
there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses
current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets
relating to the relevant insurance technical provisions. If these estimates show that the carrying amount of the unearned
premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the income statement by
setting up a provision for premium deficiency.

s. Reinsurance assets
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on insurance contracts
issued are classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is
significant insurance risk transfer between the insurer and reinsurer.

Reinsurance assets include balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable
from reinsurers are estimated in a consistent manner with the outstanding claims provisions in accordance with the relevant
reinsurance contract.

The Group assesses its reinsurance assets for impairment at each balance sheet date. For assets that are directly exposed
to long-tail PPO liabilities a general provision for impairment is provided, calculated on a wholesale basis by reference to
published credit rating default curves. For all other reinsurance assets, the carrying value is written down to its recoverable
amount only if there is objective evidence of impairment.

The amount of any anticipated reinsurance recoveries is presented as a reduction in claims costs. Where this amount
is material, it is reported separately in the statement of financial position, except where the contractual terms of the
reinsurance arrangement necessitates the set-off of its associated financial assets and liabilities.

For the funds-withheld quota share agreement in motor insurance, the obligation to pay funds and the right to receive
reimbursement for incurred claims are presented on a net basis because there is a legally enforceable right to offset these
amounts and there is an intention to settle on a net basis or realise both the asset and settle the liability simultaneously.

t. Share-based payments
The Group provides benefits to employees (including Executive Directors) in the form of share-based payment transactions,
whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost of
equity-settled transactions is measured by reference to the fair value on the grant date and is recognised as an expense
over the relevant vesting period, ending on the date on which the employee becomes fully entitled to the award.

Fair values of share-based payment transactions are calculated using Black-Scholes and Monte-Carlo modelling
techniques. In valuing equity-settled transactions, assessment is made of any vesting conditions to categorise these into
market performance conditions, non-market performance conditions and service conditions.

Where the equity-settled transactions have market performance conditions (that is, performance which is directly or
indirectly linked to the share price), the fair value of the award is assessed at the time of grant and is not changed, regardless
of the actual level of vesting achieved, except where the employee ceases to be employed prior to the vesting date.

For service conditions and non-market performance conditions, the fair value of the award is assessed at the time of grant
and is reassessed at each reporting date to reflect updated expectations for the level of vesting. No expense is recognised
for awards that ultimately do not vest.

At each reporting date prior to vesting, the cumulative expense is calculated, representing the extent to which the vesting
period has expired and, in the case of non-market conditions, the best estimate of the number of equity instruments that will
ultimately vest or, in the case of instruments subject to market conditions, the fair value on grant adjusted only for leavers.
The movement in the cumulative expense since the previous reporting date is recognised in the income statement, with the
corresponding increase in share-based payments reserve.

Upon vesting of an equity instrument, the cumulative cost in the share-based payments reserve is reclassified to retained
earnings in equity.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted Earnings
Per Share.

143

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

2.3 Summary of significant accounting policies (continued)
u. Retirement benefit schemes
During the year, the Group operated a defined benefit pension plan that requires contributions to be made to separately
administered funds. The cost of providing benefits under the defined benefit plan is determined separately using the
projected unit credit valuation method.

Actuarial gains and losses arising in the year are credited/charged to other comprehensive income and comprise the
effects of changes in actuarial assumptions and experience adjustments due to differences between the previous actuarial
assumptions and what has actually occurred. In particular, the difference between the interest income and the actual return
on plan assets is recognised in other comprehensive income.

Other movements in the net surplus or deficit, which include the current service cost, any past service cost and the effect
of any curtailment or settlements, are recognised in the income statement. Past service costs are recognised in the income
statement on the earlier of the date of plan curtailment and the date that the Group recognises restructuring-related costs.
The interest cost less interest income on assets held in the plans is also charged to the income statement.

The defined benefit schemes are funded, with assets of the schemes held separately from those of the Group, in separate
Trustee administered funds. Scheme assets are measured using market values and scheme liabilities are measured using
the projected unit actuarial method and are discounted at the current rate of return on a high-quality corporate bond
of equivalent term and currency to the liability. Full actuarial valuations are obtained at least triennially and are updated
at each reporting date. The resulting defined benefit asset or liability is presented separately after other net assets and
liabilities on the face of the statement of financial position. The value of a pension benefit asset is restricted to the amount
that may be recovered either through reduced contributions or agreed refunds from the scheme.

For defined contribution schemes, the amounts charged to the income statement are the contributions payable in the year.

v. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed,
the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense
relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific
to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a
finance cost.

A provision is recognised for onerous contracts in which the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it. The unavoidable costs reflect the least net cost of exiting
the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

w. Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost. They represent
liabilities to pay for goods or services that have been received or supplied in the normal course of business, invoiced by the
supplier before the year end, but for which payment has not yet been made.

x. Equity
The Group has ordinary shares that are classified as equity. Incremental external costs that are directly attributable to the
issue of these shares are recognised in equity, net of tax.

144

Saga plcAnnual Report and Accounts 20192.4 Standards issued but not yet effective
The following is a list of standards and amendments to standards that are in issue but are not effective or adopted as at
31 January 2019.

a. IFRS 16 ‘Leases’
The new accounting standard on leases, IFRS 16 ‘Leases’, ensures that all lease contracts are now recognised on balance
sheet and require the recognition of the present value of future lease payments as a liability and corresponding recognition
of a right-of-use asset for many leases that were previously only ever recognised as an operating expense. IFRS 16 ‘Leases’
will replace the existing standard, IAS 17.

The new standard is applicable for accounting periods commencing from 1 January 2019 and is required to be adopted by
the Group from 1 February 2019. The Group has assessed the estimated impact that initial application of IFRS 16 will have on
its consolidated financial statements, as described below. IFRS 16 will change how the Group accounts for leases previously
classified as operating leases under IAS 17.

On initial application of IFRS 16, the Group will for all lease contracts:

ii)

recognise right-of-use assets and lease liabilities in the consolidated statement of financial position, initially
measured at the present value of the future lease payments
recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit
or loss

iii) separate the total amount of cash paid into a principal portion (presented within financing activities) and interest

(presented within operating activities) in the consolidated cash flow statement.

The Group will recognise new assets and liabilities for its current operating leases of river cruise ships, leased properties,
shipping telecommunications equipment and car leases. The nature of expenses related to those leases will now change
because the Group will recognise a depreciation charge for right-of-use assets and interest expense on lease liabilities,
instead of a periodic operating lease expense.

No significant impact is expected for the Group’s finance leases, as currently defined by IAS 17.

The Group intends to apply the standard retrospectively to all accounting periods using the full retrospective approach
(FRA). For all leases held at the date of transition (being 1 February 2019 for the Group) the recognition and measurement
provisions of IFRS 16 will be applied in full, and hence comparative financial information will be restated, and an adjustment
will be made to equity at the beginning of the earliest period presented.

The estimated impact of adopting IFRS 16 on the financial statements for the year ended 31 January 2019 (had IFRS 16 been
applied already) is summarised in the following table:

Balance sheet impact

Right-of-use asset

Lease liability

Net assets

Income statement impact

Depreciation

Lease interest cost

Reverse operating lease expenses

Loss before tax

* to be recognised as an adjustment to opening retained earnings

Financial
year ended
31 January
2018

Financial
year ended
31 January
2019

FRA
£’m

26.2

(28.3)

(2.1)*

FRA
£’m

29.7

(32.1)

(2.4)

(11.3)

(0.6)

11.6

(0.3)

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Financial StatementsSaga plcAnnual Report and Accounts 2019

Notes to the consolidated financial statements
continued

2.4 Standards issued but not yet effective (continued)
a. IFRS 16 ‘Leases’ (continued)
Under the FRA, it has been estimated that an additional right-of-use asset of £29.7m as at 31 January 2019 would need to
be recognised. A corresponding lease liability at the same date of £32.1m has been calculated, resulting in a reduction to net
assets of £2.4m. This would result in a £0.3m additional expense needing to be recognised in the income statement for the
12 months ended 31 January 2019, and a £2.1m debit to opening profit and loss reserves as at 1 February 2018.

The additional expense arises due to the different amortisation profiles between the depreciation of the right-of-use asset
on a straight-line basis and the amortisation of the lease liability using an EIR method.

b. IFRS 17 ‘Insurance Contracts’
IFRS 17 was issued in May 2017 and established a principles-based accounting approach for insurance contracts and will
replace IFRS 4. The impact of this standard on the Group’s financial statements is still being assessed. The standard is
effective for annual reporting periods beginning on or after 1 January 2022, although this is yet to be endorsed by the EU.

c. Amendments to ‘References to the Conceptual Framework in IFRSs’
Together with the revised Conceptual Framework published in March 2018, the IASB has also issued Amendments to
References to the Conceptual Framework in IFRSs. The amendments are effective for annual periods beginning on or after
1 January 2020, with earlier application being permitted, although this is yet to be endorsed by the EU.

d. Amendments to IAS 28 ‘Long-term Interests in Associates and Joint Ventures’
The amendments to IAS 28 clarify that an entity applies IFRS 9 ‘Financial Instruments’ to long-term interests in an associate
or joint venture that form part of the net investments in the associate or joint venture but to which the equity method is not
applied. The amendments are effective for annual periods beginning on or after 1 January 2019, with earlier application being
permitted, although this is yet to be endorsed by the EU and will have no effect on the Group’s financial statements.

e. Amendments to IAS 19 ‘Plan Amendment, Curtailment or Settlement’
The amendments to IAS 19 are if a plan amendment, curtailment or settlement occurs, it is now mandatory that the current
service cost and the net interest for the period after the re-measurement are determined using the assumptions used for
the re-measurement. In addition, amendments have been included to clarify the effect of a plan amendment, curtailment
or settlement on the requirements regarding the asset ceiling. The amendments are effective for annual periods beginning
on or after 1 January 2019, although this is yet to be endorsed by the EU and is not likely to have a material effect on the
Group’s financial statements.

f. IFRIC 23 ‘Uncertainty over Income Tax Treatments’
This interpretation of IAS 12 sets out how to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates where there is uncertainty over income tax treatments. The interpretation is effective for annual periods
beginning on or after 1 January 2019, with earlier application being permitted, although this is yet to be endorsed by the EU
and will have no effect on the Group’s financial statements.

g. Definition of a Business (Amendments to IFRS 3)
The amendments in Definition of a Business clarify that, to be considered a business, an acquired set of activities and assets
must include, at a minimum, an input and substantive process that together significantly contribute to the ability to create
outputs. The definitions of a business and outputs are narrowed by focusing on goods and services provided to customers
and by removing the reference to an ability to reduce costs. The amendments are effective for annual periods beginning on
or after 1 January 2020, although this is yet to be endorsed by the EU.

h. Definition of Material (Amendments to IAS 1 and IAS 8)
The amendments in Definition of Material clarify the definition of ‘material’ and align the definition used in the Conceptual
Framework and the standards. The amendments are effective for annual periods beginning on or after 1 January 2020,
although this is yet to be endorsed by the EU.

2.5 First time adoption of new standards
The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’ retrospectively
from 1 February 2018 and therefore the financial statements for the year ended 31 January 2019 include restated
comparative information. See note 37 for a reconciliation between the reported and restated comparatives.

The transition to IFRS 15 has increased profit after tax by £0.3m for the year ended 31 January 2018. Net assets have
increased by £2.5m as at 31 January 2018.

The transition to IFRS 9 has increased profit after tax by £1.6m for the year ended 31 January 2018. Net assets have
decreased by £0.5m as at 31 January 2018.

146

Saga plcAnnual Report and Accounts 20192.5 First time adoption of new standards (continued)
Insurance
The adjustments made represent the deferral of aggregator fees as the incremental costs of obtaining a contract over the
expected average renewal cycle of a policy not underwritten by the Group as required by IFRS 15.

Under IFRS 9, an expected loss provision is made on the investment portfolio held by the Insurance segment. It is calculated
with reference to the rating of the asset held and credit default swap curves.

Travel
Under IFRS 15, it is necessary to allocate tour operations and cruise revenue to various performance obligations such as
the provision of flights, accommodation, transfers and travel insurance. Therefore, it is appropriate to defer a proportion
of revenue and associated direct costs in line with when these obligations are discharged. Previously, revenue from tour
operations and cruise holidays where the Group does not operate the cruise ship was recognised in full on the date
of departure.

Under IFRS 9, the hedging requirements are more closely aligned with the Group’s risk management strategy and risk
management objectives, and therefore the Group expects to be able to designate a larger proportion of its derivative
contracts into hedging relationships.

Emerging Businesses and Central Costs
The adjustments made represents a deferral of a proportion of revenue in respect of the performance obligations arising
from the Group’s membership scheme, Saga Possibilities. The deferral is calculated as a proportion of the transaction
price of the product or service purchased which is allocated with respect of the costs of the membership scheme relative
to the cost of fulfilling the product or service. Revenue is deferred over the period in which a customer is expected to be a
Saga Member.

2.6 Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the Group to select accounting policies and make estimates and
assumptions that affect items reported in the primary consolidated financial statements and notes to the consolidated
financial statements.

The major areas of judgement used as part of accounting policy application are summarised below:

Significant judgements

Acc. policy

Items involving judgement

Critical accounting judgement

2.3a

Revenue recognition – performance
obligations

2.3ai

Classification of insurance contracts

2.3f

2.3h

Intangible assets

Impairment testing of goodwill and other
major classes of assets

2.3l

Financial instruments

Identification of performance obligations within contracts with
customers, and the subsequent allocation of the transaction price
to each performance obligation.

Assessment of whether significant insurance risk is transferred,
and in particular assessment of whether reinsurance arrangements
constitute a reinsurance contract under IFRS 4, for example, the
funds-withheld quota share contract.

Assessment of whether expenditure is eligible for capitalisation under
IAS 38.

The Group determines whether goodwill needs to be impaired on an
annual basis, or more frequently as required. In the year to 31 January
2019, management has deemed it necessary to impair the goodwill
allocated to the Insurance CGU.

In the year to 31 January 2019, management has exercised its
judgement in relation to the impairment of each of the two cruise
ships, the Saga Pearl II and the Saga Sapphire.

Classification of financial instruments, including assessment of
market observability of valuation inputs.

147

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

2.6 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates
All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that
knowledge and predictions of future events and actions. Actual results may therefore differ from those estimates.

The table below sets out those items the Group considers susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.

Acc.
policy

Items involving
estimation

2.3bii Cost recognition –
incremental costs
of obtaining an
insurance contract

2.3h Goodwill

impairment testing

Sources of estimation uncertainty

Incremental costs of obtaining an insurance contract not underwritten by the Group, namely
fees charged by price-comparison websites, are recognised as an asset on the statement of
financial position.

Such costs are amortised in line with the pattern of revenue for the related insurance contract,
which incorporate the propensity for that contract to renew in future periods based on the
prevailing rate of renewal for these types of contract.

The Group determines whether goodwill needs to be impaired on an annual basis. This requires
an estimation of the value-in-use of the CGUs to which goodwill is allocated. The value-in-use
calculation requires the Group to estimate the future cash flows expected to arise from the
CGUs, discounted at a suitably risk-adjusted rate in order to calculate present value.

Sensitivity analysis has been undertaken to determine the effect of changing the discount rate,
the terminal value and future cash flows on the present value calculation, which is shown in note
16a on page 160.

2.3f &
2.3j

Useful economic
lives of intangible
assets and PPE

The useful economic lives and residual values of intangible assets and property, plant and
equipment are assessed upon the capitalisation of each asset and at each reporting date and
are based upon the expected consumption of future economic benefits of the asset.

2.3h

Impairment of
cruise ships

Assets which are in the course of construction are not amortised and are assessed for
impairment in line with the requirements of IAS 36.

In the year to 31 January 2019, management has exercised its judgement in relation to the
impairment of each of the two cruise ships, the Saga Pearl II and the Saga Sapphire. In light of
the delivery of the Spirit of Discovery and the Spirit of Adventure in July 2019 and August 2020
respectively, management has obtained updated third party valuations of each of the existing
cruise ships with a view to selling them once they are no longer in use.

The valuations obtained were significantly below those obtained by management in the previous
year and as such an impairment charge of £1.7m on the Saga Pearl II and £4.2m on the Saga
Sapphire has been recognised, which includes £1.6m impairment of technical stocks in respect of
the Saga Pearl II.

148

Saga plcAnnual Report and Accounts 20192.6 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates (continued)

Acc.
policy

Items involving
estimation

2.3r

Valuation of
insurance contract
liabilities

2.3u

Valuation of
pension benefit
obligation

Sources of estimation uncertainty

For insurance contracts, estimates have to be made both for the expected cost of claims
known but not yet settled (case reserves) and for the expected cost of claims incurred but not
yet reported (IBNR), as at the reporting date. It can take a significant period of time before the
ultimate claims cost can be established with certainty. For some types of policies, IBNR claims
form the majority of the liability in the statement of financial position.

The ultimate cost of outstanding claims is estimated by using a range of standard actuarial
claims projection techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods.
The main assumption underlying these techniques is that past claims development experience
can be used to project future claims development and hence ultimate claims costs. As such,
these methods extrapolate the development of paid and incurred losses, average costs per
claim and claim numbers based on the observed development of earlier years. Historical claims
development is primarily analysed by accident year, geographical area, significant business line
and peril. Additional qualitative judgement is used to assess the extent to which past trends may
not apply in the future (e.g. to reflect one-off occurrences, changes in external or market factors
such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial
decisions and legislation, as well as internal factors such as portfolio mix, policy features and
claims handling procedures) in order to arrive at the best estimate of the ultimate cost of claims.

On 27 February 2017, the UK Government announced its decision to reduce the Ogden discount
rate from 2.5% to -0.75%. Subsequently, the UK Government has launched a full consultation
regarding the Ogden discount rate. The proposed changes mean the rate would be set by
reference to ‘low risk’ rather than ‘very low risk’ and will ensure the rate is reviewed more regularly
in future. If the proposed framework were to be applied immediately, the rate may increase to
between 0% and 1%.

The ultimate cost of claims is not discounted except for those in respect of PPOs, which have
been discounted at -1.5% for the year ended 31 January 2019 (2018: -1.5%). The valuation of
these claims involves making assumptions about the rate of inflation and the expected rate
of return on assets to determine the discount rate. Due to the size of PPO claims, the ultimate
cost is highly sensitive to changes in these assumptions. The assumptions are reviewed at each
reporting date, and the sensitivity of this assumption is shown in note 19d on pages 170-171.

Similar judgements, estimates and assumptions are employed in the assessment of the
adequacy of provisions for unearned premium. Judgement is also required in determining whether
the pattern of insurance service provided by a contract requires amortisation of unearned
premium on a basis other than time apportionment.

The cost of defined benefit pension plans and the present value of the pension obligation are
determined using actuarial valuations. The actuarial valuation involves making assumptions
about discount rates, expected rates of return on assets, future salary increases, mortality rates
and future pension increases. Due to the complexity of the valuation, the underlying assumptions
and its long-term nature, a defined benefit obligation is highly sensitive to changes in these
assumptions. All assumptions are reviewed at each reporting date.

All significant assumptions and estimates involved in arriving at the valuation of the pension
scheme obligation are set out in note 24 on page 174.

149

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

3 Segmental information
For management purposes, the Group is organised into business units based on their products and services. The Group has
three reportable operating segments as follows:

•

Insurance: the segment primarily comprises general insurance products. Revenue is derived primarily from insurance
premiums and broking revenues. This segment is further analysed into four product sub-segments:

– Retail broking, consisting of:

– Motor broking
– Home broking
– Other insurance broking

– Underwriting.

• Travel: the segment primarily comprises the operation and delivery of package tours and cruise holiday products.

The Group owns and operates two cruise ships. All other holiday products are packaged together with third party supplied
accommodation, flights and other transport arrangements.

• Emerging Businesses and Central Costs: the segment comprises the Group’s other businesses, its central cost base and
membership scheme. The other businesses primarily include the financial services product offering, the domiciliary care
services offering, the sale of retirement village properties where the Group acts as an agent only, a monthly subscription
magazine product and the Group’s internal mailing house.

Segment performance is primarily evaluated using the Group’s key performance measure of Underlying Profit Before Tax.
Items not allocated to a segment relate to transactions that do not form part of the ongoing segment performance or which
are managed at a Group level.

Transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third
parties. Segment income, expenses and results include transfers between business segments which are then eliminated
on consolidation.

Goodwill, current taxes, deferred taxes and bank loans are not allocated to segments as they are also managed on
a Group basis.

Insurance

Other
insurance
broking
£’m

Under-
writing
£’m

Total
£’m

Travel
£’m

Emerging
Businesses
and Central
Costs
£’m

Adjustments
£’m

Total
£’m

Motor
broking
£’m

113.4

(2.2)

111.2

Home
broking
£’m

74.5

–

74.5

68.8

(12.9)

55.9

93.3

350.0

457.4

(8.4)

(23.5)

(364.1)

84.9

326.5

93.3

(77.2)

(29.4)

(29.2)

(2.5)

(138.3)

(72.4)

–

4.3

–

4.3

–

0.2

–

34.0

45.1

26.7

86.7

192.5

21.1

(33.3)

–

1.0

(5.9)

–

40.5

(18.1)

22.4

(40.2)

(3.8)

(11.7)

–

(6.4)

841.5

–

(405.7)

(6.4)

435.8

6.4

(244.5)

–

0.7

(11.7)

–

180.3

1.0

(5.9)

(310.0)

34.0

45.1

26.7

86.7

192.5

16.2

(33.3)

(310.0)

(134.6)

335.9

73.8

(181.4)

735.8

964.3

2019

Revenue

Cost of sales

Gross profit

Administrative and
selling expenses

Investment income

Finance costs

Finance income

Underlying Profit
Before Tax

Net fair value gain on
derivative financial
instruments

Impairment of cruise
ships

Impairment of
goodwill

Profit/(loss) before
tax from continuing
operations

Total assets
less liabilities

All revenue is generated solely in the UK.

Cost of sales within the Insurance segment comprises claims costs incurred on insurance policies underwritten by the Group
(see note 3b).

150

Saga plcAnnual Report and Accounts 20193 Segmental information (continued)

Motor
broking
£’m

121.4

(2.5)

118.9

Home
broking
£’m

85.0

–

85.0

Insurance

Other
insurance
broking
£’m

76.5

(11.9)

64.6

Under-
writing
£’m

99.0

(28.0)

71.0

Total
£’m

Travel
£’m

381.9

448.7

(42.4)

(355.9)

339.5

92.8

(76.0)

(28.7)

(33.1)

(2.3)

(140.1)

(72.4)

–

10.6

0.2

–

Emerging
Businesses
and Central
Costs
£’m

36.4

(14.5)

21.9

(43.8)

(3.2)

(14.2)

1.5

(2.2)

42.9

56.3

31.5

79.3

210.0

20.6

(40.0)

–

(0.6)

–

(4.3)

(4.8)

42.9

56.3

31.5

79.3

210.0

20.0

(49.1)

Adjustments
£’m

Total
£’m

(6.8)

860.2

–

(412.8)

(6.8)

447.4

6.8

(249.5)

–

7.6

(14.2)

1.5

(2.2)

190.6

(0.6)

(4.3)

(4.8)

180.9

353.8

60.4

(224.0)

1,035.3

1,225.5

2018 (restated)

Revenue

Cost of sales

Gross profit

Administrative and
selling expenses

Investment income

Finance costs

Finance income

Share of loss of joint
venture

Underlying Profit
Before Tax

Net fair value loss on
derivative financial
instruments

Accelerated
amortisation of debt
issue costs

Restructuring costs

Profit before tax from
continuing operations

Total assets less
liabilities

All revenue is generated solely in the UK.

Total assets less liabilities detailed as adjustments relates to the following unallocated items:

Goodwill (note 14)

Bank loans (note 27)

Deferred tax – non-pension scheme related

2019
£’m

2018
£’m

1,175.0

1,485.0

(439.2)

(443.0)

–

(6.7)

735.8

1,035.3

151

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

3 Segmental information (continued)
a. Disaggregation of revenue

Major
product lines

Gross earned premium on insurance underwritten
by the Group

Less: ceded
to reinsurers

Net revenue on:

• Motor broking

• Home broking

• Other broking

• Underwriting

Tour operations

Cruise

Personal finance

Healthcare

Media

Other

Major
product lines

Gross earned premium on insurance underwritten
by the Group

Less: ceded to reinsurers

Net revenue on:

• Motor broking

• Home broking

• Other broking

• Underwriting

Tour operations

Cruise

Personal finance

Healthcare

Media

Other

152

2019

Insurance

Travel

EB&CC

Total

Earned premium
on insurance
underwritten by
the Group

Other
revenue

Total
insurance

£’m

238.1

(136.0)

19.9

–

1.4

80.8

238.1

(136.0)

113.4

74.5

68.8

93.3

93.5

74.5

67.4

12.5

360.8

96.6

102.1

247.9

350.0

457.4

238.1

(136.0)

113.4

74.5

68.8

93.3

360.8

96.6

8.2

6.0

18.6

1.3

841.5

8.2

6.0

18.6

1.3

34.1

2018

Insurance

Travel

EB&CC

Total

Earned premium
on insurance
underwritten by
the Group

Other
revenue

Total
insurance

£’m

259.6

(139.9)

30.4

3.6

1.5

84.2

259.6

(139.9)

121.4

85.0

76.5

99.0

91.0

81.4

75.0

14.8

360.5

88.2

119.7

262.2

381.9

448.7

259.6

(139.9)

121.4

85.0

76.5

99.0

360.5

88.2

7.7

5.6

14.1

2.2

860.2

7.7

5.6

14.1

2.2

29.6

Saga plcAnnual Report and Accounts 20193 Segmental information (continued)
b. Analysis of insurance cost of sales

Gross claims incurred on insurance underwritten by the Group

Less: ceded to reinsurers

Net claims incurred on insurance underwritten by the Group:

• Motor broking

• Underwriting

Other cost of sales

2019
£’m

2018
(restated)
£’m

129.7

156.1

(120.1)

(127.1)

2.2

7.4

9.6

13.9

23.5

2.5

26.5

29.0

13.4

42.4

c. Contract balances
The following table provides information about contract assets and contract liabilities from contracts with customers as
accounted for under IFRS 15 (the amounts stated here do not include amounts accounted for under IFRS 4):

Contract cost assets

Contract liabilities

2019
£’m

4.5

2018
£’m

2.8

144.7

142.7

The contract cost assets relate to commissions paid to price comparison websites to acquire new business policies not
underwritten by the Group.

Management expects that incremental commission fees paid to price comparison websites as a result of obtaining
insurance contracts are recoverable. The Group has therefore capitalised them as contract assets amounting to £7.8m for
the year ended 31 January 2019 (2018: £4.4m). These fees are amortised over the period of the expected renewal cycle. In the
year to 31 January 2019, the amount of amortisation was £6.1m (2018: £4.3m) and there was no impairment loss in relation to
the costs capitalised.

Applying the practical expedient in paragraph 94 of IFRS 15, the Group recognises the incremental costs of obtaining
contracts as an expense when incurred if the amortisation period of the assets that the Group otherwise would have
recognised is one year or less.

The contract liabilities relate to the deferral of revenue for performance obligations not satisfied as at 31 January 2019 and
the advance consideration received from customers for holidays or cruises booked but not travelled and insurance premiums
received in advance of the inception date.

Significant changes in the contract assets and the contract liabilities during the year are as follows:

Balance as at 1 February

Released to the income statement in the period

Additional contract balances incurred during the period

Balance as at 31 January

2019

2018

Contract
cost assets

Contract
liabilities

Contract
cost assets

Contract
liabilities

2.8

(6.1)

7.8

4.5

142.7

(133.6)

135.6

144.7

2.7

(4.3)

4.4

2.8

137.4

(134.7)

140.0

142.7

d. Transaction price allocated to the remaining performance obligations
As at 31 January 2019, the amount allocated to the Group’s Membership scheme, Saga Possibilities, is £0.8m (2018: £0.3m).
This will be recognised as revenue over the duration of Membership, which is expected to be over the next one to three years
depending on the duration of each Membership contract.

The transaction price allocated to customer contracts within the Travel segment where the remaining performance
obligations are not expected to be satisfied within the next 12 months is £13.3m (2018: £15.0m). This is expected to be
recognised as revenue in the next one to two years.

The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.

153

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

4 Administrative and selling expenses

Staff costs (excluding restructuring costs)

Marketing and fulfilment costs

Lease rentals

Auditors’ remuneration

Other administrative costs

Amounts ceded under reinsurance contracts

Depreciation (note 17)

Amortisation of intangible assets (note 15)

Restructuring costs

Non-trading items

a. Auditors’ remuneration

Audit of the parent company and consolidated financial statements

Audit of subsidiary financial statements

Audit-related assurance services

Total auditors’ remuneration

b. Non-trading items

Share-based payment costs (note 32)

Redundancy costs

Joint venture closure costs

Profit on sale of property

Other

Non-trading items included within administrative and selling expenses

Impairment of joint venture

Non-trading items included within share of loss of joint venture

Total non-trading costs

2019
£’m

99.1

65.3

1.4

1.3

59.8

(4.3)

4.8

18.7

–

(1.6)

2018
(restated)
£’m

108.2

63.9

1.4

1.2

53.2

(3.2)

5.2

17.9

4.8

1.7

244.5

254.3

2019
£’m

2018
£’m

0.3

0.8

0.2

1.3

2019
£’m

0.2

1.6

0.6

(3.9)

(0.1)

(1.6)

–

(1.6)

0.3

0.7

0.2

1.2

2018
£’m

0.3

1.4

–

1.7

3.4

Redundancy costs represent costs associated with restructuring and reorganising a number of Group operations and
includes staff-related costs such as redundancy and other termination costs, together with various professional fees for
advice and processes associated with the restructuring.

Impairment of joint venture represents the write-down of the carrying value of the Group’s joint venture, Saga Investment
Services Limited, following the decision to replace the legal structure with a new, more cost-efficient structure, and included
an estimate of costs to wind up the joint venture.

Profit on sale of property relates to the sale of the Buckingham Gate property in the year, which was previously held for sale
in the statement of financial position (£6.8m as at 31 January 2018).

5 Impairment of assets
During the year, the Group has impaired the carrying value of the goodwill balance allocated to the Insurance CGU by
£310.0m (2018: £nil). See note 16a for further details.

The Group has also impaired the carrying value of the Saga Pearl II and the Saga Sapphire in line with third party valuations
received. The total impairment charge of £5.9m includes a write-down of the carrying value of property, plant and equipment
of £4.3m (note 18) and a write-down of the carrying value of technical stock of £1.6m.

154

Saga plcAnnual Report and Accounts 20196 Investment income

Interest income recognised using the EIR method

Gains on assets measured at FVTPL

Recycling of gains from other comprehensive income

Amounts ceded under reinsurance contracts

7 Finance costs

Interest and charges on debt and borrowings

Net fair value loss on derivative financial instruments

Dividends paid by subsidiaries to non-controlling interests

Net finance expense on pension schemes

Net finance charges on finance leases and hire purchase contracts

Accelerated amortisation of debt issue costs

8 Finance income

Net fair value gain on derivative financial instruments

Unwinding of discount rates

9 Directors and employees
Amounts charged to the income statement for the year are as follows:

Wages and salaries

Social security costs

Pension costs (note 23)

Total staff costs

2019
£’m

4.8

1.6

–

(5.7)

0.7

2019
£’m

11.5

–

0.2

–

11.7

2018
(restated)
£’m

6.4

2.6

4.4

(5.8)

7.6

2018
(restated)
£’m

13.5

0.6

0.2

0.3

4.3

19.1

2019
£’m

2018
£’m

1.0

–

1.0

–

1.5

2019
£’m

2018
£’m

102.9

110.0

10.7

10.3

11.2

15.5

123.9

136.7

Staff costs (including restructuring and redundancy costs) of £23.2m (2018: £22.3m) and £100.7m (2018: £114.4m) have been
allocated to cost of sales and to administrative and selling expenses respectively.

Average monthly number of employees:

Insurance

Travel

Emerging Businesses and Central Costs

Total staff numbers

2019

1,911

2,134

997

5,042

2018

2,206

2,266

857

5,329

The number of employees in the Travel segment includes 852 (2018: 839) crew who are employed indirectly via a
manning agency.

Directors’ remuneration
The information required by the Companies Act 2006 and the Listing Rules of the FCA is contained on pages 83-97 in the
Directors’ Remuneration Report.

155

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

9 Directors and employees (continued)
Compensation of key management personnel of the Group
Key management personnel are defined as those persons having authority and responsibility for planning, directing and
controlling the activities of the Group and comprise the Directors of the Company and the Chief Executive Officers of the
major businesses within the trading segments.

The amounts recognised as an expense during the financial year in respect of key management personnel are as follows:

Short-term benefits

Share-based payments

Post-employment benefits

10 Tax
The major components of the income tax expense are:

Consolidated income statement

Current income tax

Current income tax charge

Adjustments in respect of previous years

Deferred tax

Relating to origination and reversal of temporary differences

Adjustments in respect of previous years

Tax expense in the income statement

Reconciliation of tax expense to (loss)/profit before tax multiplied by the UK corporation tax rate:

Profit before tax

Tax at rate of 19.00% (2018: 19.17%)

Adjustments in respect of previous years

Expenses not deductible for tax purposes:

Impairment of goodwill

Associated deferred tax on impairment of goodwill

Other non-deductible expenses/non-taxed income

Tax expense in the income statement

2019
£’m

2018
£’m

4.7

1.0

–

5.7

4.9

1.3

0.1

6.3

2019
£’m

2018
(restated)
£’m

36.5

0.4

36.9

(8.9)

(0.6)

27.4

34.3

(1.0)

33.3

0.6

–

33.9

2019
£’m

2018
(restated)
£’m

(134.6)

180.9

(25.6)

(0.2)

34.7

(1.0)

58.9

(6.7)

1.0

27.4

–

0.2

33.9

The Group’s tax expense for the year was £27.4m (2018: £33.9m) representing a tax effective rate of 19.4% before the
impairment of goodwill and associated deferred tax (2018 restated: 18.7%).

Adjustments in respect of previous years includes an adjustment for the over provision of tax charge in previous years of
£0.2m (2018: £1.0m).

156

Saga plcAnnual Report and Accounts 201910 Tax (continued)
Deferred tax

Excess of depreciation over capital allowances
Intangible assets
Retirement benefit scheme liabilities
Short-term temporary differences
Deferred tax credit/(charge)
Net deferred tax assets/(liabilities)

Consolidated
statement of
financial position

Consolidated
income statement

2019
£’m
4.5
(1.3)
0.5
2.7

2018
(restated)
£’m
5.4
(1.6)
1.2
(8.3)

6.4

(3.3)

2019
£’m
0.9
0.3
(0.3)
8.6
9.5

2018
(restated)
£’m
0.2
1.9
0.6
(3.3)
(0.6)

Short-term temporary differences include deferred tax recognised on designated hedges recognised through OCI, the
share-based payment reserve and general bad debt provision. Deferred tax is reflected in the statement of financial position
as follows:

Deferred tax assets
Deferred tax liabilities
Net deferred tax assets/(liabilities)

Reconciliation of net deferred tax assets/(liabilities)

At 1 February
Tax credit/(charge) recognised in the income statement
Tax charge recognised in other comprehensive income
At 31 January

2019
£’m
14.2
(7.8)
6.4

2018
(restated)
£’m
13.7
(17.0)
(3.3)

2019
£’m
(3.3)
9.5
0.2
6.4

2018
(restated)
£’m
(5.9)
(0.6)
3.2
(3.3)

Measures were enacted in the Finance Act 2015 to reduce the corporation tax rate from 20% to 19% from 1 April 2017, and to
18% from 1 April 2020. A further reduction to 17% from 1 April 2020 was announced on 16 March 2016 and has been enacted
at the balance sheet date. As a result, the closing deferred tax balances have been reflected at 17%. We expect net deferred
tax assets/(liabilities) to be normally settled within 12 months.

The Group has tax losses which arose in the UK of £4.2m (2018: £4.2m) that are available indefinitely for offsetting against
future taxable profits of the companies in which the losses arose.

Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits
elsewhere in the Group. They have arisen in subsidiaries that have been loss-making for some time, and there are no other
tax planning opportunities or other evidence of recoverability in the near future. If the Group was able to recognise all
unrecognised deferred tax assets, the profit would increase by £0.7m (2018: £0.7m).

11 Dividends

Declared during the year:
Final dividend for the year ended 31 January 2018: 6.0 pence per share (2017: 5.8 pence per share)
Interim dividend for the year ended 31 January 2019: 3.0 pence per share (2018: 3.0 pence per share)

2019
£’m
67.1
33.6
100.7

2018
£’m
64.8
33.6
98.4

Proposed after the end of the reporting period and not recognised as a liability:
Final dividend for the year ended 31 January 2019: 1.0 pence per share (2018: 6.0 pence per share)

11.2

67.2

The proposed dividend for the year ended 31 January 2019 is subject to approval by shareholders at the Annual General
Meeting on 19 June 2019 and would be paid on 28 June 2019.

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 receiving a cash payment. The last
date for shareholders to elect to participate in the DRIP will be 3 June 2019. The record date will be 17 May 2019 and the final
dividend will be paid on 28 June 2019. Payment of the final dividend of 1.0p per share remains subject to shareholder approval
at the Company’s 2019 Annual General Meeting.

157

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

11 Dividends (continued)
Saga plc has £600.2m of distributable reserves at 31 January 2019 available for distribution to support the dividend policy.
The distributable reserves of Saga plc are £600.2m as at 31 January 2019 which are equal to the retained earnings reserve.
If necessary, its subsidiary companies hold significant reserves from which a dividend can be paid to support Saga plc’s
dividend policy. Subsidiary distributable reserves are available immediately with the exception of companies within the Travel
and Underwriting segments, which require regulatory approval before any dividends can be declared and paid.

12 Earnings Per Share
Basic EPS is calculated by dividing the (loss)/profit after tax for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is calculated by also including
the weighted average number of ordinary shares that would be issued on conversion of all potentially dilutive options.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date
and the date of authorisation of these financial statements.

The calculation of basic and diluted EPS is as follows:

(Loss)/Profit attributable to ordinary equity holders
(Loss)/Profit from continuing operations

Weighted average number of ordinary shares
Shares in issue at 1 February
IPO share options exercised
LTIP share options exercised
Other share options exercised
Weighted average number for basic EPS

Dilutive options
IPO share options not yet exercised
Other share options not yet vested
LTIP share options not yet vested
Deferred Bonus Plan
Weighted average number for diluted EPS

Basic EPS
Basic EPS for continuing operations

Diluted EPS
Diluted EPS for continuing operations

The table below reconciles between basic EPS and underlying EPS:

Basic EPS for continuing operations

Adjusted for:

Derivative gains/(losses)

Restructuring costs

Debt issue costs

Impairment of cruise ships

Impairment of goodwill and associated deferred tax

Underlying EPS for continuing operations

13 Business combinations and acquisition of non-controlling interests
Acquisitions during the year ended 31 January 2019
There were no acquisitions in the year ended 31 January 2019.

158

2019
£’m
(162.0)
(162.0)

2018
£’m
139.4
147.0

m
1,118.1
–
0.9
0.1
1,119.1

–
–
–
–
1,119.1

(14.5p)
(14.5p)

2019

(14.5p)

–

0.5p

27.1p

13.1p

m
1,114.0
3.1
0.9
0.1
1,118.1

0.4
–
4.7
0.4
1,123.6

12.5p
13.1p

12.4p
13.1p

2018

13.1p

–

0.4p

0.3p

–

13.8p

Saga plcAnnual Report and Accounts 201914 Goodwill

Cost
At 1 February 2018
At 31 January 2018 and 31 January 2019

Impairment
At 1 February 2018
Charge for the year (note 16a)
At 31 January 2019

Net book value
At 31 January 2019

At 31 January 2018

Goodwill deductible for tax purposes amounts to £nil (2018: £nil).

15 Intangible fixed assets

Cost

At 1 February 2017

Additions – internally developed

At 31 January 2018

Additions – internally developed

Disposals

Transfer of asset class

At 31 January 2019

Amortisation and impairment

At 1 February 2017

Amortisation

At 31 January 2018

Amortisation

Disposals

At 31 January 2019

Net book value

At 31 January 2019

At 31 January 2018

Goodwill
£’m

1,485.0
1,485.0

–
(310.0)
(310.0)

1,175.0

1,485.0

Contracts
£’m

Brands
£’m

Customer
relationships
£’m

Software
£’m

Total
£’m

5.8

–

5.8

–

17.9

–

17.9

–

11.3

–

11.3

–

93.6

25.9

119.5

21.5

(16.3)

(0.3)

128.6

25.9

154.5

21.5

(16.3)

(0.3)

5.8

17.9

11.3

124.4

159.4

2.1

1.2

3.3

1.1

–

4.4

4.7

1.8

6.5

1.8

–

8.3

8.7

1.7

10.4

0.7

–

11.1

59.3

13.8

73.1

16.0

(16.3)

72.8

74.8

18.5

93.3

19.6

(16.3)

96.6

1.4

9.6

0.2

51.6

62.8

2.5

11.4

0.9

46.4

61.2

Contracts, brands and customer relationships assets acquired through business combinations have been reviewed for
indicators of impairment (see note 16b).

The amortisation charge for the year is analysed as follows:

Cost of sales

Administrative and selling expenses (note 4)

2019
£’m

0.9

18.7

19.6

2018
£’m

0.6

17.9

18.5

159

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

16 Impairment of intangible assets
a. Goodwill
Goodwill acquired through business combinations has been allocated to CGUs for the purpose of impairment testing.
The carrying value of goodwill by CGU is as follows:

Insurance, excluding Bennetts
Insurance, Bennetts
Travel, excluding Destinology
Travel, Destinology

2019
£’m
1,088.6
13.6
59.8
13.0
1,175.0

2018
£’m
1,398.6
13.6
59.8
13.0
1,485.0

The Group has tested all goodwill balances for impairment at 31 January 2019. The impairment test compares the
recoverable amount of the goodwill of each CGU to its carrying value. The goodwill associated with the Bennetts and
Destinology businesses have been considered separately, as these businesses represent separate CGUs.

The recoverable amount of each CGU has been determined based on a value-in-use calculation using cash flow projections
from the Group’s Board-approved five year plan to 2023/24. Terminal values have been included using 2.25% as the expected
long-term average growth rate of the UK economy, and calculated using the Gordon Growth Model. The cash flows have
then been discounted to present value using a suitably risk-adjusted discount rate derived from the Group’s weighted
average cost of capital. The pre-tax discount rates used for each CGU were as follows:

Insurance, excluding Bennetts
Insurance, Bennetts
Travel, excluding Destinology
Travel, Destinology

2019
9.6%
11.6%
11.8%
12.2%

2018
9.7%
10.6%
10.1%
10.1%

The value-in-use calculation is most sensitive to the assumptions used for forecast cash flows, the long-term growth rate
and the discount rate selected, all of which require significant judgement. Accordingly, stress testing has been performed on
these key assumptions as part of the impairment review to determine whether any reasonably foreseeable change in those
assumptions would cause the recoverable amount of the CGU to be lower than its carrying amount. Stress testing as to
possible Brexit outcomes has also been considered.

The resultant headroom/(deficit) for each of the CGUs against the brought forward carrying value is as follows:

Insurance, excluding Bennetts
Insurance, Bennetts
Travel, excluding Destinology
Travel, Destinology

Headroom /(deficit)
£’m
(310.0)
30.9
374.0
10.5

Due to the deficit calculated in the Insurance excluding Bennetts base case for the Insurance excluding Bennetts CGU, and
taking into account the likelihood of each of the sensitivities, management considers it necessary to impair the Insurance
excluding Bennetts CGU to its value-in-use of £1,157.9m, from which the value of PPE and intangibles assets of £69.3m must
also be deducted. Therefore, a reduction to the carrying value of Goodwill allocated to the Insurance excluding Bennetts
CGU of £310.0m has been recognised in the year to 31 January 2019. The impairment charge has been determined using
a prudent view of forecast cash flows for the Insurance business, removing the benefit of future strategies that are not yet
reflective of the asset in its current condition. No impairment is considered necessary for the three other CGUs.

The headroom calculated is most sensitive to the discount rate and terminal growth rate assumed. A quantitative sensitivity
analysis for each of these as at 31 January 2019 and its impact on the headroom against brought forward goodwill carrying
values is as follows:

Insurance, excluding Bennetts
Insurance, Bennetts
Travel, excluding Destinology
Travel, Destinology

160

Pre-tax discount rate

Terminal growth rate

+1.0ppt
£’m
(130.8)
(4.6)
(93.8)
(2.9)

–1.0ppt
£’m
171.5
5.8
116.7
3.6

+1.0ppt
£’m
134.0
4.3
89.2
2.6

–1.0ppt
£’m
(102.0)
(3.4)
(72.3)
(2.1)

Saga plcAnnual Report and Accounts 201916 Impairment of intangible assets (continued)
b. Other intangible assets
Separately identifiable intangible assets are valued and their appropriate useful lives established at the time of acquisition.
The carrying values of these assets and their remaining useful lives are reviewed annually for indicators of impairment.

The Group has assessed the recoverable amount of intangible assets as at 31 January 2019 and concluded that no
impairment is required.

17 Property, plant and equipment

Freehold
land &
buildings
£’m

Long
leasehold
land &
buildings
£’m

Cruise
ships
£’m

Assets in the
course of
construction
£’m

Plant &
equipment
£’m

Cost

At 1 February 2017

Additions

Disposals

Assets held for sale

At 31 January 2018

Additions

Disposals

Transfer of asset class

At 31 January 2019

Depreciation and impairment

At 1 February 2017

Provided during the year

Disposals

Assets held for sale

At 31 January 2018

Provided during the year

Impairment of assets

Disposals

Transfer of asset class

At 31 January 2019

Net book value

At 31 January 2019

At 31 January 2018

52.5

–

(7.5)

45.0

–

45.0

8.2

0.9

–

(0.7)

8.4

0.8

–

8.8

35.8

36.6

8.6

0.8

–

9.4

–

(0.7)

8.7

2.1

0.1

–

2.2

0.2

–

0.1

2.5

6.2

7.2

Total
£’m

231.5

59.2

(10.5)

(7.5)

272.7

45.3

(0.3)

1.0

96.7

7.3

–

104.0

–

15.1

45.3

–

60.4

40.6

–

58.6

5.8

(10.5)

–

53.9

4.7

(0.3)

1.7

104.0

101.0

60.0

318.7

45.6

12.4

–

58.0

13.7

4.3

–

66.0

28.0

46.0

–

44.1

6.7

(10.1)

–

40.7

6.1

–

(0.3)

0.6

100.0

20.1

(10.1)

(0.7)

109.3

20.8

4.3

(0.3)

0.7

47.1

134.8

101.0

60.4

12.9

13.2

183.9

163.4

The net book value of plant and equipment includes £2.3m (2018: £3.3m) in respect of plant and machinery held under
finance lease agreements. The accumulated depreciation on these assets is £3.2m (2018: £2.5m).

The depreciation charge for the year is analysed as follows:

Cost of sales

Administrative and selling expenses (note 4)

2019
£’m

16.0

4.8

20.8

2018
£’m

14.9

5.2

20.1

During the year, the Group disposed of assets with a net book value of £nil (2018: £0.4m). Profit arising on disposal was £0.1m
(2018: £nil).

During the year, borrowing costs of £2.5m (2018: £0.8m) have been capitalised in property, plant and equipment and £0.5m
(2018: £0.2m) has been capitalised in software in intangible assets, which represents 3.2% (2018: 3.1%) of capital expenditure
eligible to capitalise borrowing costs.

161

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

18 Financial assets and financial liabilities
a. Financial assets

Fair value through profit or loss

Foreign exchange forward contracts

Fuel oil swaps

Loan funds

Money market funds

Unlisted equity shares

Hedge funds

Equities

Fair value through profit or loss designated in a hedging relationship

Foreign exchange forward contracts

Fuel oil swaps

Fair value through other comprehensive income

Debt securities

Amortised cost

Deposits with financial institutions

Total financial assets

Current

Non-current

2019
£’m

2018
(restated)
£’m

0.4

0.6

6.2

0.1

1.8

6.4

37.1

153.2

–

44.3

31.2

1.2

32.4

1.7

7.5

31.4

202.1

35.2

1.3

36.5

280.2

159.4

69.3

115.5

426.2

513.5

111.4

314.8

426.2

229.4

284.1

513.5

Debt securities, money market funds and deposits with financial institutions relate to monies held by the Group’s insurance
business and are subject to contractual restrictions and are not readily available to be used for other purposes within
the Group.

162

Saga plcAnnual Report and Accounts 201918 Financial assets and financial liabilities (continued)
b. Financial liabilities

Fair value through profit or loss

Foreign exchange forward contracts

Fuel oil swaps

Fair value through profit or loss designated in a hedging relationship

Foreign exchange forward contracts

Fuel oil swaps

Amortised cost

Bond and bank loans (note 27)

Obligations under finance leases and hire purchase

Bank overdrafts

Total financial liabilities

Current

Non-current

2019
£’m

2018
(restated)
£’m

0.5

0.1

0.6

10.1

1.4

11.5

1.0

0.1

1.1

11.4

0.2

11.6

439.2

443.0

3.0

2.7

3.4

9.4

444.9

455.8

457.0

468.5

41.4

415.6

457.0

34.8

433.7

468.5

All financial assets that are measured at FVTPL are mandatorily measured at FVTPL and all financial liabilities that are
measured at FVTPL meet the definition of held for trading.

c. Fair values
Financial instruments held at fair value are valued using quoted market prices or other valuation techniques.

Valuation techniques include net present value and discounted cash flow models, and comparison to similar instruments
for which market observable prices exist. Assumptions and market observable inputs used in valuation techniques include
foreign currency exchange rates and future oil prices.

The objective of using valuation techniques is to arrive at a fair value determination that reflects the price of the financial
instrument at the reporting date which would have been determined by market participants acting at arm’s length.

Observable prices are those that have been seen either from counterparties or from market pricing sources, including
Bloomberg. The use of these depends upon the liquidity of the relevant market.

The fair value and carrying value of financial assets and financial liabilities are materially the same. Financial instruments
held at fair value have been categorised into a fair value measurement hierarchy as follows:

i) Level 1
These are valuation techniques that are based entirely on quoted market prices in an actively traded market and are the
most reliable. All money market funds and debt securities are categorised as Level 1 as the fair value is obtained directly
from the quoted market price.

ii) Level 2
These are valuation techniques for which all significant inputs are taken from observable market data. These include
valuation models used to calculate the present value of expected future cash flows and may be employed either when no
active market exists or when there are quoted prices available for similar instruments in active markets.

The models incorporate various inputs including the credit quality of counterparties, interest rate curves and forward rate
curves of the underlying instrument.

163

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

18 Financial assets and financial liabilities (continued)
c. Fair values (continued)
ii) Level 2 (continued)
All the derivative financial instruments are categorised as Level 2 as the fair values are obtained from the counterparty,
brokers or valued using observable inputs. Where material, CVA/DVA risk adjustment is factored into the fair values of
these instruments. As at 31 January 2019, the marked-to-market values of derivative assets are net of a credit valuation
adjustment attributable to derivative counterparty default risk.

The fair values are periodically reviewed by the Group’s Treasury Committees.

iii) Level 3
These are valuation techniques for which any one or more significant inputs are not based on observable market data.

The following tables provide the quantitative fair value hierarchy of the Group’s financial assets and financial liabilities that
are held at fair value:

As at 31 January 2019

As at 31 January 2018 (restated)

Level 1
£’m

Level 2
£’m

Level 3
£’m

Total
£’m

Level 1
£’m

Level 2
£’m

Level 3
£’m

Total
£’m

–

6.2

–

280.2

37.1

–

31.6

1.8

–

10.6

1.5

–

31.6

1.8

6.2

–

280.2

37.1

–

6.4

31.4

7.5

159.4

153.2

–

35.3

3.1

–

1.7

35.3

3.1

6.4

31.4

7.5

159.4

153.2

1.7

10.6

1.5

–

12.4

0.3

–

12.4

0.3

Financial assets measured
at fair value

Foreign exchange forwards

Fuel oil swaps

Loan funds

Equities

Hedge funds

Debt securities

Money market funds

Unlisted equity shares

Financial liabilities measured
at fair value

Foreign exchange forwards

Fuel oil swaps

Financial assets for which fair
values are disclosed

Deposits with institutions

–

69.3

–

69.3

–

115.5

–

115.5

Financial liabilities for which fair
values are disclosed

Bond and bank loans

Finance leases and hire purchase
obligations

Bank overdrafts

–

439.2

3.0

2.7

–

439.2

3.0

2.7

–

443.0

3.4

9.4

–

443.0

3.4

9.4

Following a review of the Group’s investment portfolio during the prior year, loan funds, hedge funds and money market funds
were transferred from Level 2 to Level 1 in the hierarchy. There have been no such transfers in the year to 31 January 2019.
There have been no non-recurring fair value measurements of assets and liabilities during the year (2018: none).

The value of the debt securities, money market funds, loan funds and equities are based upon publicly available market
prices. Hedge funds are valued based upon a market value, which is not otherwise publicly available, provided by the hedge
fund manager.

Foreign exchange forwards are valued using current spot and forwards rates discounted to present value. They are also
adjusted for counterparty credit risk using CDS curves. Fuel oil swaps are valued with reference to the valuations provided by
third parties, which use current Platts index rates, discounted to present value.

164

Saga plcAnnual Report and Accounts 2019
18 Financial assets and financial liabilities (continued)
d. Cash flow hedges
i) Forward currency risk
During the year ended 31 January 2019, the Group designated 675 foreign exchange forward currency contracts as hedges
of highly probable foreign currency cash expenses in future periods. These contracts are entered into to minimise the Group’s
exposure to foreign exchange risk.

Designated in the year

At 31 Jan 2019

At 31 Jan 2018

Foreign currency cash flow hedging instruments

Volume

Euro (EUR)

US dollar (USD)

Other currencies

Total

218

179

278

675

£’m

(2.1)

1.3

0.5

(0.3)

Volume

£’m

Volume

251

230

341

822

18.0

2.5

0.7

21.2

188

181

330

699

£’m

28.6

(4.3)

(0.6)

23.7

Hedging instruments for other currencies are in respect of Australian dollars, Canadian dollars, Swiss francs, Japanese yen,
New Zealand dollars, Norwegian krone, Swedish krona, Thai baht and South African rand.

ii) Commodity price risk
The Group uses derivative financial instruments to mitigate the risk of adverse changes in the price of fuel. The Group enters
into fixed price contracts (swaps) in the management of its fuel price exposures. These contracts are expected to reduce
the volatility attributable to price fluctuations of fuel and are designated as cash flow hedges. Hedging the price volatility of
forecast fuel purchases is in accordance with the risk management strategy outlined by the Board of Directors.

Commodity cash flow hedging instruments

Hedging instruments

Designated in the year

At 31 Jan 2019

At 31 Jan 2018

Volume

£’m

(1.1)

Volume

170

£’m

0.2

Volume

123

£’m

3.9

iii) Hedge maturity profile
The table below summarises the present value of the highly probable forecast cash flows that have been designated in a
hedging relationship as at 31 January 2019. These cash flows are expected to become determined in profit or loss in the
same period in which the cash flows occur.

Determination period

1 February 2019 to 31 July 2019

1 August 2019 to 31 January 2020

1 February 2020 to 31 July 2020

1 August 2020 to 31 January 2021

1 February 2021 to 31 July 2021

1 August 2021 to 31 January 2022

Total

Other
currencies
£’m

Currency
hedges
£’m

Fuel
hedges
£’m

EUR
£’m

316.9

30.4

19.3

234.6

–

USD
£’m

17.2

15.6

12.0

7.5

1.5

1.0

11.4

345.5

4.1

1.9

0.1

–

50.1

33.2

242.2

1.5

1.0

601.2

54.8

17.5

673.5

Total
£’m

346.1

50.6

32.9

241.8

1.3

0.9

673.6

0.6

0.5

(0.3)

(0.4)

(0.2)

(0.1)

0.1

The foreign currency hedge which will be determined in July 2019 of £252.3m and August 2020 of £233.3m relates to the
delivery of the ships (note 33).

During the year, the Group recognised net gains of £5.3m (2018: £2.8m losses) on cash flow hedging instruments
through other comprehensive income into the hedging reserve. Additionally, the Group recognised net losses of £6.3m
(2018: £1.1m) through other comprehensive income into the hedging reserve, in relation to the specific hedging instrument
for the acquisition of two new ships (note 33). The overall net losses of £1.0m (2018: £3.9m) are offset by a net £1.5m
gain (2018: £0.3m gain) on forecast transactions recognised in the financial statements. The Group has not recognised
any amount through the income statement in respect of the ineffective portion of hedges measured during the year
(2018: £0.2m loss).

There has been no de-designation of hedges during the year ended 31 January 2019 as a result of cash flows forecast that
are no longer expected to occur. During the year, the Group recognised a £2.9m gain (2018: £18.8m gain) through the income
statement in respect of matured hedges, which has been recycled from other comprehensive income. No amounts have been
removed from the hedging reserve to be included in the carrying value of non-financial assets and liabilities.

165

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

19 Financial risk management objectives and policies
The Group’s principal financial liabilities comprise loans and borrowings and trade and other payables. The main purpose
of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations.
The Group’s principal financial assets include debt securities, deposits with financial institutions, money market funds, equity
funds, loan funds and hedge funds. The Group also enters into derivative transactions such as foreign exchange forward
contracts, fuel and gas oil swaps and interest rate swaps to manage its exposures to various risks.

The Group is exposed to market risk, credit risk, liquidity risk, insurance risk and operational risk. The Group’s senior
management oversees the management of these risks, supported by the Group Treasury function and Treasury Committees
within the key areas of the Group that advise on financial risks and the appropriate financial risk governance framework for
the Group. These functions and committees ensure that the Group’s financial risks are governed by appropriate policies and
procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk
objectives. All derivative activities are for risk management purposes and are carried out by the Group’s Treasury function.
It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken.

The Group manages concentration risk on its financial assets through a policy of diversification that is outlined in the
Group Treasury Policy and approved by the Board. The policy defines the exposure limit by asset class and to third party
institutions based on the credit ratings of the individual counterparties, combined with the views of the Board. On a
monthly basis, exposure to each asset class and counterparty is calculated and reported, and compliance with the policy
is monitored.

The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.

a. Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market prices. The Group is exposed to the following market risk factors:

• Foreign currency risk.
• Commodity price risk.
• Equity prices.
•

Interest rate risk.

The Group has policies and limits approved by the Board for managing the market risk exposure. These set out the principles
that the business should adhere to for managing market risk and establishing the maximum limits that the Group is willing to
accept considering strategy, risk appetite and capital resources.

The Group has the ability to monitor market risk exposure on a daily basis and has established limits for each component of
market risk.

The Group uses derivatives for hedging its exposure to foreign currency, fuel oil prices and interest rate risks. The market risk
policy explicitly prohibits the use of derivatives for speculative purposes.

Equity exposures are managed within allocation parameters agreed by the Board and with reference to agreed benchmarks.

i) Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial asset or liability will fluctuate because
of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily
to the Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s
functional currency).

The Group uses foreign exchange forward contracts to manage the majority of its transaction exposures. The foreign
exchange forward contracts, some of which are formally designated as hedging instruments, are entered into for periods
consistent with the foreign currency exposure of the underlying transactions, generally from 1 to 24 months. The foreign
exchange forward contracts vary with the level of expected foreign currency sales and purchases.

166

Saga plcAnnual Report and Accounts 201919 Financial risk management objectives and policies (continued)
a. Market risk (continued)
i) Foreign currency risk (continued)
The following table demonstrates the sensitivity of the fair value of forward exchange contracts to a 5% change in US dollar
and Euro exchange rates, with all other variables held constant. The Group’s exposure to foreign currency changes for all
other currencies is not material. The impact is shown net of tax at the current rate.

2019

2018

Sensitivity of +/– 5%
rate change in

EUR – Trading

EUR – New ships

USD

EUR – Trading

EUR – New ships

USD

Effect on the fair value
of forward exchange
contracts

Effect on profit after
tax and equity

+/– £5.9m

+/– £23.7m

+/– £4.0m

+/– £4.2m

+/– £18.1m

+/– £2.3m

+/– £0.6m

+/– £0.0m

+/– £0.6m

+/– £0.7m

+/– £0.0m

+/– £0.4m

Since all of the forward exchange contracts held are part of effective hedging relationships, any change to the fair value of
the instrument will be offset by an equal and opposite change to the cost of the hedged item resulting in no effect on profit
after tax and equity.

ii) Commodity price risk
The Group is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase
of fuel and gas oil to sail its cruise ships and therefore require a continuous supply of fuel and gas oil. The volatility in the
price of fuel and gas oil has led to the decision to enter into commodity fuel and gas oil swap contracts. These contracts
are expected to reduce the volatility attributable to price fluctuations of fuel and gas oil. Managing the price volatility of
forecast oil purchases is in accordance with the risk management strategy outlined by the Board of Directors.

The Group manages the purchase price using forward commodity purchase contracts based on a 24 month forecast of the
required fuel oil supply.

The following table shows the sensitivity of the fair value of fuel oil swaps to changes in the US dollar exchange rate with all
other variables held constant. The impact is shown net of tax at the current rate.

2019

2018

Sensitivity of +/– 5%
rate change in

Effect on profit after
tax and equity

USD – Fuel oil price

+/– £0.1m

USD – Fuel oil price

+/– £0.1m

iii) Interest rate risk
Interest rate risk arises primarily from medium and long-term investments in fixed interest securities. The market value
of these investments is affected by the movement in interest rates. This is managed by a policy of holding the majority
of investments to maturity by closely matching asset and liability duration.

It is also ensured that the investment portfolio has a diversified range of investments such that there is a combination
of fixed and floating rate securities, as well as other types of investments such as RPI linked securities.

Interest rate risk also arises in respect of the Group’s borrowings where the interest rate attaching to those borrowings
is not fixed. Where the Group perceives there to be a significant interest rate risk, it manages its exposure to such risks
by purchasing interest rate caps to limit the risk.

The following table shows the sensitivity of financial assets and liabilities to changes in the LIBOR rate. The impact is shown
net of tax at the current rate.

2019

2018

Sensitivity of +/–
0.25%
rate change in

Effect on profit after
tax and equity

LIBOR

+/– £0.3m

LIBOR

+/– £0.1m

167

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

19 Financial risk management objectives and policies (continued)
b. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk in relation to its financial and reinsurance assets, outstanding
derivatives and trade and other receivables. The Group assesses its counterparty exposure in relation to the investment of
surplus cash, fuel oil and foreign currency contracts, and undrawn credit facilities. The Group primarily uses published credit
ratings to assess counterparty strength and therefore to define the credit limit for each counterparty in accordance with
approved treasury policies.

The credit risk in respect of trade and other receivables is limited as payment from customers is generally required before
services are provided. At 31 January 2019, the maximum exposure to credit risk for trade receivables by operating segment
was as follows:

Insurance

Travel

Emerging Businesses and Central Costs

Amounts past due but not impaired by operating segment were as follows:

Insurance

Travel

Emerging Businesses and Central Costs

2019
£’m

51.4

2.3

7.0

2018
£’m

136.5

4.0

4.4

60.7

144.9

2019
£’m

15.4

1.1

1.7

18.2

2018
£’m

11.3

0.8

2.0

14.1

Management believes that the unimpaired amounts that are current and past due by more than 30 days are still collectable
in full, based on historical payment behaviour.

Credit risk in relation to deposits and derivative counterparties is managed by the Group’s Treasury department in
accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within
credit limits assigned to each counterparty. Counterparty credit limits are reviewed on a regular basis, and updated
throughout the year subject to approval by the Group Board. The limits are set to minimise the concentration of risks and
therefore mitigate financial loss through any potential counterparty failure.

The Group is exposed to the risk of default on the reinsurance arrangements in its insurance business when amounts
recoverable under those arrangements become due. Credit risk in respect of reinsurance arrangements is assessed at the
time of entering into a reinsurance contract. The Group’s reinsurance programme is only placed with reinsurers which meet
the Group’s financial strength criteria.

The Group’s maximum exposure to credit risk for the components of the statement of financial position at 31 January 2019
and 31 January 2018 is the carrying amount except for derivative financial instruments. The Group’s maximum exposure
for financial guarantees and financial derivative instruments is noted under liquidity risk. None of the financial assets were
impaired at the reporting date.

168

Saga plcAnnual Report and Accounts 201919 Financial risk management objectives and policies (continued)
b. Credit risk (continued)
The Group’s financial assets and reinsurance assets are analysed by Moody’s rating as follows:

Ratings analysis

31 January 2019

£’m

Debt securities

Money market funds

Deposits with financial institutions

Derivative assets

Loan funds

Reinsurance assets

Total

31 January 2018 (restated)

£’m

Debt securities

Money market funds

Deposits with financial institutions

Derivative assets

Loan funds

Hedge funds

Equities

Unlisted equity shares

Reinsurance assets

Total

AAA

14.8

37.1

–

51.9

–

51.9

AAA

28.9

153.2

–

140.3

–

50.8

–

191.1

55.5

246.6

119.0

–

60.8

–

182.1

–

182.1

179.8

54.6

234.4

41.2

–

32.6

–

73.8

40.9

BBB

83.9

–

18.5

0.8

–

103.2

–

114.7

103.2

Unrated

–

6.2

0.4

6.6

11.5

–

54.7

37.8

–

104.0

44.8

148.8

< A

Unrated

–

0.6

–

0.6

–

0.6

–

6.4

7.5

31.4

1.7

47.0

0.8

47.8

Total

280.2

37.1

69.3

33.4

6.2

426.2

96.8

523.0

Total

159.4

153.2

115.5

38.4

6.4

7.5

31.4

1.7

513.5

100.2

613.7

169

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

19 Financial risk management objectives and policies (continued)
c. Liquidity risk
Liquidity risk is the risk that the Group, although solvent, either does not have available sufficient financial resources
to enable it to meet its obligations as they fall due or can secure them only at excessive cost. The Group’s approach to
managing liquidity risk is to evaluate current and expected liquidity requirements to ensure that it maintains sufficient
reserves of cash or availability on its revolving credit facility. The Group manages its obligations to pay claims to
policyholders as they fall due by matching the maturity of investments to the expected maturity of claims payments.

The table below analyses the maturity of the Group’s financial liabilities and insurance contract liabilities on contractual
payments. The analysis of non-derivative financial liabilities is based on the remaining period at the reporting date to the
contractual maturity date. The analysis of claims outstanding is based on the expected dates on which the claims will
be settled.

31 January 2019

£’m

Loans and borrowings

Interest on loans and borrowings

Insurance contract liabilities

Other liabilities

Trade and other payables

Derivative liabilities

31 January 2018

£’m

Loans and borrowings

Interest on loans and borrowings

Insurance contract liabilities

Other liabilities

Trade and other payables

Derivative liabilities

On
demand

Less than
1 year

–

144.7

207.7

–

50.0

12.1

85.5

–

2.6

1 to 2
years

20.0

11.6

158.6

–

8.8

2 to 5
years

120.0

28.8

131.3

–

0.1

Over 5
years

250.0

4.2

186.1

–

Total

440.0

56.7

461.5

144.7

207.7

11.5

352.4

150.2

199.0

280.2

440.3

1,422.1

On
demand

Less than
1 year

5.5

–

142.7

185.9

–

35.0

12.1

183.1

–

3.8

1 to 2
years

20.0

11.6

95.6

–

4.9

2 to 5
years

140.0

31.4

143.7

–

4.0

Over 5
years

250.0

12.7

128.3

–

Total

450.5

67.8

550.7

142.7

185.9

12.7

334.1

234.0

132.1

319.1

391.0

1,410.3

The amounts included above do not include the financing arrangements for the purchase of two new cruise ships as detailed
in note 33.

d. Insurance risk
Insurance risk arises from the inherent uncertainties as to the occurrence, cost and timing of insured events that could
lead to significant individual or aggregated claims in terms of quantity or value. This could be for a number of reasons,
including weather-related events, large individual claims, changes in claimant behaviour patterns such as increased levels of
fraudulent activities, the use of PPOs, prospective or retrospective legislative changes, unresponsive and inaccurate pricing
or reserving methodologies and the deterioration in the Group’s ability to effectively and efficiently handle claims while
delivering excellent customer service.

The Group manages insurance risk within its risk management framework as set out by the Board. The key policies
and processes of mitigating these risks have been implemented, which include underwriting partnership arrangements,
reinsurance and excess of loss contracts, pricing policies and claims management, and administration policies.

i) Underwriting and pricing risk
The Group primarily underwrites motor insurance for private cars in the UK. The book consists of a large number of individual
risks which are widely spread geographically which helps to minimise concentration risk. The Group has controls in place to
restrict access to its products to only those risks that it wishes to underwrite.

The Group has management information to allow it to monitor underwriting performance on a continuous basis and the
ability to make pricing and underwriting changes quickly. The Group undertakes detailed statistical analyses of underwriting
experience for each rating factor and combinations of rating factors to enable it to adjust pricing for emerging trends.

170

Saga plcAnnual Report and Accounts 201919 Financial risk management objectives and policies (continued)
d. Insurance risk (continued)
ii) Reserving risk
Reserving risk is the risk that insufficient funds have been set aside to settle claims as they fall due. The Group undertakes
regular internal actuarial reviews and commissions external actuarial reviews at least once a year. These reviews estimate
the future liabilities in order to consider the adequacy of the provisions.

Claims which are subject to PPOs are a significant source of uncertainty in the claim’s reserves. Cash flow projections are
undertaken for PPO claims to estimate the gross and net of reinsurance provisions required. PPO provisions are discounted
to reflect expectations of future investment returns and cost inflation.

iii) Reinsurance
The Group purchases reinsurance to reduce the impact of individual large losses or accumulations from a single catastrophic
event. During 2016, the Group entered into a funds-withheld quota share reinsurance contract that reinsures 75% of
the Group’s motor claim risks limited by a loss ratio cap of 120%, effective for three years from 1 February 2016. A new
quota share reinsurance contract has been entered into that reinsures 80% of the Group’s motor claims risks, effective
from 1 February 2019. Prior to this, the Group had quota share reinsurance in place for third party branded motor business
for drivers aged under 50. The Group also purchases individual excess of loss protections for the motor portfolio to limit
the impact of a single large claim. Similar protections are in place for all years for which the Group has underwritten
motor business.

Reinsurance recoveries on individual excess of loss protections can take many years to collect, particularly if a claim is
subject to a PPO. This means that the Group has exposure to reinsurance credit risk for many years. Reinsurers are therefore
required to have strong credit ratings and their financial health is regularly monitored.

iv) Sensitivities
The following table demonstrates the impact on profit and loss and equity of a 1 percentage point variation in the recorded
loss ratio at 31 January 2019 and 31 January 2018. The impact of a 1% change in claims outstanding is also shown at the
same dates. The impact is shown net of reinsurance and tax at the current rate.

Impact of 1 percentage point change in loss ratio

Impact of 1% change in claims outstanding

2019

2018

+/– £0.8m +/– £1.0m

+/– £1.5m +/– £2.2m

Impact of a 0.25 percentage point change in discount rate for PPOs

+/– £1.7m +/– £1.7m

e. Operational risk
Effective operational risk management requires the Group to identify, assess, manage, monitor, report and mitigate all areas
of exposure. The Group operates across a range of segments and operational risk is inherent in all of the Group’s products
and services, arising from the operation of assets, from external events and dependencies, and from internal processes
and systems.

The Group manages its operational risk through the risk management framework agreed by the Board, and through the
use of risk management tools which together ensure that operational risks are identified, managed and mitigated to the
level accepted, and that contingency processes and disaster recovery plans are in place. Regular reporting is undertaken
to segment boards and includes details of new and emerging risks, as well as monitoring of existing risks. Testing of
contingency processes and disaster recovery plans is undertaken to ensure the effectiveness of these processes.

All of the Group’s operations are dependent on the proper functioning of its IT and communication systems; on its properties
and other infrastructure assets; on the need to adequately maintain and protect customer and employee data and other
information; and on the ability of the Group to attract and retain staff. Specific areas of operational risk by segment include:

i) Insurance
The Insurance segment is required to comply with various operational regulatory requirements primarily in the UK but also
within Gibraltar for its underwriting business. To the extent that significant external events could increase the incidence
of claims, these would place additional strain on the claims handling function but any financial impact of such an event is
considered to be an insurance risk.

171

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

19 Financial risk management objectives and policies (continued)
e. Operational risk (continued)
ii) Travel
The Travel segment operates two cruise ships which are the Group’s largest trading assets. Risk to the operation of these
cruise ships arises from the impact of mechanical or other malfunction, non-compliance with regulatory requirements,
and from global weather and socio-economic events. The tour holidays operated by the segment are also affected by
global weather and socio-economic events which impact either the Group directly or its suppliers. The Travel segment
is in operation with multiple suppliers which minimises the impact of any socio-economic events affecting its suppliers.

iii) Emerging Businesses and Central Costs
The financial services product business is required to comply with various operational regulatory requirements in the UK.

The Healthcare business provides a range of domiciliary services. Risk to the operation of this service arises mainly from
the availability of appropriately skilled staff to deliver the level and standard of care required, and from the oversight of the
delivery of these services.

20 Interests in unconsolidated structured entities
A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements. The Group has interests in unconsolidated structured entities
in the form of investment funds comprising:

• bank loan funds
• money market funds.

In the prior year, hedge funds also formed the Group’s balance in unconsolidated structured entities. All hedge funds were
divested during the year.

The nature and purpose of the bank loan funds are to diversify the investment portfolio and enhance the overall yield, whilst
maintaining an acceptable level of risk for the portfolio as a whole.

Bank loan funds invest in secured loans to companies rated below investment grade.

The nature and purpose of the money market funds is to provide maximum security and liquidity for the funds invested whilst
also providing an adequate return. The money market funds used by the Group are all members of the Institutional Money
Market Funds Association. They are thus required to maintain specified liquidity and diversification characteristics of their
underlying portfolios, which comprise investment grade investments in financial institutions.

The Group invests in unconsolidated structured entities as part of its investment activities. The Group does not sponsor any
of the unconsolidated structured entities.

At 31 January 2019, the Group’s total interest in unconsolidated structured entities was £43.3m analysed as follows:

Loan funds

Hedge funds

Money market funds

Carrying
value
£’m

Interest
income
£’m

Fair value
gains
£’m

6.2

–

37.1

0.1

–

0.4

(0.2)

–

These investments are typically managed under credit risk management as described in note 18. The Group’s maximum
exposure to loss on the interests presented above is the carrying amount of the Group’s investments. No further loss can
be made by the Group in relation to these investments. For this reason, the total assets of the entities are not considered
meaningful for the purposes of understanding the related risks and so have not been presented.

172

Saga plcAnnual Report and Accounts 201921 Trade and other receivables

Trade receivables

Other receivables

Prepayments

Contract cost assets

Deferred acquisition costs

Other taxes and social security costs

The ageing of trade receivables is as follows:

2019
£’m

2018
(restated)
£’m

135.2

144.9

18.3

40.5

4.5

14.5

3.6

15.7

29.9

2.8

17.7

4.1

216.6

215.1

2019

2018

Past due

Neither
past
due nor
impaired
£’m

117.0

130.8

Total
£’m

135.2

144.9

< 30 days
£’m

4.9

4.5

30-60
days
£’m

2.9

1.8

61-90
days
£’m

2.0

1.0

91-120
days
£’m

> 120 days
£’m

1.3

3.8

7.1

3.0

As at 31 January 2019, impairment provisions totalling £15.9m (2018: £10.7m) were made against trade receivables with an
initial value of £155.4m (2018: £155.6m). The movements in the provision for impairment of receivables are as follows:

At 1 February 2017

Charge for the year

Utilised in the year

Unused amounts reversed

At 31 January 2018

Charge for the year

Utilised in the year

Unused amounts reversed

At 31 January 2019

Credit-
impaired
£’m

Not credit-
impaired
£’m

0.4

2.1

(1.4)

–

1.1

1.4

(1.3)

–

1.2

8.8

9.4

(8.5)

(0.1)

9.6

14.8

(9.7)

–

14.7

Total
£’m

9.2

11.5

(9.9)

(0.1)

10.7

16.2

(11.0)

–

15.9

See note 19 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. We expect trade and other receivables to be normally settled within
12 months.

22 Cash and cash equivalents

Cash at bank and in hand

Short-term deposits

Cash and short-term deposits

Money market funds

Bank overdraft

Cash and cash equivalents in the cash flow statement

2019
£’m

91.9

31.0

122.9

37.1

(2.7)

2018
£’m

33.4

49.8

83.2

153.2

(9.4)

157.3

227.0

Included within cash and cash equivalents are amounts held by the Group’s travel and insurance businesses which are
subject to contractual or regulatory restrictions. These amounts held are not readily available to be used for other purposes
within the Group and total £108.6m (2018: £214.0m).

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.

173

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

23 Trade and other payables

Trade and other payables

Other taxes and social security costs

Assets in the course of construction

Accruals

2019
£’m

2018
(restated)
£’m

150.8

130.4

13.5

1.7

41.7

13.5

2.8

39.2

207.7

185.9

All trade and other payables are current in nature.

24 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees of the Group consisting of defined contribution plans and
a defined benefit plan.

a. Defined contribution plans
There are a number of defined contribution schemes in the Group. The total charge for the year in respect of the defined
contribution schemes was £2.2m (2018: £0.9m).

The assets of these schemes are held separately from those of the Group in funds under the control of Trustees.

b. Defined benefit plan
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 average salary whilst a member of the scheme. The scheme requires contributions to be made to a separately
administered fund which is governed by a Board of Trustees and consists of an equal number of employer and employee
representatives. The Board of Trustees is responsible for the administration of the plan assets and for the definition of the
investment strategy.

The long-term investment objectives of the Trustees and the Group are to limit the risk of the assets failing to meet the
liabilities of the scheme over the long term, and to maximise returns consistent with an acceptable level of risk so 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 the liability profile increasingly closely. The pension liability is exposed
to inflation rate risks and changes in the life expectancy of members. As the plan assets include investments in quoted
equities, the Group is exposed to equity market risk. The Group has provided a super security to the Trustees of the Saga
scheme, which ranks before any liabilities under the senior facilities agreement (as detailed in note 27). The value of the
security is capped at £32.5m.

The fair value of the assets and present value of the obligations of the Saga defined benefit scheme are as follows:

Fair value of scheme assets

Present value of defined benefit obligation

Defined benefit scheme liability

2019
£’m

2018
£’m

312.4

307.3

(315.2)

(314.3)

(2.8)

(7.0)

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.

174

Saga plcAnnual Report and Accounts 201924 Retirement benefit schemes (continued)
b. Defined benefit plan (continued)
The following table summarises the components of the net benefit expense recognised in the income statement and
amounts recognised in the statement of financial position for the schemes for the year ended 31 January 2019:

1 February 2018

Pension cost charge to income statement

Current service cost paid in cash during the period

Non-cash current service cost uplift

Total current service cost

Past 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

Total contributions by employer

31 January 2019

Fair value
of scheme
assets
£’m

Defined
benefit
obligation
£’m

Defined
benefit
scheme
liability
£’m

307.3

(314.3)

(7.0)

–

8.1

(7.8)

(5.8)

–

(13.6)

10.6

(7.6)

(0.4)

(8.0)

(0.1)

(8.1)

(16.2)

7.8

–

1.9

7.5

(1.5)

15.7

(0.4)

312.4

(315.2)

(7.6)

(0.4)

(8.0)

(0.1)

–

(8.1)

–

(5.8)

1.9

7.5

(1.5)

2.1

10.2

(2.8)

The past service cost above includes the Group’s estimate of the cost of equalising Guaranteed Minimum Pensions, which
served to increase the scheme liabilities by £0.1m.

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 2018:

1 February 2017

Pension cost charge to income statement

Current service cost paid in cash during the period

Non-cash current service cost uplift

Total current 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

Total contributions by employer

31 January 2018

Fair value
of scheme
assets
£’m

Defined
benefit
obligation
£’m

Defined
benefit
scheme
liability
£’m

276.8

(290.5)

(13.7)

–

8.2

(6.8)

17.2

–

10.4

11.9

(9.3)

(5.3)

(14.6)

(8.4)

(23.0)

6.8

–

4.0

(6.1)

(4.9)

(0.2)

(0.6)

307.3

(314.3)

(9.3)

(5.3)

(14.6)

(0.2)

(14.8)

–

17.2

4.0

(6.1)

(4.9)

10.2

11.3

(7.0)

175

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

24 Retirement benefit schemes (continued)
b. Defined benefit plan (continued)
The major categories of assets in the Saga scheme are as follows:

Equities

Bonds

Property

Hedge funds

Insured annuities

Cash and other

Total

2019
£’m

58.1

171.0

16.8

61.9

3.4

1.2

2018
£’m

61.4

160.3

17.9

63.0

3.5

1.2

312.4

307.3

Equities and bonds are all quoted in active markets whilst property and hedge funds are not.

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

Life expectancy of a member retiring in 20 years’ time — Male

Life expectancy of a member retiring in 20 years’ time — Female

2019

2018

3.00%

2.90%

2.60%

2.70%

3.05%

3.00%

3.05%

2.95%

2.90%

2.60%

3.10%

3.05%

27.6 yrs

27.8 yrs

29.7 yrs

29.8 yrs

Mortality assumptions are set using standard tables based on specific experience where available and allow for future
mortality improvements. The Saga scheme assumption is that a member currently aged 60 will live on average for a further
26.4 years if they are male and on average for a further 28.4 years if they are female.

A quantitative sensitivity analysis for significant assumptions as at 31 January 2019 and their impact on the net defined
benefit obligation is as follows:

Assumptions

Sensitivity

Impact £’m

Discount rate

Future inflation

Life expectancy

Future salary

+/– 0.25%

+/– 1 year

+/– 0.5%

Increase Decrease Increase Decrease Increase Decrease

(15.9)

17.4

11.9

(12.5)

9.7

(9.3)

0.0

Note: a positive impact represents an increase in the net defined benefit liability.

The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. When
calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has
been applied as when calculating the pension liability recognised within the statement of financial position.

The expected contribution to the Saga scheme for the next year is £9.9m and average duration of the defined benefit plan
obligation at the end of the reporting period is 23 years.

Formal actuarial valuations take place every three years for the scheme. The assumptions adopted for actuarial valuations
are determined by the Trustees and are agreed with the Group and are normally more prudent than the assumptions
adopted for IAS 19 purposes, which are best estimate. Where a funding deficit is identified, the Group and the Trustees
may agree a deficit recovery plan to pay additional contributions above those needed to fund new pensions accruing in
the scheme.

176

Saga plcAnnual Report and Accounts 201924 Retirement benefit schemes (continued)
b. Defined benefit plan (continued)
The latest valuation of the Saga scheme was at 31 January 2017. Further to this valuation, a recovery plan is in place for the
scheme. Under the agreed recovery plan, the Group made an additional payment of £2.5m during the year ended 31 January
2019 and will make payments totalling a further £28.2m over the next six years, with the last payment being made by
29 February 2024. The total expected contributions in the year ending 31 January 2020 are £9.9m, inclusive of a £2.8m
additional payment. No additional liabilities are required to be accrued in relation to the recovery plan since the employer has
the right to a refund if a surplus is recognised and the Trustees of the scheme are unable to wind up the scheme before any
refund is made.

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 (as presented on the face of the statement
of financial position)

Amounts recoverable under funds – withheld quota share agreements recognised within trade
payables:

– Claims outstanding

– Provision for unearned premiums

Total reinsurers’ share of insurance liabilities after funds – withheld quota share

Analysed as:

Claims outstanding

Provision for unearned premiums

Total reinsurers’ share of insurance liabilities after funds – withheld quota share

Net

Claims outstanding

Provision for unearned premiums

Total net insurance liabilities

Amounts recoverable under funds – withheld quota share agreements recognised within trade
payables:

– Claims outstanding

– Provision for unearned premiums

Total net insurance liabilities after funds – withheld quota share

Analysed as:

Claims outstanding

Provision for unearned premiums

Total net insurance liabilities after funds – withheld quota share

2019
£’m

2018
£’m

392.6

98.0

490.6

466.4

115.0

581.4

2019
£’m

2018
£’m

91.2

5.6

94.0

6.2

96.8

100.2

118.6

57.9

273.3

209.8

63.5

273.3

100.2

63.2

263.6

194.2

69.4

263.6

2019
£’m

2018
£’m

301.4

92.4

393.8

372.4

108.8

481.2

(118.6)

(100.2)

(57.9)

217.3

(63.2)

317.8

182.8

34.5

217.3

272.2

45.6

317.8

177

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes 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

2019
£’m
466.4
(194.2)
272.2

124.4
(114.8)
9.6

(198.2)
99.2
(99.0)

392.6
(209.8)
182.8

2019
£’m
115.0
(69.4)
45.6

221.1
(130.1)
91.0

(238.1)
136.0
(102.1)

98.0
(63.5)

34.5

2018
£’m
516.1
(149.3)
366.8

156.4
(127.1)
29.3

(206.1)
82.2
(123.9)

466.4
(194.2)
272.2

2018
£’m
125.3
(69.8)
55.5

249.3
(139.5)
109.8

(259.6)
139.9
(119.7)

115.0
(69.4)

45.6

The loss on purchasing reinsurance in 2018 was £12.6m (2018: £19.5m loss).

On 27 February 2017, the UK Government announced its decision to reduce the Ogden discount rate from 2.5% to –0.75%.
The insurance liabilities presented here and on the face of the Group’s balance sheet incorporate the effect of this change.
Subsequently, the UK Government has launched a full consultation regarding the Ogden discount rate. The proposed
changes mean the rate would be set by reference to ‘low risk’ rather than ‘very low risk’ and will ensure the rate is reviewed
more regularly in future. If the proposed framework were to be applied immediately, the rate may increase to between 0%
and 1%.

a. Discounting
Claims outstanding provisions are calculated on an undiscounted basis, with the exception of PPOs made by the courts as
part of a bodily injury claim settlement. Claims outstanding provisions for PPOs are discounted at a rate of –1.5% (2018:
–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 £471.0m (2018: £550.7m) gross of reinsurance and £260.0m
(2018: £302.8m) 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 37 years (2018: 37 years) and the rate of investment return used to determine
the discounted value of claims provisions was 2.0% (2018: 2.0%).

178

Saga plcAnnual Report and Accounts 201925 Insurance contract liabilities and reinsurance assets (continued)
b. Analysis of claims incurred: claims development tables
The following tables detail the Group’s initial estimate of ultimate gross and net claims incurred over the past 10 years and
the re-estimation at subsequent financial period ends.

The following table analyses the gross incurred claims (before deducting 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

2017
£’m

2018
£’m

2019
£’m

Total
£’m

Claims
paid
£’m

Gross
claims
outstanding
£’m

Analysis
of claims
incurred

Accident
year

2010
and
earlier 277.2

2011

2012

2013

2014

2015

2016

2017

2018

2019

Claims
handling
costs

(5.4)

(14.5)

(14.0)

307.0

(0.7)

(7.6)

(3.9)

(4.6)

(10.2)

(11.5)

(18.8)

(9.0)

(9.6)

(1.3)

330.3

(25.6)

(33.8)

(7.3)

(19.5)

(10.5)

321.2

(14.2)

(45.2)

(22.1)

(13.4)

(3.2)

(4.7)

(9.4)

(5.6)

(4.8)

(4.0) 256.3 (253.4)

(2.6) 221.6 (219.3)

(5.9) 214.8 (203.0)

281.9

(18.9)

(25.7)

(7.6)

(11.1)

(10.6) 208.0 (179.2)

271.3

(6.0)

(6.2)

(8.2)

(15.3) 235.6 (211.4)

280.4

4.1

(19.3)

(21.7) 243.5 (217.0)

197.2

4.7

(13.1) 188.8 (139.4)

194.9

194.9 (110.9)

189.8

(79.7)

277.2 301.6 315.1

274.0 225.4

170.9 186.6

152.7 138.1 111.8

9.0

10.1

15.6

17.4

17.2

18.0

21.5

20.6

20.9

17.9

286.2 311.7 330.7 291.4 242.6 188.9 208.1 173.3 159.0 129.7

The development of the associated loss ratios on the same basis is as follows:

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Financial year ended 31 January

Accident
year

2010 79% 79% 77% 76% 74% 73% 73% 72% 71% 71%

2011

2012

2013

2014

2015

2016

2017

2018

2019

80% 80% 78% 77% 72% 70% 69% 68% 67%

77% 71% 63% 62% 57% 55% 52% 52%

76% 72% 62% 56% 53% 52% 51%

75% 70% 63% 61% 58% 55%

81% 80% 78% 75% 71%

87% 88% 82% 75%

67% 69% 65%

75% 75%

80%

43.4

2.9

2.3

11.8

28.8

24.2

26.5

49.4

84.0

110.1

383.4

9.2

392.6

179

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

25 Insurance contract liabilities and reinsurance assets (continued)
b. Analysis of claims incurred: claims development tables (continued)
The following table analyses the net incurred claims (after deducting 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

2017
£’m

2018
£’m

2019
£’m

Total
£’m

Claims
paid
£’m

Net claims
outstanding
£’m

Analysis
of claims
incurred

Accident
year

2010
and
earlier 196.6

2011

2012

2013

2014

2015

2016

2017

2018

2019

Claims
handling
costs

(13.5)

(15.0)

266.0

(2.8)

(5.2)

(6.7)

(4.6)

(6.3)

(13.3)

(5.1)

(7.2)

(9.0)

(7.4)

302.3

(25.6)

(31.1)

(0.6)

(17.3)

(11.9)

(3.3)

(5.6)

(6.4)

(4.8)

(4.0) 215.9 (206.9)

(2.6) 206.8 (203.0)

315.4

(14.6)

(22.9)

(19.8)

(14.6)

(10.2)

(5.9) 227.4 (222.6)

276.8

(14.7)

(23.4)

(11.0)

(9.8)

(10.6) 207.3 (188.8)

219.1

5.3

(9.2)

(11.1)

(15.3) 188.8 (164.4)

220.9

3.2

(15.1)

(21.7) 187.3 (159.7)

196.6 266.0 286.0

269.6

219.8 161.3 153.4

34.1

18.5

94.0

1.5

78.5

89.3

78.5

71.8

(76.2)

(60.3)

(35.6)

(6.2)

71.8

0.7

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

11.5

45.6

10.5

29.0

8.8

9.5

18.0

9.0

3.8

4.8

18.5

24.4

27.6

13.1

18.2

36.2

173.6

9.2

182.8

The development of the associated loss ratios on the same basis is as follows:

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Financial year ended 31 January

Accident
year

2010 73% 73% 72% 70% 68% 67% 66% 64% 63% 63%

2011

2012

2013

2014

2015

2016

2017

2018

2019

78% 78% 76% 75% 71% 69% 67% 65% 64%

76% 70% 62% 62% 57% 54% 53% 52%

75% 72% 66% 62% 58% 56% 54%

75% 71% 65% 62% 59% 56%

67% 69% 66% 63% 58%

70% 71% 66% 59%

56% 56% 53%

66% 66%

70%

Favourable claims development over the year has resulted in a £71.1m (2018: £60.0m) reduction in the net claims incurred in
respect of prior years.

180

Saga plcAnnual Report and Accounts 201926 Contract liabilities

Deferred revenue

Current

Non-current

2019
£’m

2018
(restated)
£’m

144.7

130.5

14.2

144.7

142.7

127.4

15.3

142.7

Deferred revenue comprise amounts received within the Travel segment for holidays and cruises with departure dates after
the reporting date, and insurance premiums and sales revenues received in the Insurance segment in respect of insurance
policies which commence after the reporting date and represents the performance obligations not yet satisfied as at
31 January 2019.

27 Loans and borrowings

Bond

Bank loans

Revolving credit facility

Accrued interest payable

Less: deferred issue costs

2019
£’m

2018
£’m

250.0

160.0

30.0

2.2

250.0

180.0

15.0

2.2

442.2

447.2

(3.0)

(4.2)

439.2

443.0

The Group’s bank facilities consist of a £250.0m seven-year senior unsecured bond, a £200.0m five-year term loan facility
and a £100.0m five-year revolving credit facility with an option to extend. In March 2019, the Group’s banks agreed to extend
the term on the revolving credit facility by one year with expiry in May 2023. The bond is listed on the Irish Stock Exchange.

At 31 January 2019, the Group had drawn £30.0m of its £100.0m revolving credit facility and since the refinancing £40.0m of
the term loan has been repaid.

Interest on the bond is incurred at an annual interest rate of 3.375%. Interest on the term loan and revolving credit facility is
incurred at a variable rate of LIBOR plus, a bank margin which is linked to the Group’s leverage ratio.

During the period, the Group charged £11.5m (2018: £13.5m) to the income statement in respect of fees and interest
associated with the bonds, term loan and revolving credit facility. In addition, finance costs recognised in the income
statement includes £0.2m (2018: £0.7m) relating to interest on finance lease liabilities, net finance expense on pension
schemes and other interest costs, £nil (2018: £0.6m) of net fair value losses on derivatives and £nil (2018: £4.3m) of
accelerated amortisation of debt issue costs in relation to previous debt held.

181

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

28 Reconciliation of liabilities arising from financing activities
The following tables analyse the cash and non-cash movements for liabilities arising from financing activities:

Finance lease liabilities (note 33)

Bank loans (note 27)

Revolving credit facility (note 27)

Bond (note 27)

Deferred issue costs (note 27)

Finance lease liabilities (note 33)

Bank loans (note 27)

Revolving credit facility (note 27)

Bond (note 27)

Deferred issue costs (note 27)

Non-cash changes

2018
£’m

Cash flows
£’m

Acquisition
£’m

Foreign
exchange
movement
£’m

3.4

180.0

15.0

250.0

(4.2)

(2.0)

(20.0)

15.0

–

1.6

–

Non-cash changes

2017
£’m

Cash flows
£’m

Acquisition
£’m

3.0

380.0

100.0

–

(4.9)

(1.1)

(200.0)

(85.0)

250.0

(5.1)

1.5

–

Foreign
exchange
movement
£’m

–

Other
£’m

2019
£’m

–

3.0

160.0

30.0

250.0

1.2

(3.0)

Other
£’m

–

2018
£’m

3.4

180.0

15.0

250.0

5.8

(4.2)

Included within ‘Other’ is the amortisation of deferred issue costs of £1.2m (2018: £1.5m) and debt write-off costs of £nil
(2018: £4.3m) following the refinancing of debt as described in more detail in note 27.

29 Called up share capital

Allotted, called up and fully paid

As at 31 January 2017

Issue of shares

As at 31 January 2018

Issue of shares

As at 31 January 2019

Ordinary shares

Nominal
value
£

Value
£’m

Number

1,118,005,405

2,290,014

1,120,295,419

1,707,909

1,122,003,328

0.01

11.2

0.0

11.2

0.0

11.2

On 5 July 2018, Saga plc issued 1,707,909 new ordinary shares of 1p each for transfer into an Employee Benefit Trust to
satisfy employee incentive arrangements.

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 26,000 of these shares which were transferred from the Employee Benefit
Trust into the direct ownership of the employee. Employees have previously exercised 13,046,409 of these shares in prior
periods. The remaining 361,699 shares have been treated as treasury shares at 31 January 2019.

182

Saga plcAnnual Report and Accounts 201930 Reserves
Share-based payment reserve
The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to
employees, including key management personnel, as part of their remuneration. More detail is provided in note 32.

Fair value reserve
The fair value reserve comprises the unrealised gains or losses of fair value financial assets pending subsequent recognition
in profit or loss once the investment is derecognised.

Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments
used in cash flow hedges pending subsequent recognition in profit or loss as the hedged cash flows or items affect profit
or loss.

31 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.

For the purposes of the Group’s capital management, capital comprises total equity of £964.3m (2018 restated: £1,225.5m)
as shown on the consolidated statement of financial position. The Group operates in a number of regulated markets and
includes subsidiaries which are required to comply with specific requirements in respect of capital or other resources.

The Group’s financial services businesses are regulated primarily by the Financial Services Commission (FSC) in Gibraltar
and by the 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 2019
or 31 January 2018.

The Group’s regulated underwriting business is based in Gibraltar and regulated by the FSC. The underwriting business is
required to ensure that it has a sufficient level of capitalisation in accordance with Solvency II.

(The amounts set out in the following three paragraphs are estimated and unaudited)

The Group monitored its ability to comply with the requirements of Solvency II throughout the year to 31 January 2019,
having previously received approval from the FSC for the Undertaking of Specific Parameters when applying the standard
formula to measure capital requirements for this business under Solvency II rules. Under Solvency II, AICL remained well-
capitalised, and at 31 January 2019 available capital was £89.7m against a Solvency Capital Requirement of £60.5m, giving
148% coverage. As at 31 January 2018, available capital was £137.0m against a Solvency Capital Requirement of £79.7m,
giving 171% coverage.

The Group’s regulated insurance distribution business is based in the UK and regulated by the FCA. Due to the nature of the
business, the capital requirements are significantly less than the underwriting business but the Group is required to comply
with the Adequate Resources requirements of Threshold Condition 4 of the FCA Handbook. The Group undertakes a rigorous
assessment against the requirements of this Condition on an annual basis and, as a consequence of this, calculates and
holds an appropriate amount of capital in respect of the insurance distribution business. The Minimum Regulatory Capital
requirement of these businesses at 31 January 2019 was £5.5m (2018: £6.4m).

The regulated travel businesses are required to comply with two main tests based on liquidity and leverage and were
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 and
will be measured against these covenants on a monthly basis going forward. For the year ended 31 January 2019 the CAA
has given the travel businesses special dispensation to comply with decreased covenants due to the investment in the new
ships. At 31 January 2019 and 31 January 2018, the travel businesses had good coverage against both covenants.

183

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

32 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 20 shares they acquired and held continuously for one year to 29 May 2015. As these
were bonus shares, there was no exercise price and no cash settlement alternative.

b. 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. Up to 31 January 2017, these options are 50% linked
to a non-market vesting condition, EPS, and 50% linked to a market vesting condition, TSR. From 1 February 2017 to
31 January 2018, these options are 60% linked to non-market vesting conditions (30% linked to basic EPS and 30%
linked to organic EPS) and 40% linked to a market vesting condition, TSR. From 1 February 2018, these options are 60%
linked to non-market vesting conditions (30% linked to organic EPS and 30% linked to ROCE) and 40% linked to a market
vesting condition, TSR.
– On 1 May 2018, share options over 4,314,573 shares were issued which vest and become exercisable on the third

anniversary of the grant date.

– On 1 October 2018, share options over 253,530 shares were issued which vest and become exercisable on the third

anniversary of the grant date.

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 2 December 2015, share options over 99,552 shares were issued to the Chief Marketing Officer at the time which were
to vest on the second anniversary of his appointment, subject to continuing employment. Following the cessation of his
employment, the vesting period has been extended to 1 May 2020.

d. Employee free shares
• On 11 July 2018, 700,815 shares were awarded to eligible staff on the fourth anniversary of the IPO and allocated at £nil
cost; these shares become beneficially owned over a three-year period from allocation, subject to continuing service.

184

Saga plcAnnual Report and Accounts 201932 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:

IPO
options

LTIP

DBP

Other
options

Employee
free shares

Total

At 1 February 2018

387,699 10,588,790

866,729 2,261,714 1,169,612

15,274,544

Granted

Forfeited

Exercised

–

4,568,103

(1,272,830)

–

– 700,815

5,268,918

– (136,269)

(1,409,099)

(26,000)

(861,326)

(150,882)

–

(86,015)

(1,124,223)

At 31 January 2019

361,699

13,022,737

715,847 2,261,714 1,648,143 18,010,140

Exercise price

£nil

£1.77

£nil

£0.21

Exercisable at 31 January 2019

361,699

3,530,882

179,142 1,081,081 288,307

5,441,111

Average remaining contractual life

0.0 years

1.0 years 0.7 years 0.2 years 1.4 years

0.9 years

Average fair value at grant

£1.85

£1.83

£2.09

£1.86

£1.75

£1.85

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

LTIP – EPS
tranche

LTIP – TSR
tranche

Employee
Free
Shares

Black-
Scholes

Monte-
Carlo

Black-
Scholes

n/a

0.82%

n/a

3 years

£1.38

£1.26

25.2%

31.4%

n/a

As only limited historical data for the Group’s share price is available, the Group has estimated the Company’s share price
volatility as an average of the volatilities of its TSR comparator group over a historical period commensurate with the
expected life of the award immediately prior to the date of the grant.

For future valuations, at a date when sufficient Saga share price data becomes available, the Group intends to estimate the
Company volatility directly from this data.

The total amount charged to the income statement in the year ended 31 January 2019 is £3.8m (2018: £3.8m). This has been
charged to administrative and selling expenses £3.6m (2018: £3.5m) and non-trading items £0.2m (2018: £0.3m) (note 4b).

The Group did not enter into any share-based payment transactions with parties other than employees during the
current period.

185

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

33 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

2019
£’m

2018
£’m

1.2

3.3

7.0

1.2

3.5

6.7

11.5

11.4

2019
£’m

24.6

14.6

0.9

40.1

2018
£’m

20.7

4.9

1.0

26.6

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

2019
£’m

2.5

0.9

3.4

(0.4)

3.0

2018
£’m

1.5

2.3

3.8

(0.4)

3.4

c. Commitments
On 21 December 2015, the Group contracted with Meyer Werft GmbH & Co. KG to purchase Spirit of Discovery for delivery
in July 2019, with an option to purchase a second similar cruise ship for delivery in 2021. On 24 April 2017, the Group signed an
agreement with the shipyard to bring forward the delivery date by one month to June 2019.

On 20 September 2017, the Saga plc Board approved the purchase of the second cruise ship, Spirit of Adventure, with an
earlier delivery date of August 2020, and the Group exercised the option in December 2017.

Four stage payments for Spirit of Discovery were made between February 2016 and July 2018. The remaining element of the
contract price is due on delivery of the ship, and the Group entered into appropriate financing for this on 21 December 2015.

The first two stage payments for Spirit of Adventure were made between December 2017 and January 2019. Two similar
stage payments will be made during the construction period (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 20 September 2017.

As at 31 January 2019, the capital amount contracted but not provided for in the financial statements in respect of the ships
amounted to £543.5m (2018: £583.8m).

The financing for Spirit of Discovery 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 six months after
delivery. On the date the finance was entered into, the Group purchased Euro currency forwards totalling £273.2m to lock in
the cost of the ship.

The financing for Spirit of Adventure represents a 12 year fixed rate sterling loan, backed by an export credit guarantee.
The loan value of approximately £295m will be repaid in 24 broadly equal instalments, with the first payment due six months
after delivery. On the date the finance was entered into, the Group purchased Euro currency forwards totalling £211.5m,
which represents 72% of the cost of the ship.

Both hedges have been designated as cash flow hedges and remain outstanding as at 31 January 2019 (note 18d).

186

Saga plcAnnual Report and Accounts 201933 Commitments and contingencies (continued)
d. Contingent liabilities
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.

On 4 May 2017, the Group was notified about legal proceedings against Nestor Primecare Services Limited by the Crown
Prosecution Service in relation to a breach of the Health and Safety at Work etc. Act 1974. Under an indemnity included in
the sales agreement following the disposal of Nestor Primecare Services Limited, certain entities in the Group may be liable
for any penalties incurred.

It is too early in the litigation process to evaluate Saga’s position on liability and quantum. As such, no amounts have been
provided for this in the financial statements.

During the prior year, a former subsidiary of the Group, Saga Property (St Lucia) Limited, was served with a tax assessment
from the St Lucian tax authorities to the sum of £2.0m. Due to certain indemnities granted to the purchaser on sale of the
subsidiary, Saga plc is responsible for any liabilities arising prior to sale. A tax-free period was agreed with the Ministry of
Tourism in St Lucia for a 10 year period commencing from 2007 and therefore the Group does not believe that the tax liability
is payable.

34 Post-balance sheet events
On 6 February 2019, the Group signed a memorandum of agreement to sell one of its cruise ships, the Saga Pearl II, for
€6.0m with an expected date of delivery of 15 April 2019.

187

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes 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. The registered office address for all entities registered in England is Enbrook
Park, Sandgate, Folkestone, Kent CT20 3SE. The registered office address of Acromas Insurance Company Limited is 57/63
Line Wall Road, Gibraltar. The registered office address of Saga Cruises GmbH is Industriegebiet Süd, 26871, Papenburg,
Niedersachsen, Germany.

Name
Saga Personal Finance Limited
ST&H Limited
Acromas Insurance Company Limited
Saga Cruises Limited
ST&H Transport Limited
CHMC Limited
PEC Services Limited
Saga Retirement Villages Limited
Destinology Limited
Enbrook Cruises Limited
MetroMail Limited
Saga Cruises IV Limited
Saga Cruises V Limited
Saga Cruises VI Limited
Saga Cruises GmbH
Saga Crewing Services Limited
Saga Healthcare Limited
Saga Mid Co Limited
Saga Publishing Limited
Saga Services Limited
Titan Transport Limited
Saga Membership Limited
Driveline Group Limited
CHMC Holdings Limited
Saga 200 Limited
Saga 300 Limited
Saga 400 Limited
Saga Group Limited
Saga Holdings Limited
Saga Leisure Limited
Saga Properties Limited
ST&H Group Limited
Saga Cruises I Limited
Confident Services Limited
Country Cousins (Horsham) Limited
Driveline Europe Limited
Driveline Travel Limited
Patricia White’s Personal Home Care Limited
Saga 500 Limited
Saga Coach Holidays Limited
Saga Cruises BDF Limited
Saga Cruises II Limited
Saga Cruises III Limited
Saga Flights.com Limited
Saga Holidays Limited
Saga Independent Living Limited
Saga Funding Limited
Saga Communications Limited
Saga Radio (North West) Limited
Saga Shipping Company Limited

188

Country of registration
England
England
Gibraltar
England
England
England
England
England
England
England
England
England
England
England
Germany
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

Nature of business
Delivery of regulated investment products
Tour operating
Insurance underwriting
Cruising
Tour operating
Motor accident management
Repairer of automotive vehicles
Marketing of retirement villages
Tour operating
Cruising
Mailing house
Cruising
Cruising
Cruising
Cruising
Cruising
Provision of domiciliary care
Debt service provider
Publishing
Insurance distribution
Tour operating
Customer loyalty scheme
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
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

Saga plcAnnual Report and Accounts 201935 Subsidiaries (continued)

Name
Spirit Of Adventure Limited
Titan Aviation Limited
Titan Travel Holdings Limited
Titan Travel Limited

Country of registration
England
England
England
England

Nature of business
Dormant company
Dormant company
Dormant company
Dormant company

36 Investment in joint ventures
During the current and prior year, the Group’s interests in joint ventures were:

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 £nil after tax (2018: £2.2m loss after tax). During the prior year, the carrying value of the joint venture was impaired to
£nil following the decision to replace the legal structure with a new, more cost-efficient structure.

The registered office address for Saga Investment Services Limited is Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE.

37 Transition to IFRS 15 and IFRS 9

Revenue

Cost of sales

Gross profit

Administrative and selling expenses

Investment income

Finance costs

Finance income

Share of loss of joint ventures

Profit before tax from continuing operations

Tax expense

Profit for the period from continuing operations

Loss after tax for the year from discontinued operations

Profit for the year

Attributable to:

Equity holders of the parent

Earnings Per Share:

Basic

Diluted

Earnings Per Share for continuing operations:

Basic

Diluted

As
reported
31 Jan 18

£’m

860.1

(412.8)

447.3

(254.5)

7.4

(20.8)

1.5

(2.2)

178.7

(33.6)

145.1

(7.6)

137.5

IFRS 9/15 adjustment

As
restated
31 Jan 18

Insurance
£’m

0.5

(0.3)

0.2

–

0.6

(0.1)

0.5

–

0.5

Travel
£’m

(0.1)

0.3

0.2

–

1.7

–

1.9

(0.3)

1.6

–

1.6

EB&CC
£’m

£’m

(0.3)

860.2

–

(412.8)

(0.3)

447.4

–

(0.3)

0.1

(0.2)

–

(254.3)

7.6

(19.1)

1.5

(2.2)

180.9

(33.9)

147.0

(7.6)

(0.2)

139.4

137.5

0.5

1.6

(0.2)

139.4

12.3p

12.2p

13.0p

12.9p

12.5p

12.4p

13.1p

189

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the consolidated financial statements
continued

37 Transition to IFRS 15 and IFRS 9 (continued)

Profit for the year

Other comprehensive income

Other comprehensive income to be reclassified to the income
statement in subsequent periods

Net losses on hedging instruments during the year

Recycling of previous gains to income statement on matured
hedges

Total net loss on cash flow hedges

Associated tax effect

Net losses on fair value financial assets

Recycling of previous gains to income statement on sale of fair
value financial assets during the year

Total net loss on fair value financial assets

Associated tax effect

Total other comprehensive losses with recycling to
income statement

Other comprehensive income not to be reclassified to the
income statement in subsequent periods

Re-measurement gains on defined benefit plans

Tax effect

Total other comprehensive gains without recycling to income
statement

Total other comprehensive losses

Total comprehensive income for the year

As
reported
31 Jan 18

£’m

137.5

IFRS 9/15 adjustment

As
restated
31 Jan 18

Insurance
£’m

Travel
£’m

EB&CC
£’m

£’m

0.5

1.6

(0.2)

139.4

(3.6)

(18.8)

(22.4)

3.8

(0.3)

(4.4)

(4.7)

0.8

(22.5)

10.2

(1.7)

8.5

(14.0)

123.5

–

0.5

(1.7)

–

(1.7)

0.3

–

(1.4)

–

(1.4)

0.2

–

(5.3)

(18.8)

(24.1)

4.1

(0.3)

(4.4)

(4.7)

0.8

(23.9)

10.2

(1.7)

8.5

(15.4)

(0.2)

124.0

190

Saga plcAnnual Report and Accounts 201937 Transition to IFRS 15 and IFRS 9 (continued)

Assets

Goodwill

Intangible assets

Investment in joint ventures

Property, plant and equipment

Financial assets

Deferred tax assets

Reinsurance assets

Inventories

Trade and other receivables

Assets held for sale

Cash and short-term deposits

Total assets

Liabilities

Retirement benefit scheme obligations

Gross insurance contract liabilities

Provisions

Financial liabilities

Current tax liabilities

Deferred tax liabilities

Other liabilities

Trade and other payables

Total liabilities

Equity

Issued capital

Share premium

Retained earnings

Share-based payment reserve

Fair value reserve

Hedging reserve

Total equity

Total liabilities and equity

As
reported
31 Jan 17
£’m

1,485.0

53.8

1.4

131.5

600.3

16.3

97.5

5.6

198.7

–

108.7

2,698.8

13.7

642.3

4.0

489.8

14.9

21.5

134.9

182.5

1,503.6

11.2

519.3

607.8

15.6

3.3

38.0

1,195.2

2,698.8

IFRS 9/15
adjustment
£’m

–

(0.9)

–

As
restated
31 Jan 17
£’m

As
reported
31 Jan 18
£’m

1,485.0

53.8

1.4

131.5

599.4

16.3

97.5

5.6

61.2

–

163.4

514.5

13.7

100.2

5.8

IFRS 9/15
adjustment
£’m

–

(1.0)

–

As
restated
31 Jan 18
£’m

1,485.0

61.2

–

163.4

513.5

13.7

100.2

5.8

5.3

204.0

210.0

5.1

215.1

–

108.7

6.8

83.2

–

6.8

83.2

4.4

2,703.2

2,643.8

4.1

2,647.9

–

13.7

7.0

–

7.0

(0.9)

641.4

582.0

(0.6)

581.4

–

4.0

4.7

–

4.7

(0.4)

489.4

469.2

(0.7)

468.5

–

0.7

2.5

1.0

2.9

–

0.1

–

(0.1)

1.5

4.4

14.9

22.2

137.4

183.5

15.2

16.3

140.9

185.0

1,506.5

1,420.3

11.2

519.3

607.9

15.6

3.2

39.5

11.2

519.3

662.8

11.4

(0.6)

19.4

1,196.7

1,223.5

2,703.2

2,643.8

–

0.7

1.8

0.9

2.1

–

2.0

–

(0.1)

0.1

2.0

4.1

15.2

17.0

142.7

185.9

1,422.4

11.2

519.3

664.8

11.4

(0.7)

19.5

1,225.5

2,647.9

191

Financial StatementsSaga plcAnnual Report and Accounts 2019Company financial statements of Saga plc balance sheet

Non-current assets

Investment in subsidiaries

Current assets

Debtors

Creditors – amounts falling due within one year

Net current assets/(liabilities)

Note

2019
£’m

2018
£’m

1,069.8

2,104.2

326.0

152.4

(3.2)

(217.2)

322.8

(64.8)

Creditors – amounts falling due after more than one year

(248.3)

(248.0)

Net assets

Capital and reserves

Called up share capital

Share premium account

Profit and loss reserve

Share-based payment reserve

Total shareholders’ funds

1,144.3

1,791.4

11.2

519.3

600.2

13.6

11.2

519.3

1,249.2

11.7

1,144.3

1,791.4

The Company has not presented its own profit and loss account as permitted by section 408(3) of the Companies Act
2006 (the ‘Act’). The loss included in the financial statements of the Company, determined in accordance with the Act, was
£549.3m (2018: £11.8m loss).

Company number: 08804263

The notes on pages 194-197 form an integral part of these financial statements.

Signed for and on behalf of the Board on 3 April 2019 by

L. H. L. Batchelor
Group Chief Executive Officer

J. Quin
Group Chief Financial Officer

192

Saga plcAnnual Report and Accounts 2019Company financial statements of Saga plc statement of changes in equity

At 31 January 2017

Loss for the financial year

Dividends

Share-based payment charge

Exercise of share options

At 31 January 2018

Loss for the financial year

Dividends

Share-based payment charge

Exercise of share options

At 31 January 2019

Called
up share
capital
£’m

Share
premium
account
£’m

Retained
earnings
£’m

Share-
based
payment
reserve
£’m

Total
equity
£’m

11.2

519.3

1,352.1

15.8

1,898.4

–

(11.8)

(98.5)

–

7.4

–

4.1

(8.2)

(11.8)

(98.5)

4.1

(0.8)

11.2

519.3

1,249.2

11.7

1,791.4

–

(549.3)

(100.9)

–

1.2

–

3.8

(1.9)

(549.3)

(100.9)

3.8

(0.7)

11.2

519.3

600.2

13.6

1,144.3

193

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the Company 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 hundred thousand
(£’m) except when otherwise indicated.

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 31 January 2019.

The Company has taken advantage of the following disclosure exemptions under FRS 101:

• The requirements of IFRS 7 ‘Financial Instruments: Disclosures’.
• The requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information 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 paragraphs 45(b) and 46-52 of IFRS 2 ‘Share-based Payment’.

b. Investments
Investments in subsidiaries are accounted for at the lower of cost less impairment and net realisable value and reviewed for
impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

c. Deferred tax
Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax losses, can be utilised.

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.

194

Saga plcAnnual Report and Accounts 20191 Accounting policies (continued)
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.

Upon vesting of an equity instrument, the cumulative cost in the share-based payments reserve is reclassified to reserves.

e. Financial liabilities
i) Initial recognition and measurement
All financial liabilities are classified as financial liabilities at amortised cost.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable
transaction costs.

The Company’s financial liabilities comprise loans and borrowings.

ii) Subsequent measurement
After initial recognition, interest bearing loans and borrowings and other payables are subsequently measured at amortised
cost using the EIR method. Gains and losses are recognised in the income statement when the liabilities are derecognised as
well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortisation is included in finance costs in the income statement.

iii) Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

195

Financial StatementsSaga plcAnnual Report and Accounts 2019Notes to the Company financial statements
continued

2 Investment in subsidiaries

Cost

At 31 January 2017

Capital contributions arising from share-based payments

At 31 January 2018

Capital contributions arising from share-based payments

At 31 January 2019

Amounts provided for

At 31 January 2017 (as reported)

Amounts provided in the year

At 31 January 2018

Amounts provided in the year

At 31 January 2019

Net book value

At 31 January 2018

At 31 January 2019

£’m

4,129.1

1.5

4,130.6

1.6

4,132.2

2,026.4

–

2,026.4

1,036.0

3,062.4

2,104.2

1,069.8

See note 35 to the consolidated financial statements for a list of the Company’s investments.

The Company has tested the investment in subsidiaries balance for impairment at 31 January 2019. The impairment test
compares the recoverable amount of investments to its carrying value.

The recoverable amount of the investment has been determined based on a value-in-use calculation using cash flow
projections from the Group’s Board-approved five year plan to 2023/24. Terminal values have been included using 2.25% as
the expected long-term average growth rate of the UK economy, and calculated using the Gordon Growth Model. The cash
flows have then been discounted to present value using a suitably risk-adjusted discount rate derived from the Group’s
weighted average cost of capital being 8.4%.

The recoverable amount when compared against the carrying value of the investment in subsidiaries results in a deficit of
£1,036.0m, therefore management considers it necessary to impair the investment in subsidiaries balance to its value-in-
use of £1,069.8m. An impairment charge of £1,036.0m has been recognised in the year to 31 January 2019.

The deficit calculated is most sensitive to the discount rate and terminal growth rate assumed. A quantitative sensitivity
analysis for each of these as at 31 January 2019 and its impact on the headroom/(deficit) against the carrying value of
investment in subsidiaries is as follows:

Impact

Pre-tax discount rate

Terminal growth rate

+1.0ppt
£’m
(210.3)

–1.0ppt
£’m
267.2

+1.0ppt
£’m
205.5

–1.0ppt
£’m
(162.5)

3 Dividends
During the year, the Company received a dividend of £62.5m per share from one of its subsidiaries, Saga Midco Limited,
totalling £500.0m.

196

Saga plcAnnual Report and Accounts 20194 Debtors

Deferred tax asset

Other debtors

Amounts due to Group undertakings

All amounts above are due in less than one year.

5 Creditors – amounts falling due in less than one year

Amounts owed to Group undertakings

Other creditors

Accrued interest payable

6 Creditors – amounts falling due in more than one year

Bond

Unamortised issue costs

7 Called up share capital

Allotted, called up and fully paid

At 31 January 2017

Issue of shares

As at 31 January 2018

Issue of shares

As at 31 January 2019

2019
£’m

1.4

323.2

326.0

2019
£’m

–

1.4

1.8

3.2

2018
£’m

1.0

1.8

149.6

152.4

2018
£’m

214.3

1.1

1.8

217.2

2019
£’m

2018
£’m

250.0

(1.7)

(2.0)

248.3

248.0

Ordinary shares

Nominal
value
£

Value
£’m

Number

1,118,005,405

2,290,014

1,120,295,419

1,707,909

1,122,003,328

0.01

11.2

0.0

11.2

0.0

11.2

197

Financial StatementsSaga plcAnnual Report and Accounts 2019Shareholder information

Financial calendar
2019 Annual General Meeting – 19 June 2019

Final dividend dates
Announcement date – 4 April 2019
Ex-dividend date – 16 May 2019
Record date – 17 May 2019
Last day for DRIP elections – 3 June 2019
Payment date – 28 June 2019

Shareholder information on-line
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 communications such as your share certificate.
The Saga Shareholder Services Portal allows you to manage
your shareholding easily and securely on-line. 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 FCA before
getting involved. Fraudsters use persuasive and high-
pressure tactics to lure investors into scams. They may
offer to sell shares that turn out to be worthless or non-
existent, or to buy shares at an inflated price in return
for an upfront payment. While high profits are promised,
if you buy or sell shares in this way; you may lose your
money. For more information, or if you are approached by
fraudsters, please visit the FCA website www.fca.org.uk/
consumers/scams, where you can report and find out
more about investment scams. You can also call the FCA
Consumer Helpline on 0800 111 6768. If you have already
paid money to share fraudsters; you should contact
Action Fraud on 0300 123 2040.

198

Advisers
Joint corporate broker and financial adviser
J.P. Morgan Cazenove
25 Bank St
Canary Wharf
London E14 5JP

Joint corporate broker
Numis Securities Ltd.
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT

Joint financial adviser
Goldman Sachs Intl.
Peterborough Court
133 Fleet Street
London EC4A 2BB

Media relations advisers
MHP Communications
6 Agar Street
London WC2N 4HN

Independent auditors
KPMG LLP
15 Canada Square
London E14 5GL

Legal advisers
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 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
www.corporate.saga.co.uk

Registrars
Link 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 UK, call
+44 (0)333 300 1581 – calls outside the UK will be charged
at the applicable international rate. Lines 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.

Saga plcAnnual Report and Accounts 2019Glossary
Alternate Performance Measures (APM)

Alternate Performance Measures (APM)
The Group uses a number of Alternative Performance
Measures (APMs), which are not required or commonly
reported under International Financial Reporting Standards,
the Generally Accepted Accounting Principles (GAAP) under
which the Group prepares its financial statements, but which
are used by the Group to help the user of the accounts
better understand the financial performance and position of
the business.

Definitions for the primary APMs used in this report and
set out below. APMs are usually derived from financial
statement line items and are calculated using consistent
accounting policies to those applied in the financial
statements, unless otherwise stated.

APMs may not necessarily be defined in a consistent
manner to similar APMs used by the Group’s competitors.
They should be considered as a supplement rather than a
substitute for GAAP measures.

Underlying Profit Before Tax
Underlying Profit Before Tax represents profit before tax
from continuing operations excluding unrealised fair value
gains and losses on derivatives and the impairment of the
carrying value of cruise ships and goodwill. In the prior year
it also excludes the one-off costs associated with the
unamortised facility fees of the previous banking facilities
and one-off restructuring costs. It is reconciled to statutory
profit before tax within the Operating and Financial Review
on page 39.

This measure is the Group’s key performance indicator
and is useful for presenting the Group’s underlying
trading performance, as it excludes non-cash derivative
adjustments and one-off financial impacts that are not
expected to recur.

Trading EBITDA
Trading EBITDA is defined as earnings before interest
payable, tax, depreciation and amortisation, and excludes
the amortisation of acquired intangibles, non-trading costs
and impairments. It also excludes the non-cash impact of
IAS19R current service costs in line with the Group’s debt
covenants. It is reconciled to profit before tax within the
Operating and Financial Review on page 46.

This measure has been presented by the Group in every
annual report since it became a listed Group in 2014 and is
linked to the Group’s debt covenants, being the denominator
in the Group’s leverage ratio calculation.

Underlying basic earnings per share from
continuing operations
Underlying basic earnings per share from continuing
operation represents basic earnings per share from
continuing operations excluding the post-tax effect of
unrealised fair value gains and losses on derivatives and
the impairment of the carrying value of cruise ships and
goodwill. In the prior year it also excludes the post-tax
effect of the one-off non-cash costs associated with the
unamortised facility fees of the previous banking facilities
and the post-tax effect of one-off restructuring costs.
This measure is reconciled to the statutory basic earnings
per share from continuing operations in note 12 to the
accounts on page 158.

This measure is linked to the Group’s key performance
indicator Underlying Profit Before Tax and represents what
management consider to be the underlying shareholder
value generated in the period.

Customer spend
Customer spend represents the total amount that
customers spent on products provided by the Saga Group
of companies, including gross written premiums, ancillary
income and Insurance Premium Tax for all of the core
policies and add-ons sold in the period. It is reconciled to
statutory revenue within the Operating and Financial Review
on page 39.

Available operating cash flow
Available operating cash flow is net cashflow from operating
activities after capital expenditure but before tax, interest
paid and non-trading items, which is available to be used
by the Group as it chooses and is not subject to regulatory
restriction. It is reconciled to statutory net cash flow from
operating activities within the Operating and Financial
Review on page 46.

Net debt
Net debt is the sum of the carrying values of the Group’s
debt facilities less the amount of available cash it holds.
It is linked to the Group’s debt covenants, being the
numerator in the Group’s leverage ratio calculation, and is
analysed further within the Operating and Financial Review
on page 48.

199

Additional InformationSaga plcAnnual Report and Accounts 2019Glossary

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

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 cash cash held by subsidiaries within the Group
that is not subject to regulatory restrictions, net of any
overdrafts held by those subsidiaries

Board Saga plc Board of Directors

Claims frequency the number of claims incurred divided
by the number of policies earned in a given period

Claims reserves accounting provisions that have been set
to meet outstanding insurance claims, IBNR and associated
claims handling costs

Code the UK Corporate Governance Code published by the
UK Financial Reporting Council setting out guidance in the
form of principles and provisions to address the principal
aspects of corporate governance

Combined operating ratio the ratio of the claims costs and
expenses incurred to underwrite insurance (numerator) to
the revenue earned by AICL (denominator) in a given period.
Can otherwise be calculated as the sum of the loss ratio and
expense ratio

Debt ratio (Leverage) the ratio of net debt to Trading EBITDA

DTRs (Disclosure and Transparency Rules) rules published
by the UK Financial Conduct Authority relating to the
disclosure of information by a company listed in the UK

Earned premium insurance premiums that are recognised in
the income statement over the period of cover to which the
premiums relate, deferred on a 365ths basis

Earnings per share 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

Executive Director executive director of Saga plc (unless
otherwise stated)

Expense ratio the ratio of expenses incurred to underwrite
insurance (numerator) to the revenue earned by AICL
(denominator) in a given period

Financial Conduct Authority (FCA) the independent UK
body that regulates the financial services industry, which
includes general insurance

GHG Protocol a global standard for how to measure,
manage, and report greenhouse gas emissions

GWP (Gross written premiums) the total premium charged
to customers for a core insurance product, excluding
Insurance Premium Tax but before the deduction of any
outward reinsurance premiums, measured with reference to
the cover start date of the policy

Group the Saga plc group

Companies Act the UK Companies Act 2006, as amended
from time to time

Holidays passengers the number of passengers that have
travelled on a Saga, Titan or Destinology holiday in a
given period

Company Saga plc

IASB International Accounting Standards Board

Continuing operations operations that are not classified
as discontinued

IBNR (incurred but not reported) a claims reserve provided
to meet the estimated cost of claims that have occurred,
but have not yet been reported to the insurer

Core policy an insurance policy that is actively marketed
and sold on its own

IFRS International Financial Reporting Standards

Cruise passenger days the total number of days passengers
have travelled on a ship, or ships, in a given period

IPO (Initial Public Offering) the first sale of shares
by a previously unlisted company to investors on a
securities exchange

Cruise passengers the number of passengers that have
travelled on a Saga cruise in a given period

Leverage ratio the ratio of net debt to Trading EBITDA

DBP Deferred Bonus Plan

LIBOR London inter-bank offered rate

Diems the total amount of cruise revenue earned per cruise
passenger per day

Load factor the total number of cruise passengers booked in
proportion to the total cruise ship capacity

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

200

Saga plcAnnual Report and Accounts 2019Additional Information

Loss ratio a ratio of the claims costs (numerator) to the net
earned premium (denominator) in a given period

Saga Way the internal framework that guides the
behaviours of our employees

LR (Listing Rules) a set of mandatory regulations of the UK
Financial Conduct Authority and applicable to a company
listed in the UK

SCR Solvency capital requirement as calculated under
Solvency II rules

SIP Share Incentive Plan

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

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

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

LTIP Long Term Incentive Plan

Malus an arrangement that permits the forfeiture of
unvested remuneration awards in circumstances the
Company considers appropriate

Mosaic classifications Mosaic is a consumer classification
system, owned by Experian, that classifies UK households
into 15 main social-economic groups, each of which have
specific consumer and societal trends

Net claims the cost of claims incurred in the period less any
claims costs recovered under reinsurance contracts and
after the release of any claims reserves

Net earned premium earned premium net of any outward
earned reinsurance premium paid

Net interest expense finance costs less finance income

Non-Executive Director (NED) non-executive director of
Saga plc

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 margin is a measurement of the proportion of
revenue which is left over after paying for all business costs

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

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 to
assess the minimum level of solvency capital an insurance
underwriter must retain under Solvency I

RPI Retail Price Index

Consultancy, design and production
www.luminous.co.uk

Design and production

www.luminous.co.uk

Saga plc
Enbrook Park
Sandgate
Folkestone
Kent
CT20 3SE