Saga plc
ANNUAL REPORT AND
ACCOUNTS 2020
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Our purpose is to help
our customers lead the
life they want
6
A note from
our Chairman
4
Highlights
of the year
7
A note
from our
Group CEO
S T R A T E G I C R E P O R T
Highlights
Our business at a glance
Highlights of our year
Chairman’s statement
Group Chief Executive Officer’s Report
Market overview
Business model
Strategic priorities
Key performance indicators
Corporate responsibility
Principal risks and uncertainties
Operating and financial review
Viability statement
Going concern statement
Section 172 (1) and non-financial information statements
G O V E R N A N C E
Corporate governance statement
Chairman’s introduction to governance
Key statements
Application of Code principles
Board leadership and Company purpose
Division of responsibilities
Composition, succession and evaluation
Board biographies
Nomination Committee Report
Audit, Risk and Internal Control
Audit Committee Report
Risk Committee Report
Directors’ Remuneration Report
Annual Statement
Summary Directors’ Remuneration Policy
Annual report on remuneration
Directors’ Report
Statements of responsibilities
Independent Auditor’s report
F I N A N C I A L S T A T E M E N T S
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company financial statements of Saga plc balance sheet
Company financial statements of Saga
plc statement of changes in equity
Notes to the Company financial statements
A D D I T I O N A L I N F O R M A T I O N
Glossary – Alternative Performance Measures
Glossary
Shareholder information
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WWW.SAGA.CO.UK
F I N A N C I A L H I G H L I G H T S
O P E R AT I O N A L H I G H L I G H T S
Underlying Profit Before Tax1
£109.9m
2019: £180.1m
Loss before tax
£(300.9m)
2019: £(134.8m)
Euan Sutherland appointed as
Group Chief Executive Officer
effective 6 January 2020
“I am hugely excited to join Saga.
This is a unique British brand that
has a strong heritage, great people
and significant potential. I look
forward to working with the Board
and the whole of the Saga team
to further unlock this potential
and deliver for our customers
and shareholders.”
Dividend per share
1.3p
2019: 4.0p
Available operating cash flow1
£92.7m
2019: £182.3m
Basic loss per share
(27.9p)
2019: (14.5p)
Underlying Earnings Per Share1
8.9p
2019: 13.1p
Debt ratio (adjusted net debt to
adjusted Trading EBITDA1)
2.4x
2019: 1.7x
Continued progress
in our relaunched
Insurance strategy
320k
Pleasing progress in
our direct to consumer
insurance strategy
Over 57%
three-year fixed-price policies sold
since the product was launched
of new Home and Motor business
is coming to us on a direct basis
Delivery of Spirit of Discovery
on time and on budget was
a major milestone for Saga
Cruise transformation programme
due to complete with the arrival of
Spirit of Adventure
Cruise bookings for 2020/21 of
80%
of full year revenue target
as at 31 January 2020 pre
COVID-19 implications
Saga Possibilities
1.0m
Saga Possibilities members
Saga Possibilities
6,200
Travel customers booking through
our Membership programme
Notes:
1 Alternative Performance Measure (APM) – refer to the Glossary on page 201 for definition
and explanation
1
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 O U R B U S I N E S S AT A G L A N C E
Saga is a specialist provider
of products and services
for people aged 50 and
over. For over 65 years our
customers have been at the
heart of everything we do
Insurance
Travel
The Insurance business is the largest part of the
Saga Group. It provides tailored products that include
the three-year fixed-price product we launched during
the year.
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
specialist escorted tours, river cruises, and boutique
ocean cruises.
•
•
Insurance Retail Broking
Insurance Underwriting
Retail Broking Underlying
Profit Before Tax1
£90.2m
(2019: £105.8m; (14.7%))
Underwriting Underlying
Profit Before Tax1
£40.6m
(2019: £86.7m; (53.2%))
Core Saga branded Home
and Motor policy
count
1,600k
(2019: 1,647k; (2.9%))
Underlying reported COR2
83.0%
(2019: 62.0%; +21.0ppt)
• Saga Cruises
• Tour Operations
Underlying Profit
Before Tax1
£19.8m
(2019: £21.6m; (8.8%))
Passengers –
Cruise
32k
(2019: 26k; +23.1%)
Passengers –
Tour Operations
161k
(2019: 176k; (8.5%))
READ MORE PAGES 36
READ MORE PAGES 39
Notes:
1 Alternative Performance Measure (APM) – refer to the Glossary on page 202 for definition and explanation
2 Please refer to page 38 of the Operating and Financial Review for how this measure is calculated and defined
2
Saga plc Annual Report and Accounts 2020 Other businesses
Saga Possibilities
Other businesses include:
• Saga Personal Finance
• Healthcare Services
• Media, Mailing and Printing
Underlying Profit
Before Tax1
£4.6m
(2019: £3.1m; +48.4%)
READ MORE PAGES 41
Saga Possibilities is Saga’s Membership programme.
The programme was launched in September 2017.
It now has over one million members and is becoming
an increasingly important part of Saga’s business.
Saga Possibilities offers its members access to
exclusive experiences, unique events and curated
offers and it is fast becoming a way for us to engage
with our most loyal customers.
Number of members
1.0m
(2019: 1.1m; (1.3%))
3
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 H I G H L I G H T S O F O U R Y E A R
Highlights of our year
For over 65 years
our customers have
been at the heart
of everything we do
57%
direct sales
Shift towards direct
model continued with
increase in customers
coming to see us directly
Insurance
320k
fixed price policies
Successfully launched
our innovative three-year
fixed-price product in
May with 320k policies
sold and 65% of direct
new business customers
choosing this product
4
Saga is a trusted
brand which
achieves over 89%
recognition from
the UK’s over 50s
1,700
branded restaurants
are now part of
Saga’s Dining
Possibilities offering
for Possibilities’
members
75%
retention in motor
and home
Reflecting a range
of initiatives including
our change in approach
to renewal pricing
Saga plc Annual Report and Accounts 2020 Possibilities becoming
an important route
to market for our
Cruise business
6,200
cruise passenger
bookings sold to
Possibilities members
in the year
68%
of those customers
were first time bookers
with Saga
Spirit of Discovery
launched in 2019 and
Spirit of Adventure
due in 2020.
Together the new
ships will complete
the transformation
of our Cruise business
Our Membership
programme,
Saga Possibilities,
launched in 2017
Launch of two new
savings products,
with Marcus by
Goldman Sachs
Announced the build
of Spirit of the Rhine
– Saga’s bespoke new
build river cruise ship
1.0m
members
Drove engagement
with the launch
of a Possibilities
app and a digital
edition of the Saga
magazine exclusive to
Possibilities’ members
Delivered against
our business priorities
set out in April 2019
READ MORE PAGES 16-17
5
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C H A I R M A N ’ S S TAT E M E N T
Patrick O’Sullivan
Chairman
Now more than ever,
we must serve our
customers well, so that
the service we provide
reflects the trust they
place in Saga
The 2019/20 year was a turnaround year for our
Company. From the restructuring of our Insurance
business, and appointment of a new Executive
Team, to the launch of our first ever purpose
built ship, Spirit of Discovery, our Board has
been determined to return Saga to its heritage
of providing exceptional products and services
to our customers.
Since the year end, like all other companies,
we have been addressing the unprecedented
environment created by COVID-19. The actions
implemented last year to restructure Insurance
and rebase its earnings, are succeeding with
on-target profitability and strong cash flows.
From these lower, but sustainable earnings
levels we can begin to grow our Insurance
business again. This will allow us to withstand
the exceptional pressure on our Travel business.
We have been focused on protecting our financial
position to ensure we have the resources to see us
through this year, should the current crisis persist
that long. The Board has taken action to preserve
cash as we move through this year and has made
the decision to suspend dividend payments until
further notice.
Through all of this, the Board has restructured
the Executive Management team, with the arrival
of Euan Sutherland as Group CEO and Cheryl
Agius as CEO of Insurance. Euan arrived at the
beginning of the year and is already making a
significant impact across the entire business.
I wish to thank our former CEO, Lance Batchelor,
for his six years of service to the Group and wish
him well for the future. I also welcome Gareth
Hoskin to the Board and thank Ray King and
Gareth Williams for their years of excellent
service as Chairs of the Audit and Remuneration
Committees. Ray is not seeking re-election and
will retire at the 2020 Annual General Meeting
(AGM) and Gareth will retire at the end of
December 2020.
The current environment is making the future
highly uncertain, but it is clear that with our strong
brand and re-vamped Insurance business, we
have the resources to weather the current crisis
and to emerge from it stronger. On behalf of the
Board, I wish to thank our dedicated colleagues
and all our stakeholders for your support during
these times.
Patrick O’Sullivan
Chairman
8 April 2020
6
Saga plc Annual Report and Accounts 2020 G R O U P C H I E F E X E C U T I V E O F F I C E R ’ S R E P O R T
Euan Sutherland
Group Chief Executive Officer
I joined Saga
because it is a unique
British brand with
a strong heritage
Everything I have seen since I joined in January
has confirmed this view and I believe there is huge
potential to return Saga to growth after many
years of underperformance.
Good progress has been made since April 2019
in delivering against the priorities that were laid
out for both the Insurance and Cruise businesses,
against challenging external markets. We have
also made good progress in deleveraging, with
the sale of two non-core businesses expected to
generate an additional £37m of cash in the first
half of 2020/21.
Our Insurance business has seen a fantastic
response to the three-year fixed-price policy
with around 320,000 sales between launch and
the end of January 2020 and we are tracking
well against the direct share and margin goals
we set in April. Whilst the business has largely
been performing as we expected, we have taken
a £370m non-cash write down of the Insurance
goodwill due to a technical reassessment of the
discount rate used in the valuation.
The launch of Spirit of Discovery in June was
a significant step in our Cruise transformation
programme. She has received considerable
praise from the industry and our customers and
we generated EBITDA of more than £20m in the
second half of last year. This is in line with our run
rate target of £40m per annum.
The progress we have made during the year has
been overshadowed by the ongoing concerns
about COVID-19 and its impact on the whole
of the travel industry. We have taken action to
protect our customers and colleagues, including
suspending our Cruise business and Tour
business. We have also increased our operational
resilience by accelerating our ‘smarter working’
programme for our colleagues to ensure we have
the operational flexibility to react to disruption
within the UK.
We have taken immediate action to protect our
balance sheet with the suspension of our dividend.
I understand this is a painful decision for our
shareholders but one that is necessary in the
current environment.
While we believe there will continue to be
significant disruption to the travel market, our
Insurance business remains resilient. We have the
flexibility to trade through the challenges in Travel
and continue to deliver against our strategic
objectives in Insurance. This will undoubtably be
a tough year but I remain confident in the long
term potential for the Group.
7
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 G R O U P C H I E F E X E C U T I V E O F F I C E R ’ S R E P O R T
C O N T I N U E D
Good progress in the year
Insurance
Within Insurance, we successfully launched our
innovative three-year fixed-price product in May.
We have sold 320,000 policies during the year
to 31 January and this now comprises more than
20% of our policy book. Our shift back towards
direct has continued with over 57% (2018/19: 51%)
of customers coming to us directly and over
60% of these have chosen our three-year fixed-
price policy.
Saga branded home and motor policies are down
2.9% to 1,600k as we adopted a disciplined
approach to new business, partially offset by
a 2.2ppt increase in retention. The lower new
business volume supported average home and
motor margins, which at £74 per policy were at the
top end of our expectations.
AICL, our underwriter, has achieved an Underlying
Reported COR (excluding quota share) of 83.0%
(2018/19: 62.0%), generating profit before tax of
£40.6m (2018/19: £86.7m). Total reserve releases
of £40.0m were driven by favourable experience
on large bodily injury claims. In line with other
insurers, we are seeing higher inflation on third
party damage and theft costs, with overall
inflation in Q4 running at around 7% compared
with longer term expectations of around 5%.
Travel
Notwithstanding the current situation, the first
six months of Spirit of Discovery’s inaugural year
were a success and she delighted our customers.
Importantly, we are also achieving our financial
expectations with £20m of EBITDA in the second
half of the year. While there is uncertainty over the
delivery date for Spirit of Adventure as a result
of the COVID-19 crisis, our expectation is that
this will be completed within the next 12 months.
This will complete the transformation of our
Cruise business.
The Tour business has had a more challenging
year with weak customer demand, which has
accelerated due to the impact of COVID-19.
We have continued the repositioning of the
business to focus on differentiated products, but
we now need to accelerate this transformation.
Simplifying the organisation and investing
in capabilities
There have been a number of important additions
to strengthen the Executive Team in recent
months: Cheryl Agius joined as CEO of Insurance
and will for the first time bring together all aspects
of our Insurance business; Jane Storm joined as
Chief People Officer; and Nick Stace as our Group
Strategy Director.
With the strengthened Executive Team in place,
we launched Simpler Saga in January with the
goal of increasing the pace of execution and
efficiency across the business. We have reviewed
all areas of the business with a focus on flattening
our structures to become closer to our customers
and ensuring we are being as efficient as possible.
This unfortunately impacted some colleagues
from across the Group but we were able to
minimise this by offering a voluntary redundancy
programme. Simpler Saga is expected to deliver
£15m of run rate savings for a one-off cost of
£10m in the current year.
The Group has historically underinvested in brand,
data and digital and these savings will be used
to start the process of building these capabilities
across the business.
Accelerating deleveraging
Our focus during the year has been on ways
to accelerate the deleveraging of the Group,
with a focus on the repayment of the term loan
and revolving credit facilities in 2022 and 2023.
Once these are repaid, the Group will have
a long term capital structure comprising the
two shipping facilities (both 10-year amortising
facilities with fixed interest rates) and the
corporate bond (due in 2024). This will provide
the Group with strong liquidity to deliver against
our strategic objectives over the coming years.
During the year we initiated several transactions
expected to generate £60m of available cash:
• As part of Saga’s annual licensing of our Tour
business with the Civil Aviation Authority
(CAA), we completed an internal reorganisation
of our Travel business on 31 January 2020.
The Group has been successful in removing the
non-regulated Cruise business from the CAA
ring fenced Group. The result is the transfer
of £23m cash from restricted to available.
• On 17 February 2020 we reached agreement
for the sale of Bennetts, an insurance
broker for motorcycles, for an enterprise
value of £26m, with net proceeds of £23m.
Completion is expected in H1 2020/21.
• On 3 March 2020 we completed the sale
of Patricia White’s and Country Cousins
for an enterprise value of £14m.
8
Saga plc Annual Report and Accounts 2020 I joined Saga because this is a unique British
brand with a strong heritage, great people and
a significant latent potential. Since joining I am
all the more excited about what we can do and
how we can accelerate the turnaround to unlock
potential for colleagues, customers and investors.
It is too early for me to give a detailed view of
how we will unlock this potential and the future
strategy, but I plan to give a full update on our
strategy with our interim results in the autumn.
Euan Sutherland
Group Chief Executive Officer
8 April 2020
Possibilities and brand
I believe there is huge latent potential in the
Saga brand and Possibilities, our Membership
and rewards programme, can be an important
way for us to engage with our customers. We have
invested in the brand and Possibilities this year,
but we have not seen the step change that we
need in important metrics; brand consideration
and engagement with Possibilities is largely flat
from a year ago. Net promoter score also fell
during the year and while partly due to one off
factors it is clear that we have much more to
do here.
We are currently working on a relaunch of
Membership and on a range of activities to
improve how we interact with our customers.
Despite prompted brand awareness for the Group
remaining at 89%, we have seen improvements in
areas where we have launched truly differentiated
products, for example our three-year fixed-price
policy and Spirit of Discovery.
In April we laid out our goals to drive engagement
with our Membership scheme. We launched the
new Possibilities App and a digital only version
of the Saga Magazine during the year; both have
driven an improvement in digital engagement.
The Membership proposition has been
strengthened with offerings from Mitchells and
Butlers, and Accor Hotels. This digital strategy
has driven the number of emailable members
to 500,000, approximately 50% of the total.
We have used this to drive cross-sell activity
and are pleased to have booked 6,200 travel
passengers through Possibilities, passing our
goal of 4,000.
The future
During the year we have made good progress but
there remains much to do to continue to improve
our capabilities in all areas of the business and
to respond to changing customer behaviours,
across both Insurance and Travel. Our priorities
for delivery in 2020/21 are as follows:
• Continue to strengthen our operational
and financial resilience as the COVID-19
impacts emerge.
• Complete the pricing and underwriting rebuild
in Insurance.
• The reset of our Saga Holidays business
to address the long term challenges we
have faced.
• Completion of the Cruise transformation with
the delivery of Spirit of Adventure.
• Refocus Membership and brand to truly
drive engagement.
• To accelerate cultural change through the
introduction of new values and behaviours
in service of colleagues, customers and the
community in which we serve.
9
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 M A R K E T O V E R V I E W
Saga operates in a dynamic
environment across multiple
sectors to meet the needs
of its target demographic
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.
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
can buy simple and cheap products very easily online.
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 and legislative developments
Saga operates within an evolving regulatory landscape.
Aspects of this, such as the Data Protection Act 2018, cover
all of Saga’s business. Other aspects cover the Group’s
Insurance, Travel and Personal Finance operations.
The Insurance business is regulated by both the Financial
Conduct Authority (FCA) and the Gibraltar Financial
Services Commission and the Travel business by the Civil
Aviation Authority (CAA). The Travel businesses are also
members of the Association of British Travel Agents (ABTA).
The FCA continues to focus on pricing practices generally,
including its Market Study on general insurance pricing
practices. We are supportive of the FCA Market Study and
believe that, over the long term, it will be positive for Saga’s
customers and our place in the market. While the outcome
of the study has now been delayed beyond the planned
publication date of June 2020, it is noted that the FCA will
aim to deliver its final findings and proposed remedies in the
summer. The FCA has continued to focus on good customer
outcomes – through its work on culture and governance,
operational resilience, vulnerable customers and product
value – and Saga’s three lines of defence activities continue
to align to these.
Saga regularly reviews the trends and factors influencing our
customers and markets to identify opportunities and risks.
The Saga customer
Whilst Saga’s target market is the over 50s, its core
customers are often over 70. This segment of the over 50s
market is large, affluent and will continue to grow. In 2019
this segment totalled 8.8m people, representing 13% of
the entire UK population with total disposable wealth of
£1.8 trillion (23% of the UK’s disposable wealth). As the
wealthy baby boomer generation reaches 70+, the segment
is estimated to grow by 22% to 10.7m people by 2028,
representing 15% of the UK’s population.
Saga investment in strengthening its customer insight
and ability to stay abreast of changing sentiments and
behavioural traits of its core target market has supported
its strong presence in this segment; 74% of Saga’s Travel
customers and 52% of Insurance customers are aged 70+.
Saga continues to invest in building its insight and systems
capabilities to ensure that as a business it continues to
evolve to ensure its relevance amongst today’s over 70s.
Growth of UK over 50s by age
50-59
60-69
70-79
80+
2003
2018
2028
m
10
8
6
4
2
0
10
Saga plc Annual Report and Accounts 2020 Political developments
Brexit
During the year, the Group’s established Brexit working
groups focused on identifying, assessing, and where
possible, implementing mitigations for the risks of a
disruptive Brexit. At the end of January 2020, the UK left
the EU with an agreed deal and entered into a transition
period, which is due to end in December 2020. Whilst there
is uncertainty around the terms of any future trading
agreements between the UK and the EU and other
countries, Saga is not currently anticipating any material
adverse impacts arising from the end of the transition
period. The Brexit working groups will continue to monitor
and respond to the negotiated terms of the exit, as they
become more certain
COVID-19
At the year end, Saga mobilised its crisis management team
to plan for and manage the impact on Saga of the global
spread of COVID-19. Whilst at 31 January the impact was
limited to a few geographical locations overseas, since then
the situation has evolved rapidly into a global pandemic
with far reaching societal and market consequences.
In line with the quickly escalating threat, Saga has rapidly
developed its operational resilience plans to ensure the
safety of our customers and colleagues, and to enable
the Insurance business to continue to deliver against
its objectives.
To protect our customers, in January, our Cruise business
introduced robust health and travel screening for all
visitors to our ships pre-boarding, and enhanced cleaning
procedures onboard, which exceeded the standards set
by industry bodies. Following the UK government’s health
advice for over 70s issued in March 2020, the Cruise
business was suspended. Throughout this period the
Tour Operations business closely followed the Foreign
and Commonwealth Office’s advice on overseas travel.
Saga laid on charter planes to repatriate customers as
European countries introduced social distancing measures
and more recently has suspended trading.
To protect our colleagues and to ensure that the Insurance
business continues to operate without interruption or
reduction in its services, Saga accelerated the roll out of the
‘smarter working’ programme, from 200 customer facing
colleagues to 1,058. This means that the Insurance business
can continue to support existing and new customers
through Saga’s call centres, and all back office functions
can continue as usual. As at 31 March, full home working has
been enabled for over 2,300 colleagues.
To ensure the financial stability of Saga, the business has
assessed the impact of a prolonged suspension of Travel
operations on budgeted Underlying PBT, cashflow and
adherence to banking covenants. Further details of the
scenarios modelled and results are shown in the Operating
and Financial Review on pages 46-47. The conclusions
are that Saga has significant available cash resources.
The Insurance business is cash generative and is expected
to be largely unaffected by COVID-19. In the severe but
plausible scenarios modelled, the Group assessed that it
was possible that covenants in the Group’s short term bank
debt could be breached temporarily in the later part of the
current financial year. Therefore as a precautionary measure,
the Group entered into discussions with lending banks to
amend its bank debt in early March 2020. These discussions
were concluded on 1 April 2020, with amendments to
banking covenants that provide the Group with much
greater financial flexibility in the event of a prolonged
suspension of the travel business
Saga will continue to adapt the Group’s operational
resilience plans and review the financial stress tests,
as the impact of COVID-19 develops.
11
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 B U S I N E S S M O D E L
Our purpose is to help
our customers lead the
life they want
STRATEGIC PRIORITIES PAGES 14-15
CORPORATE RESPONSIBILITY PAGES 18-31
PRINCIPAL RISKS AND UNCERTAINTIES PAGES 32-33
O U R P U R P O S E
O U R S O U R C E S O F V A L U E
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 continue to invest 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 and
core businesses and debt reduction.
U N D E R P I N N E D B Y O U R P E O P L E ,
C U LT U R E A N D V A L U E S
Our purpose is to help our customers lead
the life they want. 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 –
should reflect our values.
12
Saga plc Annual Report and Accounts 2020 D E L I V E R E D
T H R O U G H T H E
S A G A M O D E L
C R E AT I N G
V A L U E F O R O U R
S TA K E H O L D E R S
A great brand
Saga is a trusted brand which
achieves over 89% recognition
from the UK’s over 50s.
Differentiated products
We listen to our customers and
our Possibilities members to
design and deliver high-quality,
differentiated products and
services that resonate with
our customers; giving them a
compelling reason to come to
Saga and to stay.
Unique route to market
Saga’s proprietary database,
Membership programme,
marketing model and compelling
direct propositions provide
direct access to both existing
and new customers across
multiple channels.
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.
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.
Measurement:
• NPS
• Number of customers holding
more than one product
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.
Measurement:
• Employee engagement score
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:
• Refer to investing in our
communities on pages 24-25 for
further details
Shareholders
Saga aims to enhance long term value
to shareholders by fixing its core
businesses, returning to sustainable
growth and accelerating deleveraging.
The Board of Directors will assess the
Group’s Dividend Policy for current
and future years as the COVID-19
situation becomes more certain.
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 trouble for
our customers.
• 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.
13
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 S T R AT E G I C P R I O R I T I E S
Saga’s disciplined execution of the stated objectives set out in April 2019 supports its strategy to return Saga to its heritage
as a company that delivers high-quality, differentiated products and services that resonate with its core customers.
R E L A U N C H R E TA I L
B R O K I N G W I T H A
C O M P E L L I N G D I R E C T
P R O P O S I T I O N
C O M P L E T E T H E
T R A N S F O R M AT I O N
O F C R U I S E
A C C E L E R A T E T H E
T R A N S F O R M AT I O N
O F O U R T O U R
O P E R A T I O N S B U S I N E S S
Stated objectives
To relaunch Saga’s Insurance strategy
to focus on direct channels and products
that offer attractive, innovative features
to give customers a reason to come to
Saga direct and to stay.
Strategic delivery
Sold 320k three-year fixed-price
policies, with 65% of direct new business
choosing the premium product since
it was launched
Around 57% of new business customers
are now coming to us on a direct basis,
compared with 51% in 2018/19
Increased customer retention across
home and motor business by 2ppts
to 75%
Saga branded home and motor
policies declined by 2.9% as the Group
maintained pricing discipline in a highly
competitive market
Home and motor gross margins (less
marketing costs) of £74.3 were slightly
ahead of the indicative range of £71-£74
reflecting the lower new business strain
Achieved overhead savings of £1.8m
reflecting cost saving initiatives,
improvements in capabilities and focus
on operational efficiencies
To become a great British boutique
cruise line with the delivery of two new
purpose built cruise ships in July 2019
and 2020 which create luxury and
value to customers and sets the bar
for the industry.
To redefine Tour Operations as
a specialist travel company, focusing
on higher margin escorted touring and
river cruises.
Launched Spirit of Discovery on time and
on budget in July 2019
Spirit of Discovery achieved £20m in
EBITDA for the second half, in line with
guidance of £40m EBITDA per ship
per annum
Spirit of Adventure is due for delivery
in 2020
As at 31 January 2020, forward bookings
for 2020/21 were at 80% of the full year
target. For further details on current
forward sales refer to page 40 of the
Operating and Financial Review
Continued to focus on areas of the
business where our customer proposition
is truly differentiated; progress made
evident in change in passenger mix
and increase in average revenue
per passenger
Margins improved in the second half
due to a focus on differentiated
propositions and improved management
of commitments
Continued to invest in high-quality,
differentiated propositions with
investment in the of Spirit of the Rhine,
Saga’s bespoke new build river cruise
ship designed for customers who want
a luxurious river cruise experience
READ MORE
KEY PERFORMANCE INDICATORS PAGES 16-17
SUSTAINABILITY STRATEGY PAGE 18
PRINCIPAL RISKS AND UNCERTAINTIES PAGES 32-33
14
I N C R E A S E U S A G E
O F A N D E N G A G E M E N T
W I T H O U R M E M B E R S H I P
P R O G R A M M E , S A G A
P O S S I B I L I T I E S
B E C O M E M O R E
E F F I C I E N T
D E V E L O P O U R P E O P L E
To grow member engagement and
Support the delivery of operational and
Increase colleague engagement and build
multiple product holdings and support
cost efficiencies across the Group.
a culture which promotes talent, diversity
and fosters high performance.
Saga Possibilities becoming the main
route to Saga’s customers.
Membership base of 1.0m
Prompted brand awareness flat at 89%,
however we have seen improvements
where we have truly differentiated
products e.g. our three-year fixed-price
policy and Spirit of Discovery
Shareholders were invited to join
Saga Possibilities
Achieved full year target of 4,000
direct passenger bookings through
Travel Possibilities, contributing £19m
to travel revenues
Growth in the number of emailable
members supporting the Group’s
digital strategy
Saga Possibilities supported cross-
sell activities with the Travel business
booking 6,200 Travel passengers
passing our goal of 4,000
Enhanced Saga’s ability to personalise
Improved the sustained engagement
and target communications to our
score from 70% in 2018/19 to 73% in
customers through the completion of the
2019/20
rollout of Adobe Marketing Cloud and
the optimisation of the ‘MySaga’ digital
customer journey
Enhanced our engagement through
the People Committee, our workforce
advisory panel. The Committee gathered
Continued the Guidewire implementation
the views and opinions of our people and
in Retail Broking with the motor product
provided feedback to the plc Board
now fully on the platform. The migration
of the home product is due in 2020/21
Started the Tigerbay implementation
in Tour Operations with completion
expected in 2020/21
Simpler Saga is expected to deliver
£15m of run rate savings for a one-
off cost of £10m in the current year.
Saga continued to be a member of
the 30% Club. This commitment was
supported through annual reporting
to address the gender pay gap and
supporting the increase in female
representation in our 1-2 year pipeline
Saga plc Annual Report and Accounts 2020 R E L A U N C H R E TA I L
B R O K I N G W I T H A
C O M P L E T E T H E
T R A N S F O R M AT I O N
C O M P E L L I N G D I R E C T
O F C R U I S E
A C C E L E R AT E T H E
T R A N S F O R M AT I O N
O F O U R T O U R
O P E R A T I O N S B U S I N E S S
P R O P O S I T I O N
Stated objectives
To relaunch Saga’s Insurance strategy
To become a great British boutique
To redefine Tour Operations as
to focus on direct channels and products
cruise line with the delivery of two new
a specialist travel company, focusing
that offer attractive, innovative features
purpose built cruise ships in July 2019
on higher margin escorted touring and
to give customers a reason to come to
and 2020 which create luxury and
river cruises.
Saga direct and to stay.
value to customers and sets the bar
Strategic delivery
for the industry.
policies, with 65% of direct new business
on budget in July 2019
choosing the premium product since
it was launched
Spirit of Discovery achieved £20m in
EBITDA for the second half, in line with
Around 57% of new business customers
guidance of £40m EBITDA per ship
are now coming to us on a direct basis,
per annum
compared with 51% in 2018/19
Increased customer retention across
home and motor business by 2ppts
in 2020
to 75%
Spirit of Adventure is due for delivery
Saga branded home and motor
policies declined by 2.9% as the Group
target. For further details on current
forward sales refer to page 40 of the
maintained pricing discipline in a highly
Operating and Financial Review
As at 31 January 2020, forward bookings
for 2020/21 were at 80% of the full year
of commitments
business where our customer proposition
is truly differentiated; progress made
evident in change in passenger mix
and increase in average revenue
per passenger
Margins improved in the second half
due to a focus on differentiated
propositions and improved management
Continued to invest in high-quality,
differentiated propositions with
investment in the of Spirit of the Rhine,
Saga’s bespoke new build river cruise
ship designed for customers who want
a luxurious river cruise experience
competitive market
Home and motor gross margins (less
marketing costs) of £74.3 were slightly
ahead of the indicative range of £71-£74
reflecting the lower new business strain
Achieved overhead savings of £1.8m
reflecting cost saving initiatives,
improvements in capabilities and focus
on operational efficiencies
I N C R E A S E U S A G E
O F A N D E N G A G E M E N T
W I T H O U R M E M B E R S H I P
P R O G R A M M E , S A G A
P O S S I B I L I T I E S
To grow member engagement and
multiple product holdings and support
Saga Possibilities becoming the main
route to Saga’s customers.
B E C O M E M O R E
E F F I C I E N T
D E V E L O P O U R P E O P L E
Support the delivery of operational and
cost efficiencies across the Group.
Increase colleague engagement and build
a culture which promotes talent, diversity
and fosters high performance.
Sold 320k three-year fixed-price
Launched Spirit of Discovery on time and
Continued to focus on areas of the
Membership base of 1.0m
Prompted brand awareness flat at 89%,
however we have seen improvements
where we have truly differentiated
products e.g. our three-year fixed-price
policy and Spirit of Discovery
Shareholders were invited to join
Saga Possibilities
Achieved full year target of 4,000
direct passenger bookings through
Travel Possibilities, contributing £19m
to travel revenues
Growth in the number of emailable
members supporting the Group’s
digital strategy
Saga Possibilities supported cross-
sell activities with the Travel business
booking 6,200 Travel passengers
passing our goal of 4,000
Enhanced Saga’s ability to personalise
and target communications to our
customers through the completion of the
rollout of Adobe Marketing Cloud and
the optimisation of the ‘MySaga’ digital
customer journey
Continued the Guidewire implementation
in Retail Broking with the motor product
now fully on the platform. The migration
of the home product is due in 2020/21
Started the Tigerbay implementation
in Tour Operations with completion
expected in 2020/21
Simpler Saga is expected to deliver
£15m of run rate savings for a one-
off cost of £10m in the current year.
Improved the sustained engagement
score from 70% in 2018/19 to 73% in
2019/20
Enhanced our engagement through
the People Committee, our workforce
advisory panel. The Committee gathered
the views and opinions of our people and
provided feedback to the plc Board
Saga continued to be a member of
the 30% Club. This commitment was
supported through annual reporting
to address the gender pay gap and
supporting the increase in female
representation in our 1-2 year pipeline
15
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 K E Y P E R F O R M A N C E I N D I C AT O R S
In 2019/20, the Group used the following
key performance indicators (KPIs) to
track and measure the financial and
operating performance of the business
and its strategy
Underlying Profit Before Tax
Underlying Earnings Per Share
£109.9m
2019: £180.1m
2020
2019
2018
£109.9m
£180.1m
£190.6m
8.9p
2019: 13.1p
2020
2019
2018
8.9p
13.1p
13.8p
Definition
Refer to the Glossary on page 202 for definition
and explanation.
Definition
Refer to the Glossary on page 202 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.
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 36.
Performance
Refer to the Operating and Financial Review
on page 36.
Dividend per share (pence)
Available operating cash flow
1.3p
2019: 4.0p
2020
2019
2018
£92.7m
2019: £182.3m
1.3p
4.0p
2020
2019
2018
9.0p
£92.7m
£182.3m
£175.5m
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 47.
Definition
Refer to the Glossary on page 202 for definition
and explanation.
Purpose
This measure indicates the cash generation
of the business.
Performance
Refer to the Operating and Financial Review
on page 41.
16
Saga plc Annual Report and Accounts 2020 Debt ratio
2.4x
2019: 1.7x
2020
2019
2018
Saga Possibilities members
1.0m
2019: 1.1m
2.4x
1.7x
1.7x
2020
2019
2018
1,000,000
1,100,000
536,000
Definition
The ratio of adjusted net debt to adjusted
Trading EBITDA.
Definition
Number of members in the Saga Possibilities
Membership programme.
Purpose
This measure represents the Group’s financial flexibility.
Purpose
This metric is an important measure to track the
Group’s plan to grow its membership base.
Performance
Refer to the Operating and Financial Review
on page 45.
Performance
Number of members in line with Membership strategy
to grow engagement on a stable base.
Average products held
Brand net promoter score
1.34
2019: 1.36
2020
2019
2018
20
2019: 25
2020
2019
1.34
1.36
1.40
20
25
Definition
Calculated as the total number of core Saga products
held per customer.
Purpose
This metric indicates how the Group is tracking against
its aim to increase multiple product holdings within its
customer base.
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
Despite a slight decrease in the number of addresses
and those with multi product holdings there has been
a positive take up of the three-year fixed-price product,
launched in May 19. This supports the Group’s focus on
improving retention and rewarding customer loyalty.
Performance
Brand NPS declined to 20 partly due to one-off
factors including the closure of the Group’s credit card
provided through Saga Personal Finance. The Group
remains committed to investing in the brand and
improving its perception with customers.
17
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
Our sustainability
strategy
We have made considerable efforts to move our responsible business agenda forward with support from our membership
of Business In The Community and through participation in its Responsible Business tracker. Our activities have been broken
down into four key areas, each led by a member of Saga’s Group Executive, and align to the Sustainable Development Goals.
Environmental, Social and Governance – at a glance
Environmental
Social
Governance
Strategic pillars
for sustainability
Safeguarding the
environment
People and culture
Investing in our
communities
Responsible business
practices
Executive
management
sponsor, reporting
to the Board
Priorities and
targets
Robin Shaw,
CEO Saga Travel
Jane Storm,
Chief People Officer
Jane Storm,
Chief People Officer
Promoting high
standards of
environmental
stewardship
Our customers are at the heart of everything
we do; nurturing and developing our talent
to create rewarding careers for all; supporting
our communities and wider society
Focus areas and
page references
• Emissions
• Waste
• Single-use plastics
• Diversity, inclusion
and belonging
• Gender pay gap
• Employee
engagement
• Rewards and
recognition
• National
Charity Partner
• Volunteer days
• Ships and partner
site fundraising
• Local
project funding
• Payroll giving
• Workplace lottery
• Charity awards
• Community
meetings/
interaction
• Community garden
(Enbrook)
Stuart Beamish,
Group Chief
Customer Officer
Promoting and
committing to
high standards
of transparency
and governance
• Customer
satisfaction
• Financial crime
• Human rights and
Modern Slavery
• Our suppliers
• Responsible
investments
Links to our
strategic
objectives
18
Saga plc Annual Report and Accounts 2020
Engaging with
our stakeholders
The Board engages with its stakeholders throughout the year through a variety of means, including those listed below:
S H A R E H O L D E R S
AGMs, investor roadshows,
investor conferences
Board
Committees
P A R T N E R S A N D
S U P P L I E R S
Contract negotiations and
reviews, external benchmarking
Saga
Board
C U S T O M E R S
A N D P O S S I B I L I T I E S
M E M B E R S
Customer satisfaction surveys,
promoter scores, focus groups
C O L L E A G U E S
Colleague surveys, engagement
scores, listening forums,
People Committee
C O M M U N I T Y
Local charity relationships,
volunteer days,
community events
People
Committee
R E G U L AT O R S
FCA, CAA and ABTA
Gaining feedback through stakeholder engagement
The Board is committed to understanding the views of the
Company’s key stakeholders through its active and regular
engagement with them, as outlined in the graphic above
which highlights the key methods by which engagement
is conducted and feedback collected.
Stakeholder mapping
The Group undertook a comprehensive stakeholder mapping
exercise whereby customers, suppliers and colleagues
were asked what was important to them and what they felt
should be important to Saga with regards to responsible
business practices. We aim to incorporate the top issues
into ‘business as usual’, linking to the Company strategy,
touchstones, emerging and principal risks and uncertainties
and our customer strategy. A summary of the survey
findings can be found on page 21.
Considering stakeholder interests in Board decision making
The Board has put in place processes designed to ensure
that stakeholder interests are considered in Board
discussions and in the principal decisions it takes.
The Board’s duties under section 172(1)(a)-(f) of the
Companies Act 2006 include the need to foster the
Company’s business relationships with suppliers, customers
and others.
These processes are described in more detail in the
introduction to our Section 172 statement on page 50 and
further evidence is shown in our stakeholder engagement
overview on page 20.
19
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
C O N T I N U E D
Engaging with
our stakeholders –
an overview
Regular engagement with our stakeholders is extremely important to us. In 2019, we worked with Business In The Community
to undertake a responsible business survey with our colleagues, customers and suppliers to better understand the issues
important to them and which they think should be important to Saga. This feedback will help to steer our responsible
business strategy. Details of how the Board engaged with our stakeholders is provided on page 60.
Alignment with purpose,
values and culture
Board discussion and
principal decision making
Examples of outcomes
for stakeholders
Stakeholder group Activity
Customers
• A responsible
business survey
to enhance our
understanding of
what these key
stakeholders think
should be our
focus areas
• Being responsive
to the views of
stakeholders
Colleagues
• See detailed colleague
engagement overview
on page 22 for details
• See detailed colleague
engagement overview
on page 22 for details
• Being responsive
to the views
of stakeholders
• Commitment to an
efficient process,
carefully monitored
and evolved through
ongoing learnings
• Supporting the
community where
our colleagues live
and work
• Being responsive
to the views
of stakeholders
• Being responsive
to the views of
stakeholders
• A responsible
business survey
to enhance our
understanding
of what these
key stakeholders
think should be
our focus areas
• Active engagement
with the community
close to Saga’s HQ in
Folkestone through
community meetings
hosted by Saga’s
Group CEO and Chief
People Officer
Community
Partners and
suppliers
• A responsible
business survey
to enhance our
understanding of
what these key
stakeholders think
should be our
focus areas
20
• See the summary of the
top issues opposite
• See detailed colleague
engagement overview
on page 22 for details
• See the summary of the
top issues opposite
• Open communication
between business
and community to
maximise opportunities
and understanding
of how the business
has supported the
Community
• See the summary of the
top issues opposite
• Statutory duties for
directors under the
Companies Act
• Group Executive
sponsors with overall
responsibility for
stakeholder mapping
• plc Board
representative sponsor
• Non-Executive Director
acts as ‘Customer
Champion’
• Group Executive
sponsors with overall
responsibility for
stakeholder mapping
• Chief People Officer
attends plc Board,
Nomination Committee
and Remuneration
Committee meetings
• Direct feedback
to Board members
through the People
Committee
• Hosted by Saga’s
Group CEO and Chief
People Officer
• Day to day activity is
managed by the charity
team
• Supplier Risk
Committee reports
to Group Executive
Committee
• Subsidiary boards
monitor supplier risk
management
• Key partnerships
monitored at all levels
and subject to annual
due diligence
Saga plc Annual Report and Accounts 2020 Stakeholder group Activity
Alignment with purpose,
values and culture
Board discussion and
principal decision making
Examples of outcomes
for stakeholders
Shareholders
• Active engagement
with shareholders by
Group CEO, Group
CFO and Investor
Relations team
• Commitment to
strong strategic
rationale and cultural
alignment around
remuneration related
issues
• Statutory duties for
directors under the
Companies Act
• Considered as part of
all Board discussions
and decisions
• Shareholders have a
detailed understanding
of the Group strategy
and financial
performance
Regulators
• Proactive
engagement and
open levels of
communication with
all regulatory bodies
• Being responsive
to changes in the
regulatory landscape
whilst maintaining a
customer focus
• Group Executive
• See pages 10-11
sponsors
• Considered and
for details of issues
discussed in the year
discussed at all Board
and subsidiary board
meetings
Top issues from stakeholder mapping
The stakeholder mapping survey was carried out among three key stakeholder groups – Customers, Colleagues
and Suppliers.
The results of the survey showed us the following:
The top issues for our
colleagues related to the
Saga brand and its growth
and profitability
76%
of our surveyed customers
think Saga is a responsible
business and environmental
issues are a key concern
for them
Whilst our suppliers surveyed
felt it is important for Saga
to be a responsible business,
the vast majority believe we
already are
21
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
C O N T I N U E D
Colleagues
and culture
Diversity, inclusion and belonging
Building a diverse and inclusive culture, where
colleagues feel a sense of belonging, continues to
be a key focus for us. We continue to understand
what’s important to our colleagues, as well as
ensuring we have actions in place to further
embed this into everything we do, whether that’s
recruitment, training, performance management
or rewarding our people. We also encourage our
colleagues to speak up, even when it may be
uncomfortable to do so.
Mental health is central to our wellbeing strategy
and in 2019 we launched our mental health first
aider and mental health champion programme
to colleagues at all levels as another way of
supporting our colleagues who may need someone
to talk to. Wellbeing is also a central pillar to our
internal communication strategy, using national
campaigns and awareness days to help our
colleagues to talk about wellbeing and highlight
the support and benefits we have in place.
Gender pay gap
We support the commitment to address the
gender pay gap, and like many organisations we
are working hard to reduce ours but acknowledge
that this may take some time. This year, we have
focused on ensuring our leaders are accountable
and understand their role in improving diversity.
We have continued partnering with organisations;
we are delighted to be part of the 30% Club’s
mentoring programme.
Colleague engagement
We are committed to building exceptional
colleague engagement. We plan to communicate
openly and clearly with our colleagues,
recognising that effective communication is key
to building engagement. Every week, we share
business updates, news and achievements with
our colleagues. We look to build on this and
improve our communication further, and in 2020,
we will launch a new communications platform.
This will enable us to provide simple, engaging
and important information to all colleagues, on
the device they prefer, and in a way that enables
them to be part of the conversation.
Board1
Senior managers2
Colleagues3
All
Male
Female
Actual
7
108
1,671
1,786
%
64%
64%
44%
45%
Actual
4
61
2,124
2,189
%
36%
36%
56%
55%
Total
11
169
3,795
3,975
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)
22
Saga plc Annual Report and Accounts 2020 Our overall colleague engagement scores have
increased from 70% in 2018/19 to 73% in 2019/20.
The key actions taken in 2019 centred around:
• being able to work flexibly through
the introduction of smart working;
i.e. enabling some colleagues to have real
choice in how and where they work, whether
that be office based, home based or
a combination of both.
investment in new technology and equipment
(for example dual screens for all contact
centre agents).
•
• being clear about the health benefits and
support available (to include mental health
first aiders).
• clarity on our vision for the future (through
leadership events and roadshows hosted by
our Group Executive team).
In January 2019, we set up a People Committee,
with the aim of gathering the views and opinions
of all colleagues and providing feedback
to the Board. Meetings continue to be held
bi-monthly, with representatives from across
the business attending. Topics covered have
included remuneration, reward and recognition,
employment, engagement and communication.
Since the arrival of our new Group CEO,
Euan Sutherland in January 2020, we have
also launched ‘Tell Euan About’ sessions.
These sessions enable colleagues to have an
open channel of communication with the Group
CEO and Chief People Officer (CPO), Jane
Storm, and facilitate discussion around how
we can all move the business forward towards
excellence everywhere.
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STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
C O N T I N U E D
Investing in
our communities
We have been proud to support the Saga
Charitable Trust since 1985. During this time,
the Trust has supported a number of projects in
developing countries visited by Saga holiday’s
guests. However, as we move our responsible
business strategy forward, the board of Trustees
decided to close the Trust. Our focus will be on our
charity partner and colleagues’ engagement in
having a role in society.
We are proud of our local grant scheme which
enables charities located within a 20-mile radius
of a Saga office location to apply for a grant.
In 2019/20, we gave £7,300 to support good
causes within our local community. In addition,
in December 2019 we introduced a reverse advent
calendar, donating £2,400 to a variety of local
charities during the 12 days of Christmas.
Colleague Match Funding is a great way for
us to be able to support our colleagues with
their fundraising. In 2019/20, we increased the
number of available grants, and have given
£5,750 of match funding during the financial
year. Colleagues were also able to nominate
themselves or others for a charity award which
celebrated a fundraiser and volunteer of the year.
The winner of each category received a £500
donation for their charity.
In March 2019, we worked with the local
community to create a Community Garden at our
office in Folkestone, Kent. This is an area which is
available for all to use and has brought members
of the community together to grow fresh produce
for themselves and others. The Community
Garden has been a great success and we hope
to be able to introduce beehives to the garden
in 2020.
The launch of Spirit of Discovery gave us an
exciting opportunity to engage with our local
primary schools. We collaborated with the Port
of Dover to run a ‘When I grow up, I’d like to
be....’ project educating the children on the job
roles required on a cruise ship and at the port.
The children were given a tour of the ship so they
could see some of the roles in action and an
insight into what they could achieve in the future.
Being a good corporate citizen is extremely
important to Saga. Our activities have focused on
supporting our charity partner, The Silver Line, as
well as the communities we operate in.
Social
Saga’s three-year charity partnership with
The Silver Line, the UK’s 24-hour helpline for older
people, ended in September 2019. Fundraising in
2019 included an auction held onboard the Spirit
of Discovery’s shakedown cruise. The event was
attended by Dame Esther Rantzen, The Silver
Line’s founder. Our colleagues also took part in
a variety of fundraising activities in our ‘Silver
September’ month, raising over £40,000 for the
charity. This meant throughout the partnership,
we gave £918,000 of support to this extremely
worthy cause and we wish them every success
for the future.
An additional £25,000 has been raised for other
good causes by our partner businesses and
onboard our ocean cruise ships.
Our workplace lottery continues to be well
supported with an average of 750 colleagues
playing each week. The lottery has raised over
£38,000 for good causes throughout the year,
the majority of which has been donated to
The Silver Line.
24
Saga plc Annual Report and Accounts 2020 Employability is a key focus for our People
team. They work with a variety of local schools,
colleges and universities to help students in our
community become ready for work.
As a signatory to the Armed Forces Corporate
Covenant, we have policies that support
colleagues who are members of the reserve forces
or whose spouses serve in our armed forces.
To mark Armed Forces Day, we made donations
to: SSAFA, The Gurkha Welfare Trust, The Royal
British Legion and the Royal Navy and Royal
Marines charity. We also sponsored a Red Arrow
at Folkestone’s Armed Forces Day event.
Creating an open dialogue with our community
is incredibly important to us. We hold regular
meetings offering members of the local
community the opportunity to meet our
Group CEO to discuss the issues affecting the
community and any opportunities where Saga
can support.
V O L U N T E E R I N G I N T H E
C O M M U N I T Y
Using our colleagues’ expertise is a great way
to support the community and we will continue
to promote volunteering opportunities in 2020.
In January 2019, we launched our Employer
Supported Volunteering Day. During the year
our colleagues have given over 400 hours of
volunteer time to support the local community.
This has included a workshop for charities on
internet security using our colleagues’ expertise,
one colleague has travelled to West Africa to help
build a school and others have used their day to
support local charity events, local conservation
projects and help to renovate charity spaces.
25
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
C O N T I N U E D
Safeguarding
the environment
New 30% CO2 emissions target
During 2019 we undertook a review of our
Scope 1 direct and Scope 2 indirect emissions.
Following this review, we set a 30% reduction
target in these emissions by 2030. This sets
out our ambition for hitting well below the 2°C
temperature rise global target by 2050.
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 emissions pursuant to Section
7 of The Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
Saga is working closely with Carbon Credentials
to monitor our Scope 1 and 2 emissions. The work
already underway includes efficient route
planning of our cruise ships. With reducing
pollution being an important part of our future
and being a key topic in the industry we hope
to continue, encourage and produce more ways
to keep emissions as low as possible. We have
applied energy efficient measures to our offices
such as solar film on external windows, helping
to better control the heat and light within our
offices. We are also communicating ways our
colleagues can help us to reduce our impact on
the environment, investigating renewable energy
for our office sites and keeping abreast of new
innovations as they become available.
Our total greenhouse gas emissions have
increased by 2% during the 2019-20 financial
year compared with the year before. Saga plc
has emitted a total of 102,770 tCO2e from fuel
combustion (Scope 1 direct) and electricity
purchased for our own use (Scope 2 indirect). This is
equivalent to 85.8 tCO2e per £m customer spend.
The overall increase in emissions is largely due to
an increase in marine fuel due to the purchasing
of a new ship, ‘Spirit of Discovery’. The emissions
per passenger have reduced in this financial year
from 3.52 tCO2e to 2.91 tCO2e.
The table below shows our greenhouse gas (GHG)
emissions for the year ended 31 January 2020.
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 and 2
tCO2e per £m customer spend
Scope 2 (market-based)*
Scope 3
2019/20 Emissions**
2018/19 Emissions
100,066 tCO2e
2,705 tCO2e
102,770 tCO2e
85.8
58 tCO2
1,852 tCO2
97,497 tCO2e
3,260 tCO2e
100,757 tCO2e
83.7
260 tCO2
1,825 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
** 2018-19 emissions have been verified to ISO 14604-3 standard by our sustainability partner Carbon Intelligence. Our 2019-20
emissions will be verified in the coming quarter
26
Saga plc Annual Report and Accounts 2020
Waste management
We are working in collaboration with our new
waste disposal provider to reduce our waste and
improve recycling. The new process will enable
us to more accurately split our office waste into
three clear waste streams and continue our nil to
landfill for our Saga branded office sites. The data
we receive will help us to identify opportunities for
us to further improve.
On our new ships we have advanced waste
treatment systems increasing recycling, reducing
waste offload and minimising our impact on the
environment. Our ships have adopted Saga’s
Single-Use Plastic Policy and have banned
all single use plastic on our new ships from
August 2020.
Estate management
A third of Saga’s company car fleet is either
electric or hybrid vehicles. During the year we
continued to encourage company car drivers
to select more environmentally friendly options.
Additional electric charging points have been
installed in our office car parks to support this.
We have continued to upgrade our office lighting
to LED light bulbs which will be completed
by 2021. Our offices are fitted with building
management system controls to run our sites
as efficiently as possible.
Methodology
We quantify and report our organisational
greenhouse gas 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 2019 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.
Single-use plastics
Single-use plastic has been a focus for us in 2019;
we have introduced a Single-Use Plastic Policy
and will be working closely with our suppliers to
support us in our aim of becoming single-use
plastic free.
Our initial focus has been to reduce the
amount of single-use plastic used within our
office delis, resulting in a reduction of more
than 1.2m items of single-use plastics. We are also
trialling a paper wrap option for use on our travel
and Saga Magazine mailings which we aim to roll
out during 2020.
Project Ocean has been launched onboard our
ocean cruise ships, Saga Sapphire and Spirit of
Discovery. The aim of Project Ocean is to promote
awareness onboard, reduce waste, decrease CO2
emissions and to promote a greener future for
our vessels.
27
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
C O N T I N U E D
Figure 1: Total location-based emissions (2019/20)
Figure 2: Total location-based emissions (2019/20)
Scope 1
Scope 2
Scope 3
96%
2%
2%
6,000
4,000
2,000
0
e
₂
O
C
t
0
6
2
3
,
e
₂
O
C
t
5
0
7
2
,
Scope 2
(location-based)
e
₂
O
C
t
0
6
2
e
₂
O
C
t
8
5
Scope 2
(market-based)*
2018/19 Emissions
2019/20 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.
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 2018-19 as a proxy.
The GHG sources that constitute our operational
boundary for the 2019-20 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 plc is now in the fourth year of disclosing
diesel used in non-road machinery and the
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. Emissions from energy
paid for in service charge have been excluded due
to lack of data and immateriality.
Energy procurement decisions
The graph above shows Saga plc’s Scope 2
emissions from purchased electricity, which have
been calculated using both the location-based
and the market-based methodologies.
Saga plc purchases 95% 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.
Carbon Disclosure Project (CDP)
Saga plc made the decision in 2015 to respond to
the CDP Climate Change Questionnaire to better
understand and manage our climate-related
impacts, risks and opportunities. In 2019 Saga
plc scored an A – which is categorised as the
leadership category.
28
Saga plc Annual Report and Accounts 2020
Saga’s commitment to safeguarding the
environment extends via a marine conservation
project undertaken by the ORCA charity.
ORCA believes that the only way to protect our
whales and dolphins is to identify areas where
they are vulnerable and study their habitats.
That way, we can protect these places by
changing the way we use them. The ocean faces
so many threats including shipping, fishing, noise
pollution and marine litter, and by supporting
ORCA’s data collection. Saga can help to provide
a local solution to a global problem and play an
important part in safeguarding the ocean for the
future. The charity’s trained volunteers frequently
travel on our ocean cruise ships to carry out
valuable conservation work. Here’s what they
have said about our support: “Saga is integral
to our conservation work. With a team of four
Marine Mammal Surveyors being on a forward
facing platform onboard the Saga ships means
we can collect high-quality data which is actively
fed back to Government and key policy and
legislation decision makers.”
Safeguarding the environment is extremely
important to us and in a recent survey, it was
one of the top five concerns for our customers.
That’s why in 2019 we established an Environment
Committee at Saga and have set a 30%
reduction target in our Scope 1 and 2 emissions
by 2030.
The Board acknowledges Saga’s duty to
proactively and consciously manage and
mitigate, where possible, the impact of its
business on the environment. Saga supports
the ongoing integration of risk identification and
management across the Saga Group, including
the proactive, pre-emptive identification
and mitigation of new and emerging risks.
Key climate-related risks are assessed both
top down and bottom up, as part of the risk
assessment process that takes place annually.
All risks are assessed against the Saga Group risk
scoring matrix, ensuring they are measured in a
homogeneous way so that Saga focuses on its
most material risks.
In addition, as part of strategic planning, Saga
Group Risk performs internal and external analysis
to identify the key emerging risks, which are
assessed against several dimensions including:
• the pace of emergence
• scale of impact
• control effectiveness
risk of recurrence
•
Our cruise ships
Saga proudly took ownership of its first brand
new cruise ship, Spirit of Discovery, in July 2019
and she will be followed with a sister ship, Spirit
of Adventure, in 2020. These luxury ships provide
high-end cruising for Saga’s customers whilst
also being kinder to the environment, emitting
less CO2 emissions per passenger than our older
ships. Spirit of Discovery also has an onboard
water treatment plant enabling the use of
reusable water containers for guests and has
removed plastic straws and drinks stirrers from its
operation, assisting with Saga’s aim to reduce the
use of single-use plastics across the business.
29
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C O R P O R AT E R E S P O N S I B I L I T Y
C O N T I N U E D
Responsible
business practices –
an overview
Activity
Alignment with purpose,
values and culture
Board discussion and
principal decision making
Examples
of outcomes
• Brand NPS was established in
• This metric is an
• The business has
• Calculated based
Customer
Satisfaction
2018 and currently measures at 20.
The Group aims to increase NPS
scores across the business and
for Saga as a whole
index that measures
the willingness
of customers
to recommend
products or services
to others
Financial
Crime
• Supplier risk questionnaire process
• Promoting integrity
will include further questions
regarding financial crime, modern
slavery, corporate responsibility
and Environmental, Social and
Governance (ESG) factors
and openness
the responsibility to
drive up NPS in their
respective areas
• A Group Executive
sponsor has overall
responsibility for
Saga’s responsible
business practices
• A Group Executive
sponsor has overall
responsibility for
Saga’s responsible
business practices
Responsible
Investments
• Our approach to investments has
been updated during the year to
ensure more robust Environmental,
Social and Governance (ESG)
factors are considered when
placing investments
• Promoting integrity
and openness
• We trust and
challenge each other
to be brave and do
the right thing
• Subsidiary boards
and committees
consider all
investment
decisions
• plc Board considers
and approves
all material
investments
• A Group Executive
sponsor has overall
responsibility for
Saga’s responsible
business practices
• UK Modern Slavery
Act 2015
• The Group is committed to
• Promoting integrity
and openness
•
transparency within our supply
chain. We have carried out risk
assessments and conducted due
diligence on our material suppliers
In respect of our Travel operations,
we have continued to strongly
encourage hotel suppliers to
apply for membership with the
independent sustainability audit
programme, ‘Travelife’, and to work
towards obtaining Gold certification
which demonstrates compliance
with international standards on
human rights
• We aim to continue to increase our
portfolio of GOLD membership hotels
and will proudly state in our brochures
which hotels have this certification
Human
Rights and
Modern
Slavery
30
on customer
survey responses
weighted by
business units to
be representative
of the Saga Group
• Constant review
and testing of
Group supply
chain, ensuring
alignment with
Group objectives
and policies
• New suppliers to
undergo rigorous
due diligence and
evaluation prior to
selection
• On reinvestment
of funds, key
ESG factors will
be considered
• Saga conducts
business in an
ethical and
transparent way.
Policies to support
recognised
human rights
principles include
those on non-
discrimination,
health and safety
and environmental
issues
Saga plc Annual Report and Accounts 2020 How the Board assesses
and monitors culture
The Board regularly reviews a range of information to actively monitor Group culture. The table below shows the key sources
of data the Board tracks to monitor culture with a view to taking action, as required, where adjustments or remedial action
are required.
Promoting
integrity and
openness
Valuing diversity
Being responsive
to the views of
stakeholders
Culture aligned
to purpose and
values
Culture aligned
to strategy
Cultural priorities
Cultural identifier
Employee survey data
People Committee feedback
Reports on progress on diversity
and inclusion
Whistleblowing reports
Gender pay gap progress
Training investment per head
Absenteeism rates
Health and Safety performance
Internal Audit reports and findings
Stretching environmental targets
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STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 P R I N C I P A L R I S K S A N D U N C E R TA I N T I E S
The Board has agreed
systems, controls and
processes to govern
our approach to
risk management
Risk governance
This encompasses ensuring that an effective risk framework
is in place and incorporates having an understanding of the
Group’s risk appetite; agreeing the emerging and principal
risks and uncertainties it faces in pursuit of its strategic
objectives, and ensuring that a suitable risk culture is
embedded throughout Saga. Our approach is set out in
more detail in the Audit, Risk and Internal Control section
of the Corporate Governance Statement on pages 70-73.
Risk appetite and tolerances
Our risk appetites, reviewed at least annually, define the
amount and sources of risk we are willing to accept in
pursuit of our objectives. Risk appetites are created for each
of our operating companies and are expressed against the
following risk categories:
Appetite risk category
Definition
Credit
Liquidity
Insurance
Operational
Market
Commercial performance
Conduct risk
Information security
and cyber threat
Regulatory compliance
Legislative compliance
Operational resilience
The risk of a change in value due to actual credit losses deviating from expected
credit losses due to the failure to meet contractual debt obligations.
The inability to meet short term cash demands.
The risk of adverse deviation from predicted outcomes in respect of insurance
liabilities for which a fixed premium has been received.
Loss arising from the failure in people, process, systems or from external events.
The risk of loss arising from the adverse movement in asset values over time.
Trading performance of the business and the associated strategies deployed to
meet that trading performance.
The risk that the culture, integrity and ethical behaviour of Saga, its employees
and representatives (e.g. suppliers) towards customers, or in the markets in which
it operates, leads to adverse customer outcomes.
The risk of loss arising from a cyber-attack on one or more parts of Saga or any third
party with whom Saga share information with who themselves suffer a successful
cyber-attack.
The risk of loss, sanction and/or reputational damage arising from failure to comply
with our regulatory obligations.
The risk of loss or reputational damage arising from failure to comply with our
legislative obligations.
The risk of material disruption to key systems, access to our buildings or availability
of staff that could affect our ability to service customers or meet strategic objectives.
Within the Operational risk category, there are separate appetite statements relating to colleague engagement, execution
risk, one-off financial loss, third party risk, reputational risk, business change, health and safety, internal fraud and
data protection.
Consideration of our risk appetites and our risk tolerances are central to our decision making processes and are a point of
reference for all significant investment decisions.
Page 33 indicates the emerging and 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 strategy of the Company and reflect a balance of internal and external risks.
32
Saga plc Annual Report and Accounts 2020 Key
Relaunch Retail Broking with a compelling
direct proposition
Increase usage of and engagement with our
Membership programme, Saga Possibilities
Complete the transformation
Become more efficient
of Cruise
Accelerate the transformation of our Tour
Develop our people
Operations business
PRU
category
COVID-19
pandemic
Cybercrime
Travel
landscape
Strategic
priorities
Risk and mitigation
Change
Risk Global pandemic results in large scale disruption to the workforce, and the
implementation of global travel restrictions.
Mitigation Implementation of pandemic-specific operational resilience plans
to protect colleagues and public health by enabling extensive remote working
capability throughout the workforce. Resilience activity continues to prioritise
maintaining fair customer outcomes across sales, service and claims. Travel
operations suspended until May and customers given the choice of either cash
refunds or discount vouchers to be used against future bookings. Extensive
scenario analysis completed to ensure financial resilience. See pages 11 and 46
for further details.
Risk Cybercrime attacks may result in significant loss of business or sensitive
data assets, financial loss and reputational damage.
Mitigation Continued investment in industry leading tools and technologies to
mitigate cyber-attacks, industry benchmarking and external penetration tests.
Risk Inability to drive demand to deliver the growth of core customers and first
time buyers.
Mitigation Enhanced brand strategy with continued focus on trading, marketing
efficiency and customer propositions. New cruise ships to increase capacity and
first time buyers.
Third-party
management
Risk Reputational impact and financial losses arising from failure to manage third
parties effectively.
Mitigation Strengthening of third-party risk management to ensure an
appropriate risk-based approach for selecting third-party partners and overseeing
their operational and financial resilience.
Culture and
capability
Risk Saga’s culture and resource capability do not support the strategic initiatives
and ensure fair customer outcomes.
Macro-
economic
climate
Insurance
landscape
Operational
efficiency/
change/
innovation
Operational
resilience
External
legislative
Mitigation Talent management and succession planning. Continued development
of culture assessments. Pay and reward system focused on risk management and
customer outcomes.
Risk Slow economic growth, reduced consumer spend and claims inflationary effects.
Mitigation Group and business strategies are adapted to changes in macro-
economic outlook.
Risk Inability to compete effectively with insurance competitors.
Mitigation Three-year fixed-price product launched providing a differentiated
insurance solution. Panel model operated to ensure competitive net rates. Pricing
and data capability subject to continued improvement.
Risk The volume and complexity of business changes and priorities across the
Saga Group are not managed effectively.
Mitigation Board and Group Executive ensure clarity on strategic priorities. Group
Change Management oversees the allocation of change resources. External and
internal independent assurance reviews of key projects.
Risk The ability of an organisation to deliver its strategy and maintain critical
operations in the face of adverse events.
Mitigation Continued development of business continuity, disaster recovery,
operational risk and third party risk management processes aligned to regulation.
Risk The landscape of legislation faced by Saga is extensive, increasing the risk
of non-compliance with laws and changes to laws.
Mitigation Three lines of defence risk management model in place across Saga
combined with dedicated legal team that can access external expertise where
necessary.
Regulatory
landscape
Risk Increasing financial services and environmental regulation results in greater
cost to comply and scope for non-compliance.
Mitigation Strong compliance culture, increasing focus on conduct risk, cruise
ships built in line with latest emissions regulation.
33
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020
O P E R AT I N G A N D F I N A N C I A L R E V I E W
The Group has reported Underlying Profit Before Tax for the 2019/20 financial year of £109.9m. This is in line with the full year
target range of £105m to £120m and reflects:
• Resilient trading in the Insurance business with both the Retail Broking and Underwriting businesses continuing to make
good progress in the execution of the strategy set out in April.
• The successful launch of Spirit of Discovery and her first six months in operation.
• Challenging conditions for the Tour operations business.
Notwithstanding the strategic progress made during the year, the significant impact of COVID-19 on the travel industry has
led the Group to refocus its short term priorities. Specifically, the Group has assessed financial resilience in scenarios ranging
from a short period of dislocation to an extended closure of both Cruise and Tour Operations over the next six months.
Based on this analysis the Board of Directors is recommending that no final dividend should be paid for the 2019/20 financial
year. In addition, amendments to short term debt covenants have been agreed with the Group’s banks that will provide
additional financial flexibility in the event of prolonged disruption to the travel market.
The Group remains in a strong financial position with significant available liquidity. As at 31 March 2020 the Group had
available cash resources of £92m, increased from £33m at the end of February, and significantly higher than the level needed
to cover short term cash outflows. The increase in cash resources in March is primarily due to the receipt of £14m from the
sale of two introductory healthcare businesses and a precautionary £50m drawdown on the Group’s revolving credit facility
(with a further £50m undrawn), partially offset by a £7m cash injection to the ST&H travel ring fenced group.
Given the good starting point and structurally favourable cash flow generation of the Insurance business, the Group expects
to be able to continue to meet all debt service obligations as they fall due. This includes ship debt and term loan repayments
of around £40m in each of the next two years. As previously indicated, the Group expects to be able to repay all short term
banking facilities ahead of maturity in 2022 and 2023.
The Group will assess its Dividend Policy for current and future years as the COVID-19 situation becomes more certain.
The Group is required to test all goodwill for impairment on at least an annual basis. For the Insurance business, excluding
Bennetts, the underlying forecast cash flows for the Insurance business used in this calculation are broadly unchanged
from the prior year. Both years take a prudent view of the outlook, specifically as regards to taking benefit from planned
business improvement initiatives. However, as a result of the fall in Saga’s market capitalisation and an associated increase
in risk premium, the Group is required to discount these cash flows at a materially higher discount rate than was previously
the case.
As a result, the Group has determined that the recoverable amount of the goodwill allocated to the Insurance business,
excluding Bennetts, is below the previous carrying value. The final results for 2019/20 include an impairment of £370m, of
which £320m relates to an increase in the post-tax discount rate from 8.55% to 10.7%.
For the Destinology business, lower forecast cash flows have been assumed in the latest plan which results in an impairment
of the Destinology goodwill of £13m and an impairment of intangible assets of £7m. This is due to the challenging operating
environment for travel agency businesses, which has been exacerbated by COVID-19.
34
Saga plc Annual Report and Accounts 2020 Operating Performance
Group Income Statement
£m
Revenue3
Underlying Profit Before Tax2
Total Retail Broking (earned)
Underwriting
Total Insurance
Travel
Other Businesses and Central Costs
Net finance costs4
Net fair value (losses)/gains on derivatives
Impairment of assets
Thomas Cook insolvency
Restructuring costs
Impairment of goodwill
Loss before tax
Tax expense
Loss after tax
Basic Earnings Per Share:
Underlying Earnings Per Share2
Earnings Per Share
12m to
Jan 2020
Change
12m to
Jan 2019
(restated)1
797.3
(5.2%)
841.5
90.2
40.6
(14.7%)
(53.2%)
130.8
(32.1%)
19.8
(27.0)
(13.7)
(8.3%)
(26.8%)
(7.9%)
105.8
86.7
192.5
21.6
(21.3)
(12.7)
109.9
(39.0%)
180.1
(1.1)
(16.9)
(3.9)
(5.9)
(383.0)
1.0
(5.9)
0.0
0.0
(310.0)
(300.9)
(123.2%)
(134.8)
(11.9)
56.6%
(27.4)
(312.8)
(92.8%)
(162.2)
8.9p
(32.1%)
13.1p
(27.9p)
(92.4%)
(14.5p)
1 The Group has adopted IFRS 16 Leases and is reporting its performance for the 12 months to 31 January 2020 against a restated comparative period
for the 12 months to 31 January 2019 under this new standard. For further details see note 39
2 Alternative performance measures – refer to the Glossary on page 201 for definition and explanation
3 Revenue is stated net of ceded reinsurance premiums earned on business underwritten by the Group of £145.7m (2019: £136.0m)
4 Net finance costs exclude ship debt interest costs, net fair value gains/(losses) on derivatives and IAS19R pension interest costs
The Group’s business model is based on providing high-quality and differentiated products to its target demographic,
predominantly focused on Insurance and Travel.
The Insurance business operates mainly as a broker, sourcing underwriting capacity from selected third party insurance
companies, and, for motor and home, also from the Group’s in-house underwriter. Travel is comprised of Tour Operations
and Cruising. Other Businesses is principally comprised of Personal Finance and Healthcare Services.
Revenue
Revenue decreased by 5.2% to £797.3m (2019: £841.5m) due to lower Retail Broking revenues as a result of a disciplined
approach to new business, partially offset by an increase in the number of policies renewing. Revenue in Tour Operations
decreased 4.1% reflecting lower demand across the whole of the travel market. Cruise revenue increased following
Spirit of Discovery’s maiden voyage in July, partially offset by Saga Pearl’s exit from service in April 2019.
Total customer spend2 was broadly stable at £1,198.0m (2019: £1,210.1m). This includes gross written premiums and
insurance premium tax.
Total customer spend reconciles to revenue as follows:
£m
Total customer spend2
Net premiums paid to insurance underwriters
Insurance premium tax
Revenue3
12m to
Jan 2020
Change
12m to
Jan 2019
1,198.0
(1.0%)
1,210.1
(331.6)
(69.1)
797.3
(296.6)
(72.0)
(5.2%)
841.5
35
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 Underlying Profit Before Tax2
Underlying Profit Before Tax decreased by 39% to £109.9m (2019: £180.1m).
This was primarily due to a £46.1m reduction in Underwriting profitability, largely resulting from lower reserve releases, and
a £15.6m decrease in Retail Broking, which is mainly due to reduced gross margins per policy. These changes were expected
and are in line with our previous guidance.
Net finance costs in the year were £13.7m (2019: £12.7m), an increase of 7.9% largely due to the additional debt issue costs
incurred to amend the Group’s leverage covenants in April 2019.
Loss before tax
Loss before tax was £300.9m for the year, mainly resulting from the £370m impairment of goodwill relating to the Group’s
Insurance operations.
During 2019/20 the Group impaired the value of property, plant and equipment relating to the printing business by £3m,
recognised a £7m impairment of the value of the Saga Sapphire and a further £7m impairment of intangible assets relating
to the Destinology business.
The Group recognised £4m of one-off costs in relation to the administration of Thomas Cook and £6m of restructuring
costs, mainly relating to planned redundancies and the now exited healthcare business.
Tax expense
The Group’s tax expense for the year was £11.9m (2019: £27.4m) representing an effective tax rate of 14.5% before the
impairment of goodwill and release of associated deferred tax (2019: 19.4%). The decrease in the effective tax rate is due to
corporation tax credits received and a reversal of tax provisions. Underlying tax expense for the year is £15.3m (2019: £34.2m),
representing an effective tax rate of 18.6% (2019:19.5%).
Earnings Per Share
The Group’s underlying Earnings Per Share were 8.9p (2019: 13.1p). The Group’s Earnings Per Share were a loss of 27.9p
(2019: loss of 14.5p).
Retail Broking
The Retail Broking business provides tailored insurance products and services, principally motor, home, private medical and
travel insurance. Its role is to price the policies and source the lowest cost of risk, whether through the panel of home and
motor underwriters or through solus arrangements for private medical and travel insurance. The Group’s in-house insurer,
Acromas Insurance Company Limited (AICL), sits on the motor and home panels and competes for that business with other
panel members on equal terms. Even if underwritten by a third party, the product is presented as a Saga product and the
Group will always manage the customer relationship.
Retail Broking profit before tax on a written basis (which excludes the impact of the written to earned adjustment) reduced
to £91.1m from £106.6m, and on an earned basis (which includes the impact of the written to earned adjustment) reduced
to £90.2m from £105.8m.
The reduction in profit before tax on a written basis was due to a £17.4m reduction in written gross profit, after also deducting
marketing expenses. The reduction in written gross profit after marketing expenses is due mainly to home insurance (£13.1m),
with a lower impact from motor insurance (£4.7m).
The lower gross margin, after marketing expenses, on home and motor insurance is primarily due to a £4.4m decline in Saga
branded new business profitability, and a £13.0m reduction in Saga branded renewal profitability. As a result, the overall gross
margin per policy, calculated as written gross profit less marketing expenses divided by policy numbers, for home and motor
combined, was £74.30, compared with £80.30 in the prior year.
The change in renewal profitability is due to an increase in the proportion of lower margin policies sourced from price
comparison websites in the prior year and a reduction in pricing for certain long tenured home customers. The change in new
business profitability is mainly due to a highly competitive market and an increase in acquisition costs. These changes are
consistent with the expectations set out in April 2019 and the overall gross margin per policy of £74.30 was at the upper end
of the targeted range.
36
OPERATING AND FINANCIAL REVIEWCONTINUEDSaga plc Annual Report and Accounts 2020 The Insurance business has shown good progress following the change in strategy in April 2019:
• 320k three-year fixed-price policies were sold between launch in April and 31 January 2020 with 65% of direct new
business customers choosing this product.
• Over 57% of new business customers came to us on a direct basis, compared with 51% in the prior year, consistent with
our goal to move back to a more direct focused model.
• Customer retention of 75% across home and motor was two percentage points higher than the prior year, reflecting
a range of initiatives including a change in renewal approach launched in July 2019.
Written profit and gross margin per policy for home and motor are after allowing for deferral of part of the revenues from
three-year fixed-price policies, recognising inflation risk inherent in this product. As at 31 January 2020, £4.9m of income
had been deferred in relation to three-year fixed-price policies written in the year.
£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
Thousands
Number of policies sold (’000)
Core
Add-ons
12m to Jan 2020
12m to Jan 2019
Motor
Broking
Home
Broking
Other
Broking
Total Change
Motor
Broking
Home
Broking
Other
Broking
Total
124.8
154.1
113.2
392.1
(6.0%)
224.0
0.0
3.6
227.6
2.0%
348.8
154.1
116.8
619.7
(3.2%)
132.9
219.0
351.9
161.4
123.0
0.0
4.1
417.3
223.1
161.4
127.1
640.4
43.6
8.1
17.9
36.8
106.4
103.6
(21.6)
(53.1)
28.9
(0.9)
28.0
32.4
3.0
10.0
17.1
62.5
62.5
(8.2)
(21.2)
33.1
0.0
33.1
47.1
0.0
0.1
20.7
67.9
123.1
11.1
3.6%
5.7%
28.0
(27.5%)
74.6
(12.4%)
30.7
7.5
27.9
43.7
236.8
(6.4%)
109.8
55.0
221.1
(7.1%)
107.6
(7.5)
(37.3)
(1.4%)
(20.9)
(18.4)
(92.7)
2.0%
29.1
0.0
29.1
91.1
(14.5%)
(0.9)
(12.5%)
90.2
(14.7%)
(51.9)
34.8
(0.8)
34.0
43.7
2.9
10.6
17.3
74.5
74.5
(7.1)
(22.3)
45.1
0.0
45.1
44.4
118.8
0.1
0.1
24.2
68.8
10.5
38.6
85.2
253.1
55.9
238.0
(8.8)
(20.4)
(36.8)
(94.6)
26.7
106.6
0.0
(0.8)
26.7
105.8
1,153
1,537
682
537
232
2,067
(6.2%)
1,237
9
2,083
1.2%
1,488
683
560
284
2,204
10
2,058
2,690
1,219
241
4,150
(2.6%)
2,725
1,243
294
4,262
Core policies sold (’000)
Core Saga branded
Core non-Saga branded
Third party panel share5
918
235
1,153
24.6%
682
0
682
232
1,832
(5.1%)
0
235
(13.9%)
964
273
232
2,067
(6.2%)
1,237
683
0
683
284
1,931
0
273
284
2,204
0.9%
23.7%
5 Third party Underwriter share of the motor panel for Saga branded policies
37
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 Motor Broking
Gross written premiums decreased by 0.9% due to a 4.8% reduction in core policies, partially offset by an increase
in average gross written premiums reflecting a higher contribution from the renewal book and the launch of the
three-year fixed-price product. Gross written premiums from business underwritten by AICL increased by 2.3% to
£224.0m (2019: £219.0m).
Add-on revenue declined £10.0m to £17.9m reflecting the inclusion of add-on features into the Group’s new three-year fixed-
price product; this is now reflected in broker revenue.
Written gross profit minus marketing expenses was £82.0m (2019: £86.7m), contributing £71/policy (2019: £70/policy).
This metric increased as a result of net rate reductions and mix changes, with a 15% decline in the number of new business
policies and an increase in renewal volumes, partially offset by a higher cost of acquisition for direct new business.
Overall written Underlying Profit Before Tax has decreased by 17.0% to £28.9m (2019: £34.8m).
Home Broking
Gross written premiums decreased by 4.5% due to the competitive pricing environment on a stable base of core policies.
Written gross profit minus marketing expenses was £54.3m (2019: £67.4m), on a per policy basis this was £80/policy
(2019: £99/policy). The decline was expected and is due to lower margins on the renewal book as a result of less profitable
new business written in the previous year, lower pricing for long tenured customers and an increased cost of acquisition
per policy.
Written marketing expenses have increased by 15.5% to £8.2m, due to higher acquisition costs for direct business and
investment to support the launch of the Group’s new product strategy.
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.
Gross written premiums declined 8.1% as higher premiums on PMI have been offset by a 26.5% decline in travel
insurance volumes.
Travel insurance profitability and policy count declined, mainly due to lower new business volumes in a highly competitive
market. PMI profitability in the prior year was impacted by a one-off loss due to the impact of adverse claims experience
on profit share arrangements.
Insurance underwriting
£m
Net earned premium
Other revenue
Revenue
Claims costs
Reserve releases
Other cost of sales
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 2020
12m to Jan 2019
Reported
Quota
share Underlying Change Reported
Quota
share Underlying
63.1
(133.1)
196.2
(4.2%)
80.8
(124.0)
204.8
6.0
6.7
(0.7) (131.8%)
12.5
10.3
69.1
(126.4)
195.5
(5.6%)
93.3
(113.7)
(177.5)
2.3%
(73.1)
108.6
(30.1)
125.1
(155.2)
(27.6%)
A
B
C
D
E
F
(57.3)
29.6
(2.4)
120.2
(10.4)
15.3
39.0
(2.4)
4.0
0.0
40.6
(1.3)
4.6
(5.4)
2.1
0.0
(B+C)/A
40.1%
(D+F)/A
6.9%
(E+F)/A
47.0%
(6.8)
11.5
113.3
(0.4)
4.3
(5.7)
1.8
0.0
40.0
(48.7%)
(17.7)
0.6%
71.1
(6.3)
(8.3)
40.3
(52.8%)
85.0
(7.0)
9.4
(2.9%)
(5.1%)
(2.1)
(16.7%)
40.6
(53.2%)
70.3%
20.2%
12.6%
0.7%
(2.5)
4.2
0.0
86.7
2.1%
9.4%
83.0%
21.0%
11.6%
(E+F-C)/A
89.9%
103.4%
3.7%
87.8%
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%
839k
Number of earned policies
817k
(2.6%)
38
OPERATING AND FINANCIAL REVIEWCONTINUEDSaga plc Annual Report and Accounts 2020 The Group’s in-house underwriter AICL continues to play an important role on the motor panel, providing a source
of competitively priced risk, primarily focused on lower risk drivers. AICL also underwrites a portion of the home panel,
although all the risk in the home insurance business is passed on to a third party insurance company.
Excluding the impact of the quota share reinsurance agreement, net earned premiums decreased by 4.2% to £196.2m
(2019: £204.8m) in line with the decline in broking policy volumes underwritten by AICL.
Also excluding the impact of the quota share, the Underwriting business saw an increase in the pure combined operating
ratio to 103.4% (2019: 99.7%). This was due to higher than average returns on profit and loss sharing agreements in the prior
year. In line with other insurers, the Group has observed higher inflation on third party damage and theft costs than typically
expected, with overall inflation in Q4 running at around 7% compared with longer term expectations of around 5%.
Reserve releases of £40.0m (2019: £77.9m) have resulted in a reported combined operating ratio of 83.0% (2019: 62.0%),
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 2020
12m to Jan 2019
Reported
Quota
share Underlying
Change
Reported
Quota
share Underlying
29.5
(1.1)
1.2
29.6
(9.8)
(1.1)
0.5
39.3
0.0
0.7
(10.4)
40.0
(48.7%)
68.0
0.2
2.9
71.1
(6.8)
0.0
0.0
(6.8)
74.8
0.2
2.9
77.9
Reserve releases reflect continued favourable experience on large bodily injury claims.
The investment return decreased £0.5m to £9.4m (2019: £9.9m). 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.
12m to Jan 2020
12m to Jan 2019 (restated)
Tour
Operations
Cruising
Total
Travel
346.1
118.0
464.1
Travel
£m
Revenue
Gross profit
Marketing expenses
Other operating expenses
Investment return
Finance costs
Underlying Profit Before Tax
Average revenue per passenger (£)
2,150
Holidays passengers (’000)
Stays
Escorted tours
River cruise
Third party ocean cruise
Cruise passengers (’000)
Cruise passenger days (’000)
Load factor
Per diems (£)
66
62
25
8
161
61.2
(18.3)
(33.6)
0.3
(0.4)
9.2
Change
1.5%
5.4%
(10.8%)
6.6%
99.1
(31.9)
(40.9)
0.4
100.0%
(6.9)
(100.0%)
19.8
2,405
(8.3%)
6.2%
66
62
25
8
161
32
409
84%
259
(17.5%)
(3.1%)
13.6%
(20.0%)
(8.5%)
23.1%
22.5%
2.4%
(1.1%)
37.9
(13.6)
(7.3)
0.1
(6.5)
10.6
3,688
32
409
84%
259
Tour
Operations
360.8
70.6
(19.3)
(36.7)
0.1
0.0
14.7
Cruising
96.6
23.4
(9.5)
(7.1)
0.1
0.0
6.9
2,050
3,715
80
64
22
10
176
26
334
82%
262
Total
Travel
457.4
94.0
(28.8)
(43.8)
0.2
0.0
21.6
2,264
80
64
22
10
176
26
334
82%
262
39
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 Cruise
Notwithstanding the current situation, the first six months of Spirit of Discovery’s inaugural year were a success and she
delighted customers. Importantly, the new ship also met financial expectations with EBITDA in the second half of the year
of £20m. While there is uncertainty over the delivery date for Spirit of Adventure as a result of the COVID-19 crisis, the
Group’s expectation is that this will be completed within the next 12 months. This will complete the transformation of the
Cruise business.
Tour Operations
The Tour Operations business has had a more challenging year with weak customer demand, which has accelerated due
to the impact of COVID-19. The Group has continued the repositioning of the business to focus on differentiated products,
with a need now to accelerate this transformation. Within this context, the Tour Operations business generated revenue
of £346.1m (2019: £360.8m) with 4.9% higher average revenue per passenger, partially offsetting 8.5% lower departing
passenger numbers.
Gross margins declined to 17.7% (2019: 19.6%) reflecting competitive pricing across the sector, a decline in passenger
numbers and fixed cost commitments on River Cruise impacting margins in the first half of the year.
Forward Travel sales6
Bookings for Cruise have been resilient in the current situation, with forward bookings for the period from September to
January 2021 and 2021/22 of 66% and 16% of our revenue target, respectively.
Cruise forward booked revenue for 2021/22 is £28.8m (2018/19: £44.0m) and corresponds to 111,738 (2018/19: 169,941)
passenger days. The reduction from the same period last year is mainly due to an earlier launch of forward bookings in the
prior two years, with 2020/21 departures on sale from September 2018. For the 2021/22 year, forward bookings have reverted
back to typical dates, commencing in March 2020. In addition, marketing to new customers for the 2021/22 season has been
put on temporary hold due to Covid-19.
The Tour business has experienced a larger impact with passenger bookings for 2020/21 down 34% versus the prior year.
Despite this, our relatively low level of cost commitments and lower exposure to Northern Europe and Far East destinations
enable the business to react to changes in demands.
Bookings from September 2020 to January 2021
Tour operations revenue (£m)
Tour operations passengers (’000)
Cruise ticket revenue (£m)
Cruise passenger days (’000)
6 % booked of revenue targets for the stated period
2020/21
Change
2019/20
79
33
49.5
173
(11.2%)
(15.4%)
12.5%
4.2%
89
39
44
166
40
OPERATING AND FINANCIAL REVIEWCONTINUEDSaga plc Annual Report and Accounts 2020 Other Businesses and Central Costs
£m
Revenue:
Personal Finance
Healthcare
Media
Other
Total revenue
Gross profit
Operating expenses
Profit on sale of property
Investment income
Non-trading items
IAS19R pension charge
Net finance costs
Underlying Profit/(Loss) Before Tax
12m to Jan 2020
12m to Jan 2019 (restated)
Other
Businesses
Central
Costs
Total
Change
Other
Businesses
Central
Costs
7.4
6.1
13.3
0.0
26.8
10.3
(5.7)
0.0
0.0
0.0
0.0
0.0
4.6
0.0
0.0
0.0
2.2
2.2
3.6
7.4
6.1
13.3
2.2
29.0
13.9
(9.8%)
1.7%
(28.5%)
69.2%
(15.0%)
(13.1%)
(35.2)
(40.9)
(6.0%)
0.0
0.1
0.0
(0.1)
(13.7)
(45.3)
0.0
0.1
0.0
(0.1)
(13.7)
(100.0%)
100.0%
100.0%
75.0%
(8.7%)
(40.7)
(19.7%)
8.2
6.0
18.6
0.0
32.8
13.8
(10.1)
0.0
0.0
(0.6)
0.0
0.0
3.1
Total
8.2
6.0
18.6
1.3
34.1
16.0
0.0
0.0
0.0
1.3
1.3
2.2
(28.5)
(38.6)
3.9
0.0
(1.7)
(0.4)
(12.6)
(37.1)
3.9
0.0
(2.3)
(0.4)
(12.6)
(34.0)
The Group’s Other Businesses include Personal Finance, Healthcare Services and Media, Mailing and Printing businesses.
After several years of operating a trial in Healthcare the Group has made the decision to exit these businesses. The non-
Saga branded businesses of Patricia White’s and Country Cousins were sold in March 2020 while the Saga businesses
are in the process of being wound down with customers transferred to a third party with an outstanding Care Quality
Commission rating.
Underlying Profit Before Tax increased as a result of the operating losses of Healthcare Services in the prior year, partially
offset by ongoing competitive pressures on the Group’s printing business. Losses incurred in the current year within
the Group’s live-in care proposition have been excluded from Underlying PBT following the Group’s decision to exit the
healthcare segment.
Central operating costs increased to £35.2m (2019: £28.5m) due to investment in IT systems to enhance the Group’s brand,
marketing and data capabilities and an increase in staff costs following the centralisation of Group functions including
finance, membership and marketing. These costs reflect shared assets held centrally that benefit the Group and its trading
divisions. For the 2020/21 financial year the intention is to recharge a higher level of these costs to the Insurance and Travel
divisions, based on the consumption of these services. This change will have no net impact on Group results.
Cash flow and liquidity
Available Cash Flow
Available operating cash flow is made up of the unrestricted cash flows from Retail Broking, Other Businesses and Central
Costs, plus any dividends paid by restricted businesses, AICL and Travel.
Group operating cash flow was £92.7m for the year ended 31 January 2020, 51% of Group Trading EBITDA, and 59% of
Group Trading EBITDA adjusted to include the interest and capital repayments relating to the Spirit of Discovery.
Operating cash flow decreased by £89.6m compared with the previous year, due to a reduction in broking earnings and
a planned decrease in dividends from AICL, as well as two expected non-recurring effects with a combined impact of
£40m; the reversal of a £15m positive working capital inflow from the prior year and a £25m subordinated loan to the Travel
business in February 2019 to maintain its regulatory solvency capital and fund the third instalment for the Group’s second
new cruise ship, the Spirit of Adventure.
41
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 The Travel Group has ring fenced cash facilities to satisfy CAA requirements associated with ATOL regulated holidays.
As part of amendments to the facilities that were implemented on 31 January 2020, the Cruise business now sits outside
of the ring fenced Group. This move increased available cash by £23m. Cruise is now excluded from the restricted Travel
Group and its cash generation will contribute towards the Group’s available operating cashflow in the 2020/21 financial year.
While the Group continues to target an 85% conversion of EBITDA into available cash flow this is likely to be impacted by
COVID-19 and short term working capital requirements in the current financial year.
£m
Retail Broking Trading EBITDA
Underwriting Trading EBITDA
Travel Trading EBITDA
Other Businesses and Central Costs Trading EBITDA
Group Trading EBITDA7
Less Trading EBITDA relating to restricted businesses
Intra-group transfers paid by restricted businesses
Working capital and non-cash items8
Cruise carve out
Capital expenditure funded with available cash
Available operating cash flow2
Available operating cash flow %
12m to
Jan 2020
Change
12m to
Jan 2019
(restated)
98.4
(15.7%)
41.7
(52.2%)
58.3
(16.7)
15.2%
27.5%
181.7
(25.1%)
(100.0)
27.5%
15.0
(80.9%)
(9.5)
147.7%
22.7
100.0%
(17.2)
92.7
17.3%
(49.1%)
51.0%
116.7
87.2
50.6
(11.9)
242.6
(137.9)
78.5
19.9
0.0
(20.8)
182.3
75.1%
7 Group Trading EBITDA includes the impact of IFRS 16 with the corresponding impact to payment of principal portion of lease liabilities included in net cash
flows from financing activities
8 Adjusted to exclude IAS19R pension current service costs
Available operating cash flow reconciles to net cash flows from operating activities as follows:
£m
Net cash flow from operating activities (reported)
Exclude cash impact of:
Trading of restricted divisions
Non-trading costs
Interest paid
Tax paid
Cash released from restricted divisions
Include capital expenditure funded from available cash
Available operating cash flow2
12m to
Jan 2020
12m to
Jan 2019
(restated)
91.9
148.3
(46.5)
4.5
19.9
25.1
3.0
15.0
(17.2)
92.7
(77.9)
5.5
13.9
34.8
(23.7)
78.5
(20.8)
182.3
42
OPERATING AND FINANCIAL REVIEWCONTINUEDSaga plc Annual Report and Accounts 2020 Trading EBITDA reconciles to loss after tax as follows:
£m
Trading EBITDA2
Depreciation and amortisation (excluding acquired intangibles)
Non-trading costs
Amortisation of acquired intangibles
Pension charge IAS19R9
Net finance costs4
Underlying Profit Before Tax2
Net fair value gains/(losses) on derivatives
Impairment of assets
Thomas Cook insolvency
Restructuring costs
Impairment of goodwill
Loss before tax
Tax expense
Loss after tax
12m to
Jan 2020
Change
181.7
(25.1%)
(48.0)
(0.0)
(3.0)
(0.1)
(20.7)
109.9
(39.0%)
(1.1)
(16.9)
(3.9)
(5.9)
(383.0)
12m to
Jan 2019
(restated)
242.6
(43.5)
(2.3)
(3.6)
(0.4)
(12.7)
180.1
1.0
(5.9)
0.0
0.0
(310.0)
(300.9)
(123.2%)
(134.8)
(11.9)
56.6%
(27.4)
(312.8)
(92.8%)
(162.2)
9 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
Adjusted Trading EBITDA is used in the Group’s leverage calculation and reconciles to Trading EBITDA as follows:
£m
Trading EBITDA2
Impact of IFRS 16 Leases
Spirit of Discovery Trading EBITDA10
Adjusted Trading EBITDA
10 EBITDA per vessel includes central Cruise overheads
12m to
Jan 2020
181.7
(13.5)
(16.1)
152.1
Balance Sheet
Goodwill
The Group has tested all goodwill for impairment at 31 January 2020. 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
Destinology business has been considered separately, as this business represents a separate CGU. The goodwill associated
with the Bennetts business has been transferred to assets held for sale. Please see note 36 for further details.
The recoverable amount of each CGU has been determined based on a value-in-use calculation using cash flow projections
from the Group’s five year plan to 2024/25, and after allowing for certain stress test scenarios. This stress testing has
included a reasonable estimate of the impact of the COVID-19 crisis.
Based on this analysis, the Group remains comfortable that there is headroom over and above the carrying value of the
goodwill allocated to the Cruise and Tour Operations excluding Destinology CGUs.
For the Insurance business, excluding Bennetts, the underlying forecast cash flows for the Insurance business used in
this calculation are similar to those used last year. Both years take a prudent view of the outlook, specifically as regards
to not taking the benefit from planned business improvement initiatives. However, as a result of the fall in Saga’s market
capitalisation and an associated increase in risk premium, the Group is required to discount these cash flows at a materially
higher discount rate than was previously the case. As a result, 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 £370m.
For the Destinology business, lower forecast cash flows have been assumed in the latest plan which results in an impairment
of the Destinology goodwill of £13m, as well as an impairment of other intangible assets of £7m. This is due to the challenging
operating environment for travel agency businesses, which has been exacerbated by COVID-19.
43
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 Investment in subsidiaries in the Saga plc parent entity
The Group has also tested the carrying value of the investment in subsidiaries held on the separate company balance
sheet of Saga plc, as required by accounting standards due to the carrying value being higher than the Company’s market
capitalisation. As a result of this review, the Group considered it necessary to impair the balance by £518.0m, which reflects
the updated valuation of the Insurance business as derived for the goodwill impairment review, combined with the impact
of COVID-19 on the valuation of the Travel business and a higher discount rate applied to the remaining parts of the Group.
This impairment only features in the separate company financial statements of Saga plc and so does not affect the
consolidated results of the Group. Please refer to page 199 for further details of the review.
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 £15.9m to £376.9m (2019: £392.8m), whilst derivative assets have decreased
by £32.2m to £1.2m (2019: £33.4m) due to foreign exchange forward contracts associated with the purchase of the Spirit
of Discovery maturing in the period and being transferred to the carrying value of property, plant and equipment. As at
31 January 2020, 98% of the financial assets held by the Group were invested with counterparties with a risk rating of BBB
or above, which is broadly in line with the previous year and reflects the stable credit risk rating of the Group’s counterparties.
At 31 January 2020
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 January 2019
Underwriting investment portfolio:
Deposits with financial institutions
Debt securities
Money market funds
Loan funds
Total invested funds
Hedging derivative assets
Total financial assets
AAA
£m
0.0
15.3
45.9
0.0
61.2
0.0
61.2
AAA
£m
0.0
14.8
37.1
0.0
51.9
0.0
51.9
Risk rating
AA
£m
A
£m
BBB
£m
Unrated
£m
Total
£m
30.4
117.5
0.0
0.0
147.9
0.0
147.9
0.0
54.1
0.0
0.0
54.1
0.7
54.8
18.6
87.3
0.0
1.6
107.5
0.5
108.0
Risk rating
0.0
0.0
0.0
6.2
6.2
0.0
6.2
49.0
274.2
45.9
7.8
376.9
1.2
378.1
AA
£m
A
£m
BBB
£m
Unrated
£m
Total
£m
50.8
140.3
0.0
0.0
191.1
0.0
191.1
0.0
41.2
0.0
0.0
41.2
32.6
73.8
18.5
83.9
0.0
0.0
102.4
0.8
103.2
0.0
0.0
0.0
6.2
6.2
0.0
6.2
Insurance reserves
Analysis of insurance contract liabilities at 31 January 2020 and 31 January 2019 is as follows:
£m
Reported claims
Incurred but not reported12
Claims handling provision
Total claims outstanding
Unearned premiums
Total
At 31 January 2020
At 31 January 2019
Gross
250.5
79.9
7.9
338.3
105.3
443.6
Reinsurance
assets11
(48.2)
(7.0)
0.0
(55.2)
(6.9)
(62.1)
Net
202.3
72.9
7.9
283.1
98.4
381.5
Gross
280.4
103.0
9.2
392.6
98.0
490.6
Reinsurance
assets11
(73.5)
(17.7)
0.0
(91.2)
(5.6)
(96.8)
11 Excludes funds-withheld quota share agreement (please refer to Note 26 for further detail)
12
Includes amounts for reported claims that are expected to become periodical payment orders
44
69.3
280.2
37.1
6.2
392.8
33.4
426.2
Net
206.9
85.3
9.2
301.4
92.4
393.8
OPERATING AND FINANCIAL REVIEWCONTINUEDSaga plc Annual Report and Accounts 2020 The Group’s total insurance contract liabilities net of reinsurance assets have decreased by £12.3m in the 12 months
to 31 January 2020 from the previous year end due to a £4.6m reduction in reported net claims reserves and a £12.4m
reduction in net IBNR claims reserves. This was partially offset by a £6.0m higher unearned premium reserve. Total gross
claims outstanding reduced by £54.3m during the year due to several large case settlements and reserve releases.
Financing
The Group’s net debt has increased by £202.6m to £593.9m since the previous year end due to the additional £245m
borrowed to fund the purchase of the Spirit of Discovery, partially offset by repayment of £40m in bank debt and short
term facilities.
Excluding the impact of debt and earnings relating to the new cruise ship, the Group’s leverage ratio was 2.4x as at
31 January 2020 (2019: 1.7x), within the 3.5x covenant applicable to the Group’s term loan and revolving credit facility.
Net debt
Corporate bond
Term loan
Ship loan
Revolving credit facility
Less available cash13
Net debt
Maturity date
May 2024
May 2022
June 2031
May 2023
31 January
2020
£m
31 January
2019
£m
250.0
140.0
234.8
10.0
(40.9)
593.9
250.0
160.0
0.0
30.0
(48.7)
391.3
13 Refer to note 23 of the financial statements for information as to how this reconciles to a statutory measure of cash
Adjusted net debt is used in the Group’s leverage calculation and reconciles to net debt as follows:
Net debt
Ship loan
Cruise available cash
Adjusted net debt
31 January 2020
£m
593.9
(234.8)
2.6
361.7
Pensions
The Group’s defined benefit pension deficit as measured on an IAS19 basis increased to £5.5m at 31 January 2020
(2019: £2.8m).
Saga scheme
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability
31 January
2020
£m
31 January
2019
£m
372.3
(377.8)
(5.5)
312.4
(315.2)
(2.8)
The increase in the deficit is due to a £59.9m increase in the fair value of the scheme assets to £372.3m (31 January
2019: £312.4m) offset by a £62.6m increase in the present value of defined benefit obligations, both of which movements
can be attributed to a significant fall in bond yields.
Net assets
Since 31 January 2019, total assets have decreased by £228.4m and liabilities have increased by £144.3m respectively,
resulting in an overall decrease in net assets of £372.7m.
The decrease in total assets is a result of a £383m impairment of goodwill, a decrease in financial assets of £48.1m and
a reduction to reinsurance assets of £34.7m due to reinsurers paying their share of several large case settlements. This was
partially offset by a £243.6m increase in the carrying value of property, plant and equipment due to the delivery of the
Spirit of Discovery.
The increase in total liabilities reflects a £208.6m increase in financial liabilities due to additional borrowings related to the
new cruise ship. This was partially offset by a reduction to gross insurance contract liabilities of £47.0m due to several large
case settlements and reserve releases.
Regulatory and legislative developments
The Group operates within an evolving regulatory landscape. Aspects of this, such as the Data Protection Act 2018, cover
all of Saga’s business. Other aspects cover the Group’s Insurance, Travel and Personal Finance operations.
45
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 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 Travel businesses are also members of the
Association of British Travel Agents (ABTA).
The FCA continues to focus on pricing practices generally, including its Market Study on general insurance pricing practices.
Saga has had measures in place for several years to address fairness in pricing and increasing numbers of long standing
customers have seen their renewal premium either frozen or reduced as a result. We are supportive of the FCA Market Study
and believe that, over the long term, it will be positive for Saga’s customers and our place in the market. While the outcome
of the study has now been delayed beyond the planned publication date of June 2020, it is noted that the FCA will aim to
deliver its final findings and proposed remedies in the summer. The FCA has continued to focus on good customer outcomes
– through its work on culture and governance, operational resilience, vulnerable customers and product value – and Saga’s
three lines of defence activities continue to align to these.
COVID-19
The Group’s Insurance business remains largely unaffected by COVID-19, and the Group has successfully been able
to maintain operational capability throughout this period, with almost all colleagues working from home. However, the
Group’s Travel businesses are currently experiencing a very high level of disruption from the impact of the COVID-19 virus.
Following advice from the UK Government that people over 70 years old should avoid travel at the current time and given
operational challenges in almost all countries, the Group took the decision on 12 March to suspend Cruising until May and
on 16 March decided to suspend Tour Operations for a period of six weeks. While customer demand for future departures
remains positive, both for Cruise and Tour Operations, there remains considerable uncertainty as to when travel services will
resume. It is likely that the period of travel suspension will continue beyond May.
The Group has therefore considered several adverse scenarios and has built contingency plans around a central stress test
assumption that the Cruise business could be suspended for a period of six months, from mid-March to mid-September, with
a suspension of Tour Operations until the end of August. Within this scenario the Group has also assumed that departures in
the second half of the year, once travel operations have restarted, would recover slowly.
In this scenario the Group would expect revenues for the full year to be reduced by around 65% for Tour Operations and
Cruise, with a ‘drop-through’ from lower revenues to Underlying Profit Before Tax of 15%-20% for Tour Operations and 55%-
60% for Cruise, relative to plan assumptions. The difference between the two drop through rates is due to the fact that the
Group operates with relatively low commitments in Tour Operations, and does not own travel infrastructure, compared to the
ownership model for the Cruise business.
In the event of a suspension of travel for an extended period, the Group will be exposed to changes in the value of hedges
relating to oil and foreign currency. These hedges are put in place to protect cash flows, but it is now expected that the Group
will not require the level of oil or currency previously anticipated. As of 31 March 2020, the mark to market on such open
hedges was a net loss of around £2m.
The Group would also be exposed to working capital outflows as a result of the return of customer advance deposits on
cancelled departures. As at 31 March, total advance receipts for the Cruise business were £41m, of which around £27m
related to departures from mid-May to the end of the year and a further £7m related to departures in 2021. Total advance
receipts for the Tour Operations business at the same date were £69m, of which around £45m related to departures between
mid-March and the end of June.
The Group expects that a significant portion of Cruise advance receipts will be retained, in return for discount vouchers and
offers on future departures. For the Tour Operations business, customer refunds will primarily be met from cash held in the
ring-fenced Travel business, with a much smaller provision of cash support from the Group to ensure that full compliance
with regulatory cash requirements is maintained.
While a working capital outflow is likely to impact on the Group’s financial position over the next six months, it is expected
that a significant portion would reverse in the second half of the year as Travel operations restart, albeit with reduced
bookings compared with previously planned levels.
Even in a scenario with a full suspension of travel for six months, and with a slow recovery in demand into the 2021/22 year,
the Group is expected to remain in a strong position, for the following reasons:
• As at 31 March 2020 the Group had available cash resources of £92m, increased from £33m at the end of February, and
significantly higher than the level needed to cover short term cash outflows. The increase in cash resources in March is
primarily due to the receipt of £14m from the sale of two introductory healthcare businesses and a precautionary £50m
drawdown on the Group’s revolving credit facility (with a further £50m undrawn), partially offset by a £7m cash injection
to the ST&H travel ring fenced group.
• The Group expects to receive cash proceeds of around £23m from the sale of Bennetts Motorcycling Services.
•
This disposal is expected to complete in June 2020.
In addition to the available cash resources of £92m the Group has a further £55m of cash in the ST&H travel ring fenced
group, supporting £69m of advance customer receipts. The Group is prudently holding a higher level of cash in the ring
fence than is required by the CAA.
46
OPERATING AND FINANCIAL REVIEWCONTINUEDSaga plc Annual Report and Accounts 2020 • The Insurance business is performing well and is cash generative. While COVID-19 may have an impact on sales of travel
insurance and on the PMI product, the core Motor and Home business is not expected to be materially impacted.
• No repayments are due on the Group’s term loan until 31 January 2021, when £20m is due to be repaid; in the current
financial year, two instalments of £10m each are due to be repaid in relation to the Spirit of Discovery, with no repayments
on the Spirit of Adventure until at least February 2021.
• The Group has accelerated cost saving plans and will take further mitigating actions to reduce the impact of COVID-19
on earnings and cash.
• Given the uncertainty around the trajectory of the COVID-19 virus the Board of Directors is not recommending the
payment of a final dividend for the 2019/20 financial year.
• Within this scenario the Group has not included any benefits from various government initiatives, other than an allowance
for reductions in staff costs relating to ‘furloughing’ of certain colleagues that are directly impacted by the suspension
of travel.
The Group has also considered a further, more severe scenario that assumes the cessation of cruise and holidays trading
until January 2021, including additional mitigating actions such as the deferral of capital payments on the debt facility used
to fund the purchase the Spirit of Discovery, deferral of certain tax payments into the 2020/21 financial year and a further
reduction in operating costs.
While the Group is expected to remain in a strong position, in the scenarios outlined above, the ratio of net debt to EBITDA
(excluding Cruise debt and EBITDA) would likely in the short term exceed the 3.5x covenant included in term loan and
revolving credit facilities.
As a result, the Group has agreed changes to its bank debt facilities that provide it with additional financial flexibility.
The amended covenants in short term banking facilities are shown below.
Ex-cruise leverage ratio
Group interest cover
July 2020
October 2020
January 2021
April 2021
July 2021
January 2022
July 2022 and onwards
4.75x
4.75x
4.75x
4.75x
4.25x
4.00x
3.00x
2.5x
1.75x
1.25x
2.0x
3.0x
3.5x
3.5x
The covenants in the bank facilities will be tested quarterly while leverage excluding Cruise is greater than 4.0x and no
dividends can be paid while leverage is greater than 3.0x. The Group will apply for a waiver of the covenants in the ship debt
and is likely to apply for a debt holiday for the period to 31 March 2021 under a package of proposals that are being put
together for the cruise industry.
While the impact of the COVID-19 situation cannot be accurately predicted and it is not possible to assess all possible
future implications for the company, with these steps the Group believes that it has a secure financial position that will
enable it to trade through the current disruption of the travel market.
Dividends
Given the uncertain implications of COVID-19, the Board of Directors does not recommend the payment of a dividend for
the 2019/20 financial year. While the Directors intend to resume dividend payments in the future, the Group will assess its
Dividend Policy for current and future years as the COVID-19 situation becomes more certain.
Financial priorities for 2020/21
The Group’s financial priorities for the current financial year are to preserve cash and reduce leverage, comply with amended
banking covenants and to reduce costs, while continuing the progress in Insurance that started last year, completing Cruise
transformation and repositioning the Tour Operations business. Given the uncertain impact from COVID-19 the Group is not
able to provide any earnings guidance for the 2020/21 financial year.
47
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 K E Y B O A R D S TAT E M E N T S
The Directors have considered the viability of the Group over the five-year period to January 2025.
The current COVID-19 situation has created an unprecedented challenge for businesses in making
judgements regarding trading prospects. At Saga, we are focused on protecting the Group over the
coming months and the key actions we are taking are outlined in the Going Concern disclosure on
pages 130-131. On the assumption that the general business activities and the travel industry in
particular can begin to recover at the start of 2021, the Directors have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over the next five
years. The Directors recognise that uncertainty increases over time and therefore future outcomes
cannot be guaranteed.
The Directors have determined the five-year period to January 2025 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 second new ship;
c)
includes the refinancing of senior bank facilities which took place in 2017, maturing in three to five
years; and
d) includes consideration of the COVID-19 pandemic.
In making this statement, the Directors have considered the resilience of the Group, taking account
of its current position, the principal risks facing the business in severe but plausible scenarios, and the
effect of any mitigating actions. The Directors have considered each of the Group’s principal risks and
uncertainties (PRUs) detailed on pages 32-33 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
2023 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 by 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. An estimate of the
potential financial impact of each outcome has been quantified along with their perceived likelihood of
occurrence. Assessments of potential financial impact were derived from both internal calculation and
examples of similar incidents in the public domain. In assessing the viability of the Group, the Directors
have considered appropriate management actions that may be taken in order to manage the solvency
of the Group in the event of severe but plausible downside scenarios. The assessment is also based on
the assumption that the corporate bond will be refinanced when it matures in 2024.
The three largest sensitivities in terms of financial impact were identified as the following:
The impact of COVID-19 - as described within the Going Concern disclosure on page 49;
1.
2. General insurance regulation - uncertain regulatory developments, notably the FCA market study;
3.
A failure to deliver on our Insurance strategy – Insurance continues to perform in line with
expectation and has demonstrated good progress over the last year. Nonetheless, the
business is going through a period of significant change, from both a management and
organisation perspective.
As set out in the Audit Committee Report on pages 74-77, the Directors have reviewed and discussed
the rationale and conclusions of management’s viability testing.
Viability
statement
48
Saga plc Annual Report and Accounts 2020 Going concern
The Directors continue to have a reasonable expectation that the Group has adequate resources
to continue in operation for the next twelve months and that the going concern basis of accounting
remains appropriate.
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 32-33; Operating and
Financial Review on pages 34-47; audit, risk and internal control on pages 70-73; Audit Committee
Report on pages 74-77; Risk Committee Report on pages 78-80; and notes on pages 130-200).
As a consequence, the Directors believe that the Group is well-placed to successfully manage its
business risks.
The COVID-19 outbreak has created a major challenge and a high level of uncertainty for all companies.
Our Insurance division, being the largest operating segment in the Group, continues to perform well
and cash generation is expected to be resilient, but we have had to pause trading in our Travel division.
Where possible, we have equipped our staff to work from home and are focusing our efforts on
protecting our people and giving strong support to our customers.
We have taken prompt action to protect the Group’s cash flow including reducing costs, suspending
dividends to shareholders, making a precautionary £50m drawdown on the revolving credit facility in
March 2020 and we have renegotiated the net debt to EBITDA (excluding Cruise) covenant on our short
term banking facilities from 3.5x to 4.75x.
The Group has undertaken stress testing that considered a range of potential impacts of the COVID-19
pandemic on its financial resilience. In a severe but plausible central scenario, the Directors have
assumed: the cessation of cruises until mid-September, with a slow recovery of load factors beyond
that date, from 30% initially in September 2020, increasing to 60% by January 2021, then increasing
across the course of 2021 to a pre COVID-19 level of 87% by January 2022; a delay in the delivery of
the new ocean cruise ship, the Spirit of Adventure, from August 2020 to the end of November 2020;
the impact of a cessation of holidays trading for five months until August; with adverse impacts on
cancellations and booking rates for both holidays and cruises continuing into 2021. The scenario also
assumed trading stresses in relation to the Insurance business, namely an expected reduction in travel
insurance broker sales during 2020 and a potential adverse impact on profits relating to Private Medical
Insurance, with an estimated combined total profit impact on the Insurance business of a net £10m per
annum in 2020/21 and 2021/22. The analysis also used prudent assumptions for refunds of customer
bookings, made limited allowance for deferral of tax payments until the second half of the year and did
not assume any deferral of capital payments on the debt facility for the Spirit of Discovery ship.
In addition to this, the Directors considered a further, more severe scenario that assumed the
cessation of cruise and holidays trading until January 2021, including further mitigating actions
such as the deferral of capital payments on the debt facility used to fund the purchase of the Spirit
of Discovery, deferral of certain tax payments into the 2021/22 financial year and a further reduction
in operating costs.
While the impact of the COVID-19 situation cannot be accurately predicted and it is not possible to
assess all possible future implications for the company, based on this analysis and in the scenarios
assessed, the Group believes that it has a secure financial position that will enable it to trade through
the current disruption of the travel market.
49
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 S E C T I O N 1 7 2 A N D N O N - F I N A N C I A L I N F O R M AT I O N S TAT E M E N T S
Section 172 (1) statement
Duty to promote the success of the company
The directors have had regard for the matters set out in section 172(1)(a)-(f) of the Companies Act 2006 when performing
their duty under section 172. The directors consider that they have acted in good faith in the way that would be most likely
to promote the success of the Company for the benefit of its members as a whole, while also considering the broad range
of stakeholders who interact with and are impacted by our business.
The table below indicates where the relevant information is in this annual report that demonstrates how we act in
accordance with the requirements of s.172.
s172 matter
Further information incorporated into this statement by reference
Likely consequences of any
decision in the long term
Chairman’s statement
PAGE 6
Chairman’s governance overview
PAGES 52-54
Group CEO’s strategic report
PAGES 7-9
Board leadership and Company purpose
PAGES 58-60
The interests of the
Company’s employees
Market overview
PAGES 10-11
Business model
PAGES 12-13
Strategic priorities
PAGES 14-15
Corporate responsibility
PAGES 18-31
Our principal risks and uncertainties
PAGES 32-33
Operating and financial review
PAGES 34-47
Viability statement
PAGE 48
Chairman’s statement
PAGE 6
Group CEO’s strategic report
PAGES 7-9
Market overview
PAGES 10-11
Business model
PAGES 12-13
Strategic priorities
PAGES 14-15
Corporate responsibility
PAGES 18-31
Our principal risks and uncertainties
PAGES 32-33
The need to foster the
Company’s business
relationships with suppliers,
customers and others
Chairman’s statement
PAGE 6
Group CEO’s strategic report
PAGES 7-9
Market overview
PAGES 10-11
Business model
PAGES 12-13
Strategic priorities
PAGES 14-15
Chairman’s statement
PAGE 6
Group CEO’s strategic report
PAGES 7-9
Market overview
PAGES 10-11
Business model
PAGES 12-13
Impact of the
Company’s operations on the
community and environment
50
Division of responsibilities
PAGES 61-63
Composition, succession and evaluation
PAGES 64-67
Nomination Committee report
PAGES 68-69
Audit, risk and internal control
PAGES 70-73
Audit Committee report
PAGES 74-77
Risk Committee report
PAGES 78-80
Directors’ Remuneration Report
PAGES 81-108
Operating and financial review
PAGES 34-47
Chairman’s governance overview
PAGES 52-54
Board leadership and Company purpose
PAGES 58-60
Composition, succession and evaluation
PAGES 64-67
Nomination Committee report
PAGES 68-69
Directors’ Remuneration Report
PAGES 81-108
Corporate responsibility
PAGES 18-31
Our principal risks and uncertainties
PAGES 32-33
Operating and financial review
PAGES 34-47
Chairman’s governance overview
PAGES 52-54
Board leadership and Company purpose
PAGES 58-60
Strategic priorities
PAGES 14-15
Corporate responsibility
PAGES 18-31
Our principal risks and uncertainties
PAGES 32-33
Operating and financial review
PAGES 34-47
Saga plc Annual Report and Accounts 2020 s172 matter
Further information incorporated into this statement by reference
The Company’s reputation
for high standards of
business conduct
Chairman’s statement
PAGE 6
Group CEO’s strategic report
PAGES 7-9
Market overview
PAGES 10-11
Business model
PAGES 12-13
Strategic priorities
PAGES 14-15
Corporate responsibility
PAGES 18-31
Our principal risks and uncertainties
PAGES 32-33
Operating and financial review
PAGES 34-47
Viability statement
PAGE 48
Chairman’s statement
PAGE 6
Corporate responsibility
PAGES 18-31
Chairman’s governance overview
PAGES 52-54
The need to act fairly as
between members of the
Company
Chairman’s governance overview
PAGES 52-54
Board leadership and Company purpose
PAGES 58-60
Division of responsibilities
PAGES 61-63
Composition, succession and evaluation
PAGES 64-67
Nomination Committee report
PAGES 68-69
Audit, risk and internal control
PAGES 70-73
Audit Committee report
PAGES 74-77
Risk Committee report
PAGES 78-80
Directors’ Remuneration Report
PAGES 81-108
Board leadership and Company purpose
PAGES 58-60
Directors’ report
PAGES 109-112
Non-financial information statement
Disclosures of non-financial information matters, including a description of policies, due diligence processes and outcomes,
where applicable, are available as follows:
NFI matter
Environmental
Company’s employees
Further information incorporated into this statement by reference
Safeguarding the environment
PAGES 26-29
Colleagues and culture
PAGES 22-23
Succession planning and talent development
PAGE 69
How the Board monitors culture
PAGE 31
Diversity
PAGE 69
Culture
PAGE 58
Stakeholder engagement by the Board
PAGE 60
Market overview
PAGES 10-11
Investing in our communities
PAGES 24-25
Human rights and modern slavery
PAGE 30
Financial crime
PAGE 30
Business model
PAGES 12-13
Fairness, diversity and wider workforce
considerations
PAGES 95-102
Stakeholder engagement by the Board
PAGE 60
Financial crime and whistleblowing
PAGE 75
Principal risks and uncertainties
PAGES 32-33
Relevant policies, codes and standards are available on
https://corporate.saga.co.uk/about-us/governance/
Social
Respect for human rights
Anti-corruption and
anti-bribery
Business model
Principal risks
and uncertainties
Non-financial KPIs
The Strategic Report was approved by the Board and signed on its behalf
by Euan Sutherland, Group Chief Executive Officer on 8 April 2020
51
STRATEGIC REPORTSaga plc Annual Report and Accounts 2020 C H A I R M A N ’ S I N T R O D U C T I O N T O G O V E R N A N C E
Patrick O’Sullivan
Chairman
Strong governance plays
a vital part in driving
the right behaviour and
producing fair outcomes
for our customers
Dear Shareholder,
This year has been a challenging year for many
reasons, including the recent impact of COVID-19.
It was crucial that our governance framework
continued to support effective decision making
as we dealt with the external factors that
affected our strategy. We remain committed to
our purpose of helping our customers lead the
life they want to lead and believe that strong
governance plays a vital part in driving the right
behaviour and producing fair outcomes for our
customers. I am proud of how the workforce is
dealing with the disruption to our usual way of
working and want to thank all colleagues for their
hard work and passion during a difficult time.
The Board spent time considering how investment
in the Saga brand would allow us to continue to
offer specialist products and services that deliver
good value and which would meet our customers’
needs. Board discussion has focused on conduct,
customer outcomes and how we can use our
customer insight to gain a unique understanding
of the behavioural traits and sentiments of our
target demographic.
Our customers are responding well to what we
are doing. It is clear that the Saga brand remains
strong with our core target market.
We also enhanced the Membership proposition
with the launch of the Possibilities app, Dining
Possibilities and a digital edition of the Saga
Magazine. I was pleased that we were able
to extend our Possibilities offering to our
shareholders during the year.
Details of Board activities during the year and
how the governance structure supported key
decisions, such as the decisions to invest further
in our IT capabilities, charter new river cruise ships
and launch new savings products, can be found
on pages 59-63.
The Board Committees also played important
roles throughout the year. The Risk Committee
considered emerging and principal risks and
uncertainties and risk tolerance thresholds.
This analysis played an important part in the
stress testing used in the formation of the viability
statement (see page 48). The Audit Committee
reviewed 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 74-77.
Board composition and changes
Throughout the year, the Nomination Committee
discussed optimum Board composition and the
skills required to take the business forward.
52
Saga plc Annual Report and Accounts 2020 I am confident that we have the right leadership
to make the right decisions in a challenging
environment. We were able to attract strong
candidates due to the strength of Saga as
a unique British brand with a strong heritage.
Euan Sutherland succeeded Lance Batchelor
as Group Chief Executive Officer in January
2020. Euan was selected due to his substantial
experience heading major customer facing
businesses, including financial services
businesses, through periods of change.
The Board was of the opinion that Euan’s
leadership would be invaluable as we continue
the Saga transformation, with our customers
at the heart of our strategy.
Gareth Hoskin was appointed to the Board
as a Non-Executive Director on 11 March 2019.
Gareth also took on the role of Chair of AICL and
his experience in this sector has proved invaluable.
In November 2019, we announced that the Board
had approved the Nomination Committee’s
recommendation to appoint Cheryl Agius as Chief
Executive Officer of Insurance, a newly created
role to lead all aspects of our insurance business
and deliver our insurance strategy by building on
the early success of our innovative three-year
fixed-price product. Cheryl was selected due
to her experience in insurance, retirement and
pensions and strong track record of delivery
in senior strategic roles.
For details of the processes for selection and
appointment, see the Nomination Committee
Report on pages 68 to 69.
In January 2020, we announced that Gareth
Williams had advised us of his intention to
step down as Chair of the Remuneration
Committee with effect from 1 February 2020.
Eva Eisenschimmel has been appointed
in his place. Gareth will retire as a Non-
Executive Director of the Company by the end
of December 2020.
In April 2020, we announced that Ray King
had confirmed his intention not to stand for
re-election at the 2020 AGM. Gareth Hoskin will
replace Ray King as Chair of our Audit Committee.
I would like to thank Lance for his six years of
service to the Group. I also thank Gareth and
Ray for their valued contribution to the Board and
excellent service as Chairs of the Remuneration
and Audit Committees respectively. I wish them
all well for the future.
We comply with the recommendation in the UK
Corporate Governance Code 2018 (Code) that
at least half of our Board members, excluding the
Chairman, are Non-Executive Directors whom the
Board considers to be independent. The Board
Key features of our
governance procedures
• Governance: our governance
framework works to support effective
decision making.
• Purpose: we are working to articulate
more explicitly and holistically our
purpose and values and how they relate
to our stakeholders.
• Stakeholders: a stakeholder mapping
exercise ensured we focus on our key
stakeholders are at the heart of the
decisions we make.
• Customers: focused on customer
outcomes and how we can use our
customer insight to gain a unique
understanding of the behavioural
traits and sentiments of our target
demographic – and give customers
what they want.
• Financial performance: our governance
processes help us assess and measure
the impact of our decisions on financial
performance, value for shareholders and
impact on stakeholders.
welcomes the fourth report of the Hampton-
Alexander Review (published in November
2019) which seeks to improve Board and senior
leadership diversity. The Company currently has
four women on its Board (40%) and six in total
across the combined Board and Group Executive
Team (35%). The number of women in the
combined group of Group Executive members and
their direct reports is 34%. For full details of Board
composition, see pages 64-65.
People and culture
Our people make Saga what it is and are there
to deliver on our purpose, which is why a strong
culture is so important. We recognise that culture
is a journey and is a key part of our competitive
advantage. We focused on the following key
drivers of culture:
• Leadership. We recognise the importance
of ensuring we have the right talent in place
to achieve our goals. Talent development and
succession planning are discussed in detail
by the Nomination Committee and the Board,
including biannual formal reviews.
• Purpose. We are working to articulate
more explicitly and holistically our purpose
and values and how these relate to our
stakeholders. The Board’s focus was on
opportunities to sharpen and make our
purpose, culture and values more meaningful
to add clarity and precision and improve
stakeholder returns.
53
Saga plc Annual Report and Accounts 2020GOVERNANCE C H A I R M A N ’ S I N T R O D U C T I O N T O G O V E R N A N C E
C O N T I N U E D
• Approach to rewarding and managing people.
The Remuneration Committee was focused
on ensuring that the Company had the right
system of rewards not only at the senior level
but also throughout the Group to ensure that
our colleagues were being rewarded fairly
for their work and we were able to retain the
best talent. Further details can be found in
our Remuneration Report on pages 81-108.
We awarded eligible employees Free Shares
for the fifth year running to reward their hard
work and encourage a sense of ownership of
the business.
• Engagement. We recognise that engagement
with our colleagues is vital, particularly
during difficult times. We received regular
updates on the People Committee’s activities.
Gareth Williams continued to be the designated
Non-Executive Director for employee-related
matters and ensured that employee views and
opinions were communicated to the Board as
a whole.
Environmental, social and governance
Our governance framework is reviewed by
the Board continuously against best practice
and regulatory requirements. We consider
a regulatory report at each Board meeting,
which includes horizon scanning for future
developments. There has been an increased
focus on environmental issues during the year –
details can be found on pages 26-29.
During the year, we advised our shareholders
of our intention not to issue a paper proxy form
as a matter of course. We explained that in 2018
we issued 53,000 paper proxies, only 17% of
which were returned representing 1.65% of the
issued share capital. We encourage electronic
communication as this is more efficient and
increases the speed of communication, and
reduces print and distribution costs and the
impact on the environment. We recognise
that this does not suit everybody and so we
have come up with what we believe is a fair
compromise in that we have put in place
a process where a paper proxy form will be
issued upon request.
We conducted an interview-based, externally
facilitated Board and Committee evaluation
during the year. The review concluded that good
progress had been made and that continued
focus on brand awareness and customer needs
was vital for delivery of the strategy. A full
explanation of the evaluation exercise can be
found on pages 66-67.
A summary of how we have applied the
principles of the 2018 Code is set out overleaf.
Our approach to Board leadership and Company
purpose is detailed on pages 58-60, division of
responsibilities on pages 61-63, composition,
succession and evaluation on pages 64-67,
stakeholder engagement by the Board on
page 60, and audit, risk and internal control on
pages 70-73.
Our shareholders and our AGM
Our Executive Directors, Chair of the
Remuneration Committee 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
2019 AGM, all resolutions were passed with
a significant majority with the exception of the
approval of the Directors’ Remuneration Report.
An explanation on how the Board engaged to
seek feedback with those shareholders who voted
against can be found on our corporate website
(www.corporate.saga.co.uk/about-us/governance).
All Directors standing for re-election were
re-appointed.
Our AGM is scheduled to take place on 22 June
2020. We are considering how this will be held this
year, in light of the impact of COVID-19 and will
set out full details in the notice of the meeting.
Patrick O’Sullivan
Chairman
8 April 2020
54
Saga plc Annual Report and Accounts 2020 K E Y S TAT E M E N T S
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 the relevant provisions of the Code throughout the year as set out on pages 56-57.
An explanation of non-compliance with Provision 38 is also provided.
The viability statement can be found in the Strategic Report on page 48.
Going concern
The going concern statement can be found in the Strategic Report on page 49.
Fair, balanced and
understandable
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.
Assessment of risk Through the risk cycle detailed on page 72, the Board is able to confirm that it has carried out
a robust assessment of the emerging and principal risks facing the Company, including those which
would threaten our business model, future performance, solvency or liquidity, in accordance with
Provision 28 of the Code.
Statement of review The risk management process detailed on pages 70-73 was in place for the year under review and
up to the date of approval of this report.
The Audit Committee, working closely with the Risk Committee and on behalf of the Board, carried
out a review of the effectiveness of the systems of internal control and risk management covering
all material controls, including financial, operational and compliance controls and the updated
Group risk management framework. The conclusion was that the internal control environment
remained effective, but that risk management maturity in the Group needs to be strengthened,
notably in response to management and system changes over time. This is being addressed
through a multi-year risk transformation programme commenced by Group Risk in 2019.
Section 172 (1)
The Section 172 (1) statement can be found in the Strategic Report on pages 50-51.
55
Saga plc Annual Report and Accounts 2020GOVERNANCE A P P L I C AT I O N O F C O D E P R I N C I P L E S
The Company applied the main principles of the Code
as follows:
1. Board leadership and company purpose
A. Effective Board
The Board met formally 10 times during the year.
The schedule of matters reserved for the Board (detailed
on page 58) was reviewed on 18 September 2019.
The governance structure in place sets out delegated
authorities clearly. The Board considers progress against
long term strategy at each Board meeting. More information
on Company KPIs, strategic priorities, principal risks and
uncertainties, and stakeholder engagement is provided
in the Strategic Report.
READ MORE PAGES 1-51 STRATEGIC REPORT
PAGES 32-33 PRINCIPAL RISKS AND UNCERTAINTIES
PAGES 52-80 GOVERNANCE
B. Purpose, value, strategy and culture
The Company’s purpose, value and strategy are defined
in the Strategic Report. Culture plays an important part in
delivery of strategy and operation of the business model.
The Company is on a journey to embed and continuously
focus on the right culture and initiatives were undertaken
during the year to champion desired behaviours.
READ MORE PAGE 31 HOW THE BOARD ASSESSES AND MONITORS CULTURE
PAGES 58-60 BOARD LEADERSHIP AND COMPANY PURPOSE
PAGES 61-63 DIVISION OF RESPONSIBILITIES
PAGES 81-108 DIRECTORS’ REMUNERATION REPORT
C. Resources and controls system
The Board and its principal Committees’ focus was
to provide entrepreneurial leadership of the Company
within a framework of prudent and effective controls.
This enabled risk to be assessed and managed. The Board
and Committee framework means that the Company’s
strategic aims were continually assessed and ensured
that the necessary financial and human resources were
in place for Group objectives to be met and to review
management performance.
READ MORE PAGES 18-31 CORPORATE RESPONSIBILITY
PAGES 32-33 PRINCIPAL RISKS AND UNCERTAINTIES
PAGES 50-51 SECTION 172 (1) AND NON-FINANCIAL
INFORMATION STATEMENTS
PAGES 70-73 AUDIT, RISK AND INTERNAL CONTROL
PAGES 74-77 AUDIT COMMITTEE REPORT
D. Stakeholder engagement
The Board is committed to understand the views of the
Company’s key stakeholders and consider their interest
in Board discussion and decision making. During the year
a Group-wide ‘stakeholder mapping’ exercise took place,
to identify material stakeholders, their concerns and to
ensure that the Group considered the impact on identified
stakeholders when making decisions.
In addition, the Board actively engages with shareholders
and values opportunities to meet with them.
The AGM is viewed as an important opportunity to meet
shareholders and all Board members were available during
and after the meeting. The importance of ongoing dialogue
with shareholders is recognised and during the year the
Chairman had direct contact with major shareholders and
the Remuneration Chair consulted regarding changes
to the Long Term Incentive Plan, reasons for the vote
against the Remuneration Report and informed them of
the action taken as a result. Details of the impact of the
feedback received was published on the Company’s website
(www.corporate.saga.co.uk/about-us/governance).
56
The Chairman provided updates on shareholder opinion,
formally at the Board meetings and informally where
appropriate, via timely updates following each conversation.
In addition, advisors attended Board meetings to provide
feedback and analyst reports were circulated.
READ MORE PAGES 1-25 STRATEGIC REPORT
PAGES 18-31 CORPORATE RESPONSIBILITY
PAGES 50-51 SECTION 172 (1) AND NON-FINANCIAL
INFORMATION STATEMENTS
PAGE 60 STAKEHOLDER ENGAGEMENT BY THE BOARD
E. Workforce policies and ability to raise concerns
Key policies are reviewed and submitted to the Board on an
annual basis for discussion and approval. These are reviewed
in the context of regulatory changes as well as best practice
and to reflect the Company’s values. Appropriate training
programmes were rolled out to relevant colleagues (mainly
via an eLearning platform). Training was prioritised to link to
strategy and mitigate risk. Significant effort has been made
to communicate the Company’s robust Whistleblowing
and Open Door Policy and process. During the year, the
supervision of this process moved to the Group Risk and
Compliance team, to ensure that there was an independent
and effective second line review of the procedure in
place. A whistleblowing report is considered at each
Audit Committee meeting, with the Board made aware
of material incidents. The Board also considers an annual
whistleblowing report from the Audit Committee Chair as
Whistleblowing Champion.
READ MORE PAGES 18-31 CORPORATE RESPONSIBILITY
PAGES 50-51 SECTION 172 (1) AND NON-FINANCIAL
INFORMATION STATEMENTS
PAGES 58-60 BOARD LEADERSHIP AND COMPANY PURPOSE
PAGES 74-77 AUDIT COMMITTEE REPORT
PAGES 81-108 DIRECTORS’ REMUNERATION REPORT
2. Division of responsibilities
F. Role of the Chairman
The Chairman sets the agenda for meetings, manages the
meeting timetable (in conjunction with the Group Company
Secretary) and facilitates open and constructive dialogue
during the meetings, with particular focus on strategic
issues. This year saw the appointment of new Executive
and Non-Executive Directors and it was important that
the Chairman promoted constructive relations between all
Board members and also with senior colleagues throughout
the Group. The Chairman ensured that the Directors received
accurate, timely and clear information, with regular updates
and discussions arranged in between formal meetings.
READ MORE PAGES 58-60 BOARD LEADERSHIP AND COMPANY PURPOSE
PAGES 61-63 DIVISION OF RESPONSIBILITIES
G. Board and its 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 7 November 2019. This document
is reviewed annually by the Board. In addition, the Board felt
it appropriate to include reference to the role of Committee
Chairs and the Non-Executive Directors identified as
‘People’ and ‘Customer’ Champions. Matters reserved for
the Board and the Board and Executive Committees’ terms
of reference are reviewed annually. The Board Committees’
terms of reference can be found on the Company’s website
(www.corporate.saga.co.uk/about-us/governance).
READ MORE PAGES 61-63 DIVISION OF RESPONSIBILITIES
PAGES 64-65 BOARD BIOGRAPHIES
Saga plc Annual Report and Accounts 2020 H. Non-Executive Directors
The Non-Executive Directors provide objective, rigorous and
constructive challenge to management and met regularly
without the Executive Directors. The Senior Independent
Director acted as a sounding board for the Chairman, led an
evaluation of the Chairman’s performance and was available
for meetings with major shareholders, although this was not
necessary during the year.
N. Fair, balanced and understandable assessment
The Board has established arrangements to ensure that
reports and other information published by the Group are
fair, balanced and understandable. The Strategic Report
provides information about the performance of the Group,
the business model, strategy and emerging and principal
risks and uncertainties (PRUs) relating to the Group’s
future prospects.
READ MORE PAGES 58-60 BOARD LEADERSHIP AND COMPANY PURPOSE
READ MORE PAGES 1-51 STRATEGIC REPORT
PAGES 61-63 DIVISION OF RESPONSIBILITIES
I. Information and support
The Chairman, in conjunction with the Group Company
Secretary, ensured that all Board members received
accurate and timely information and were kept informed
on all governance and regulatory matters. A regulatory
report detailing the impact of all emerging and future
changes was presented at each Board meeting.
READ MORE PAGES 18-31 CORPORATE RESPONSIBILITY
PAGES 58-60 BOARD LEADERSHIP AND COMPANY PURPOSE
PAGES 61-63 DIVISION OF RESPONSIBILITIES
PAGES 70-73 AUDIT, RISK AND INTERNAL CONTROL
PAGES 78-80 RISK COMMITTEE REPORT
PAGES 81-108 DIRECTORS’ REMUNERATION REPORT
3. Composition, succession and evaluation
J. Appointment process
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 Group Chief Executive Officer.
READ MORE PAGES 68-69 NOMINATION COMMITTEE REPORT
PAGES 64-67 COMPOSITION, SUCCESSION AND EVALUATION
K. Board composition
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. All Directors
are subject to annual re-election by shareholders at the
Company’s AGM.
READ MORE PAGES 68-69 NOMINATION COMMITTEE REPORT
PAGES 64-67 COMPOSITION, SUCCESSION AND EVALUATION
L. Board evaluation
The Board conducted an externally facilitated, interview-
based, annual evaluation of its own performance and that
of its Committees and individual Directors.
READ MORE PAGES 68-69 NOMINATION COMMITTEE REPORT
PAGES 64-67 COMPOSITION, SUCCESSION AND EVALUATION
4. Audit, risk and internal control
M. Independence and effectiveness of internal and
external audit functions
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 internal and external auditor.
The Chairs of the Risk and Audit Committees are Board
members and provide regular updates to the Board regarding
Committee business.
READ MORE PAGES 70-73 AUDIT, RISK AND INTERNAL CONTROL
PAGES 74-77 AUDIT COMMITTEE REPORT
PAGES 70-73 AUDIT, RISK AND INTERNAL CONTROL
PAGES 74-77 AUDIT COMMITTEE REPORT
PAGES 125-129 FINANCIAL STATEMENTS
O. Risk management and internal controls
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 Risk
Committee assists the Board with its responsibilities in
relation to the management of risk and consideration of the
Company’s emerging and principal risks and uncertainties.
READ MORE PAGES 32-33 PRINCIPAL RISKS AND UNCERTAINTIES
PAGE 48 VIABILITY STATEMENT
PAGES 70-73 AUDIT, RISK AND INTERNAL CONTROL
PAGES 74-77 AUDIT COMMITTEE REPORT
PAGES 78-80 RISK COMMITTEE REPORT
PAGES 130-200 NOTES TO THE FINANCIAL STATEMENTS
5. Remuneration
P. Remuneration policies and practices
The Remuneration Committee is responsible for setting
levels of remuneration that support strategy and
promote the Company’s long term sustainable success.
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 its
key stakeholders. Annual bonus is underpinned by personal
objectives which are aligned to Company’s purpose and
values and clearly linked to the delivery of the Company’s
strategy. The Company did not comply with Provision 38
of the Code, as the Group Chief Financial Officer’s pension
does not currently align with that of the workforce. Steps are
being taken to address this.
READ MORE PAGES 1-51 STRATEGIC REPORT
PAGES 58-60 BOARD LEADERSHIP AND COMPANY PURPOSE
PAGES 81-108 DIRECTORS’ REMUNERATION REPORT
Q. Procedures for executive remuneration
Details of the work of the Remuneration Committee
and the Remuneration Policy can be found in the
Directors’ Remuneration Report. A copy of the current
Remuneration Policy can be found on the Company’s
website (www.corporate.saga.co.uk/about-us/governance).
None of the Directors are involved in deciding their own
remuneration outcome.
READ MORE PAGES 81-108 DIRECTORS’ REMUNERATION REPORT
R. Independent judgement
The Remuneration Committee exercises independent
judgement and discretion when considering remuneration
outcomes, taking account of Company and individual
performance, and wider circumstances. It can override
formulaic remuneration if necessary.
READ MORE PAGES 81-108 DIRECTORS’ REMUNERATION REPORT
57
Saga plc Annual Report and Accounts 2020GOVERNANCE B O A R D L E A D E R S H I P A N D C O M P A N Y P U R P O S E
The Board is responsible for,
and provides, the overall direction
for management, debating our
strategic priorities and setting
Saga’s values and standards
Culture
Saga has programmes in place to stimulate
and maintain our pipeline of future leaders, and
our framework has an emphasis on inclusion:
recognition and respect of diversity of thought,
of approach and of experience. We need to
continue to challenge ourselves to find new ways
to develop our next generation of women leaders,
and are committed to ensuring we nurture the
aspirations of all our people.
The Saga People Action Plan addresses themes
identified by our ‘Pulse’ colleague 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 was
aligned on delivering growth.
Saga has entered into a cross-Company
mentoring arrangement hosted through
the 30% Club, which has specific focus on
developing future female leaders by matching
them to mentors outside of our organisation
over the course of a nine month programme.
The programme will also involve Saga providing
10 mentors, who, in addition to receiving specific
mentor training, will be matched with leaders
external to Saga.
Further investment in developing our people was
made with the launch of the leadership degree
(for which 50 individuals have enrolled to date)
and MBA programmes.
All Directors, members of the Group Executive
Committee and persons discharging managerial
responsibilities receive training on an
ongoing basis.
Our Board
The Board is responsible for, and provides, the
overall direction for management, debating our
strategic priorities and setting Saga’s values and
standards. There is an articulated set of matters
which are reserved for the Board and these are
reviewed annually. The last review took place
on 18 September 2019. 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.
A fundamental part of this role is to consider the
balance of interests between our stakeholders
including shareholders, our customers, our
colleagues and the communities in which we work.
Understanding who the Group’s stakeholders are
is essential for the Group’s success. The Board
established a process of identifying the
organisation’s stakeholders and mapping them
according to materiality and what is important
to them. More information about the Group’s
stakeholder mapping exercise can be found on
pages 19-21.
Details of the Board’s activities during the year
can be found on page 59.
58
Saga plc Annual Report and Accounts 2020 Board activities during the year
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. After the year end, the Board has reviewed
in detail the impact of the COVID-19 pandemic on Saga, and the actions that management are taking to ensure that the
Group remains operationally and financially resilient.
Areas of Board focus during the year:
Strategy
Regular updates were provided by management on strategic and commercial priorities, including
the development of the new brand and data strategy and updates on the Possibilities programme.
The possible impact of Brexit was discussed.
People and culture
The Board received regular updates on talent and succession plans, reward structures and Group
HR policy. The People Committee facilitated ongoing dialogue and transparency with our colleagues.
Stakeholder
engagement
Governance
The Board considered the views of, and impact of decisions on, our stakeholders. Active dialogue
was maintained with our shareholders throughout the year, responding to enquiries via our
Investor Relations team, and holding meetings with investors and financial analysts to discuss
business performance and strategy. The Executive Directors, the Chairman and the Chair of the
Remuneration Committee held meetings with key shareholders.
Regular reports were provided by the Board’s principal Committees, with oversight of the
governance and risk management frameworks. The Board reviewed our risk appetite and tolerance
levels and thresholds against the strategy. The Group’s Modern Slavery and Human Trafficking
Policy and Statement were approved and published.
Investing in our
capabilities
The Board received updates from management on the performance of the business and on financial
performance and how investment would lead to growth.
Growth
• 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 6-9 and 14.)
• Monitored progress
of the build of our
new ships, Spirit of
Discovery and Spirit
of Adventure (refer to
pages 14 and 40).
Governance in action
Stakeholders
• Considered how we
could ensure that
our stakeholders’
voices were heard
in the Board room –
conducted a Group-
wide stakeholder
mapping exercise
(refer to pages 19-21).
• Launched
Possibilities for
shareholders,
to enable
our shareholders
to benefit from the
same offers that
our customers
experience (refer to
page 9).
• Increased visibility of
our Non-Executive
Directors (throughout
the Group and by
attendance at
presentations and
via shareholder
consultations) (refer
to page 60).
Customer
centricity
• Listened to customer
calls in the Board
room and heard from
customer facing
colleagues firsthand
so that we could
understand better
the needs of our
customers.
• Assessed the impact
of the General Data
Protection Regulation
and considered
this through our
customers’ eyes
(refer to page 80).
• Further refined the
three-year fixed-
price proposition in
Insurance to ensure
that our customers
are treated fairly
(refer to pages 7-10).
Investment
• Considered how
platforms could
deliver flexibility
and efficiencies
for customers and
colleagues (refer to
pages 15 and 22).
• 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) (refer to
page 14).
People
• Encouraged the
representatives of the
People Committee to
share valuable insight
into views of the
wider workforce,
to strengthen
colleagues’ voices in
the Board room (refer
to pages 23 and 102).
• Held a biannual
review of talent
development and
succession planning
(refer to page 69).
• Agreed the award of
Free Shares to eligible
colleagues under
the Share Incentive
Plan (SIP) for the fifth
year running (refer to
pages 83 and 186).
• Considered key
metrics such
as turnover,
absenteeism, surveys,
Board interaction with
colleagues, attitude
towards regulators
and health and safety
reports to gain a
deeper understanding
of culture and
behaviour.
• Encouraged open,
honest and more
regular dialogue
between the Group
Executive members
and senior colleagues.
59
Saga plc Annual Report and Accounts 2020GOVERNANCE B O A R D L E A D E R S H I P A N D C O M P A N Y P U R P O S E
C O N T I N U E D
Stakeholder engagement by the Board
A critical aspect of working constructively with Saga’s key stakeholder groups is the engagement which takes place
to understand material issues of interest, and set out below are details of the engagement mechanisms that exist within
Saga, which ultimately support the Board’s understanding of relevant stakeholder views. This approach helps to assess
Saga’s stakeholder interests from the perspective of the long term sustainable success of the Company and is supportive
of a Director’s duty under Section 172 (1) of the Companies Act 2006 (see pages 50-51).
Our stakeholders
How the Board engages
Impact on decision making
Customers
Colleagues
Shareholders
• Eva Eisenschimmel is our appointed ‘Customer
Champion’ and chairs Saga’s Customer Panel
Forum.
• Board considers NPS scores as part of a customer
dashboard presented at each meeting.
• Customer facing colleagues invited to Board
meetings to provide details of customer
experiences.
• People Committee provides a mechanism for
the Board to maintain two-way dialogue with
colleagues (see page 102).
• Gareth Williams is our appointed ‘Employee
Champion’ and attends the meetings of the People
Committee at least twice a year to maintain regular
contact with colleagues, to provide updates on the
Board’s activities as well as update the Board on
the main aspects considered by the Committee.
• Chief People Officer presents findings and actions
arising from colleague surveys and initiatives.
• Maintenance of open and regular dialogue with
our shareholders (many of whom are our loyal
customers) via established communication
channels.
Investor Relations report discussed at each
Board meeting.
•
• The Board and senior management meet
shareholders at the Annual General Meeting.
• Euan Sutherland, 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 Chair of the
Remuneration Committee meet with major
shareholders during the year and provide
feedback to the Board.
• Hold investor ‘road shows’, investor days, briefings
and ad hoc meetings on request, where calendar
and regulatory requirements allow.
• Conduct consultations with major shareholders
on key issues.
• The Customer Panel Forum allows for feedback
to be gathered and shared with the Board.
• Active dialogue with our customers is critical
to Saga’s strategy and helps to shape our
Membership programme, Saga Possibilities.
• Addressing a gender pay gap is a standing
agenda item for the Remuneration Committee,
which developed a plan to close this gap and
monitor its implementation. The Board updated
on the progress of this.
‘People Strategy’ is actively monitored by the
Board, via regular updates from our Chief People
Officer.
•
• Developing our people is one of our key strategic
priorities (see page 15).
• A shareholder communication strategy is
developed each year to ensure that Saga
maintains a relationship with our shareholders
based on trust.
• The Chair of the Remuneration Committee
conducted a shareholder consultation in May
2019 on changes to the future performance
conditions for our Long Term Incentive Plan
to align with our strategy announced in April
2019. After our last AGM in June 2019, the
consultation was extended to understand reasons
for 28.17% of the votes being cast against the
resolution to approve the Remuneration Report.
More details regarding this, and the action
taken as a result, can be found on our website
www.corporate.saga.co.uk/about-us/governance/.
Community
• Active engagement with local communities around
the main Saga sites (via the Group CEO) and local
councils.
• The opinions of local communities are considered
as part of the decision making process.
• The reasons for decisions are communicated.
• Meetings held with key members of local
communities and feedback provided to the Board.
Partners
and suppliers
• Partnering with charities that are close to our
customers’ hearts.
• Board and subsidiary Boards monitor relationships
with key partners and suppliers.
• Supplier Risk Committee (chaired by Helen Webb,
Chief Risk and Compliance Officer).
• Links to key risks discussed at the Risk Committee.
• Supplier risk due diligence is completed annually
to ensure compliance with current regulatory and
statutory requirements, e.g. human rights and
modern slavery requirements.
Annual General Meeting
The AGM will be held on 22 June 2020 at 11am at Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE. We are considering
how this will be held this year, in light of the impact of COVID-19 and will set out full details in the notice of the meeting.
The notice of the AGM will also contain 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.
60
Saga plc Annual Report and Accounts 2020 D I V I S I O N O F R E S P O N S I B I L I T I E S
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 consider that the skills and experience of our individual
members, particularly in the areas of insurance, financial
services, customer service, brand management, strategy
and risk management, are fundamental to the pursuit of
our objectives. In addition, the 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 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 and Gareth Williams.
We continue to comply with the Code recommendation
that at least half of our Board , excluding the Chairman,
are Non-Executive Directors whom the Board considers to
be independent. For full details of Board composition, see
pages 64-65.
Board attendance during the year
The Board and Committees have a scheduled forward
programme of meetings. During the year, the Board met
formally on 10 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 and the strategic direction for each of the
businesses were discussed. The Chairman meets regularly
with the Senior Independent Director and Non-Executive
Directors outside of formal meetings.
Board attendance
Member
Role
Patrick O’Sullivan
Chairman (leadership, Board governance, sets the agenda and facilitates
open Board discussions, performance and shareholder engagement)
Euan Sutherland1
Group Chief Executive Officer (develops strategy for Board approval
and Group performance)
James Quin
Cheryl Agius2
Group Chief Financial Officer (Group financial performance, including
creation of the budget and five-year plans for recommendation to
the Board)
Chief Executive Officer of Insurance (leads all aspects of insurance
business including three-year fixed-price product and responsible for
insurance strategy)
Independent Non-Executive Directors
Orna NiChionna
Eva Eisenschimmel
Julie Hopes
Gareth Hoskin3
Ray King4
Gareth Williams5
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.
Maximum
number of
meetings
Attendance
10
2
10
2
10
2
10
2
Maximum
number of
meetings
Attendance
10
10
10
9
10
10
8
10
9
6
9
9
Other executives, senior colleagues and external advisers are also invited to attend Board meetings, to present items
of business and provide insight into key strategic issues. The Group Company Secretary attends each meeting, assists
the Chairman of the Board and Committee Chairs in planning for each meeting and ensures that Board and Committee
members receive information and papers in a timely manner.
Former Directors
Lance Batchelor6
Group Chief Executive Officer
Maximum
number of
meetings
Attendance
10
9
Notes:
1 Euan Sutherland was appointed as Group Chief Executive Officer on 6 January 2020
2 Cheryl Agius was appointed as Chief Executive Officer of Insurance on 1 January 2020
3 Gareth Hoskin was appointed on 11 March 2019
4 Ray King has confirmed his intention not to stand for re-election at the 2020 AGM
5 Gareth Williams has indicated his intention to step down as a Non-Executive Director by the end of December 2020
6 Lance Batchelor stepped down as Group Chief Executive Officer on 6 January 2020 and retired as a Director on 31 January 2020
61
Saga plc Annual Report and Accounts 2020GOVERNANCE D I V I S I O N O F R E S P O N S I B I L I T I E S
C O N T I N U E D
T H E B O A R D ’ S
R E S P O N S I B I L I T I E S
•
Identify future developments and opportunities in strategic direction
of the Group.
• Setting values and standards.
• Generating ideas to meet the needs of our stakeholders, including
shareholders, colleagues and customers.
• Ensuring compliance with statutory and regulatory obligations.
• Managing risk and control.
• Scenario analysis to assess potential impact of decisions.
The Nomination Committee’s
responsibilities
• Assessing the size, structure
and composition of the
Board to ensure this remains
aligned with emerging trends
and keeps up with the pace
of change.
• 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.
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 and monitored
within Saga.
NOMINATION COMMITTEE REPORT
PAGES 68-69
AUDIT COMMITTEE REPORT
PAGES 74-77
RISK COMMITTEE REPORT
PAGES 78-80
T H E E X E C U T I V E C O M M I T T E E
reports directly to the Board via the
Group Chief Executive Officer, Chief
Executive Officer of Insurance and
Group Chief Financial Officer and
is responsible for:
Implementing strategy as determined by the Board.
•
• Executive management – monitoring trading against strategy.
• Displaying ethical leadership from the top.
• People development and day to day operational management.
• Managing risk and conduct, reviewing Group Risk and Internal Audit and
• Reporting any potential or actual breaches of regulation or policy to
compliance plans.
the Board.
•
Identifying the root cause of cultural issues and taking appropriate action.
62
and management procedures.
the long term.
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 exposure
and future risk strategy.
• Reviewing risk assessment
• 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 the corporate
insurance arrangements.
• Reviewing (on an annual
basis) reports received
from the Money Laundering
Reporting Officer relating
to the adequacy and
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
• 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 to encourage
desirable behaviour and
responsible risk taking.
• 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.
THE WORK OF THE REMUNERATION
COMMITTEE IS INCLUDED ON PAGES
81-108 AND IS INCORPORATED
BY REFERENCE
effectiveness of the Company
• Preparing an Annual
Remuneration Report.
and its subsidiaries’ anti-
money laundering systems
and controls.
Saga plc Annual Report and Accounts 2020 T H E B O A R D ’ S
R E S P O N S I B I L I T I E S
•
Identify future developments and opportunities in strategic direction
of the Group.
• Setting values and standards.
• Generating ideas to meet the needs of our stakeholders, including
shareholders, colleagues and customers.
• Ensuring compliance with statutory and regulatory obligations.
• Managing risk and control.
• Scenario analysis to assess potential impact of decisions.
Board responsibilities –
allocation of time
The Nomination Committee’s
The Audit Committee’s
responsibilities
responsibilities
• Assessing the size, structure
• Monitoring the integrity
and composition of the
Board to ensure this remains
aligned with emerging trends
and keeps up with the pace
of change.
• Succession planning.
• Evaluating the skills,
diversity of the Board.
•
Identifying and nominating
candidates to fill
Board vacancies.
knowledge, independence and
Finance functions.
• Reviewing Board performance
• Reviewing Saga’s annual and
evaluation results in relation to
half year financial statements
Board composition.
of financial statements
and reporting procedures.
• Reviewing Internal Audit
work plan.
• Monitoring, reviewing and
challenging the effectiveness
of the Internal Audit and
• Assessing the adequacy
and effectiveness of the
Company’s internal controls
and audits.
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 and monitored
within Saga.
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 exposure
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 the corporate
insurance arrangements.
• 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.
NOMINATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
PAGES 68-69
PAGES 74-77
RISK COMMITTEE REPORT
PAGES 78-80
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 to encourage
desirable behaviour and
responsible risk taking.
• 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 WORK OF THE REMUNERATION
COMMITTEE IS INCLUDED ON PAGES
81-108 AND IS INCORPORATED
BY REFERENCE
T H E E X E C U T I V E C O M M I T T E E
reports directly to the Board via the
Group Chief Executive Officer, Chief
Executive Officer of Insurance and
Group Chief Financial Officer and
is responsible for:
•
Implementing strategy as determined by the Board.
• Executive management – monitoring trading against strategy.
• Displaying ethical leadership from the top.
• 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.
Identifying the root cause of cultural issues and taking appropriate action.
•
Strategy and
business performance
Financial reporting
and controls (including
Dividend Policy)
Oversight of risk and
management
People, culture and
Board effectiveness
c.55%
c.15%
c.10%
c.10%
Corporate governance
c.10%
63
Saga plc Annual Report and Accounts 2020GOVERNANCE
C O M P O S I T I O N , S U C C E S S I O N A N D E V A L U AT I O N
1
5
9
2
6
10
3
7
4
8
Composition of the Board
1
3
Chairman
Executive Directors
Non-Executive Directors
Key to Committees
A Audit Committee
E Executive Committee
N Nomination Committee
R Remuneration Committee
RI Risk Committee
Committee Chair
6
1. Patrick O’Sullivan
2. Euan Sutherland
3. James Quin
Chairman
Appointed
1 May 2018
Group Chief Executive Officer
Group Chief Financial Officer
Appointed
6 January 2020
Appointed
1 January 2019
Key strengths and experience
–Financially and strategically sophisticated
business leader and Board director.
–Wealth of experience in the financial and
insurance industry.
Previous senior roles include: Bank of America,
Goldman Sachs, Financial Guaranty Insurance
Company, Barclays/BZW and Zurich.
Previous Non-Executive roles include:
Chairman of Old Mutual plc and the UK’s
Shareholder Executive; Deputy Governor at
Bank of Ireland; Senior Independent Director
at Man Group plc; Audit Committee Chair
at Collins Stewart plc, Cofra Group AG and
Chairman of ERS (syndicate 218), a Lloyd’s
market specialist motor insurer.
Key strengths and experience
–Significant experience in leading major
consumer facing businesses through
periods of change to deliver a more
efficient organisation.
–Implementing strategy focused on
customer insight, digital innovation and
wholesale expansion.
Previous senior roles include: CEO of Superdry
plc, the global digital brand and The Co-op
Group; Group COO & CEO UK at Kingfisher plc,
and background in global FMCG (fast moving
consumer goods) brands including Mars and
Coca-Cola.
Other roles
Non-Executive Director of Britvic plc
(appointed February 2016).
Key strengths and experience
–Fellow of the Institute of Chartered
Accountants in England and Wales.
–Seasoned insurance executive with over
28 years of senior leadership experience.
–Extensive strategic, investor and
operational finance experience within
the insurance industry.
Previous roles include: Zurich Insurance Group
(most recently UK Chief Financial Officer);
Citigroup Global Markets; Lehman Brothers;
and PwC.
64
Saga plc Annual Report and Accounts 2020 4. Cheryl Agius
6. Eva Eisenschimmel
8. Gareth Hoskin
Chief Executive Officer of Insurance
Appointed
1 January 2020
Key strengths and experience
–Fellow of the Institute of Actuaries.
–Over 25 years’ experience in insurance,
retirement and pensions.
–Strong track record of delivery in senior
strategic roles.
–Leading an organisational transformation
and change programme to create a data-
driven, digitally led business.
Previous roles include: Legal & General (UK
Strategic Retirement Director, UK International
Development Director and most recently
Chief Executive Officer of General Insurance
business); Aon Hewitt, Lloyds TSB and
Towers Watson.
Independent Non-Executive Director
Customer Champion
Appointed
1 January 2019
Key strengths and experience
–Over 30 years of experience as a brand and
marketing professional.
–Experience in customer
membership schemes.
–Appointed ‘Customer Champion’ – chairs
Saga’s Customer Forum.
Previous roles include: Non-Executive Director
(and a member of the Audit, Nomination,
Remuneration and Risk Committees) of Virgin
Money plc; Managing Director of Marketing,
Brands and Culture at Lloyds Banking Group
plc; Chief Customer Officer at Regus plc; Chief
People and Brand Officer at EDF Energy; senior
positions at Allied Domecq and British Airways.
Independent Non-Executive Director
Appointed
11 March 2019
Key strengths and experience
–c.20 years’ experience in insurance, in a variety
of roles.
–Accountant: recent and relevant financial
experience and competence in accounting.
Previous roles include: main Board Director and
CEO International; and finance, retail marketing
and HR roles in Legal & General; accountant
at PwC.
Other roles
Audit Chair and Senior Independent Director at
Leeds Building Society (appointed November
2015); Trustee, Non-Executive Director and
Chair of the Audit and Risk Committees at
Diabetes UK (appointed January 2015).
5. Orna NiChionna
Senior Independent
Non-Executive Director
Appointed
Senior Independent Director on 31 March 2017/
29 May 2014 as Non-Executive Director
Key strengths and experience
–Significant experience in strategy and new
concept development and launch, business
turnaround, logistics redesign and supply
chain management.
–Previous client portfolio included many
consumer-facing clients.
Previous roles include: Senior Independent
Director of Royal Mail plc, HMV plc, Northern
Foods plc and Bupa; Non-Executive Director
of Bank of Ireland UK Holdings plc and Bristol
& West plc; former Partner at McKinsey &
Company.
Other roles
Non-Executive Director and Chair of the
Remuneration Committee at Burberry Group
plc (appointed January 2018), Non-Executive
and Chair of Founders Intelligence Limited
(appointed July 2019), Deputy Chair of the
National Trust (appointed January 2014) and
Trustee of Sir John Soane’s Museum (appointed
January 2012).
Other roles
Chief of Staff at Lowell (appointed
February 2016).
7. Julie Hopes
Independent Non-Executive Director
Appointed
1 October 2018
Key strengths and experience
–Associate with the Chartered Institute
of Bankers.
–Wealth of insurance experience coupled with
over 20 years in a variety of roles, specialising
in general insurance and predominantly in
personal lines.
–Highly customer-focused, with a breadth
of functional, membership and affinity
experience and a track record of
driving growth.
Previous roles include: Non-Executive Director
and Chair of Risk Committee of Co-Operative
Insurance; Tesco Bank; and CEO of The
Conservation Volunteers, a UK community
volunteering charity.
Other roles
Chair of Police Mutual and its Remuneration
Committee (appointed May 2014), Deputy
Chair, Senior Independent Non-Executive
Director and Remuneration Committee Chair
of West Bromwich Building Society (appointed
April 2016).
9. Ray King
Independent Non-Executive Director
Appointed
29 May 2014/retiring 22 June 2020
Key strengths and experience
–Strong background in business and
financial management.
–Significant financial experience and non-
executive director experience (including
chairing audit committees).
Previous roles include: Group Chief Executive
and Chief Financial Officer of Bupa; Director
of Group Finance and Control at Diageo plc;
Group Finance Director of Southern Water
plc; senior roles at ICI plc; Non-Executive
Director at the Financial Reporting Council,
Infinis Energy plc and Friends Provident plc;
Reporting Panel Member of the Competition
and Markets Authority.
Other roles
Non-Executive Director of Rothesay Holdco
UK Ltd (appointed April 2014) and its regulated
subsidiary, Rothesay Life plc (appointed
April 2014).
10. Gareth Williams
Independent Non-Executive Director
Employee Champion
Appointed
29 May 2014/retiring by the end of
December 2020
Key strengths and experience
–Expertise in all aspects of human resource
and people strategy.
–Brings unique perspective to discussions,
drawn from his experience of working
at Director level in a consumer facing
organisation and knowledge of corporate
relations, management development
and resourcing.
Previous roles include: Human Resources
Director of Diageo plc (including oversight
responsibility for corporate relations); key
positions in human resources at Grand
Metropolitan plc.
Other roles
Non-Executive Director of WNS (Holdings)
Limited (appointed January 2014) and Trustee
of Cicely Saunders International (appointed
April 2019).
65
Saga plc Annual Report and Accounts 2020GOVERNANCE
C O M P O S I T I O N , S U C C E S S I O N A N D E V A L U AT I O N
C O N T I N U E D
The review concluded that the Board now benefits
from a stronger composition, with increased
oversight of insurance due to having added
specialist insurance expertise and individual
Directors playing to their personal strengths.
This has allowed the Board to remain effective
during a time of challenge by having honest
and open discussions to ensure that the focus
remained on the right things. Interaction with
senior management has been positive and
transparent throughout the year.
Looking forward, the focus will be on building
a culture of accountability and deliverability
and reinforcing efforts to establish strong
and pro-active attitudes to control and risk
management throughout the businesses.
Board agendas will reflect the top priorities for
the Group in a thematic way. Talent management
and succession planning will continue to play
an important part in providing a solid base
and management capability to support the
future strategy.
Development plan for 2020/21
• Providing increased visibility around
performance, ensuring key messages and
discussion points are highlighted.
• Simplifying the governance between
subsidiary boards and the Company.
• Re-evaluating our ‘Touchstones’ to ensure
these are focused and aligned with strategy.
• Developing a set of cultural indicators to
monitor and measure progress against.
Table 1 – Findings from
the 2018/19 evaluation
The 2018/19 review concluded that areas
of focus should include the following:
• Setting out credible plans for the
long-term future of the Group.
• Considering the impact of decisions on
stakeholders in more detail.
• Focusing on competition and what
differentiates Saga.
• Assessing the impact of digital and
artificial intelligence.
Annual re-election
The Directors (with the exception of Ray King, who
will not be seeking re-election) 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 Euan
Sutherland and Cheryl Agius, 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.
The details on the specific reasons why each
Director’s contribution continues to be important
to the Company’s long term sustainable
successes will be included in our Notice of Annual
General Meeting.
Evaluation of the Board, Committees
and Directors
Steps were taken to improve the assessment
of the effectiveness of the annual evaluation
exercise. This year, Non-Executive Directors were
asked to complete and discuss a self-evaluation
with the Chairman. The Senior Independent
Director and the other Non-Executive Directors
also evaluated the Chairman’s performance
and the Senior Independent Director provided
feedback to the Chairman.
An externally facilitated, interview-based
evaluation was undertaken by Independent Audit
Limited for the Company and FCA regulated
entities, Saga Services Limited and Saga Personal
Finance Limited. Independent Audit Limited does
not have any other connection to the Company
or individual Directors.
The interviews took place in person to allow
individuals to have an honest and open
discussion. The evaluation was focused on
assessing progress in the areas identified
during last year’s review as opportunities for
further development (see Table 1 opposite).
Independent Audit Limited considered Director
and meeting attendees’ views of:
• the Board dynamics and focus on delivery
of long term strategy;
• how well we understand our customers and
use data to gain valuable insight;
• how we stay alert to the competition;
• how investment should be made in the
Possibilities programme and brand awareness;
• the risk associated with technology, projects
and delivery of strategy; and
• the performance of the Committees and
Committee Chairs.
66
Saga plc Annual Report and Accounts 2020 Process for Board and Committee evaluation
Chairman and Group Company Secretary met with Independent Audit to discuss the objectives
of the review and suggested areas of focus.
A series of interviews with the individual Directors and senior management was conducted
between November 2019 and January 2020 with Board members and senior management
covering both standard topics and others aligned to individual roles and experience.
External evaluators attended the Committee and Board meetings in December 2019 and January
2020 to observe Board dynamics and individual Director contributions. Access was provided to
the meeting packs.
Overall findings and confidential feedback was provided to the Chairman before the external
evaluators attended the Board meeting to present their report and recommendations
in March 2020.
Board discussion identified priority development areas for 2020/21.
Action plans prepared. Progress will be tracked at
future Group Executive and Board meetings
67
Saga plc Annual Report and Accounts 2020GOVERNANCE N O M I N AT I O N C O M M I T T E E R E P O R T
G E N E R A L I N F O R M AT I O N
The Committee’s remit
• To review the structure, size and composition (including
the independence, experience, diversity and need for
progressive refresh of membership) of the Board.
• To prepare a description of the role, skills, knowledge and
expected time commitment required for appointments.
• To consider how to develop a diverse pipeline in
succession planning and talent development for
Executive Directors and other senior executives.
• To review the results of the Board performance evaluation
process that relate to the composition of the Board.
The Committee’s terms of reference (approved by the
Board on 27 January 2020) 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
Board composition
Executive succession
and talent development
Board evaluation
Diversity
50%
30%
10%
10%
Committee composition and attendance
Members (all
independent Non-
Executive Directors)
Patrick O’Sullivan
(Chair)
Member
since
18/05/18
Eva Eisenschimmel
04/04/19
Ray King
Orna NiChionna
Gareth Williams
29/05/14
29/05/14
29/05/14
Max.
possible
meetings Attendance
8
7
8
8
8
8
6
8
7
8
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 handled the appointments made during the
year well. It was felt that areas of focus for 2020/21 should
include whether the appointment process could be made
more efficient and ensuring appropriate non-executive
succession planning was in place given future strategy
and developing risks.
68
Patrick O’Sullivan
Chair, Nomination Committee
Dear Shareholder,
I am pleased to present this report from the
Nomination Committee. This year saw the
Committee appoint a new Group Chief Executive
Officer, a Chief Executive Officer of Insurance
and a Chief People Officer and Chief Strategy
Officer. Following the appointments of two new
Executive Directors and departure of Lance
Batchelor, we achieved a gender balance of 40%
women on the Board.
The focus during the year was on ensuring that
there was a Board and Committee structure in
place that supported our strategy to return to
our direct heritage and which provided the right
skills to take the Group forward, and built a culture
that was aligned with our strategy and which
promoted talent, diversity and fostered high
performance. I was delighted that this resulted in
the appointments of Euan Sutherland as Group
Chief Executive Officer and Cheryl Agius as
Chief Executive Officer of Insurance.
In addition, Nick Stace was appointed as Chief
Strategy Officer, a Group Executive member, who
will provide useful skills as we refine our focus on
our core customers and further evolve the Saga
brand. The appointment of Jane Storm as Chief
People Officer and Group Executive member
will further develop our approach to succession
planning and talent development at and below
Board level. We recognise the importance of this
in supporting the delivery of our strategy.
Board evaluation
Committee members also discussed the findings
of the report produced by Independent Audit
Limited in relation to the composition of the
Board. The evaluation was based on individual
interviews between the external evaluators and
all Directors and regular Board attendees, which
facilitated honest and open discussion around
general topics and around individuals’ roles and
experience. The outcome of the evaluation was
that it was felt that individual Directors were
selected for the experience and skills that they
contribute and that this fitted with the Group
Saga plc Annual Report and Accounts 2020
strategy. The report also highlighted the need to consider
how Board composition should include travel industry
experience. We also concluded that the selection process
for the Group Chief Executive Officer and Chief Executive
Officer of Insurance 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.
The Committee considered the skills needed to support
delivery of the strategy. Following notification of Lance
Batchelor’s intention to retire (announced on 12 June
2019) as Group Chief Executive Officer at the end of the
financial year, a search was instigated for his replacement.
MWM Consulting was appointed by the Committee to assist
with the search.
We concluded that there was also a need to appoint
an Executive Director with strong insurance experience
and a focus on customer outcomes, who would assume
responsibility for our Insurance division. Redgrave Partners
were appointed to conduct a search for a Chief Executive
Officer of Insurance. Neither MWM Consulting or Redgrave
Partners have any other connection with the Company or
individual Directors.
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 CFO 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.
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 2019 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 2020 AGM with the exception of R. King, who
will be retiring as a Non-Executive Director on 22 June 2020.
Succession planning and talent development
The Committee recognises that appropriate leadership
is one of the key drivers of embedding the right culture as
it can effectively tackle poor behaviour and underlying
causes and deliver cultural change across the organisation.
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 Team and
a development process. Diversity is considered as part
of this discussion.
As part of the talent review framework, a review of suitability
and performance is completed including Executive Directors’
and senior management’s ability to take reasonable steps
to address misconduct and risk management and internal
control failures. We consider an ability of senior managers to
take responsibility for what happens in their areas to be an
important part of their fitness and propriety assessment.
“ The Committee
recognises that
appropriate leadership
is one of the key
drivers of embedding
the right culture.”
The Committee recognised the importance of the Board
having access to senior management and meeting
individuals in the talent pool. This was achieved through
visits to key business areas and attendance by senior
management at Committee and Board meetings.
Diversity
The Company has a Diversity and Dignity Policy in place
to provide equal opportunity for all individuals including in
relation to those with protected characteristics. This policy
applies to the Group, including the Board of Directors, and
is linked to Company strategy and communicated to all
colleagues. All colleagues are expected to co-operate in
making this policy effective and to adhere to it and report
any breaches, whether actual or perceived, to their line
manager or to human resources. This equal opportunities
policy entails taking practical steps to promote a working
environment in which all colleagues are treated with dignity
and respect, free from discrimination and harassment.
We recognise diversity and inclusivity as one of the
facilitators of an environment in which it is safe to speak up,
the best talent is retained, the right business choices are
made and the right risk decisions are taken.
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.
Consideration is also given to 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’; 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
69
Saga plc Annual Report and Accounts 2020GOVERNANCE A U D I T , R I S K A N D I N T E R N A L C O N T R O L
R I S K M A N A G E M E N T A N D I N T E R N A L C O N T R O L
R I S K M A N A G E M E N T A N D
I N T E R N A L C O N T R O L
R I S K M A N A G E M E N T A N D
I N T E R N A L C O N T R O L
A C T I V I T I E S
G R O U P A U D I T A N D
R I S K C O M M I T T E E S
B U S I N E S S B O A R D
B U S I N E S S E X E C U T I V E
C O M M I T T E E
B U S I N E S S A U D I T ,
R I S K A N D C O M P L I A N C E
C O M M I T T E E
B U S I N E S S R I S K
C O M M I T T E E
Top down
• Group Risk Policy
and strategy
• Group risk appetite
• Principal risk oversight
• Group compliance
oversight
•
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
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 Provision 29 of the Code,
the Board is responsible for reviewing the effectiveness
of risk management and control systems, ensuring that:
was and will continue to be on ensuring that rigorous
and consistent risk management is embedded across the
Group and that risk management maturity in the Group is
strengthened. Therefore in 2019 the Group began a multi-
year risk transformation programme which includes the roll
out of an updated risk management framework.
• there is an ongoing systematic process for identifying,
evaluating and managing the emerging and 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; and
• the system accords with the FRC guidance on risk
management, internal control and related financial and
business reporting.
During 2019, the Group experienced heightened levels
of change activity driven primarily by regulation, Saga’s
ongoing IT transformation and the evolving nature of the
threat of a cyber security attack. In response to these
management and system changes and to improve risk
management maturity in the Group, steps were taken to
further strengthen the risk management framework and
system of internal controls across the Group. To ensure that
internal governance supports strategic priorities, the focus
70
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, practices and internal control systems in the
Group. The Board has agreed risk policies, risk appetite
and the strategic approach to risks and has overseen the
identification and mitigation of emerging and principal
risks. The Risk Committee also reviewed areas identified as
requiring improvement that related to particular subsidiaries
and activities carried out by the Group. Senior management
were invited, when relevant, to provide an update on areas
of concern including root cause analysis and an update
on improvement action plans. Further 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 and 76 respectively.
Saga plc Annual Report and Accounts 2020 Effective risk management and control is achieved through application of the ‘three lines of defence’ model as follows:
S A G A ’ S ‘ T H R E E L I N E S O F D E F E N C E ’ R I S K G O V E R N A N C E M O D E L
B O A R D / A U D I T C O M M I T T E E
S E N I O R M A N A G E M E N T
1 S T L I N E O F
D E F E N C E
2 N D L I N E O F
D E F E N C E
3 R D L I N E O F
D E F E N C E
Management controls
Financial control
Internal audit
Internal control measures
Information Security
Risk management
Compliance
Health and safety
R E G U L A T O R S
E X T E R N A L
A U D I T
1st line of defence – Colleagues across Saga
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 control functions. They are
responsible for designing the risk management
framework and policies, independent review of risk
management within the 1st line and reporting to
the Board.
3rd line of defence – Internal audit is responsible
for 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 variety of business operations throughout the
Saga Group require risk and internal control issues
to be considered at both subsidiary business level
and aggregated at Group level.
71
Saga plc Annual Report and Accounts 2020GOVERNANCE A U D I T , R I S K A N D I N T E R N A L C O N T R O L
C O N T I N U E D
R I S K M A N A G E M E N T F R A M E W O R K
G R O U P R I S K M A N A G E M E N T P O L I C Y A N D S T R A T E G Y
( I N C L U D I N G R I S K A P P E T I T E )
B U S I N E S S R I S K P O L I C I E S
B U S I N E S S R I S K A P P E T I T E
R O L E S , R E S P O N S I B I L I T I E S A N D O B J E C T I V E S
R I S K A S S E S S M E N T A N D K E Y R I S K I N D I C A T O R I D E N T I F I C A T I O N
G O V E R N A N C E
C O M M U N I C A T I O N
R I S K R E V I E W
( O N G O I N G )
S A G A H I G H - L E V E L
R I S K M A N A G E M E N T
P R O C E S S A N D C Y C L E
R I S K C O N T R O L
A S S E S S M E N T
I N F R A S T R U C T U R E
C H A L L E N G E
R I S K R E P O R T I N G G R O U P C E O A N D G R O U P R I S K C O M M I T T E E T O T H E B O A R D
The Financial Crime, Data and Information Security Committee provides an additional forum to consider specialist risks arising in these areas.
Risk policies
Saga has a Group Risk Policy that defines our risk
management strategy, framework, governance structures,
and detailed assessment and mitigation processes.
Individual operating company policies are also created, where
necessary, to reflect specific business characteristics but
that still remain consistent with the overall risk management
framework. All risk policies are reviewed at least annually and
approved at business or Group boards, as appropriate.
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. Risk appetites are created for each of our operating
companies, reviewed annually and derived from strategic
objectives. Risk appetites are used as a measure against
which all of our current and proposed activities can be tested.
Risk and control assessment
Each Saga operating company is responsible for identifying
and managing its risks, which are captured on risk registers
and scored using a Group Risk Scoring matrix that rates risk
against both likelihood and severity. Key controls are also
reviewed and enhanced where required in response to risk
incidents and also as part of ongoing controls framework
assurance activity.
72
Risk review and reporting
Risk reports are reviewed at business risk committees, which
are attended by key management from the 1st and 2nd lines
of defence. An aggregated Group view of the emerging and
principal risks and uncertainties is subject to independent
review by the Risk Committee. Explicit consideration is also
given as to whether risks lie within or outside the respective
risk appetite and tolerance. Risks moving out of tolerance
or appetite are subject to actions to restore the risk within
appetite/tolerance and are closely tracked through the
relevant risk committee and Board.
Significant control weaknesses or failures are escalated to the
risk committee and board of the specific operating company.
Each subsidiary risk committee considers cross-Group risks
and incidents to ensure the risk of contagion is minimised.
Process feedback
Outputs from the risk management cycle are fed back to the
Risk Committee and Board by exception to ensure the risk
framework remains effective and supports the strategy and
decision making processes of the firm.
Saga plc Annual Report and Accounts 2020 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,
Lynn Fournier, 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.
Lynn Fournier, 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 and Risk Committees.
Financial reporting
The Group maintains a control environment that is regularly
reviewed by the Board. The principal elements of the
control environment include comprehensive management
and financial reporting systems and processes, defined
operating controls and authorisation limits, regular Board
meetings, clear subsidiary board and operating structures,
and an Internal Audit function.
Internal control and risk management systems relating to
the financial reporting process and the process for preparing
consolidated accounts ensure the accuracy and timeliness
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 possible time.
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.
The 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 74-77,
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 there is an appropriate framework for
identifying, evaluating and managing the Group’s risks
and internal controls and up to the date of the approval
of this annual report and accounts, it is regularly reviewed.
The Board’s statement of review of the effectiveness of
Saga’s risk management and internal control systems is set
out on page 55.
The system of risk management and internal control is
designed to manage rather than eliminate the risk of failure
to achieve business objectives and breaches of risk appetites.
There has been regular reporting to the Audit and
Risk Committees throughout the year to ensure that
outstanding areas of improvements were both identified
and remediated. The details of key failings or weaknesses
were reported to the Committees and the Board on a regular
basis. Whilst there has been substantial progress during
the year, ongoing work is required to ensure that further
improvements in risk management maturity and the 1st line
of defence is accountable for fully embedding the revised
risk management framework, risk reporting and appropriate
responses. This includes enforcement of the incident
management framework and a risk maturity assessment.
The Committees on behalf of the Board will continue to
monitor progress throughout 2020.
73
Saga plc Annual Report and Accounts 2020GOVERNANCE A U D I T C O M M I T T E E R E P O R T
G E N E R A L I N F O R M AT I O N
The Committee’s remit
Our purpose is to help the Board discharge
its responsibilities for monitoring the following:
Integrity of the Company’s financial statements.
•
• Adequacy and effectiveness of the Company’s internal
financial controls and other internal control systems.
• Effectiveness of the Company’s Internal Audit function
and the external auditors.
The Committee’s terms of reference (approved by the Board
on 18 September 2019) 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
Internal financial controls
Internal audit
Business reviews
External audit
c.30%
c.15%
c.15%
c.20%
c.20%
Committee composition and attendance
Members (all
independent Non-
Executive Directors)
Ray King (Chair)
Gareth Hoskin
Orna NiChionna
Gareth Williams
Member
since
29/05/14
04/04/19
29/05/14
29/05/14
Max.
possible
meetings Attendance
7
4
7
7
7
4
6
6
On 2 April 2020, it was announced that Gareth Hoskin
would replace Ray King as Chair when he retires on 22 June
2020. The Board is satisfied that both Ray King and Gareth
Hoskin have recent and relevant financial experience and
competence in accounting, reflected by their professional
qualifications as chartered accountants and relevant
experience during their careers. 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.
Gareth joined the Committee on 4 April 2019.
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). Overall, the review concluded
that it has continued to act in accordance with its terms
of reference, management was held accountable for its
areas of responsibility and KPMG continued to deliver an
effective audit.
74
Ray King
Chair, Audit Committee
Dear Shareholder,
I am pleased to set out in this report an update
on the activities of the Audit Committee
during the year to January 2020. This has been
another busy year, as we continued to deliver
our transformation programme by returning to
Saga’s heritage and improving cost and capital
efficiency. More recently the COVID-19 outbreak
has created significant new challenges for
Saga. Against this background, the Committee
provided independent scrutiny of the Group’s
financial reporting and the internal controls
in its businesses.
Reporting
Interim and full year results
The interim and full year results were reviewed,
together with the appropriateness and
application of key accounting policies and areas
of significant judgement and how these were
made. KPMG provided reports throughout the
year, with focus on areas identified as having
significant audit risk.
Key areas of focus
• Consideration of the financial implications
of COVID-19 for liquidity, going concern
and viability.
• Valuation of insurance contracts’ liabilities.
The analysis and justification prepared by
management was reviewed alongside that
of the Group’s external auditor.
• Valuation of goodwill. The Committee
reviewed the recoverability of goodwill and
discussed with management the basis of its
impairment assessment. The review confirmed
that impairment of £370m was appropriate
(for more information, see pages 159-160).
• Valuation of the parent company’s investment
in subsidiaries. The Committee reviewed the
recoverability of the carrying value of the
investment in subsidiaries held in the Company
balance sheet of Saga plc. The review
confirmed that an impairment of £518m was
required (for more information, see page 199).
• Accounting for the new three-year fixed-price
Insurance (3YFP). The Committee considered
Saga plc Annual Report and Accounts 2020
Audit and control
Financial controls
The Committee reviewed the outcome of the audits of key
financial controls included in the Internal Audit programme.
The Group Financial Controller also provided an update
on accounting issues and key aspects of financial controls
at each meeting.
Financial crime
We reviewed policies covering financial crime (including
anti-bribery, anti-corruption and anti-fraud). A summary
of current issues and trends identified by the Financial
Crime, Data and Information Security Committee was
regularly considered. We concluded that the actions taken
to manage the threat of financial crime were appropriate.
Whistleblowing and open door reporting
As ‘Whistleblowing Champion’ I am responsible for ensuring
the integrity, independence and effectiveness of the
Company’s Whistleblowing and Open Door Policy and
procedures. The Committee reviewed all reported incidents
at each meeting and concluded that these had been
handled appropriately, with no material issues identified.
I provided a formal annual report to the Board in respect
of my responsibilities.
Internal Audit
We approved the Internal Audit programme and considered
the internal audits conducted throughout the year. We were
satisfied that the Internal Audit function, a team of nine
people with a broad range of skills, when combined with
the use of external resource for specialised audits, had
appropriate resources. Lynn Fournier, Head of Internal Audit
attends Committee meetings and provided regular reports
on the progress of the Internal Audit monitoring plan.
The Committee monitored whether the Internal Audit
function was independent of management and so able to
exercise independent judgement throughout the year and
was satisfied that this was the case.
Last year, the Committee approved a flexible Internal Audit
planning methodology to be more adaptive to changes
and emerging risks within the business. We continued
with this approach this year and considered it effective.
The Committee (in co-operation with the Risk Committee)
monitored the work of the risk, compliance and internal
audit functions to ensure that their activities complemented
each other appropriately. We approved the Internal
Audit Charter, which is available on the Saga website at
www.corporate.saga.co.uk/about-us/governance
the accounting methodology for the three-year fixed-
price Insurance product (launched in April 2019 by
Saga Services) and supported the basis of accounting
for revenue.
• FCA Market Study. The Committee received regular
updates on management’s responses to the FCA’s
requests for disclosure as part of the Market Study into
General Insurance Pricing Practices and considered
a range of potential outcomes from the study.
The Committee considered the internal control observations
identified by the external auditor as part of the audit and
management attended Committee meetings to provide
context and assurance regarding appropriate actions.
We noted that many open actions were due to legacy
IT platforms and would be removed once new system
implementations have been completed.
The Committee was satisfied that the key accounting
policy choices and judgements were appropriate and served
to provide a true and fair view of the Company’s financial
statements (page 55).
Fair, balanced and understandable
We advised the Board that we supported the statement
(see page 55) that this 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. This was following consideration of whether:
• the report was clear, presented a balanced view
of opportunities and challenges;
• key messages were prominent and an appropriate level
of KPIs were disclosed;
• business segments, significant issues and key
judgements reporting was consistent with disclosures
in the financial statements; and
• definitions provided were explained and alternative
performance measures were reconciled with the closest
International Financial Reporting Standards (IFRS)
measure in the financial statements.
Going Concern and Viability
The going concern statement is set out on page 49 and the
viability statement and the methodology for assessing the
Group’s ongoing viability are set out on page 48.
Our review took account of the Company’s current position
and PRUs (as reviewed and approved by the Risk Committee
(see pages 32-33) and the methodology used to provide an
assessment of ongoing viability over the chosen five year
period of review. We considered the relevant assessment
time horizon, severe but plausible potential outcomes and
the appropriateness of the scenarios modelled. In particular,
we considered the likely impact that the COVID-19 outbreak
could have on the Group’s financial performance and
position, and how this could affect both the viability of the
Group and the going concern basis of preparation that
underpins the Group’s financial statements. Based on this
review, we confirmed to the Board that we considered that
it was reasonable for the Directors to make the statements
on going concern and viability on pages 49 and 48.
75
Saga plc Annual Report and Accounts 2020GOVERNANCE A U D I T C O M M I T T E E R E P O R T
C O N T I N U E D
Internal Audit carried out thirty three audits, two post
implementation reviews and six consultancy reviews during
the year. Work conducted over the year was risk-based,
and covered both financial and non-financial controls and
a selection is shown below:
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.
•
Insurance Pricing and Customer Outcomes: an
audit of the pricing strategy, governance, principles,
methodologies and oversight of pricing practices,
including the approach to ensure fair customer
outcomes and the treatment of potentially
vulnerable customers.
• GDPR Compliance: an audit of key controls to ensure
GDPR compliance, including the responsibilities of lead
generators, partnerships and third party suppliers.
• Cruises, New Builds and Transformation: a programme
audit to verify progress against the project plans to
deliver the Spirit of Discovery on time, cost and quality
standards. Progress of planning and delivery of the
second ship, Spirit of Adventure, was also assessed.
• Data Security and Resilience: an audit of key IT security
controls, including penetration testing, coverage over
critical assets and user access controls.
• A gap analysis of the business operational resilience
framework in preparation for new FCA regulation coming
into force.
• Business Continuity: an audit of the design and execution
of the business continuity framework including the role
and responsibilities of the crisis management team,
scenario exercises and reporting.
The Committee received a report on each internal audit.
Where improvements were identified, an action plan was
agreed with management and appropriately tracked.
Internal Audit also conducted the annual year-end
review of the effectiveness of the risk management and
controls framework. This showed that the internal control
environment remained effective, but that risk management
maturity in the Group needs to be strengthened, notably
in response to management and system changes over
time. This is being addressed through a multi-year risk
transformation programme commenced by Group Risk
in 2019.
Further details of the review can be found in the Risk
Committee Report on pages 78-80 and Internal Control
section on pages 70-73.
“ This has been another
busy year, as we
continued to deliver
our transformation
programme by returning
to Saga’s heritage and
improving cost and
capital efficiency.”
Subsidiary audit committees
We received an update on activities from the independent
Non-Executive Directors who chair the Saga Services,
Saga Personal Finance and AICL audit and risk committees
to facilitate an appropriate level of oversight and ensure
a sufficient level of transparency was in place. Minutes from
these meetings were also noted at each meeting.
External audit
KPMG was appointed as the Company’s external auditor
for the financial year ended on 31 January 2018 (following
a competitive tender process in 2016) and has been
re-appointed annually since then. The current audit partner
Stuart Crisp has been in place since its appointment.
The audit partner is due to be rotated after completion
of the January 2022 year end reporting process.
Audit planning
KPMG presented an audit plan for the financial year,
together with an outline of its risk assessments, materiality
thresholds and planned approach. The key aspects of the
plan are set out in the Independent Auditor’s Report on
pages 114-124.
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.
We also considered and approved KPMG’s engagement
terms and fee proposal for 2019/20.
76
Saga plc Annual Report and Accounts 2020 Auditor independence and non-audit services
During the year, the Committee met twice with the external
auditor without members of management being present.
The objectivity, challenge and independence of KPMG
were continuously monitored by the Committee and
independence was confirmed by the auditor throughout the
year in letters to the Committee.
In line with the Revised Ethical Standard issued by the FRC
in 2016, the Committee has adopted robust policies on
non-audit fees and employment of former employees of the
external auditor. The Non-Audit Fee Policy 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.
The audit fees payable to KPMG in respect of the year
ended 31 January 2020 were £1.7m (2019: £1.3m) and
non-audit service fees incurred were £0.2m (2019: £0.2m),
the latter being incurred for work to review the Group’s
interim results and essential reporting to our banks and
travel industry regulators. This equates to a non-audit to
audit fee ratio of 0.12 (2019: 0.14). A summary of fees paid to
the external auditor is set out in note 4 to the consolidated
financial statements on page 152. KPMG has discontinued
the provision of non-audit services to the current and recent
members of the FTSE 350 index that they audit other than
those required by law or closely related to the audit.
Audit quality and effectiveness of external 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, the
extent of challenge and the quality of reporting;
• the content of (and management’s responsiveness to)
the external auditor’s management letter; and
• feedback from management following completion of
an evaluation survey on the audit process (including
audit scope, audit communication, independence
and objectivity).
The Committee is satisfied that the audit continues to
be effective and provides an appropriate independent
and objective challenge to management’s thinking.
A recommendation was made to the Board to propose
a resolution for the re-appointment of KPMG as the
Company’s auditors at the forthcoming AGM.
Ray King
Chair, Audit Committee
77
Saga plc Annual Report and Accounts 2020GOVERNANCE R I S K C O M M I T T E E R E P O R T
G E N E R A L I N F O R M AT I O N
Summary of Committee’s remit
Our main purpose is to assist the Board in discharging
its responsibilities for monitoring the following:
• The Group’s overall risk appetite, tolerance, strategy
and risk assessment processes.
• The effectiveness of the Group’s risk management
systems and compliance management procedures.
• The Group’s capability to identify and manage new
and emerging risk.
• Any material breaches of risk limits and adequacy
of action.
The Committee’s terms of reference (approved by the
Board on 18 September 2019) 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
c.30%
Risk strategy, policy and appetite c.20%
Compliance
Business reviews
c.15%
c.35%
Committee composition and attendance
Members (all
independent Non-
Executive Directors)
Member
since
Max.
possible
meetings Attendance
Orna NiChionna (Chair) 29/05/14
Julie Hopes
Gareth Hoskin
Ray King
Gareth Williams
04/04/19
04/04/19
29/05/14
29/05/14
5
3
3
5
5
4
3
3
5
5
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 has an established, effective way of working
and good relationships with Helen Webb, Chief Risk and
Compliance Officer and Lynn Fournier, Head of Internal
Audit. Focus for 2020/21 will be on assessing the impact of
COVID-19 and the effectiveness of our response plans.
78
Orna NiChionna
Chair, Risk Committee
Dear Shareholder,
I am pleased to present our report, which
summarises the activities of the Risk Committee
during the year. As the Group continued to
focus on returning to its heritage as a direct to
consumer brand and deliver the IT transformation
programme, the Committee reviewed progress
of key projects against the Group’s operational
efficiency and how these projects would deliver
fair customer outcomes.
Throughout the year, the Committee received
thematic reviews on the current and emerging
risks and updates on these from senior
management. The Committee changed the focus
of its annual agenda for the 2019/20 financial
year, to ensure that risks were considered
horizontally across the Group and were linked to
the projects and matters which were material.
The Committee continued to receive a
regular update on the external regulatory
and macroeconomic landscape. A significant
amount of time was dedicated to our regulated
entities and their relationship with the regulators.
We continued to measure and discuss emerging
and principal risks and uncertainties (PRUs),
aiming to ensure that processes were aligned
with strategy.
Management and reporting
A Group Risk Report (submitted at each meeting)
provided a comprehensive unit dashboard for
all Saga businesses. The Committee reviewed
and considered top risks and the rationale for
these, the risk development plan and compliance
monitoring plan for each business. This enabled
the Committee to have a holistic overview of
the risk environment in the Group and facilitated
discussion about emerging risks.
Saga plc Annual Report and Accounts 2020 We also reviewed the risks relating to each business area’s
performance and arising from incidents, particularly those
relating to 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.
The insurance programme for the Group was considered,
including whether any additional cover was required,
specifically in relation to the threat of cybercrime.
Reporting, oversight and escalation of risk matters, including
those pertaining to climate and the environment, takes place
through subsidiary risk governance committees. Saga’s
PRUs are refreshed on (at least) an annual basis, ensuring
that new and emerging risks are captured and remain at the
forefront of the Group’s strategic planning.
Climate change is increasingly becoming a feature of
executive and senior management engagement and will
continue to feature in Saga’s strategy and future planning.
Risk management and internal controls
Following a review of risk management maturity, it was
recognised that risk management maturity in the Group
needed to be strengthened, notably in response to
management and system changes over time. A revised
risk management framework was launched across the
Group in 2019 focusing on proactive risk identification, root
cause analysis and third party risk management. This was
developed by applying lessons learned from historic issues
and incidents that impacted our customers in the Insurance
business and the insolvency of Thomas Cook. The updated
framework was designed to increase rigour and discipline
around risk management. The Committee recognised that
this is a multi-year risk transformation programme which
commenced in 2019. This will take time to fully embed.
In co-ordination with the Audit Committee, the Committee
discussed a review of the effectiveness of the risk
management framework and internal control systems.
This included reference to all material financial, operational
and compliance controls. The Committee concluded that:
• the restructure of the Risk team had strengthened
its experience;
• the risk management framework in place had been
enhanced by the improvements made to the framework
but that risk management maturity in the Group needs to
be strengthened;
• there had been appropriate consideration of the emerging
•
and principal risks of the Group throughout the year,
including those that would threaten the business model,
future performance, solvency or liquidity; and
it would be appropriate for the Group CEO and CEO of
Insurance, as new leaders within the Group, to review and
provide a fresh perspective on what the focus of the Risk,
Compliance and Internal Audit functions should be going
forward, priorities for 2020/21 and the resource required
to achieve this.
Noting the enhancements made and the intention to
further strengthen key risk management processes, we
recommended to the Board that the appropriate statements
could be made regarding robust assessment of emerging
and principal risks facing the Group and the review of the
effectiveness of the risk management process (see page 55).
“ The Committee
changed the focus of
its annual agenda for
the 2019/20 financial
year, to ensure that
risks were considered
horizontally across
the Group and were
linked to the projects
and matters which
were material.”
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 were scrutinised in line
with agreed strategy and the results of this process are
shown in the Strategic Report on pages 32-33. These formed
the basis of the scenario testing used for the production of
the viability statement (see page 48). Our risk management
processes are described on pages 70-73. These are designed
to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss.
Our discussions also considered conduct risk as an
essential part of our review. We reviewed how our decisions
and behaviour could impact our customers, or affect our
reputation with stakeholders, including shareholders and
our regulators.
Actions were reviewed against risk appetite and tolerance,
with close attention paid to scenarios that were 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 reflect the review and simplification
of the risk management framework.
79
Saga plc Annual Report and Accounts 2020GOVERNANCE the Senior Managers and Certification Regime in December
2019 represented an opportunity to drive further positive
change in this area.
Business continuity, cybercrime and disaster recovery
The Committee considered a review of business continuity
and crisis management process and controls, and issues
that were identified. The Committee also discussed the
Group’s approach to technical cyber breach limitation and
readiness which included a new framework, training, roles
and responsibilities which should ensure a quick response
to a cyber breach. The Chief Information Security Officer
provided an update to the Committee regarding the
integration of the new framework. The Committee noted
that the cyber and information security strategy for the
Group is reviewed regularly, together with consideration of
vulnerability of management of information systems and
the adequacy of IT crisis management and communication
plans. Processes are in place to deal with malware and
ransomware threats; these are kept under constant review
and development as the threat evolves.
GDPR and PECR risk exposure and data management
We continued to monitor how GDPR (which came into force
in May 2018) affects how we do business. The Committee
considered and discussed a review of GDPR/PECR risks,
which supplemented an Internal Audit review of GDPR
conducted earlier in 2019. The Committee also received an
update on actions agreed with management. The conclusion
was that the business was taking the right approach but
would benefit from business awareness and clarifying the
division of responsibilities and accountabilities. There were
initiatives in progress which aimed to address these issues.
It was also noted that the Internal Audit team would need
to work closely with colleagues to ensure that audit actions
had the appropriate impact.
COVID-19
After the year end, the Committee reviewed in detail the
impact of the pandemic on Saga, and the actions that
management were taking to ensure that the Group remains
operationally and financially resilient. The Committee
concluded that management had taken appropriate steps
to protect customers and colleagues, and to ensure that
the insurance business could continue supporting existing
and new customers. The Committee is also considering
how COVID-19 is changing the risk landscape beyond
the immediate short term impact, to ensure that Saga’s
response is appropriate.
Orna NiChionna
Chair, Risk Committee
R I S K C O M M I T T E E R E P O R T
C O N T I N U E D
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 run by
dedicated teams, structured around business processes
and project delivery. In addition, the risk associated with the
Group IT systems (and in particular the introduction of new
software platforms in Insurance and Travel) was discussed
and it was noted that a replacement HR system is a priority
for the financial year ending on 31 January 2021.
Supplier risk management continues to be an ongoing
process, with contracts above a certain threshold being
subject to a review process. As a Committee we are acutely
aware of the need for the organisation to focus on the
risks associated with larger suppliers and those that carry
reputational risk.
Compliance
At every meeting a Group regulation report was received,
which included the status of the monitoring plan for the
regulated financial 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
in detail.
Thematic reviews
The Committee refreshed its approach to review current
and emerging risks. Instead of considering this vertically
via a series of reviews in business units, the Committee
considered risk that sits horizontally across the Group during
the financial year. As a result, the Committee discussed one
or two thematic reviews at each meeting.
Thematic reviews during the year included the following:
Five-year planning
The Committee considered an assessment of the risks and
sensitivities in the assumptions underpinning the five-year
plan and the impact of possible scenarios. The plans were
considered to be aligned with overall business strategy
and the level of risk incorporated into the plans was felt to
be commensurate with the ambition to grow the business.
All of the five-year plans were considered achievable if the
strategy was delivered successfully.
Data compliance and quality
Data quality is recognised as an area of focus. The review
included an assessment of how data was being managed
in line with GDPR and whether there were any gaps that
required action. The Committee discussed the quality of
our data and how this supported strategy. The Committee
also discussed plans to re-platform our current customer
database to modernise it and optimise its use.
Conduct risk framework
Conduct risk continues to be a key regulatory priority for
Saga. Last year the Risk team introduced a programme
of work to refresh and update Saga’s approach to conduct
risk, resulting in a new Conduct Risk Policy, a conduct risk
appetite statement and the addition of conduct risk to the
Group Risk framework. The Committee received an update
on progress made to date and reviewed an assessment
of the framework for managing conduct risk across the
regulated entities and concluded that this would support fair
customer outcomes. It was also felt that the introduction of
80
Saga plc Annual Report and Accounts 2020 D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T
A N N U A L S TAT E M E N T
Eva Eisenschimmel
Chair
Contents
Annual Statement
Summary of outcomes
Directors’ share interests
Pages 81 to 88
Page 85
Page 87
Summary Directors’ Remuneration Policy
Pages 89 to 92
Annual report on remuneration
Pages 93 to 108
Single total figure of remuneration
Long term incentives vesting in respect
of 2019/20 performance
Wider workforce pay policies
Alignment of incentives
Comparison on executive and
colleague remuneration
Gender and diversity
Shareholder voting at the AGM
Dear Shareholder,
Since I took over the role from Gareth Williams on
1 February 2020, this is my first statement as Chair of the
Remuneration Committee. I’m very pleased that Gareth
remains a Committee member and I would like to formally
thank him for his support and commitment to ensuring
an efficient handover and transition of the Chair position.
When preparing this statement, the focus on responding
to the societal and business disruption caused by the
COVID-19 pandemic is immense and the Remuneration
Committee is acutely aware of its responsibilities in taking
account of this context in its discussions and decisions
in the current performance year.
Page 93
Page 95
Page 99
Page 101
Pages 103 to 105
Pages 105 to 106
Page 108
However, the following statement describes the activities
and decisions of the Saga Remuneration Committee over
the 12 months up to January 31, 2020 – a period before
the pandemic – and therefore follows the standard report
structure and best practice guidance.
The report covers the required regulatory information,
while remaining mindful of sensitivities, and it also
provides further context and insight into our Director pay
arrangements. It provides the structure and scale of our
remuneration framework, its alignment with the rest of the
workforce, as well as the decisions made by the Committee
as a result of business performance for this year. Where the
Committee has exercised its judgement or discretion, this
has been clearly set out.
81
Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L S TAT E M E N T C O N T I N U E D
In one further note before continuing, I would like to call out
that a process of shareholder engagement on a proposed
new Remuneration Policy is currently underway as I write
and which I hope to be well progressed by the time of the
2020 AGM. Our intention is that this Policy will be brought
to shareholders and subject to a separate binding vote;
therefore this Report deals solely with the current Policy
and its implementation in the year being reported on; with
the new Remuneration Policy to be set out in the notice
of the general meeting at which shareholder approval will
be sought.
Company performance for the 2019/20 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 39.0% at £109.9m
(the measure used for assessing management bonus).
• Loss before tax of £300.9m after goodwill impairment
of £383.0m.
• Available operating cash flow of £92.7m.
• Execution of a new IT platform in support of both
Insurance and Travel businesses.
• Excellent progress in Cruise. Prior to current market
disruption, Spirit of Discovery was fully operational;
launch of Spirit of Adventure was on track and forward
bookings for both ships were meeting expectations.
• Upweighted investment in Membership and the
Saga brand.
Changes to the Board
Lance Batchelor, our former Group Chief Executive Officer,
retired from Saga on 31 January 2020. Upon his departure
from the Board, Lance’s unvested awards under the LTIP
lapsed and he received no payments for loss of office.
His IPO awards lapsed upon his announcement to retire, and
Lance has two outstanding deferred bonus awards which will
vest in line with their original schedules as these represent
remuneration that Lance has already earned. In line with
the Company’s post-cessation shareholding requirement,
Lance is required to hold shares worth 250% of his salary
for 12 months from his date of leaving. Upon leaving, Lance
held shares worth 55% of salary, and is therefore required to
hold all of these shares for 12 months. More detail in relation
to Lance’s leaving arrangements can be found on page 98
of this report and on the Company’s website.
The Board is pleased to welcome Euan Sutherland, Group
Chief Executive Officer and Cheryl Agius, Chief Executive
of Insurance, who joined the Saga Board in January 2020.
Upon appointment, the Company entered into a commitment
with Cheryl to provide a buyout award to the value of
£245,250 in the form of Saga shares which will vest in
two tranches. This award is in respect of forfeited awards
from her previous employer and is structured in a way
such that Cheryl will be neither better nor worse off than
had she remained with her previous employer. Cheryl also
received a buyout for a foregone cash award from her
previous employer. The value of this award is £112,250
which is subject to continued employment for 12 months.
More detail on the awards can be found on page 97.
Euan Sutherland did not receive any buy-out awards.
Both Euan and Cheryl were appointed with a pension
contribution of 6% of salary which is the majority
contribution available to employees across the business.
82
The remuneration of both Euan and Cheryl is in line with the
current Remuneration Policy of the Company.
2019/20 bonus
The Committee carefully considered the decision to award
bonuses in respect of 2019/20, and noted that the key
financial achievements were within the ranges we had
previously highlighted and that the performance of the
business against key operating metrics was largely positive.
Page 85 sets out the calculation for the 2019/20 bonus
which paid out at between 53% and 67% of maximum for
the executive directors. The bonuses for Euan Sutherland
and Cheryl Agius reflect the portion of the year worked
since appointment and they will receive £58,456 and
£24,532 respectively.
James Quin will receive a bonus of £308,980.
All bonus awards are provided one-third in deferred shares
and two-thirds in cash.
Taking all factors into consideration, the Committee decided
to award the former Group CEO, Lance Batchelor a bonus of
£190,414 which is 27.6% of salary. In addition, the portion of
bonus which would be awarded in deferred shares will lapse
due to his cessation of employment, hence the actual bonus
to be paid will be £126,943 or 18.4% of salary.
2017 LTIP vesting
It is currently anticipated that 0% of the 2017 LTIP will vest
on 1 May 2020. The EPS performance condition resulted
in 0% of this proportion of the award vesting (50% of the
award). No proportion of the LTIP award is currently expected
to vest in respect of the Total Shareholder Return (TSR)
performance of the Company over this performance period
(50% of the award). The only Executive Director granted this
LTIP award was Lance Batchelor (CEO) and his award lapsed
on his retirement.
2019 LTIP awards
In the 2019 Directors’ Remuneration Report, the Committee
indicated that it would reach out to shareholders to discuss
revised performance conditions for the 2019 LTIP as
a result of the fundamental change to the Group’s strategy
announced on 4 April 2019.
The Committee commenced a consultation with major
shareholders on 1 May 2019 regarding the LTIP measures
to support the strategy and carried out multiple stages
of meetings and calls. The Committee carefully considered
the feedback from shareholders throughout the consultation
which concluded on 15 July 2019 and subsequently wrote
to shareholders to confirm the agreed metrics of:
• Relative TSR (25%)
• ROCE (25%)
• Operational & Strategic metrics (50%) comprising:
1. Cruise EBITDA
2. Tour Ops net profit margin
3. SSL retention
4. SSL direct
5. Cash conversion
The full details of these metrics including targets and
rationale can be found on page 96.
Saga plc Annual Report and Accounts 2020 As a result of announcing his retirement it was agreed that
Lance Batchelor was not given an LTIP award for 2019.
Awards were made with the above performance conditions
to Euan Sutherland of 100% of salary, which is 50% of the
normal annual LTIP award and reflected his recruitment part-
way through the LTIP annual award cycle and for James Quin
of 200% of salary for this year only, which was agreed as
part of his offer when joining Saga. The award to James was
agreed as part of his recruitment; his normal ongoing LTIP
grant will be 150% of salary.
Salary increases for FY2020/21
As noted above, we are currently engaged in a consultation
on a new Remuneration Policy, and any salary increases
awarded will be considered as part of this and
communicated accordingly to shareholders.
2020 Remuneration Policy Review
Whilst under the normal three-year Remuneration Policy
cycle, shareholder approval for a binding Policy would
be sought at the 2021 AGM, the Committee is currently
consulting with shareholders regarding putting forward
a new Policy at the 2020 AGM.
Full details and rationale of the new Policy will be disclosed
in the relevant notice of meeting, however, the key reasons
for the change are:
• to support the implementation of the new strategy
communicated in April 2019;
• to align the interests of the new team of Executive
Directors with shareholders as soon as possible;
• a drive to simplify our remuneration;
• a desire to incentivise the creation of long term
shareholder returns through sustainable long term
performance; and
• to address the historic challenge the Company has
experienced in determining the right performance
conditions and targets for its long term incentive
arrangements, as demonstrated by the number of
consultations held with shareholders on this point over
the years since the IPO and the variety of shareholder
views on the issue.
What we have done during the year – matters discussed,
decisions made, and actions taken
• Made grants in August 2019 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 2019.
• 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 1.5% (average) for
the employee population. Agreed that Executive Director
salaries would be frozen at their current level, pending the
Policy review. Concurrently agreed that Non-Executive
Director fees would remain at their current level.
• Reviewed and approved the bonus outcomes for
Executive Directors for 2019/20 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 full consideration was given to individual
bonus outcomes.
• Approved the business and personal objectives for
2019/20. These were considered in light of both overall
performance expectations for 2019/20 and the medium-
term business strategy. Details of the personal objectives
for the Executive Directors are on page 94.
• Noted the voting results on our Remuneration Report at
the 2019 AGM and consulted with shareholders following
the significant vote against the Report to understand
the reasons for the vote and took appropriate actions
to resolve the issues identified.
• Considered the operation of the Remuneration Policy
(we have now commenced a review of the Policy in
respect of 2020/21 and beyond).
• Finalised procedures for 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 reviewed terms of reference for the People
Committee. The Chair of the Remuneration Committee
attended the People Committee meetings on 19 June
2019 and 12 November 2019.
• Reviewed and agreed the compensation package for the
new Group Chief Executive Officer, Euan Sutherland, and
for the Chief Executive Officer of Insurance, Cheryl Agius.
• Reviewed and agreed the leaving arrangements for the
retiring Group Chief Executive Officer, Lance Batchelor.
• Considered how ‘smarter working’ initiatives introduced
by the Company could help with the adoption of
agile working and improve employee retention and
engagement levels.(Note: this pilot has been of benefit
in building a rapid remote working capability to meet the
needs of the COVID-19 pandemic response).
Wider workforce considerations
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 offer a Share Incentive Plan (SIP) through
which employees can buy shares and in 2019 we also
provided all employees with more than one year’s service
Free Shares.
We believe that employees should have the opportunity
to save for their future and to this end, we have in place
pension arrangements for all employees.
As part of our commitment to fairness, this report contains
details of the pay conditions of our wider workforce, the
cascade of incentives throughout our business and our
Group CEO to employee pay ratio, our gender pay statistics,
and our diversity policy.
83
Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L S TAT E M E N T C O N T I N U E D
The Committee made the first two of these decisions prior
to the publication of the 2019 Directors Remuneration
Report (DRR) and these were therefore communicated in the
DRR. The third step was taken after publication of the DRR
and following the subsequent fall in the Company’s share
price in March/April 2019.
The Committee determined that a share price of 110.5p
would be used to determine the number of shares awarded
which was the share price at the time the bonus award was
determined and pre-dated the subsequent share price fall.
As a result, an award over 328,661 shares was made to the
Group CEO (£363,171 divided by 110.5p). Taking these points
together, the award value at the time the award was made
had therefore been further reduced to £134,422 (328,661
shares at 40.9p). The net effect of these decisions was that
a bonus valued at 19.49% of salary was awarded to the
Group CEO in respect of 2018/19, reduced from the formulaic
outcome of 77.4% of salary.
Shareholder consultation and looking ahead
The Committee consulted with shareholders at various
points throughout the year, primarily on the performance
measures for the 2019 LTIP (as described above) and our
response to the significant minority vote against (28.17%
vote against) the Annual Report on Remuneration at the
2019 AGM.
From discussions with shareholders, the Committee is
aware that the two key areas of concern in respect of the
remuneration approach as set out in the 2019 Annual Report
on Remuneration were:
• the potential award of an LTIP at 200% of salary to the
former Group CEO, Lance Batchelor, in FY20 against the
backdrop of the significant decline in share price; and
• the proposed FY18/19 CEO annual bonus payout
which was not considered to be aligned to
Company performance.
In respect of the first point, shareholders may recall that the
Company released an RNS on 12 June 2019 which included
the announcement that Lance Batchelor would be retiring
from his role as Group CEO, and that as a result the LTIP
award referred to above would not be made.
In respect of the second point, the Committee carefully
considered the formulaic out-turn of the annual bonus plan
for 2018/19 which would have resulted in a bonus payout
of 77.4% of salary for the Group CEO (£533,893).
The Committee then exercised its discretion taking the
following three steps:
1. the Committee, with the support of the Group CEO,
exercised its discretion to depart from the formulaic
out-turn and decided to award the Group CEO a reduced
bonus of 52.65% of salary (£363,171). The Committee
made this decision based on its view that whilst the PBT
targets for the Insurance business had been satisfied
it was intended that they be met more through Retail
Broking than reserve releases;
2. the Committee determined that there should be no
cash bonus awarded and that the entire bonus should
be awarded in shares which would be deferred for three
years to increase the alignment of the Group CEO to
shareholders and support a focus on the announced
strategy and long term shareholder value;
3. the Committee used a higher share price to determine
the number of shares granted under the award which had
the effect of reducing the value of the bonus on grant
to 19.49% of salary (£134,422).
84
Saga plc Annual Report and Accounts 2020 A N N U A L S TAT E M E N T
Summary of outcomes
Actual performance and remuneration outcomes for 2019/20
How we have performed in 2019/20
Bonus (audited in conjunction with details on page 153)
The details of the performance conditions and outcomes against the targets for the annual bonus in respect of the 2019/20
financial year are shown in the table below:
Threshold
perform-
ance
required
Target
perform-
ance
required
Maximum
perform-
ance
required
Actual
perform-
ance
Weight-
ing
Annual
bonus
value for
threshold
and
maximum
perform-
ance
(% of
max)
20%
Percent-
age of
maximum
perform-
ance
achieved
Annual bonus value achieved
(% of salary)
Lance
Batchelor
James
Quin
Euan
Suther-
land5
Cheryl
Agius4,5
55% £105.0m £115.0m £120.0m £109.9m
100% 39.6%
32.7%
27.3%
2.7% 2.5%
15% 35.1% 38.7% 42.5% 60.7%
100% 100%
22.5%
18.8%
1.9%
1.1%
See page 94 for details of personal
objectives and their achievement
0%
100%
30%
100%
0%
55.2%
37.5%
83.5%
3.8%
3.1%
8.4% 6.7%
20%
£380,828 £308,980 £58,456 £24,532
£190,414 £308,980 £58,456 £24,532
Per-
formance
condition
Group
PBT1
Group
cash flow2
Personal
objectives
Total
Total cal-
culated
(£)
Total
payable3
(£)
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 The Committee awarded a reduced bonus as set out on page 82. The resultant figure will be awarded two-thirds in cash and one-third in shares; the portion
to be awarded in shares will lapse immediately due to his cessation of employment.
4 A proportion of Cheryl Agius’s bonus is attributed to Insurance PBT and Cash which paid out at 47% and 42.4% respectively.
5. The bonus for both Euan Sutherland and Cheryl Agius was pro-rated for the period of the financial year during which they were employed
See the Remuneration Committee Chair Annual Statement on pages 81-84 for an explanation of the difference
LTIP
KPIs
2017 LTIP award as at year end 31 January 2020
Basic Earnings Per Share (EPS)1 growth (p.a.)
Organic EPS2 growth (p.a.)
TSR
Threshold
Target
Maximum
Actual
Percentage
of current
potential LTIP
vesting
5%
12%
–
–
12%
21%
-13.4%
-12.3%
Median
– Upper quartile Below median
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 The 2017 LTIP will vest on 1 May 2020 and 2 October 2020. The indications for the LTIP performance in the table above are as at 31 January 2020. The relative
TSR target for the 2017 LTIP is substantially (but not fully) completed as at 31 January 2020. The basic EPS and organic EPS targets are complete. 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. It should be noted the Committee does not expect any of the 2017 LTIP to vest
85
Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L S TAT E M E N T C O N T I N U E D
Single total figure of remuneration for Executive Directors for the 2019/20 financial year
Executive Directors
Lance Batchelor
Period
Salary £
Taxable
benefits £
Pension
Bonus £
LTIP £
2019/20 689,785
38,252
103,468
190,414
(Group Chief Executive Officer)
2018/19
689,785
35,319 103,468
363,1711
James Quin
2019/20 370,000
25,505
37,000 308,980
(Group Chief Financial Officer)
2018/19
30,833
Euan Sutherland
2019/20
53,846
(Group Chief Executive Officer)
2018/19
n/a
Cheryl Agius
2019/20
30,417
(Chief Executive Officer of Insurance) 2018/19
n/a
3,097
1,002
n/a
937
n/a
3,083
3,231
n/a
25,686
58,456
n/a
1,825
24,532
n/a
n/a
Recovered
amounts £
Total £
(63,4712) 1,021,919
0
0
0
0
n/a
0
n/a
1,191,743
741,485
62,699
116,535
n/a
57,711
n/a
0
0
0
0
0
n/a
0
n/a
Notes:
1 The 2018/19 bonus for the Former Group Chief Executive Officer was paid fully in shares. The share price used to calculate the number of shares was 110.5p
and the share price on the date of grant was 40.9p. Therefore the face value of this bonus on the date the award was paid was £134,422
2 This represents the sums awarded in deferred shares which will lapse immediately
3 James Quin’s reportable remuneration number for FY 2018/19 was pro-rated due to his start date on January 2019
For the full single figure table, please see page 93 in the Annual Report on Remuneration.
Illustration and application of current Remuneration Policy in 2019/20
The following charts show the 2019/20 actual remuneration against the current Policy levels of remuneration for the
Executive Directors.
Group Chief Executive Officer (Lance Batchelor)
,
2
4
5
5
3
9
3
£
,
,
6
5
7
5
4
2
3
£
,
53%
43%
32%
26%
,
6
5
0
0
8
2
2
£
,
,
5
0
5
1
3
8
£
36%
27%
,
9
1
9
1
2
0
1
£
19%
,
100%
36%
26%
21%
81%
£m
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Group Chief Financial Officer (James Quin)
4
0
5
7
2
7
1
£
£m
,
,
,
4
0
0
0
5
4
1
£
,
,
4
0
0
3
4
0
1
£
,
,
4
0
5
2
3
4
£
32%
27%
48%
38%
32%
27%
,
4
8
4
1
4
7
£
42%
100%
41%
30%
25%
58%
Minimum
Target
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 Euan Sutherland and Cheryl Agius’ full year annualised remuneration elements for their
actual remuneration.
Group Chief Executive Officer (Euan Sutherland)
Chief Executive Officer of Insurance (Cheryl Agius)
,
0
4
1
5
0
9
3
£
,
,
0
4
1
5
0
2
3
£
,
54%
44%
33%
27%
,
0
4
1
5
2
2
2
£
,
,
0
4
1
5
5
7
£
38%
28%
100%
34%
24%
19%
£m
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
,
2
1
6
6
5
4
1
£
,
48%
52%
,
8
0
7
1
7
6
1
£
,
,
8
5
9
7
9
3
1
£
,
49%
39%
33%
27%
,
2
9
5
8
8
6
£
43%
,
8
5
4
6
9
9
£
33%
27%
,
8
0
2
4
9
3
£
100%
40%
28%
24%
57%
Minimum
Target
Maximum Maximum (with
50% SP growth)
Actual
Minimum
Target
Maximum Maximum (with
50% SP growth)
Actual
LTIP
Bonus
Fixed elements
LTIP
Bonus
Fixed elements
£m
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
86
Saga plc Annual Report and Accounts 2020 The following table4 outlines the elements included in the illustration on page 86:
Element
Fixed
Annual bonus
Description
Salary, benefits
and pension1
Annual bonus
(including
deferred shares)
Minimum
Included
Target
Included
Maximum
Included
Maximum
(with 50% SP growth)
Included
No annual variable
60% of maximum
bonus (target
performance is set
above budget)
100% of
maximum bonus2
100% of
maximum bonus2
LTIP
Award under
the LTIP
No multiple
year variable
60% of the
maximum award
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 2019/20 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, it should be noted the initial award to the
Group Chief Financial Officer as part of his recruitment was 200% of salary; this would revert to 150% for ongoing awards.
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.
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
Lapsed
Vested
Unvested
Outstanding
interests in
the SIP
Shareholding
requirement
met?
250%
200%
250%
200%
–
–
–
–
–
–
–
55% 910,404
219,818
667,552
–
619,847
3,835,646
4%
38,812
34,706
7,748 1,660,682
0%
0%
–
–
–
–
–
–
–
–
–
–
–
– 260,000
–
–
–
–
–
–
43,879
29,195
43,817
42,617
41,354
135,178
– 1,353,965
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,265
–
–
–
–
–
–
–
–
–
–
No
No
No
No
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Director
Executive
Directors
Lance
Batchelor5
James Quin
Euan
Sutherland
Cheryl Agius
Non-Executive
Directors
Patrick
O’Sullivan
Ray King
Orna
NiChionna
Gareth
Williams
Julie Hopes
Eva
Eisenschimmel
Gareth Hoskin
Notes:
1 Shareholding requirements are those that were in existence throughout the course of the year and as at 31 January 2020
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 (233,132) and vested
but not exercised LTIP interests (328,518)
4 Lance Batchelor – 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 vested on 29 May 2019 however these vested but unexercised options lapsed when Lance Batchelor gave notice to retire on
12 June 2019.
5 Since the year end, Lance Batchelor has bought an additional 330 shares through the SIP; Euan Sutherland purchased 253,984 shares and James Quin
purchased 108,258 shares.
87
Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L S TAT E M E N T C O N T I N U E D
Executive 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
2020 are set out below:
Lance Batchelor
(% of salary)
Shareholding
requirement
Current shareholding
(as per table on page 87)
910,404 shares
Value of/gain on interests over shares
(i.e. unvested awards subject to
performance conditions)
0 shares
Euan Sutherland
(% of salary)
Shareholding
requirement
Current shareholding
(as per table on page 87)
0 shares
Value of/gain on interests over shares
(i.e. unvested awards subject to
performance conditions)
James Quin
(% of salary)
Shareholding
requirement
717,601 shares
Current shareholding
(as per table on page 87)
38,812 shares
Value of/gain on interests over shares
(i.e. unvested awards subject to
performance conditions)
Cheryl Agius
(% of salary)
Shareholding
requirement
Current shareholding
(as per table on page 87)
0 shares
Value of/gain on interests over shares
(i.e. unvested awards subject to
performance conditions)
0 shares
880,161 shares
4,123,541 shares
4,184,601 shares
1,769,488 shares
1,745,576 shares
0%
50%
100%
150%
200%
250%
300%
Notes:
The mid-market quoted share price of 41.82p as at 31 January 2020 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.
Unvested LTIP shares and options do not count towards satisfaction of the shareholding guidelines.
Conclusion
I hope you find the information contained in this report helpful, thoughtful and clear.
I welcome any feedback from the Company’s shareholders, and you can contact me at any time at
Eva.Eisenschimmel@saga.co.uk if you have any questions or comments on this report. I look forward to hearing your views.
Eva Eisenschimmel
Chair, Remuneration Committee
88
Saga plc Annual Report and Accounts 2020 S U M M A R Y D I R E C T O R S ’ R E M U N E R AT I O N P O L I C Y
Remuneration Policy and its implementation
The current Remuneration Policy was approved by shareholders at the Company’s AGM on 21 June 2018. 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 Group Company Secretary at Saga’s registered office.
Current 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
2020
2021
2022
2023
2024
(Ongoing)
Year ending January
Base salary
Benefits and pension
Annual bonus – cash
Annual bonus – deferred shares
LTIP
Shareholding requirement
All colleague share plan
Chairman and Non-Executive Director fees
Key
Performance period
Vesting period
Holding period
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 current Remuneration Policy;
• the operation of the Policy in 2019/20; and
• proposed changes in the new Remuneration Policy which is currently being consulted on with shareholders. As described
in the Remuneration Committee Chair Statement, the Committee is currently consulting with shareholders on a new
Remuneration Policy to operate for the 2020/21 financial year, the full details of which will be disclosed in the relevant
notice of meeting and will be subject to a binding vote.
89
Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
S U M M A R Y D I R E C T O R S ’ R E M U N E R AT I O N P O L I C Y C O N T I N U E D
Remuneration Policy element
Operation in 2019/20
Proposed operation in 2020/21
Base salary
The Remuneration Committee ensures
that maximum salary levels are
positioned competitively to attract
and retain talent.
The annual salaries for the Executive
Directors were:
• New Group Chief Executive Officer:
£700,000
• Group Chief Financial Officer:
The Committee will review salary levels
for the Executive Directors as part of
its Policy review with any increases
being disclosed accordingly.
In general, salary increases for
Executive Directors will be in line with
the increase for colleagues.
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 colleagues.
Pension
The current maximum value of the
pension contribution allowance is
15% of gross basic salary. From
1 January 2020 the maximum amount
of pension supplement for new
Executive Directors will be 6% of gross
basic salary which is the majority
pension contribution available across
the Company.
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; and
• the participant’s continued
employment at the end of the
deferral period unless he/she
is a good leaver.
£370,000
• Chief Executive Officer of Insurance:
£365,000
Standard benefits.
No change.
Pensions for current executives will
form part of the Policy review.
Executive Directors received the
following:
• New Group Chief Executive Officer:
6% of salary supplement in lieu
of pension.
• Group Chief Financial Officer:
10% of salary supplement in lieu
of pension.
• Chief Executive Officer of Insurance:
6% of salary supplement in lieu
of pension.
Maximum bonus opportunity:
• New Group Chief Executive Officer:
No change is anticipated to maximum
opportunity.
To reflect the current external climate,
the bonus measures are being reviewed
to ensure they are relevant to business
priorities. Details will be included as
part of the Policy review process.
150%
• Group Chief Financial Officer: 125%
• Chief Executive Officer of Insurance:
125%
The Group Chief Executive Officer and
Chief Executive of Insurance’s annual
bonus will be prorated for time served.
Two thirds of the total bonus to be
paid immediately in cash and one third
deferred into shares for three years.
Performance measures were:
• Group PBT1 – 55%
• Group cash flow2 – 15%
• Personal objectives – 30%
(See page 85 and page 94 for full
details on the full year 2019/20 targets).
90
Saga plc Annual Report and Accounts 2020 Remuneration Policy element
Operation in 2019/20
Proposed operation in 2020/21
LTIP
Awards are designed to incentivise the
Executive Directors over the longer
term to successfully implement the
Company’s strategy.
Following his decision to retire, the
outgoing Group Chief Executive
Officer did not receive an award under
the LTIP
• Group Chief Financial Officer:
The LTIP arrangements for 2020 are
included in the Policy review. Details will
be provided following the completion
of the Policy review.
200%3
• New Group Chief Executive Officer:
100%4
• The Chief Executive Officer of
Insurance did not receive an LTIP
in 2019/20
Performance measures for the 2019
LTIP were:
i) comparative TSR (25%)
ii) Attainment of five specific
operational and strategic measures
(50%):
a) Cruise EBITDA (£m per ship)
b) Tour Ops Net Profit margin (%)
c) Saga Service Limited retention
(% of average across home and
motor)
d) Saga Services Limited direct
(% of new business)
e) Cash conversion
iii) ROCE5 (25%) – 8% p.a. for 25% of
this element of the award to vest
with full vesting at 10% p.a.
• straight-line vesting to take place
from 25% to 100% of the award
• two-year holding period.
See page 96 for full details of the
performance conditions.
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Saga plc Annual Report and Accounts 2020GOVERNANCE
D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
S U M M A R Y D I R E C T O R S ’ R E M U N E R AT I O N P O L I C Y C O N T I N U E D
Remuneration Policy element
Operation in 2019/20
Proposed operation in 2020/21
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-cessation shareholding
requirement
• Group Chief Executive Officer:
250% of salary
• Other Executive Directors: 200%
of salary
The shareholding requirement for
2020 is included in the Policy review.
Details will be provided following the
completion of the Policy review.
12 month post-cessation shareholding
requirement equal to the in-
employment requirement.
The post-cessation shareholding
requirement for 2020 are included
in the Policy review. Details will be
provided following the completion
of the Policy review.
All colleague share plan
The Company operates an HMRC SIP.
Saga continued to operate the SIP for
all colleagues in 2019, with a Free Share
award of £300 made in July 2019 to all
eligible full-time colleagues.
Saga will continue to provide all
colleagues the opportunity to
participate in all colleague equity
arrangements.
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.
No change.
No increase in the Board fee,
Committee Chair fee or Senior
Independent Director fee. Non-
Executive fees were, from 1 June 2019:
• Chairman fee: £325,000
• Board member fee: £63,672
• Committee Chair fee: £10,000
• Senior Independent Director fee:
£20,000
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 James Quin joined the Company on 1 January 2019. It was agreed as part of his recruitment that he would be awarded an LTIP of 200% of salary for his first
award in 2019/20
4 Euan Sutherland joined the Company on 6 January 2020 and received an LTIP of 100% of salary which is 50% of the normal CEO opportunity as he joined half
way through the Company’s annual LTIP grant cycle
5 Defined as earnings before interest and tax divided by the carrying value of equity plus net debt
92
Saga plc Annual Report and Accounts 2020 A N N U A L R E P O R T O N R E M U N E R AT I O N
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 2019/20
financial year. Comparative figures for the 2018/19 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
Pension3
£
Bonus4
£
LTIP2
£
Amounts
Recovered
£
Total
£
Executive Directors
Lance Batchelor
(Former Group Chief Executive Officer)
Euan Sutherland5
(Group Chief Executive Officer)
James Quin
(Group Chief Financial Officer)
2019/20 689,785 38,252
103,468
190,414
2018/19 689,785
35,319 103,468
363,171
2019/20
53,846
1,002
3,231
58,456
0
0
0
2018/19
n/a
n/a
n/a
n/a
n/a
2019/20 370,000 25,505
37,000 308,980
2018/19
30,833
3,097
3,083
25,686
(63,471)11 1,021,919
0
0
n/a
0
0
0
1,191,743
116,535
n/a
741,485
62,699
57,711
0
0
0
1,825
24,532
Cheryl Agius6 (Group Chief Executive
Officer of Insurance for Saga Plc)
2019/20
30,417
2018/19
n/a
937
n/a
Non-Executive Directors
Patrick O’Sullivan7
(Chairman)
Ray King (Non-Executive Director,
Audit Committee Chair)
Orna NiChionna (Senior Independent Non-
Executive Director, Risk Committee Chair)
Julie Hopes8
(Non-Executive Director)
Eva Eisenschimmel9
(Non-Executive Director)
Gareth Williams (Non-Executive Director,
Remuneration Committee Chair)
Gareth Hoskin10
2019/20 325,000
2018/19 243,750
2019/20
73,672
2018/19
73,672
2019/20
93,672
2018/19
96,710
2019/20 125,788
2018/19
36,224
2019/20
63,672
2018/19
5,306
2019/20
73,672
2018/19
73,672
2019/20 106,202
0
0
0
0
0
0
0
0
0
0
0
0
0
n/a
n/a
n/a
n/a
n/a
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
325,000
243,750
73,672
73,672
93,672
96,710
125,788
36,224
63,672
5,306
73,672
73,672
106,202
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 colleagues
2 Values shown for 2019/20 represent the indicative vesting of the 2017 award. The performance period of the TSR element of the award is due to be tested in
May 2020, 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 2016
LTIP award as at vesting date is shown which is as stated in the 2018/19 annual report
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 Euan Sutherland joined the Board on 6 January 2020, replacing Lance Batchelor who left the Company on 31 January 2020
6 Cheryl Agius joined the Board on 1 January 2020 as CEO of Insurance
7 Patrick O’Sullivan was appointed Chairman on 1 May 2018
8 Julie Hopes joined the Board on 1 October 2018; she became a statutory director of SSL on 26 February 2019 and was appointed Chair of the SSL Board on
8 March 2019
9 Eva Eisenschimmel joined the Board on 1 January 2019
10 Gareth Hoskin joined the Board on 11 March 2019; he was appointed Chair of AICL Board on 29 April 2019
11 This represents the sums awarded in deferred shares which will lapse immediately due to cessation of employment
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Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L R E P O R T O N R E M U N E R AT I O N C O N T I N U E D
Annual bonus3
See page 85 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 and Group Chief
Financial Officer:
Name
Weighting
Objective
Details
Achievement
of objective
Lance Batchelor
Group Chief
Executive Officer
15%
10%
5%
15%
James Quin
Group Chief
Financial Officer
Transform
Saga into a
Membership
organisation
which is truly
customer centric
Deliver
sustainable
growth
Deliver increase
in colleague
engagement
Deliver
sustainable
growth
• Prove that Membership can deliver against
n/a
specific KPIs:
– 4,000 incremental Travel passengers
(target)
– 10k incremental policies (target)
– 25k incremental policies (stretch)
• Sell three-year fixed-price product to
n/a
meet the business plan for FY19/20 of 141k
new customers and 364k total fixed-price
policies sold
Increase of direct insurance policies from
51.0% to 58.8%
Increasing Motor and Home retention:
– Motor FY 67.7% to 69.6%
– Home FY 78.5% to 79.3% on
•
•
a policies basis
• Deliver Cruise passenger growth by 27%
on prior year, equating to 33k
• Achieve retail broking home and motor
gross margin (less marketing costs) target
of £71-£74 per policy, on external basis
of reporting
• Deliver a targeted 3% increase in Group-
n/a
wide colleague engagement
• Sell three-year fixed-price product to
meet the business plan for FY19/20 of
141k new customers and 364k total fixed-
price policies
Increase of direct insurance policies from
51.0% to 58.8%
Increasing Motor and Home retention:
– Motor FY 67.7% to 69.6%
– Home FY 78.5% to 79.3% on
•
•
a policies basis
• Achieve retail broking home and motor
gross margin (less marketing costs) target
of £71-£74 per policy, on external basis
of reporting
• Develop and refine a clear view of
historical, current and future profitability
of AICL
• Deliver Cruise passenger growth by 27%
on prior year, equating to 33k at per diems
in line with plan
• Execute agreed strategy for non-
core disposals
• Agree amended covenants with
lending banks
• Effective monitoring of risks in Cruise,
three-year fixed-price products, FCA
pricing, CAA cash requirements and
defined benefit pension scheme
• Deliver a targeted 3% increase in
colleague engagement
10%
Manage balance
sheet
5%
Deliver increase
in colleague
engagement
15%
Achieved
10%
Achieved
5%
Achieved
Notes:
1 In line with the Committee’s decision to reduce the formulaic out-turn from the bonus for the former CEO the achievement of these objectives is not applicable
94
Saga plc Annual Report and Accounts 2020 Long term incentives vesting in respect of 2019/20 performance (audited)
The LTIP awards granted on 1 May 2017 have not yet vested but as performance was substantially completed during the
2019/20 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 2021 Annual Report on Remuneration to reflect the final vesting outcome and the actual share price on
the date of vesting (as required).
2017 LTIP Performance measures
Performance
measures
Basic EPS
Organic EPS
Percentage of award Date measured
Range
30%
30%
31 January 2020
5% – 12%
31 January 2020
12% – 21%
Achieved
-13.4%
-12.3%
Percentage
of LTIP vesting
0%
0%
Relative TSR
40%
1 May 2020
Median – Upper
Quartile
Below Median
0%
The table below presents the indicative vesting of the 2017 LTIP award for Lance Batchelor.
Name
Lance Batchelor
Notes:
1 Based on TSR performance against the peer group to 31 January 2020
Award
level (% of
salary)
Portion
of EPS
vesting
Estimate
of TSR
vesting1
Estimate
of total
vesting
(as % of
award)
Indicative
LTIP value
for single
figure
200% of salary
0%
0%
0%
£0
Long term incentives awarded in 2019/20 (audited)
In the 2019 Directors’ Remuneration Report, the Committee indicated that we would reach out to shareholders to discuss
revised performance conditions for the 2019 LTIP as a result of the fundamental change to the Group’s strategy announced
on 4 April 2019.
A key aspect of the Group’s strategy is to return the whole business to its heritage as an organisation that offers
differentiated products and services. This will give our customers and members a compelling reason to come to us and stay
with us. During the year we announced a new approach to Insurance which focuses on direct channels and products that
offer attractive innovative features, moving the conversation from price to value. Our new three-year fixed-price insurance
offering is a powerful indication of our change in approach. They will support future growth in customers and profits, and
generate attractive cash flows for Saga.
The Committee commenced a consultation with major shareholders on 1 May 2019 regarding the LTIP measures to support
the strategy and carried out multiple stages of meetings and calls. The Committee carefully considered the feedback from
shareholders throughout the consultation which concluded on 15 July 2019 and subsequently wrote to shareholders to
confirming the agreed position which is as follows:
Performance measures
2018 LTIP weightings and targets
Final Proposed 2019 LTIP weightings and targets with rationale
Organic EPS
Weighting: 30%
Threshold (25%): 12% p.a.
Maximum (100%): 21% p.a.
Relative Total
Shareholder
Return (TSR)
Weighting: 40%
Measured against FTSE 250
(excluding investment trusts)
Threshold (25%): median
Maximum (100%): upper quartile
Removed.
In line with the New Strategy there is expected to be a decline
in profit in 2019/20 with underlying profit before tax expected
to be £105-£120m due to a reduction in reserve releases,
as well as a decline in Broking gross margins (less marketing
costs) from £80 to between £71-£74 per policy.
The execution of the strategy is better incentivised and
measured by focussing management on key operational and
strategic metrics including cash conversion and ROCE.
Weighting: reduced to 25%
The Committee feels that is important to retain an output
based measure which reflects the market’s view of the
success of the implementation of the New Strategy.
In addition, the Committee wishes management to be
focused on recovering and enhancing shareholder value.
The Committee has further reduced the weighting of TSR
to 25% to ensure there is a sufficient focus on the execution
of the strategy measured through the new operational
and strategic measures, including cash conversion. This is
based on feedback to date from shareholders around their
confidence in the execution.
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Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L R E P O R T O N R E M U N E R AT I O N C O N T I N U E D
Performance measures
2018 LTIP weightings and targets
Final Proposed 2019 LTIP weightings and targets with rationale
Return On Capital
Employed (ROCE)
Weighting: 30%
Threshold (25%): 10.5% p.a.
Max (100%): 11.5% p.a.
Operational and
Strategic Measures
New measures for 2019
including:
• Cruise EBITDA
• Tour Ops net profit margin
• SSL retention
• SSL direct
• Cash conversion
Weighting reduced to 25%
Threshold (25%): 8% p.a.
Max (100%): 10% p.a.
The ROCE metric will ensure that the management are
focused on generating an appropriate level of return on the
investments being made over the next period.
The ROCE range has been reduced to reflect the expected
decrease in profit as a result of the implementation of the
New Strategy and the increased focus on margins and quality
of earnings.
The Committee has further reduced the weighting of ROCE
to 25% to ensure there is a sufficient focus on the execution
of the strategy measured through the new operational and
strategic measures, including cash conversion.
Weighting: 50%
These operational and strategic measures are some of the
key inputs to ensuring the execution of the Company’s New
Strategy. The following table sets out the threshold, target
and maximum performance conditions for each of these
performance measures.
Performance
condition
Cruise EBITDA
(£m per ship)
Tour Ops net
profit margin (%)
SSL retention
(% average across
home and motor)
SSL direct (% of
new business)
Cash conversion
in years 2 and 3
Percentage of
award vesting
25%
Percentage of
award vesting
60%
Percentage of
award vesting
100%
£37m
£40m
£43m
6.0%
6.5%
7.0%
72.5%
75%
77.5%
62.5%
65%
67.5%
85%
87.5%
90%
The award over 200% of salary for James Quin, which was agreed as part of his joining terms, was granted on 12 August
2019; the face value is calculated with reference to the share price on 9 August 2019 of £0.4456. The award over 100%
salary for Euan Sutherland, which represents a pro-rata award as he joined part-way through the Company’s normal
LTIP cycle, was granted on 6 January 2020; the face value is calculated with reference to the share price on 3rd January
2020 of £0.5170. The awards will vest, subject to the level of performance achieved, on 12 August 2022 and 6 January
2023 respectively.
As Lance Batchelor gave notice of his intention to retire from the Board on 31 January 2020, the Remuneration Committee
agreed that no award would be granted to him under the LTIP in 2019.
Basis on
which
award
made
Award
Type
Face value
of award
Shares
awarded
Percentage of
award vesting
at Threshold
performance
(%)
Maximum
percentage
of face value
that could
vest (%)
Name
James Quin
LTIP
Annual
£740,000 1,660,682 25%
100%
Euan Sutherland
LTIP
Annual
£700,000 1,353,985 25%
100%
Performance conditions
Organisational and Strategic
measures – 50%, Comparative
TSR – 25%, ROCE – 25%
Organisational and Strategic
measures – 50%, Comparative
TSR – 25%, ROCE – 25%
96
Saga plc Annual Report and Accounts 2020 Other awards
A buyout award to the value of £245,250 will be made to Cheryl Agius; the granting of this award is as a replacement for
awards forfeited at her previous employer and the intention is for Cheryl Agius to be no better or worse off than had she
retained those awards.
Basis on
which
award
made
Face
value of
award
Shares
awarded
Award
Type
Percentage of
award vesting
at Threshold
performance
(%)
Maximum
percentage
of face value
that could
vest (%)
Performance conditions
Name
Cheryl Agius
Buyout One-off £245,250 466,822
25%
100%
See below
The buy-out award for the CEO of Insurance is structured in a way such that the face value of the award matches the
estimated value of the foregone awards from her previous employer.
The award will be made in the form of Saga shares (466,822 shares based on Saga’s MMQ on 31 December 2019 given
Cheryl Agius’ commencement date with Saga of 1 January 2020). The award will vest in two tranches – the first tranche
of 162,723 shares will vest on 6 April 2021; the second element of 304,099 will vest on 6 April 2022. The vesting of each
award is subject to her continued employment with Saga.
The ultimate number of shares vesting may therefore vary up or down depending on the attainment of the performance
conditions of the associated LTIP awards of her previous employer.
The CEO of Insurance also received a buyout for a foregone cash award from her previous employer. The value of this award
is £112,250 which is subject to continued employment for 12 months. The value of the award may ultimately vary up or down
depending on the conditions attached to this award by her former employer.
Pension entitlements (audited)
Accrued pension
Single figure numbers
Extra information
disclosed under 2013
Directors’ Remuneration
Regulations
Name
Lance Batchelor
Age at
31/01/2020
Pensionable
service at
31/01/2020 01/02/2019 31/01/2020
Pension
salary
supplement1
Value x20
over year2
Value x20
over year2
Normal
retirement
age
3 years,
9 months
56
£6,213
£6,213
£103,468
£0
£103,468
65
Notes:
1 Pension salary supplement paid is 15% for Lance, Euan and Cheryl’s pension salary supplement is 6% which aligns to the majority of our colleagues
contribution. James’ supplement was set at 10% when he was recruited
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 Director
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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.
However, the Company entered a retirement agreement with Lance Batchelor on his cessation of employment with
the Company on 31 January 2020. The full retirement package announcement is available on the Company website
(https://corporate.saga.co.uk/about-us/governance/) but is summarised below:
1.
2.
3.
4.
Lance remained an employee of the Company and received his salary, benefits and pension allowance until his cessation
of employment on 31 January 2020.
Lance will be eligible to receive a bonus in respect of his time served as CEO for FY2019/20. This bonus will be based on
achievement of the agreed performance measures. Should there be a payout under the annual bonus for FY2019/20 this
will be made in the form of cash and/or deferred in shares as determined by the Remuneration Committee.
Awards of deferred shares made to Lance under the Company’s DBP in 2017 and 2019 will vest at their normal vesting
dates (26 May 2020 and 11 July 2022 respectively) and remain subject to the scheme rules, including malus and clawback
provisions. Awards will be exercisable for six months after vesting.
Awards made to Lance under the Long Term Incentive Plan granted in 2017 and 2018 will lapse on retirement. No LTIP
award was made to Lance in 2019.
5. Lance’s IPO awards lapsed on the announcement of his retirement.
6.
Lance will be able to withdraw shares held under the all-employee Share Incentive Plan in accordance with the scheme rules.
Lance is required to retain 250% of his salary or (if lower) his final shareholding in shares for a period of 12 months from the
Retirement Date i.e. until 31 January 2021. Lance will not receive any payments for loss of office.
Directors’ share interests
Directors’ share interests are discussed in the Annual Statement on page 87 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
was 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 did not receive a fee for his position with the White Ensign Association. He received a fee
for the Navy Board position of £15,000 per annum. Euan is a Non-Executive Director of Britvic plc for which he receives a fee
of £57,707.84 per annum. Neither James Quin nor Cheryl Agius hold any external directorships.
Implementation of policy
Implementation of policy is discussed in the Summary Director’ Remuneration Policy on page 89 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 2019/20 financial year and 2018/19 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
2019/20
financial year
(£m)
Disbursements
from profit
in 2018/19
financial year
(£m)
25.8
50.1
125.6
100.9
74.6
123.9
Percentage
change
(74.4%)
(32.8%)
1.4%
Note:
1 Total tax contributions include corporation tax, national insurance contributions, VAT and air passenger duty
98
Saga plc Annual Report and Accounts 2020 Our colleagues
Saga is committed to creating an inclusive working environment and to rewarding our colleagues throughout the
organisation in a fair manner. In making decisions on executive pay, the Remuneration Committee considers wider workforce
remuneration and conditions.
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
Saga plc
Alignment with
remuneration principles
One of Saga’s reward principles is to create fair and flexible reward structures for all
Saga colleagues. In the past two years we have reviewed and redesigned most of our
compensation and benefit structures in line with this principle.
Salary
For full year 2019/20 Saga has awarded an annual pay review of 1% for the Leadership team
and 1.5% for colleagues.
Bonus
Colleagues rated as ‘achieving’ received 1.5%; higher performers received a higher rate up to
a maximum of 2.7%.
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 colleagues, 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 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.
Malus and clawback provisions are in place.
Bonuses are paid annually in May subject to Company results.
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Element of remuneration
Saga plc
Sales and commission plans
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 colleagues.
LTIP
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 colleagues:
Level
Group Chief Executive Officer
Group Chief Financial Officer
Chief Executive Officer of Insurance
Group Executive
Top Team
Note:
1 As at 31 January 2020
Number of
eligible
colleagues1
1
1
1
7
Award type
Group shares
Group shares
Group shares
Group shares
Targeted
ranges
200%
150%
150%
60%-100%
63
Group shares
40%, 50%, 60%
Pension
Saga operates a defined benefit (DB) scheme and a defined contribution (DC) scheme.
Membership figures (as at 31 January 2020) are as follows:
DB scheme:
1,187
DC scheme:
2,116
The Remuneration Committee receives feedback from colleague surveys and from the People Committee which meets
regularly throughout the year. The first People Committee meeting was held in January 2019 following an election process
for the 18 representative positions which draw 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.
100
Saga plc Annual Report and Accounts 2020 Overview of findings
The key findings of the Committee’s review for this financial year are as follows:
• Salary increases for colleagues 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 colleagues 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 colleagues. 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 colleague; and
– to increase the amount of incentive deferred, provided in equity and/or measured over the longer term the more senior
the colleague.
The following table shows the cascade of incentives throughout the Company:
Competitive pay and cascade of incentives
Organisational level
Colleague1
Maximum
bonus
percentage
of salary
Maximum
proportion
of bonus
payable in
cash
Maximum
proportion
of bonus
deferrable in
shares
Maximum
LTIP award
SIP
Group Chief Executive Officer
Group Chief Financial Officer
Chief Executive Officer of Insurance
Executive Team
Executive Team
Executive Team
Directors3
Senior leadership
Other bonused colleagues
Non-bonused colleagues
1
1
1
6
1
1
13
51
2,509
1,390
150%
125%
125%
100%
80%
60%
60%
40%
20%
n/a
67%2
67%2
67%2
67%2
100%
100%
100%
100%
100%
n/a
33%2
33%2
33%2
33%2
0%
0%
0%
0%
0%
n/a
200%
150%
150%
100%
80%
60%
60%
40%
n/a
n/a
Notes:
1 Colleagues of the Group as at 31 January 2020
2 The maximum level of deferral of bonus in shares for these colleagues 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 colleagues of the Company through the SIP. Senior colleagues are eligible for LTIP and
•
deferred shares.
In line with the Company’s wider policy on pay, all colleagues have the opportunity to participate in a Company
pension arrangement.
• They also receive benefits appropriate to their level of seniority.
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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 colleagues
The Group’s colleagues are kept informed of Company 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 colleagues to ask
questions about the Company.
From January 2019, Saga 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 colleague engagement across the Group and confidence in the leadership of the business.
•
• A structured and recognised mechanism for collective consultation/feedback which meets the 2018 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 colleagues and
demonstrate where actions are being taken where appropriate.
Improve and enhance our current working environment.
Improve and help define our culture at Saga.
•
•
Equal 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 colleagues,
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 colleagues and the provision of equal opportunities for the training and career development of all colleagues.
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Saga plc Annual Report and Accounts 2020 Area
Considerations
Pay
comparisons
CEO ratio
Our CEO to average colleague pay ratio for 2019/20 is 41:1. To give context to this ratio, we have set
out below a chart tracking the CEO to average colleague pay ratio since 2014/15 alongside Saga’s TSR
performance since IPO. We also show this against the performance of the FTSE 250 during the same
time span.
O
P
I
n
o
0
0
1
o
t
d
e
s
a
b
e
r
R
S
T
300
250
200
150
100
50
0
258:1
116:1
Jan
2017
78:1
Jan
2016
40:1
Jan
2018
48:1
Jan
2019
41:1
Jan
2020
Jan
2014
Jan
2015
Saga TSR
FTSE 250 TSR
CEO average employee pay ratio
The Remuneration Committee considers that the FTSE 250 is the appropriate index because the
Company was a long standing member of this index since IPO and has strong aspirations to re-joining
this index in the future. 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 2020.
In summary there is significant volatility in Group Chief Executive Officer pay, and we believe that this
is caused by the below. Please note pay for the former Group CEO has been used for this calculation.
• Our Group Chief Executive Officer pay is made up of a higher proportion of incentive pay than that
of our colleagues, 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 colleagues, 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.
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D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L R E P O R T O N R E M U N E R AT I O N C O N T I N U E D
Area
Considerations
Pay
comparisons
continued
Colleague 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
2019/20
2018/19
2017/18
2016/17
2015/16
Total single figure
£1,062,8871
£1,191,743
£1,025,1463
£2,490,617
£1,600,287
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
colleagues4,5,6,7
25th percentile
Median8
75th percentile
Ratio of single total
remuneration figure shown to
Executive Committee members
33.6%2
35.1%
0%
67.5%
78.6%
0%
46:1
41:1
29:1
0%4
26.0%
65.6%
59:1
48:1
36:1
8:1
40:1
33:1
n/a
116:1
n/a
n/a
n/a
78:1
n/a
2:1
3:1
3:1
4:1
2:1
Notes:
1 For the single total figure for the Group CEO a combination of Lance Batchelor and Euan Sutherland’s remuneration for their
respective time in the role of Group CEO has been used
2 The annual bonus payment level achieved is the combination of time prorated achievement levels for Lance Batchelor and Euan
Sutherland for their respective time in the role of Group CEO
3 For 2017/18 the final value of the 2015 LTIP award as at vesting date is shown and has been restated from the 2017/18 annual report.
The share price at vesting date of 30 June 2018 was 125.6p
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 colleague 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 The fall in ratio for 2019/20 is due to the rebalancing of base pay and commission in our call centres
7 For the colleague ratio Saga has chosen to use Option B, identifying colleagues using our gender pay gap data. This was the
preferred option due to the availability of data for our many UK-based, overseas and part-time colleagues for whom single total
figure data is difficult to calculate. Figures have been completed for 2017/18, 2018/19 and 2019/20 using the April 2017, April 2018
and April 2019 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 colleagues
calculated in line with the single total figure methodology. For colleagues 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
8 The median ratios shown for 2015/16 and 2016/17 have been recalculated to allow a comparison to the 2017/18, 2018/19 and
2019/20 figures which have been calculated in line with the methodology prescribed by the regulations
The colleague pay figures used to calculate the ratio are as follows:
2019/20
2018/19
2017/18
25th percentile
Median
75th percentile
Salary
Total pay
Salary
Total pay
Salary
Total pay
£19,000
£22,750
£18,360
£20,253
£17,144
£21,496
£22,980
£25,919
£22,448
£24,919
£22,065
£25,427
£32,978
£35,889
£29,655
£33,235
£25,220
£30,950
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Saga plc Annual Report and Accounts 2020 Area
Considerations
Pay
comparisons
continued
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 2018/19 to 2019/20 compared with the average percentage change for colleagues.
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 colleague pay has been calculated using the following elements: annual salary – base salary
and standard monthly allowances; taxable benefits – car allowance and private medical insurance
premiums; annual bonus – Company bonus, management bonus, commission and incentive payments.
£ Salary
£ Taxable benefits
£ Bonus
2019/20
2018/19
Percent-
age
change
2019/20
2018/19
Percent-
age
change
2019/20
2018/19
Percent-
age
change
Group
Chief
Executive
Officer1
694,108 689,785
0.6% 36,507
35,319
3.4% 233,002
363,171
-35.8%
Average per
colleague
30,961
28,418
8.9% 1,038
993
4.5%
2,527
2,971
-15.0%
Notes:
1 The increase in benefits is driven by HMRC annual increases to the company car tax and fuel benefit charge as reported on P11D
2 For the single total figure a combination of Lance Batchelor’s and Euan Sutherland’s remuneration for their respective time in the
role of Group CEO has been used
3 Average salary per colleague increased due to the rebalancing of base pay and commission in our call centres
Saga Group gender pay gaps
Gender pay reporting legislation came into force in April 2017 and requires all UK employers with
250 or more colleagues to publish annual information illustrating pay differences between male and
female colleagues.
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 2019 results demonstrate that Saga has broadly maintained our overall gender pay gap position
when comparing against 2018’s reportable numbers. As a result, the narrative is consistent with what
was reported in 2017 and 2018. Like many organisations, the representation of females in our upper
pay quartile remains the key contributor to our gender pay gap in both pay and bonus. Our disclosed
findings and actions can be found on our corporate website.
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.
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A N N U A L R E P O R T O N R E M U N E R AT I O N C O N T I N U E D
Area
Considerations
Pay
comparisons
continued
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
colleagues 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 colleagues.
The median is the number in the middle of a set of ordered numbers. The median calculation focuses
on those colleagues in the middle of pay/bonus ranges, thereby reducing the impact of our highest and
lowest paid colleagues. The ‘median’ calculation reduces the very significant impact of our most senior
male colleagues, in order to provide a gender pay gap figure which is much more representative of the
majority of our colleagues.
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 22-23.
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Saga plc Annual Report and Accounts 2020 General information
Committee composition and attendance
Members (all independent Non-Executive Directors)
Eva Eisenschimmel (Chair)1
Julie Hopes
Ray King
Orna NiChionna
Gareth Williams2
Member
since
04/04/19
04/04/19
29/05/14
29/05/14
29/05/14
Max.
possible
meetings Attendance
3
3
7
7
7
3
3
6
6
7
Note:
1 Eva Eisenschimmel was appointed as Committee Chair with effect from 1 February 2020.
2 Gareth Williams stepped down as Committee Chair when Eva Eisenschimmel assumed this role but remained a Committee member.
Julie Hopes and I were appointed as Committee members in April 2019. I was subsequently appointed as a Chair with
effect from 1 February 2020, at which time Gareth Williams stepped down as a Committee Chair but remains a Committee
member. I can confirm that, in line with the UK Corporate Governance Code 2018, before my appointment as a Committee
Chair, I had attended the Saga Remuneration Committee since January 2019, been a formal member since April 2019 and
previously attended the Remuneration Committee at Virgin Money plc for two years before its acquisition by CYBG plc.
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; and
•
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 18 September 2019 and are available on our website at
www.corporate.saga.co.uk/about-us/governance. These are reviewed and updated, as required, annually.
What we have done during the year
Time spent on matters
Remuneration Policy
Regulatory developments
c.10%
c.25%
Senior management remuneration
c.40%
Share schemes
Employee compensation
and benefit structure
c.15%
c.10%
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 continued focus on ensuring the link between strategy and incentives and on optimising the remuneration structure to
reward and retain employees and deliver long term sustainable Company performance.
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D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
A N N U A L R E P O R T O N R E M U N E R AT I O N C O N T I N U E D
Shareholder voting at the AGM
The current Directors’ Remuneration Policy was put to a binding vote at the 2018 AGM on 21 June 2018 and the Chairman’s
Annual Statement and the Annual Report on Remuneration were subject to an advisory vote at the 2019 AGM on 19 June
2019. Below we outline the voting outcomes in respect of approving the Directors’ Remuneration Report and approving the
Directors’ Remuneration Policy:
Resolution
Votes for
cast Votes against
% of
votes
% of
votes
cast
Votes cast
in total
% of
issued
share
capital
voted Votes withheld
To approve the Directors’
Remuneration Report
To approve the Directors’
Remuneration Policy
514,005,769
71.83
201,619,064
28.17
715,624,833
63.78%
546,076
710,588,229
99.49
3,637,508
0.51
714,727,672
63.8%
501,935
In addition, the following resolutions relating to amendments to the LTIP and Deferred Bonus schemes were also passed with
overwhelming support by the shareholders at the 2019 AGM.
To amend the rules of the Saga
plc Long Term Incentive Plan
To amend the rules of the Saga
plc Deferred Bonus Plan
702,399,702
98.22
12,708,660
1.78
715,108,362
63.73
1,062,547
705,803,114
98.69
9,343,145
1.31
715,146,259
63.73
1,024,650
As described in the Remuneration Committee Chair’s statement, the Committee has written to shareholders with regards
to the 2019 AGM result on the Directors’ Remuneration Report and the changes made as a result of the vote and discussions
with shareholders. This can be found on our corporate website.
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 was 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. Fees of £97,250 (2018/19: £80,000) 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.
The Committee receives assistance from Jane Storm, Chief People Officer and Vicki Haynes, Group Company Secretary.
Our adviser (PwC) attends by invitation. PwC does not have any other connection to the Company or its Directors.
Eva Eisenschimmel
Chair, Remuneration Committee
8 April 2020
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.
108
Saga plc Annual Report and Accounts 2020 D I R E C T O R S ’ R E P O R T
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
Location in annual report
Likely future developments in the business of the Company or its subsidiaries
Pages 1-51
Corporate social responsibility
Greenhouse gas emissions
Section 172 (1) and non-financial information statements and
stakeholder engagement
Pages 18-31
Pages 26-29
Pages 50-51 and 19-20, 60
Colleagues (employment of disabled persons, workforce engagement and policies) Pages 22-23, 30-31 and 102
Corporate Governance Statement
Pages 52-80
Directors’ details (including changes made during the year)
Pages 52-53, 61 and 64-65
Related party transactions
Diversity
Share capital
Viability statement
Going concern and Fair, balanced and understandable statements
Employee share schemes (including long term incentive schemes)
Not applicable
Pages 22, 69 and 106
Note 31 on page 184
Page 48
Pages 49 and 55
Note 34 on page 186
Financial instruments: information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
Notes 2, 3, 7, 8, 19 and 20 on pages
131-151, 153 and 163-172
Additional information
Pages 201-204
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
Listing Rule requirement
Disclosure
9.8.4(1)
9.8.4(2)
Interest capitalised by the Group and any related tax relief
Note 17 on page 161
Unaudited financial information (LR 9.2.18R)
9.8.4(4)
Long term incentive schemes (LR 9.4.3R)
9.8.4(5)
Directors’ waivers of emoluments
9.8.4(6)
Directors’ waivers of future emoluments
Operating and Financial Review,
pages 34-47
Directors’ Remuneration Report,
pages 81-108
Directors’ Remuneration Report,
pages 81-108
Directors’ Remuneration Report,
pages 81-108
9.8.4(7)
9.8.4(8)
9.8.4(9)
9.8.4(10)
9.8.4(11)
Non pre-emptive issues of equity for cash
Directors’ Report on page 111
Non pre-emptive issues of equity for cash by any unlisted major
subsidiary undertaking
Not applicable
Parent company participation in a placing by a listed subsidiary Not applicable
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
Not applicable
Not applicable
9.8.4(12)
Waiver of dividends by a shareholder
9.8.4(13)
Waiver of future dividends by a shareholder
Directors’ Report on page 112 (under
paragraph ‘Rights attaching to shares’)
Directors’ Report on page 112 (under
paragraph ‘Rights attaching to shares’)
9.8.4(14)
Board statement in respect of relationship agreement with the
controlling shareholder
Not applicable
109
Saga plc Annual Report and Accounts 2020GOVERNANCE D I R E C T O R S ’ R E P O R T
C O N T I N U E D
Results and dividends
The Group made a loss after taxation of £(312.8m) for the
financial year ended 31 January 2020. The Board paid an
interim dividend of 1.3p per share. Given the uncertainty
around the trajectory of the COVID-19 virus the Board
of Directors is not recommending the payment of a final
dividend for the 2019/20 financial year.
The Directors have adopted a Dividend Policy (which
is reviewed by the Board on an annual basis). While the
Directors intend to resume dividend payments in the future,
the Group will assess its Dividend Policy for current and
future years as the COVID-19 situation becomes more
certain. No dividends can be paid while leverage is greater
than 3.0x. 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 81-108.
Rules on appointment and replacement of Directors
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.
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 Lance
Batchelor, who retired from the Board with effect from
31 January 2020, Ray King who has informed the Board
that he will not seek re-election at the AGM and Euan
Sutherland and Cheryl Agius, whose elections will be put
to the shareholders at the AGM.
Directors’ indemnities
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 during the year.
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 (£140m outstanding at 31 January 2020)
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. The first of these facilities was drawn on completion
of build of the Spirit of Discovery and is secured by way of
a charge over the asset. The second facility will be drawn on
completion of building of the Spirit of Adventure and will be
similarly secured. 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 28
to the consolidated financial statements on page 128.
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 colleagues 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 184. 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 2020, 1,122,003,328 ordinary shares
of 1p each have been issued, are fully paid up and quoted on
the London Stock Exchange.
110
Saga plc Annual Report and Accounts 2020 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 2020:
Name
Majedie Asset Management Limited
Artemis Investment Management LLP
Royal London Asset Management Limited
Pelham Capital Ltd
BlackRock, Inc.
Aggregate of Standard Life Aberdeen plc
Setanta Asset Management Limited
Pictet Asset Management Ltd
Paul Singer (on behalf of Elliott International, L.P.,
The Liverpool Limited Partnership & Elliott Associates, L.P.)
Ordinary
shares
68,956,717
111,601,253
55,282,337
49,867,633
56,034,496
133,057,984
123,522,641
57,895,868
57,685,669
Percentage
of capital as
disclosed to
the Company
6.17%
9.98%
4.9271%
4.44%
4.99%
11.86%
11.009%
5.16%
5.141%
Nature
of holding
Indirect
Indirect
Direct
Contract for
Difference
Indirect
Indirect
Indirect
Direct
Indirect
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
2 The Company is aware that Artemis and Pelham are no longer shareholders in the Company and that as at 31 January 2020 Royal London Holdings held
2.40% of issued share capital.
•
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.
• As at 8 April 2020, the Company has been notified of the following interests in the Company’s total voting rights.
Name
Aggregate of Standard Life Aberdeen plc
Pictet Asset Management Ltd
Ordinary
shares
Percentage of
capital
111,904,918
56,064,854
9.97%
4.99
Nature
of holding
Indirect
Direct
Authority to allot/purchase own shares
A shareholders’ resolution was passed at the AGM on
19 June 2019 which authorised the Company to make
market purchases within the meaning of section 693(4)
of the Companies Act 2006 (the ‘Act’) (up to £1,122,003.32
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 2019 AGM to allot relevant securities up to a nominal
amount of £3,736,271. This authority will apply until the
conclusion of the 2020 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 2021
or, if earlier, 31 July 2021.
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.
111
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D I R E C T O R S ’ R E P O R T
C O N T I N U E D
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).
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 22 June 2020 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
Group Company Secretary
8 April 2020
Saga plc (Company no. 08804263)
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 colleagues
of the Saga Group. The Trustee of the Trust has the power
to exercise the rights and powers incidental to, and to act
in relation to, the Trust Fund in such manner as the Trustee
in its absolute discretion thinks fit. The Trustee has waived
its rights to dividends on ordinary shares held by the Trust.
Details of employee share schemes are set out in note 34
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
Further details on post-balance sheet events can be found
on page 189.
112
Saga plc Annual Report and Accounts 2020 S TAT E M E N T S O F R E S P O N S I B I L I T I E S
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 (see Key Statements on page 55). 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;
• for the Group financial statements, state whether they
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; and
• use the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with
reasonable accuracy at any time the financial position of the
parent company and enable them to ensure that its financial
statements comply with the 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 to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are
also responsible for preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report and Corporate
Governance Statement that comply with that law and
those regulations.
Disclosure of information to the auditor
Having made the requisite enquiries, so far as each of the
Directors is aware, there is no relevant audit information
(as defined by section 418(3) of the Act) of which the
Company’s auditor is unaware and the Directors have
taken all the steps they ought to have taken as Directors
to make themselves aware of any relevant audit information
and to ensure that the Company’s auditor is aware of
that information.
Maintenance of website
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors’ responsibility statement
Each of the Directors, who were in office at the date of this
report, whose names and responsibilities are listed on pages
61 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; and
• the Management Report includes a fair review of the
development and performance of the business and the
position of the issuer and the undertakings included
in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties
that they face.
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
Group Company Secretary
8 April 2020
Saga plc (Company no. 08804263)
113
Saga plc Annual Report and Accounts 2020GOVERNANCE I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S A G A P L C
1. Our opinion is unmodified
We have audited the financial statements of Saga plc (“the Company” or “Group” or “Parent Company”) for the year ended
31 January 2020 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 Balance Sheet, Parent Company Statement of Changes in Equity, and the related
notes, including the accounting policies in note 2 to the Group financial statements and note 1 to the Parent Company
financial statements.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at
31 January 2020 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; and
• 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 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 three financial years ended 31 January 2020. We have fulfilled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited by that standard were provided.
Overview
Materiality: Group financial
statements as a whole
£3.9m (2019: £6.8m)
3.9% (2019: 3.9%) of normalised profit before tax
Coverage
Key audit matter
Event driven
95% (2019: 98%) of total profits and losses that made up Group loss before tax
vs 2019
New: Going Concern – Impact of uncertainties in relation to Covid-19 on our audit
The impact of uncertainties due to UK 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
114
Saga plc Annual Report and Accounts 2020
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the
financial statements and include the most significant assessed risks of material misstatement (whether or not 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
Going concern – Impact
of uncertainties due to
the Covid-19 on our audit
Refer to pages 32 to 33
(principal risks), pages 46 to
47 (Strategic Report), page
48 (viability statement),
page 49 (going concern
statement), pages 74 to 75
(Audit Committee Report)
and note 2.1 on page 130
(basis of preparation) and
note 37 on page 189 (post
balance sheet events).
Unprecedented levels of uncertainty
The financial statements explain
how the Directors have formed
a judgement that it is appropriate
to adopt the going concern basis
of preparation for the Group and the
Parent Company.
The judgement is based on an
evaluation of the inherent risks to
the Group and Parent Company’s
business model and how those risks
might affect the Group and Parent
Company’s financial resources
or ability to continue operations
over a period of at least a year
from the date of approval of the
financial statements.
The impact of Covid-19 is subject to
unprecedented levels of uncertainty
of outcomes, with the full range
of possible effects unknown
given the rapidly evolving nature
of the situation on financial and
operational performance.
Our procedures included:
• Funding assessment: We considered the Directors’
assessment of Covid-19 related sources of risk to the
Group’s financial and operational resilience compared
with our own understanding of these risks and
knowledge of the business. Our procedures included:
– We agreed the Group’s committed level of
financing, the availability of facilities and related
covenant requirements to signed agreements.
– We critically assessed the ability of the Group to
meet the revised terms and financial covenants
within existing facility agreements in reasonably
foreseeable downside scenarios brought about
by the Covid-19 crisis. These included challenging
and assessing the ability of the Group to withstand
an extended and prolonged period of no Cruise or
Tour operations, with the support of our own travel
industry specialists.
– Through enquiry and inspection of recent
management information and with the support
of our own industry specialists, our evaluation
included challenge of the assumptions and an
evaluation of the ability of the Directors to take
any assumed mitigation actions based on our own
expectations based on our knowledge of the entity
and experience of the industry in which it operates.
– Through enquiry and inspection of the latest
banking agreements and the changes to the terms
of both the facility agreements and the related
covenants, we considered the intent and ability
of the Group’s lenders to continue to support the
Group with existing facilities.
– Through enquiry and inspection of correspondence,
we considered the likelihood of the Group’s
financial services and travel regulators (Financial
Conduct Authority (FCA), the Gibraltar Financial
Services Commission (GFSC) and the Civil Aviation
Authority (CAA)) imposing additional financial
or operational constraints on the Group and
how such risks had been factored into the stress
testing performed.
115
Saga plc Annual Report and Accounts 2020GOVERNANCE I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S A G A P L C
C O N T I N U E D
The risk
Our response
• Key dependency assessment: The continued operation
of the Group’s Insurance business is a critical factor
in assessing the risk of failure; as is the continued
availability of the Group’s £100m Revolving Credit
Facility (refer above) throughout the assessment
period. Our procedures included:
– We gained an understanding of and assessed the
Group’s plans and progress to try to ensure the
continued operation of the Insurance business in
the face of the disruption caused by Covid-19; and
– Using our insurance industry experience, we
challenged and evaluated the degree to which
reasonably foreseeable downside scenarios that
would impact the Group’s Insurance business were
factored into the financial resilience modelling that
the Group has performed.
• Benchmarking assumptions and our sector experience:
We evaluated and challenged the assumptions
used in cash flow forecasts using our knowledge
of the business and our travel and insurance sector
experience and assessing the potential risk of
management bias.
• Sensitivity analysis: 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. This included an assessment of
the Group’s ability to continue to meet its amended
debt covenants through considering a severe reverse
stress test.
• Evaluating Directors’ intent: Through enquiry
we evaluated the achievability of the actions the
Directors may consider they would take to improve
the position as risks materialise.
• Assessing transparency: We critically assessed
the completeness and accuracy of the matters
covered in the going concern disclosure by agreeing
to supporting evidence and performing inquiries
of the Directors, which included challenging the
transparency of assumptions in the severe but
plausible downside stress scenarios performed in
making this assessment.
Our findings
We found the going concern disclosure without any
material uncertainty to be proportionate (2019 result:
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
Covid-19.
The risks most likely to adversely
affect the Group and Parent
Company’s available financial
resources over this period are:
• the length of time that the impact
of Covid-19 will significantly
disrupt the Group’s Travel
operations and constrain its
ability to operate, given that the
Group’s customer demographic
is potentially most at risk of
infection from this pandemic;
• the financial and operational
resilience of the Group’s
Insurance business and its ability
to continue to operate and deliver
the Insurance strategy through
a period of significant disruption
brought on by this pandemic; and
• the impact, if Travel operations are
curtailed for severe but plausible
periods of time, on the Group’s
ability to meet the terms of its
ship debt and Group bank debt
covenants within a year from the
date of approval of the financial
statements. This could threaten
the availability of existing facilities
in the absence of agreement of
changes to facility terms and
existing covenants.
There are also less predictable but
realistic second order impacts of
a broader economic downturn, the
erosion of customer confidence
beyond the specific near term issues
in responding to Covid-19 and the
length of time it may take for each
of the Group’s businesses to recover
which could result in a longer period
of and more pronounced reduction
in available financial resources.
The risk for our audit was whether or
not those risks were such that they
amounted to a material uncertainty
that cast significant doubt about
the ability to continue as a going
concern. Had they been such, then
that fact would have been required
to have been disclosed.
Disclosure quality
Clear and full disclosure of the
assessment undertaken by the
Directors and the rationale for
the use of the going concern
assumption, represents
a key financial statement
disclosure requirement.
There is a risk that insufficient
details are disclosed to allow a full
understanding of the assessment
undertaken by the Directors.
116
Saga plc Annual Report and Accounts 2020 The impact of
uncertainties due to the
UK exiting the European
Union on our audit
Refer to pages 32 to
33 (principal risks),
page 11 (Strategic
Report) and page 48
(viability statement).
The risk
Our response
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 (see above). All of these
depend on assessments of the
future economic environment and
the Group’s and Company’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 its effects are subject to
unprecedented levels of uncertainty
of consequences, with the full range
of possible effects unknown.
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, going concern basis of preparation
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 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 and going concern basis
of preparation, 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, the Brexit 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.
117
Saga plc Annual Report and Accounts 2020GOVERNANCE I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S A G A P L C
C O N T I N U E D
The risk
Our response
Valuation of Claims
Outstanding (gross
and net)
(Gross £338.3 million,
2019: £392.6 million;
Net £149.1 million,
2019: £182.8 million)
Refer to page 74 (Audit
Committee Report), pages
140-141 (accounting
policy); and note 2.6 on
page 144 to 146, note
20.d on pages 171 to 172
and note 26 on page 178
(financial disclosures).
Subjective Valuation:
Valuation of these liabilities is highly
judgemental, 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.
Certain areas of the claims
outstanding balance contain greater
uncertainty, for example third party
bodily injury (“TPBI”) claims exhibit
greater variability and are more long
tailed than the damage classes.
In particular the choice of
development pattern, discount
rate (“Ogden rate”) and Periodic
Payment Order (“PPO”) propensity
allowance to estimate the present
value of large bodily injury claims
following the Ogden rate change
are very uncertain and have a high
reserving risk.
Similar estimates are required in
establishing the reinsurers’ share of
insurance provisions, in particular
the 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.
Our control procedures included:
• Control design: Tested, with the support of our own
IT specialists, the design and 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); and
• tested the design and implementation of manual
controls over the setting and monitoring of case
reserves over large bodily injury claims.
We involved our own actuaries in performing the
following procedures:
• Evaluate the work of independent and internal
actuaries: Analysed and evaluated the results
of reserving reports issued by the internal and
external actuaries and assessed the competence
of both parties;
• Our actuarial experience: We evaluated the findings
of the Group’s internal actuary and the independent
actuary’s report. Through critical assessment of these
actuarial reports and supporting documentation,
including the use of benchmarking against market
data and through discussion with both actuaries, we
analysed and challenged the differences in reserving
methodology applied by both actuaries as well as the
key assumptions which varies by peril:
– Accidental damage (“AD”), Third party property
damage (“TPPD”) and small TPBI – claims inflation,
claims frequency, claims severity including salvage
and subrogation.
– Larger TPBI – claims inflation, claims frequency,
claims severity, PPOs and the impact of legislative
developments such as the change to the
Ogden rate.
– Alternative projections were performed on the large
TPBI peril as this was considered the most material
area and subject the most uncertainty through the
audit; and
– Performing diagnostic tests on the development
patterns of all material perils, as well as considering
the reasonableness of the prior year changes in
ultimate reserves and the current year loss ratios
in light of experience over the year.
• Margin evaluation: Evaluated 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 against peers and versus the prior
period in order to be satisfied that no additional
prudence had been recognised in the level of overall
reserves held including margin.
118
Saga plc Annual Report and Accounts 2020 The risk
Our response
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.
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.
Our other procedures included:
• Data comparisons: Agreed the relevant financial and
non-financial claims and premiums data recorded in
the claims and premiums administration systems to
the data used in the actuarial reserving calculations,
to assess the integrity of the data used by the
internal and external actuaries in the actuarial
reserving process and then assess that the output
of the actuarial re-projections reconciles to amounts
recorded in the financial statements;
• Tests of detail: Corroborated 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; to check the valuation used
against the prescribed reserving methodology, and; to
evaluate the level of review, oversight and third party
evidence available and the frequency of updates
against new information;
• Assessed 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; and
• Assessing transparency: Assessed whether the
Group’s disclosures about the degree of estimation
uncertainty and the sensitivity of the balance to
changes in key assumptions appropriately reflects the
risks inherent in the valuation of claims outstanding.
Our findings
We found that the assumptions and estimates were
mildly cautious (2019: cautious) with proportionate
(2019: proportionate) disclosure of the sensitivities to
changes in key assumptions and estimates as inputs
to the valuation.
119
Saga plc Annual Report and Accounts 2020GOVERNANCE I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S A G A P L C
C O N T I N U E D
The risk
Our response
Recoverability of Group
Goodwill and the Parent
Company’s investment in
subsidiaries
(Group goodwill:
£778.4 million,
2019: £1,175.0 million;
Parent’s investment in
subsidiaries: £552.3 million,
2019: £1,069.8 million)
Refer to page 74 (Audit
Committee Report), note
2.3 on pages 134 and 135
(accounting policy), note
5 on pages 152, note 16 on
pages 159 and 160 and
note 2 on pages 199 and
200 (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 business
performance for the Group’s retail
insurance and travel businesses, in
particular, were to fall significantly
short of business plans and/ or if
discount rates increase.
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.
Our procedures included:
• Control design: Evaluated 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: Assessed the reasonableness
of base line cash flow projections against
historical performance;
• Our sector experience: Evaluated and challenged the
assumptions used in cash flow forecasts using our
sector knowledge and experience;
• Benchmarking assumptions: Compared 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: Compared the recoverable
amount of each significant cash generating unit
(‘CGU’) by reference to Value in Use (‘VIU’) relative
to the carrying value and evaluating the outcome
against comparator industry multiples; and, for the
Parent Company investment in subsidiaries, compared
the sum of the VIUs for all of the Group’s CGUs to
the carrying value, market capitalisation and implied
multiples of the Group; and corroborating reasons
for any significant differences;
• Sensitivity analysis: Using our analytical tools and
professional judgement to: assess the sensitivity
of the goodwill headroom and to conclude on the
appropriateness of the impairments recognised.
This was performed through considering reasonably
possible changes in key assumptions including
making allowance for the near term weaker trading
from the impact of Covid-19, both individually and
collectively; in order to assess and conclude on
the appropriateness of the impairment recognised
in relation to the carrying value of goodwill held in
relation to the Insurance and Destinology CGUs and
the Parent Company’s investment in subsidiaries; and
• Assessing transparency: Assessed 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 (2019 finding: mildly cautious) and, when taken
with the estimates used for the comparative year, the
effect on the reported loss for the year to be balanced.
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
(2019: proportionate).
120
Saga plc Annual Report and Accounts 2020 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 £3.9m (2019: £6.8m), determined with reference to
a benchmark of Group loss before tax, normalised to exclude this year’s goodwill and other impairment charges as disclosed
in note 5, of £400.5m (2019: £310.0m), of £99.6m ((2019: £175.4m), of which it represents 3.9% (2019: 3.9%).
Materiality for the Parent Company financial statements as a whole was set at £3.0m (2019: £5.0m), which represents 0.4%
of net assets of £587.3m (2019: 0.4% of total assets of £1,395.8m ). This is lower than the materiality we would otherwise
have determined by reference to Company net assets.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.16m
(2019: £0.27m), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 15 (2019: 14) reporting components, we subjected 4 (2019: 4) to full scope audits for Group purposes and 4
(2019: 3) 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 below.
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 £0.6m to £2.8m (2019: £1.0m-£5.0m), having regard to the size and risk profile of the Group across the
components. The work on 3 of the 15 (2019: 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 impairments of £400.5m (2019: £310.0m) 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 who were the component auditor during 2019 and 2020 to assess the audit risks
and strategy and to complete a file review. Telephone conference meetings were also held with KPMG Gibraltar regularly
through the year. 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.
Normalised Profit Before Tax
£99.6m (2019: £175.4m)
Group materiality
£3.9m (2019: £6.8m)
£3.9m
Whole financial statements materiality
(2019: £6.8m)
£2.8m
Range of materiality at 15 components
(£0.6m-£2.8m)
(2019: £1.0m-£5.0m)
£0.16m
Misstatements reported to the Audit Committee
(2019: 0.27m)
Total profits and losses
that made up the normalised
Group profit before tax
Group total assets
16
8
95%
(2019 98%)
90
79
2
1
99%
(2019 99%)
98
97
121
Profit before tax
Group materiality
Group revenue
3
3
96%
(2019 97%)
94
93
Full scope for Group audit purposes 2020
Specified risk-focused audit procedures 2020
Full scope for Group audit purposes 2019
Specified risk-focused audit procedures 2019
Residual components
Saga plc Annual Report and Accounts 2020GOVERNANCE
I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S A G A P L C
C O N T I N U E D
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.
We identified going concern as a key audit matter (see Section 2 of this report). Based on the work described in our response
to that key audit matter, we are required to report to you if:
• we have anything material to add or draw attention to in relation to the Directors’ statement in note 2.1 to the financial
statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant
doubt over the Group and Company’s use of that basis for a period of at least twelve months from the date of approval
of the financial statements; or
• the related statement under the Listing Rules set out on page 49 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
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; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
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 48 that they have carried out a robust assessment
of the emerging and principal risks facing the Group, including those that would threaten its business model, future
performance, solvency and liquidity;
• the principal risks and uncertainties disclosures describing these risks and explaining how they are being managed and
mitigated; and
• the Directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what
period they have done so and why they considered that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
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 judgements that were reasonable at the time they were made, the absence of anything to report on these
statements is not a guarantee as to the Group’s and Company’s longer-term viability.
122
Saga plc Annual Report and Accounts 2020 Corporate 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; or
• the section of the annual report describing the work of the Audit Committee does not appropriately address the matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the
provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
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; or
• the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 113, 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.
The potential effect of these laws and regulations on the financial statements varies considerably.
123
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C O N T I N U E D
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 and liquidity, and certain aspects of company legislation recognising the
financial and regulated nature of the Group’s activities and its legal form, with some entities in the Group being authorised
and regulated by the FCA, the GFSC and the CAA. 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
8 April 2020
124
Saga plc Annual Report and Accounts 2020 C O N S O L I D AT E D I N C O M E S TAT E M E N T
F O R T H E Y E A R E N D E D 3 1 J A N U A R Y 2 0 2 0
Gross earned premiums
Earned premiums ceded to reinsurers
Net earned premiums
Other revenue
Total revenue
Gross claims incurred
Reinsurers’ share of claims incurred
Net claims incurred
Other cost of sales
Total cost of sales
Gross profit
Administrative and selling expenses
Impairment of assets
Investment income
Finance costs
Finance income
Loss before tax
Tax expense
Loss for the year
Attributable to:
Equity holders of the parent
Earnings Per Share:
Basic
Diluted
For details of the restatement please see notes 2.5 and 39.
The notes on pages 130 to 194 form an integral part of these consolidated financial statements.
2020
£’m
233.9
2019
(restated)
£’m
238.1
(145.7)
(136.0)
88.2
709.1
797.3
102.1
739.4
841.5
(159.9)
(129.7)
129.1
(30.8)
120.1
(9.6)
(395.1)
(395.4)
(425.9)
(405.0)
371.4
436.5
(251.3)
(244.5)
(400.5)
(315.9)
1.2
(21.8)
0.1
0.7
(12.6)
1.0
Note
3
3
3
3
3
26
26
26
3
4
5
6
7
8
(300.9)
(134.8)
10
(11.9)
(27.4)
(312.8)
(162.2)
(312.8)
(162.2)
12
12
(27.9p)
(27.9p)
(14.5p)
(14.5p)
125
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 1 J A N U A R Y 2 0 2 0
Loss for the year
Other comprehensive income
Other comprehensive income to be reclassified to income statement in subsequent years
Note
2020
£’m
2019
(restated)
£’m
(312.8)
(162.2)
Net (losses)/gains on hedging instruments during the period
Recycling of previous gains to income statement on matured hedges
19
19
Total net losses on cash flow hedges
Associated tax effect
Net gains/(losses) on fair value financial assets during the period
Associated tax effect
(11.2)
(2.6)
(13.8)
2.4
8.1
(1.4)
0.5
(2.9)
(2.4)
0.4
(1.3)
0.2
Total other comprehensive losses with recycling to income statement
(4.7)
(3.1)
Other comprehensive income not to be reclassified to income statement
in subsequent years
Re-measurement (losses)/gains on defined benefit plans
Associated tax effect
25
(5.4)
0.9
2.1
(0.4)
Total other comprehensive (losses)/gains without recycling to income statement
(4.5)
1.7
Total other comprehensive losses
Total comprehensive losses for the year
Attributable to:
Equity holders of the parent
(9.2)
(1.4)
(322.0)
(163.6)
(322.0)
(163.6)
The notes on pages 130 to 194 form an integral part of these consolidated financial statements.
126
Saga plc Annual Report and Accounts 2020 C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N
A S AT 3 1 J A N U A R Y 2 0 2 0
Assets
Goodwill
Intangible fixed assets
Property, plant and equipment
Right of use assets
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
Liabilities held for sale
Total liabilities
Equity
Issued capital
Share premium
Retained earnings
Share-based payment reserve
Fair value reserve
Hedging reserve
Total equity
Total equity and liabilities
For details of the restatement, please see notes 2.5 and 39.
The notes on pages 130 to 194 form an integral part of these consolidated financial statements.
Signed for and on behalf of the Board on 8 April 2020 by
E A Sutherland
Group Chief Executive Officer
J B Quin
Group Chief Financial Officer
2020
£’m
2019
(restated)
£’m
Note
14
15
17
18
19
10
26
22
36
23
25
26
29
19
10
27
24
36
31
778.4
1,175.0
57.1
425.0
25.7
378.1
22.3
62.1
5.4
62.8
181.4
22.6
426.2
14.9
96.8
4.0
209.0
216.6
33.8
97.9
–
122.9
2,094.8
2,323.2
5.5
443.6
7.7
690.3
4.2
7.7
153.2
185.9
8.5
2.8
490.6
10.0
481.7
7.8
17.2
144.7
207.5
–
1,506.6
1,362.3
11.2
519.3
65.4
7.8
4.9
(20.4)
588.2
11.2
519.3
401.4
13.3
(1.8)
17.5
960.9
2,094.8
2,323.2
127
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 1 J A N U A R Y 2 0 2 0
Attributable to the equity holders of the parent
At 1 February 2019 (as reported)
Effect of adoption of IFRS 16 (note 39)
At 1 February 2019 (restated)
Loss for the year
Other comprehensive (losses)/income
excluding recycling
Recycling of previous gains to income
statement
Total comprehensive (losses)/income
Recognition of non-financial asset from
hedging reserve (note 19)
Dividends paid (note 11)
Share-based payment charge (note 34)
Exercise of share options
At 31 January 2020
At 1 February 2018 (as reported)
Effect of adoption of IFRS 16 (note 39)
At 1 February 2018 (restated)
Loss for the year (restated)
Other comprehensive income/(losses)
excluding recycling
Recycling of previous gains to income
statement
Total comprehensive losses (restated)
Dividends paid (note 11)
Share-based payment charge (note 34)
Exercise of share options
Issued
capital
£’m
11.2
–
11.2
Share
premium
£’m
Retained
earnings
£’m
519.3
404.8
–
(3.4)
519.3
401.4
Share-
based
payment
reserve
£’m
13.3
–
13.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(312.8)
(4.5)
–
(317.3)
–
(25.8)
–
7.1
11.2
519.3
65.4
11.2
–
11.2
–
–
–
–
–
–
–
519.3
664.8
–
519.3
–
–
–
–
–
–
–
(3.2)
661.6
(162.2)
1.7
–
(160.5)
(100.9)
–
1.2
Fair value
reserve
£’m
Hedging
reserve
£’m
Total
£’m
964.3
(3.4)
960.9
(312.8)
17.5
–
17.5
–
(9.3)
(7.1)
(2.1)
(2.1)
(11.4)
(322.0)
(26.5)
–
–
–
(26.5)
(25.8)
2.2
(0.6)
(1.8)
–
(1.8)
–
6.7
–
6.7
–
–
–
–
4.9
(20.4)
588.2
(0.7)
–
(0.7)
–
19.5
1,225.5
–
(3.2)
19.5
1,222.3
–
(162.2)
(1.1)
0.4
1.0
–
(1.1)
–
–
–
(2.4)
(2.0)
–
–
–
(2.4)
(163.6)
(100.9)
3.8
(0.7)
(1.8)
17.5
960.9
–
–
–
–
–
–
2.2
(7.7)
7.8
11.4
–
11.4
–
–
–
–
–
3.8
(1.9)
13.3
At 31 January 2019 (restated)
11.2
519.3
401.4
The notes on pages 130 to 194 form an integral part of these consolidated financial statements.
128
Saga plc Annual Report and Accounts 2020 C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
F O R T H E Y E A R E N D E D 3 1 J A N U A R Y 2 0 2 0
Loss before tax
Depreciation, impairment and profit on disposal, of property, plant & equipment and right
of use assets
Amortisation and impairment of intangible assets
Share-based payment transactions
Profit on assets held for sale
Finance costs
Finance income
Interest income from investments
Movements in other assets and liabilities
Interest received
Interest paid
Income tax paid
Net cash flows from operating activities
Investing activities
Note
2020
£’m
2019
(restated)
£’m
(300.9)
(134.8)
43.7
408.1
2.1
–
21.8
(0.1)
(1.2)
(37.8)
135.7
1.2
(19.9)
(25.1)
91.9
35.7
329.6
3.6
(3.8)
12.6
(1.0)
(0.7)
(44.5)
196.7
0.7
(14.3)
(34.8)
148.3
Proceeds from sale of property, plant and equipment, and right of use assets
6.3
0.1
Purchase of and payments for the construction of property, plant and equipment and
intangible assets
Net disposal/(purchase) of financial assets
Net cash flows used in investing activities
Financing activities
Payment of principal portion of lease liabilities
Proceeds from borrowings
Repayment of borrowings
Debt issue costs
Dividends paid
Net cash flows from/(used in) financing activities
Net decrease 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
(295.3)
32.8
(256.2)
(15.0)
279.0
(84.2)
(7.9)
(63.0)
(36.9)
(99.8)
(12.3)
58.0
(63.0)
–
(25.8)
(100.9)
146.1
(18.2)
157.3
139.1
(118.2)
(69.7)
227.0
157.3
30
30
30
30
23
The notes on pages 130 to 194 form an integral part of these consolidated financial statements.
129
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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 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 has reviewed the appropriateness of the going concern basis in preparing the
financial statements, particularly in light of the COVID-19 pandemic, details of which are included below. Based on those
assumptions, the Directors have concluded that it remains appropriate to adopt the going concern basis in preparing the
financial statements.
The Group’s consolidated financial statements are presented in pounds sterling which is also the parent company’s
functional currency, and all values are rounded to the nearest hundred thousand (£’m), except when otherwise indicated.
Each company in the Group determines its own functional currency and items included in the financial statements of each
entity are measured using that functional currency.
The preparation of financial statements in compliance with 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.
The consolidated income statement format has been amended to ensure compliance with IFRS 4 ‘Insurance Contracts’
by reporting gross and net insurance revenue and cost of sales.
This is the first set of the Group’s annual financial statements in which IFRS 16 ‘Leases’ has been applied.
Changes to significant accounting policies are described in section 2.3 on pages 131 to 142.
Going concern
The Directors continue to have a reasonable expectation that the Group has adequate resources to continue in operation
for the next twelve months and that the going concern basis of accounting remains appropriate.
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 32 and 33; Operating and Financial Review on pages 34 to 47; Audit, Risk and Internal Control on
pages 70 to 73; Audit Committee Report on pages 74 to 77; Risk Committee Report on pages 78 to 80; and notes on pages
130 to 194). As a consequence, the Directors believe that the Group is well-placed to successfully manage its business risks.
The COVID-19 outbreak has created a major challenge and a high level of uncertainty for all companies. Our Insurance
division, being the largest operating segment in the Group, continues to perform well and cash generation is expected to be
resilient, but we have had to pause trading in our Travel division. Where possible, we have equipped our staff to work from
home and are focusing our efforts on protecting our people and giving strong support to our customers.
We have taken prompt action to protect the Group’s cash flow including reducing costs, suspending dividends to
shareholders, making a precautionary £50m drawdown on the revolving credit facility in March 2020 and we have
renegotiated the net debt to EBITDA (excluding Cruise) covenant on our short term banking facilities from 3.5x to 4.75x.
The Group has undertaken stress testing that considered a range of potential impacts of the COVID-19 pandemic on its
financial resilience. In a severe but plausible central scenario, the Directors have assumed: the cessation of cruises until mid-
September, with a slow recovery of load factors beyond that date, from 30% initially in September 2020, increasing to 60%
by January 2021, then increasing across the course of 2021 to a pre COVID-19 level of 87% by January 2022; a delay in the
delivery of the new ocean cruise ship, the Spirit of Adventure, from August 2020 to the end of November 2020; the impact
of a cessation of holidays trading for five months until August; with adverse impacts on cancellations and booking rates
for both holidays and cruises continuing into 2021. The scenario also assumed trading stresses in relation to the Insurance
business, namely an expected reduction in travel insurance broker sales during 2020 and a potential adverse impact on
profits relating to Private Medical Insurance, with an estimated combined total profit impact on the Insurance business
of a net £10m per annum in 2020/21 and 2021/22. The analysis also used prudent assumptions for refunds of customer
bookings, made limited allowance for deferral of tax payments until the second half of the year and did not assume any
deferral of capital payments on the debt facility for the Spirit of Discovery ship.
130
Saga plc Annual Report and Accounts 2020 2.1 Basis of preparation (continued)
Going concern (continued)
In addition to this, the Directors considered a further, more severe scenario that assumed the cessation of cruise and
holidays trading until January 2021, including further mitigating actions such as the deferral of capital payments on the debt
facility used to fund the purchase of the Spirit of Discovery, deferral of certain tax payments into the 2021/22 financial year
and a further reduction in operating costs.
While the impact of the COVID-19 situation cannot be accurately predicted and it is not possible to assess all possible
future implications for the company, based on this analysis and in the scenarios assessed, the Group believes that it has
a secure financial position that will enable it to trade through the current disruption of the travel market.
2.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 31 January each year. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with an investee entity and has the ability to affect those returns through its power
over the investee entity. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another entity.
Subsidiary companies are consolidated using the acquisition method.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and
continue to be consolidated until the date when such control ceases.
In preparing these consolidated financial statements, any intra-group receivables, payables, income and expenses arising
from intra-group trading are eliminated. Where accounting policies used in individual financial statements 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 separate major line of business is disposed of, 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.
2.3 Summary of significant accounting policies
Revenue from Contracts with Customers
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
Twelve-month insurance policies with no option to fix the premium at renewal (“annual policies”):
Insurance premiums received for risks underwritten by the Group are recognised on a straight-line time-apportioned basis
over the period of the policy. The portion of those premiums ceded to reinsurers is also recognised on a straight-line time-
apportioned basis over the duration of the policy as a reduction to revenue.
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 are 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 have a period of unexpired risk at the reporting
date, and which relate to the period after the reporting date, are treated as unearned and included in gross insurance
contract liabilities in the statement of financial position. The portion of those unearned premiums ceded to excess of loss
reinsurers is recognised as a reinsurance asset on the face of the statement of financial position. The portion of those
unearned premiums ceded to quota share reinsurers is recognised as an asset within trade payables, since there is a right
of set off within the contract.
131
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.3 Summary of significant accounting policies (continued)
a. Revenue recognition (continued)
Changes to premiums are recognised on the effective date of the mid-term adjustment. For those policies that are
underwritten by the Group, these changes are recognised on a straight-line time-apportioned basis over the period
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.
Twelve-month insurance policies with the option to fix the premium over three years (“three-year fixed-price policies”):
Insurance premiums received over the duration of three-year fixed-price policies underwritten by the Group are recognised
over the three years of cover. Premiums allocated to each of the three policy years are recognised on a straight-line time-
apportioned basis within each policy year. The carrying value of the revenue deferred in this instance is recognised as
unearned premium within gross insurance contract liabilities in the statement of financial position. The portion of premiums
ceded to reinsurers is recognised in the same manner as for annual policies.
Brokerage revenue received in connection with three-year fixed-price policies not underwritten by the Group is allocated to
the performance obligations of the contract, being the arrangement of the insurance in each year and the option to fix the
customer price at renewal. The revenue allocated to the option to renew at a fixed price is determined in profit and loss when
either the customer exercises the option at the first and second renewal dates, or sooner if the customer cancels the policy
mid-term or makes a claim that releases the Group from its obligation to fix the customer’s price. The carrying value of the
revenue deferred in this instance is recognised within contract liabilities in the statement of financial position.
All insurance policies (both three-year fixed-price policies and annual policies):
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, when it is highly probable that a significant reversal of revenue will not occur,
and on the same basis, where appropriate, as the related reinsured liabilities.
For revenue earned from credit hire and repair services for non-fault claims (‘credit hire’ and ‘credit repair’), the Group
initially recognises the revenue at fair value, which is based on a historical assessment of debt recovery and discount
levels. Credit hire revenue is recognised from the date that a vehicle is placed on hire equally over the duration of the hire.
Credit repair revenue represents income from the recovery of the costs of repair of customers’ vehicles. Credit repair revenue
is recognised when the work has been completed. Late payment penalties afforded under the terms of the Association of
British Insurers General Terms of Agreement (‘ABI GTA’) are recognised as they become payable by the insurance company.
ii) Travel
Revenue from tour operations and cruise 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.
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 deferred revenue within contract liabilities in the statement of financial position.
iii) Other Businesses and Central Costs
Personal finance
Revenue from personal finance products is recognised when the customer contracts with the provider of the relevant
personal finance product where the revenue comprises a one-off payment by the provider of the product.
Where the personal finance product is one that delivers a recurring income stream, the present value of the future expected
revenue to be received is recognised when the customer contracts with the provider of the relevant personal finance product,
and it is highly probable that a significant reversal of revenue recognised will not occur. For The Saga Savings Product,
commissions are earned over the duration of the contract in line with the contractual amount due to the Company.
132
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 2.3 Summary of significant accounting policies (continued)
a. Revenue recognition (continued)
Magazine subscriptions
Magazine subscription revenue is recognised on a straight-line basis over the period of the subscription. Revenue generated
from advertising within the magazine is recognised when the magazine is provided to the customer.
The element of subscriptions and advertising revenue relating to the period after the reporting date is recognised as
deferred revenue within contract liabilities in the statement of financial position.
Printing and mailing
Revenue from printing and mailing services is recognised in line with the performance obligations within customer contracts.
b. Cost recognition
i) Insurance acquisition costs
Acquisition costs arising from the selling or renewing of insurance policies underwritten by the Group are recognised on
a straight-line time-apportioned basis over the period of the policy in which the related revenues are earned. The proportion
of acquisition costs relating to premiums treated as unearned at the reporting date are deferred and included as other
receivables in the statement of financial position.
Incremental costs of obtaining an insurance contract not underwritten by the Group, namely fees charged by
price-comparison websites, are recognised as an asset within trade and other receivables on the face of the statement
of financial position. Such costs are amortised in line with the pattern of revenue for the related insurance contract, which
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.
ii) Claims costs
Claims costs incurred in respect of insurance policies underwritten by the Group include estimates for claims made
for losses reported as occurring during the period together with the related handling costs, any adjustments to claims
outstanding from previous periods, and an estimate for the cost of claims incurred during the period but not reported as at
the reporting date. The portion of costs recovered from reinsurance is recognised as a reduction to those costs in the same
period in which the costs are recognised.
Further detail is provided in note 26.
iii) Finance costs
Finance costs comprise interest paid and payable that is calculated using the effective interest rate (‘EIR’) method,
and it is recognised in the income statement as it accrues. Accrued interest is included within the carrying value of the
interest-bearing financial liability in the statement of financial position. Finance costs also include debt issue costs that were
initially recognised in the statement of financial position and amortised over the life of the debt, debt issue costs in respect
of renegotiating existing facilities that are immediately recognised in the income statement and net fair value losses on
derivative financial instruments.
iv) All other expenses
All other expenses are recognised in the income statement as they are incurred.
c. Recognition of other income statement items
i) 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. 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.
Realised gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the
carrying value at the date of sale.
133
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.3 Summary of significant accounting policies (continued)
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.
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 prevalent at the reporting date.
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
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f. Intangible assets (continued)
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 at least annually,
either individually or at the CGU level. Where the carrying value of the asset exceeds the recoverable amount, an impairment
loss is recognised in the income statement immediately. 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.
g. Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred measured at acquisition date at fair value and the amount of any non-controlling
interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests
in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets.
When the Group acquires a business, it assesses the financial and non-financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that is a financial instrument within the scope of IFRS 9 ‘Financial
Instruments’ is measured at fair value with the changes in fair value recognised in the income statement.
Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities is recognised as goodwill.
If the cost of acquisition is less than the fair values of the identifiable assets and liabilities of the acquired business, the
difference is recognised directly in the income statement in the year of acquisition.
Acquisition-related costs are expensed as incurred and included in administrative expenses.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to CGUs
at the point of acquisition and is reviewed at least annually for impairment.
h. Impairment of non-financial assets
The Group assesses at each reporting date whether there is any indication that a non-financial asset 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.
Recoverable amount is calculated as the higher of fair value less costs to sell, and value-in-use. In assessing value-in-use,
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal,
recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model
is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or
other available fair value indicators. The Group bases its value-in use calculations on detailed budgets, plans and long term
growth assumptions, which are prepared separately for each of the Group’s CGUs to which individual assets are allocated.
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Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.3 Summary of significant accounting policies (continued)
i. Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and impairment losses. Where an item of
property, plant and equipment comprises major components having different useful lives, they are accounted for separately.
Assets in the course of construction at the 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
Fixtures & fittings
Cruise ships
Computers
Plant, vehicles and other equipment
50 years
3-20 years
2-30 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.
j. Non-current assets held for sale
The Group classifies non-current assets as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. To be classified as held for sale, an asset must be available for immediate
sale in its present condition subject only to terms that are usual and customary for the sale of such assets, and the sale must
be highly probable. 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.
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k. Financial instruments
i) Financial assets
On initial recognition, a financial asset is classified as either amortised cost, fair value through other comprehensive income
(FVOCI); or fair value through profit and loss (FVTPL). The classification of financial assets is based on the business model in
which a financial asset is managed and its contractual cash flow characteristics. 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
FVOCI
FVTPL
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:
•
It is held within a business model whose
objective is to hold assets to collect
contractual cash flows, and
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, and
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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Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.3 Summary of significant accounting policies (continued)
k. Financial instruments (continued)
ii) Impairment of financial assets
The expected credit loss (ECL) impairment model applies to financial assets measured at amortised cost and debt
investments at FVOCI.
The Group measures loss allowances at an amount equal to 12 month ECLs, except for the following, which are measured
as lifetime ECLs:
• Debt securities that are determined to have high credit risk at the reporting date.
• Other debt securities and bank balances for which credit risk has increased significantly since initial recognition.
• Trade receivables and contract assets that result from transactions within the scope of IFRS 15.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical
experience and informed credit assessment and including forward-looking information.
The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the definition of
‘investment grade’. The Group considers this to be BBB or higher as per 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.
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 and
lease liabilities.
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.
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 cash flow 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.
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k. Financial instruments (continued)
v) Fair values
The Group measures all financial instruments at fair value at each reporting date, other than those instruments measured
at amortised cost.
Fair value is the price that would be required to sell an asset or to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the principal market accessible by the Group for the asset or liability or,
in the absence of a principal market, in the most advantageous market accessible by the Group for the asset or liability.
The fair values are quoted market prices where there is an active market or are based on valuation techniques when there
is no active market or the instruments are unlisted. Valuation techniques include the use of recent arm’s-length market
transactions, discounted cash flow analysis and other commonly used valuation techniques.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.
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 oil price. The effective portion of
changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of
equity. Any ineffective portion of the fair value gain or loss is recognised immediately within the income statement.
When a hedging instrument no longer meets the criteria for hedge accounting (through maturity, sale, or other termination),
hedge accounting is discontinued prospectively. If the hedged forecast transaction is still expected to occur, the associated
cumulative gain or loss remains in the hedging reserve and is recognised in accordance with the above policy when the
hedged forecast transaction occurs. If the hedged forecast transaction is no longer expected to occur, the cumulative
unrealised gain or loss is recognised in the income statement immediately.
l. Leases
The Group has adopted IFRS 16 ‘Leases’ for the first time in the year ended 31 January 2020. The Group applied IFRS 16
retrospectively and the details of the new accounting policies for leases are disclosed below.
The Group leases various river cruise ships, buildings, equipment and vehicles. The contract length of the lease varies
considerably and may include extension or termination options as described below.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:
the contract involves the use of an identified asset; the Group has the right to obtain substantially all of the economic
benefits from use of the asset throughout the period of use; and the Group has the right to direct the use of the asset.
Leases are initially recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased
asset is available for use by the Group. The lease liability is initially measured at the present value of the lease payments
that are not paid at the commencement date. Where it is reasonably certain that an extension option will be triggered in
a contract, lease payments to be made in respect of the option will be included in the measurement of the lease liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the Group’s incremental borrowing rate is used. This is the rate that
the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset,
in a similar economic environment, with similar terms, security and conditions.
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Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.3 Summary of significant accounting policies (continued)
l. Leases (continued)
Lease payments are allocated between principal and finance cost. The finance cost is charged to the income statement
over the lease period using the effective interest rate method and the lease liability is measured at amortised cost using the
effective interest rate method.
Right-of-use assets are initially measured at cost comprising the present value of future lease payments plus any initial
direct costs and restoration costs. Right-of-use assets are depreciated over the lease term on a straight-line basis except
for the Group’s river cruise ships. The unit of production method is used to depreciate river cruise ships in order to accurately
reflect the usage of the asset, which is seasonal.
Payments associated with short term leases of equipment and all leases of low-value assets are expensed in profit or loss
as incurred in line with the exemption allowed under paragraph 6 of IFRS 16. Short term leases are leases with a lease term
of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture with an individual item
value of US$5,000 or less.
Extension and termination options are included in a number of property and river cruise ship leases across the Group.
These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations.
The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
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.
m. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes
a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective
asset. All other borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and fees that an entity incurs in connection with the borrowing of funds.
n. Cash and short term deposits
Cash and short term deposits in the statement of financial position comprise cash at bank and in hand and short term
deposits with a maturity of three months or less from their inception date.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash, short term deposits
as defined above and short term highly liquid investments (including money market funds) with original maturities of three
months or less that are subject to an insignificant risk of change in value, net of outstanding bank overdrafts.
o. Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost.
Loss allowances are measured as lifetime ECLs.
p. 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.
q. Insurance contract liabilities
Insurance contract liabilities include an outstanding claims provision, a provision for unearned premiums and, if required,
a provision for premium deficiency.
Outstanding claims provision
The provision for outstanding claims is set on an individual claim basis and is based on the ultimate cost of all claims notified
but not settled less amounts already paid by the reporting date, together with a provision for related claims handling costs.
The provision also includes the estimated cost of claims incurred but not reported at the statement of financial position
date, which is estimated using actuarial methods. The outstanding claims provision is not discounted for the time value of
money, with the exception of claims settled as periodical payment orders (PPOs).
The amount of any anticipated reinsurance, salvage or subrogation recoveries is separately identified and reported within
reinsurance assets and insurance contract liabilities respectively.
Differences between the provisions at the reporting date and settlements and provisions in the following year (known as
‘run off deviations’) are recognised in the income statement as they arise.
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Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 2.3 Summary of significant accounting policies (continued)
q. Insurance contract liabilities (continued)
Provision for unearned premiums
The provision for unearned premiums represents the portion of premiums received or receivable that relates to risks
that have not yet expired at the reporting date. The provision is recognised when contracts are entered into and
premiums are charged, and is recognised in the income statement as premium income over the term of the contract
on a straight-line basis.
Provision for premium deficiency
At each reporting date, the Group reviews its unexpired risks and a liability adequacy test is performed to determine whether
there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses
current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets
relating to the relevant insurance technical provisions. If these estimates show that the carrying amount of the unearned
premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the income statement by
setting up a provision for premium deficiency.
r. 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 under excess of loss
cover. Amounts recoverable from reinsurers are estimated in a consistent manner with the outstanding claims provisions in
accordance with the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment at each 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.
For the funds-withheld quota share agreement in motor insurance, the obligation to pay funds and the right to receive
reimbursement for incurred claims are presented on a net basis because there is a legally enforceable right to offset these
amounts and there is an intention to settle on a net basis or realise both the asset and settle the liability simultaneously.
The reinsurance assets recognised under these agreements are recognised as an offset against premium ceded under the
same agreement therefore, within trade and other payables.
s. 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.
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Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.3 Summary of significant accounting policies (continued)
t. 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 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.
u. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the income
statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using
a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a finance cost.
A provision is recognised for onerous contracts in which the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it. The unavoidable costs reflect the least net cost of exiting
the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.
v. 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.
w. 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.
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Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 2.4 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 2020. Except where separately disclosed, the effective dates of each of these standards are yet to have been
endorsed by the EU and are dependent on the implementation policy adopted by the UK after leaving the EU.
a. 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 Group has begun work to determine the full impact of this standard on the Group’s financial statements.
Our initial assessment is that the standard is likely to have a material impact on the Group’s financial statements as it
represents a significant change to current insurance accounting requirements. It is proposed that the standard will be
effective for annual reporting periods beginning on or after 1 January 2022. The standard has yet to be endorsed by the EU.
b. Amendments to ‘References to the Conceptual Framework in IFRS standards
Together with the revised Conceptual Framework published in March 2018, the IASB has also issued Amendments to
References to the Conceptual Framework in IFRS standards. The amendments are effective for annual periods beginning
on or after 1 January 2020, with earlier application being permitted, and were endorsed by the EU on 29 November 2019.
The amendments will have no effect on the Group’s financial statements.
c. Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
The amendments in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) clarify that entities would
continue to apply certain hedge accounting requirements assuming that the interest rate benchmark on which the hedged
cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark
reform. The amendments are effective for annual periods beginning on or after 1 January 2020, and were endorsed by the
EU on 15 January 2020. The amendments are not likely to have a material effect on the Group’s financial statements.
d. 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 and will have no effect on the Group’s financial statements.
e. 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 and
were endorsed by the EU on 29 November 2019. The amendments will have no effect on the Group’s financial statements.
f. Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the
statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current
(due or potentially due to be settled within one year) or non-current. The amendments are effective for annual periods
beginning on or after 1 January 2022 and are not likely to have a material effect on the Group’s financial statements.
2.5 First time adoption of new standards
The Group has adopted IFRS 16 ‘Leases’ for the first time in the year ended 31 January 2020. The Group has elected to apply
the fully retrospective approach to IFRS 16 and has therefore restated comparative information to include the impact of
adopting the new standard. See note 39 for a reconciliation between the reported and restated comparatives. A practical
expedient has been applied where a single discount rate has been applied to a portfolio of leases with similar characteristics.
As a result of adopting IFRS16 the Group recognises new assets and liabilities for its lease of river cruise ships, leased
properties, shipping telecommunications equipment and motor vehicles. The nature of expenses relating to these leases
changes because the Group recognises a depreciation charge for right-of-use assets and interest expense on lease
liabilities, instead of a periodic operating lease expense.
The transition to IFRS 16 has increased the loss after tax by £0.2m for the year ended 31 January 2019. Net assets have
decreased by £3.4m as at 31 January 2019.
143
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 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
Identification of performance obligations within contracts with
customers, and the subsequent allocation of the transaction price
to each performance obligation.
2.3ai
Classification of insurance contracts Assessment of whether significant insurance risk is transferred,
2.3h
Impairment testing of goodwill and
other major classes of assets
2.3k
2.3l
Financial instruments
Leases – extension and
termination options
and in particular assessment of whether reinsurance arrangements
constitute a reinsurance contract under IFRS 4, for example, the
funds-withheld quota share contract.
The Group determines whether goodwill needs to be impaired
on an annual basis, or more frequently as required. In the year
to 31 January 2020, management has deemed it necessary to
impair the goodwill allocated to the Insurance CGU, and impair the
goodwill and other intangibles allocated to the Destinology CGU.
In the year to 31 January 2020, management has also exercised
its judgement in relation to the impairment of the cruise ship,
the Saga Sapphire.
Classification of financial instruments, including assessment
of market observability of valuation inputs.
Assessment of whether it is probable that the Group will
exercise any extension of termination options included within
lease contracts.
144
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 2.6 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates
All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that
knowledge and predictions of future events and actions. Actual results may therefore differ from those estimates.
The table below sets out those items the Group considers susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Acc. policy
Items involving estimation
Sources of estimation uncertainty
2.3ai
Revenue recognition – three-year
fixed-price insurance policies
2.3bi
Cost recognition – incremental costs
of obtaining an insurance contract
2.3h
Goodwill impairment testing
2.3f & 2.3i
Useful economic lives of intangible
assets and PPE
2.3h
Impairment of cruise ships
The stand-alone selling price of the option to fix within the Group’s
three-year fixed-price insurance policies has been estimated using
the expected cost plus a margin approach as set out in paragraph
79 (b) of IFRS 15.
An allowance has also been made for the likelihood that the option
will be exercised by factoring in the expected rate of renewal at the
first and second renewal dates. The amount of revenue deferred
upon initial recognition is therefore reduced to the extent that it
is estimated that customers will not exercise the option due to the
fact that they either decide not to renew or they make a claim that
releases the Group from its obligation to fix the customer price.
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 pages 159 and 160.
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.
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 2020, management has exercised its
judgement in relation to the impairment of the cruise ship, the Saga
Sapphire. Management has recalculated the recoverable amount
of the Saga Sapphire based on the higher of fair value less costs
to sell and its value in use.
The recoverable amount was below that calculated by
management in the previous year and as such, an impairment
charge of £6.3m on the Saga Sapphire has been recognised.
145
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2.6 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates (continued)
Acc. policy
Items involving estimation
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.
The ultimate cost of outstanding claims is estimated by using
a range of standard actuarial claims projection techniques,
such as the Chain Ladder and Bornhuetter-Ferguson methods.
The main assumption underlying these techniques is that past
claims development experience can be used to project future
claims development and hence ultimate claims costs. As such,
these methods extrapolate the development of paid and incurred
losses, average costs per claim and claim numbers based on
the observed development of earlier years. Historical claims
development is primarily analysed by accident year, geographical
area, significant business line and peril. Additional qualitative
judgement is used to assess the extent to which past trends may
not apply in the future (e.g. to reflect one-off occurrences, changes
in external or market factors such as public attitudes to claiming,
economic conditions, levels of claims inflation, judicial decisions
and legislation, as well as internal factors such as portfolio mix,
policy features and claims handling procedures) in order to arrive
at the best estimate of the ultimate cost of claims.
The ultimate cost of claims is not discounted except for those in
respect of PPOs, which have been discounted at -1.5% for the year
ended 31 January 2020 (2019: -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 20d on pages 171 and 172.
The cost of defined benefit pension plans and the present value
of the pension obligation are determined using actuarial valuations.
Actuarial valuations involve making assumptions about discount
rates, expected rates of return on assets, future salary increases,
mortality rates and future pension increases. Due to the complexity
of the valuation, the underlying assumptions and its long term
nature, a defined benefit obligation is highly sensitive to changes
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 25 on
pages 175 to 177.
2.3q
Valuation of insurance
contract liabilities
2.3t
Valuation of pension
benefit obligation
146
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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 comprises the provision of general insurance products. Revenue is derived primarily from
insurance premiums and broking revenues. This segment is further analysed into four product sub-segments:
– Retail broking, consisting of:
– Motor broking
– Home broking
– Other insurance broking
– Underwriting.
• Travel: the segment 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.
• Other Businesses and Central Costs: the segment comprises the Group’s other businesses, its central cost base and
Membership scheme. The other businesses include the financial services product offering, the domiciliary care services
offering, a monthly subscription magazine product and the Group’s internal mailing house.
Segment performance is evaluated using the Group’s key performance measure of Underlying Profit Before Tax. Items not
allocated to a segment relate to transactions that do not form part of the ongoing segment performance or which are
managed at a Group level.
Transfer prices between operating segments are set on an arm’s-length basis in a manner similar to transactions with third
parties. Segment income, expenses and results include transfers between business segments which are then eliminated
on consolidation.
Goodwill, Group bond and bank loans are not allocated to segments as they are also managed on a Group basis.
147
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 3 Segmental information (continued)
Motor
broking
£’m
104.7
(2.8)
101.9
Home
broking
£’m
62.5
–
62.5
Insurance
Other
insurance
broking
£’m
Under-
writing
£’m
Total
£’m
Travel
£’m
Other
Businesses
and Central
Costs
£’m
67.9
(12.9)
55.0
69.1
304.2
464.1
(30.1)
(45.8)
(365.0)
39.0
258.4
99.1
2020
Revenue
Cost of sales
Gross profit
Administrative and
selling expenses
Impairment of assets
Investment income
Finance costs
Finance income
(73.9)
(29.4)
(25.9)
(2.4)
(131.6)
(77.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
4.0
–
–
–
4.0
–
–
(13.3)
0.4
(8.0)
–
0.8
Profit/(loss) before tax
28.0
33.1
29.1
40.6
130.8
Reconciliation to
Underlying Profit/
(Loss) Before Tax
Adjustments
£’m
Total
£’m
(6.6)
797.3
–
(425.9)
(6.6)
371.4
6.6
(251.3)
(383.0)
(400.5)
–
–
–
1.2
(21.8)
0.1
35.6
(15.1)
20.5
(48.9)
(4.2)
(3.2)
(13.8)
0.1
(49.5)
(383.0)
(300.9)
Profit/(loss) before tax
28.0
33.1
29.1
40.6
130.8
0.8
(49.5)
(383.0)
(300.9)
Net fair value loss on
derivative financial
instruments
Impairment of assets
Impairment of
goodwill
Impact of insolvency
of Thomas Cook
Restructuring costs
Underlying Profit/
(Loss) Before Tax
Total assets
less liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.1
13.6
–
3.9
0.4
–
3.3
–
–
5.5
28.0
33.1
29.1
40.6
130.8
19.8
(40.7)
–
–
1.1
16.9
383.0
383.0
–
–
–
3.9
5.9
109.9
283.2
71.9
(144.6)
377.7
588.2
All revenue is generated solely in the UK.
148
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 3 Segmental information (continued)
Insurance
Other
insurance
broking
£’m
Under-
writing
£’m
Total
£’m
Travel
£’m
Other
Businesses
and Central
Costs
£’m
Adjustments
£’m
Total
£’m
Motor
broking
£’m
Home
broking
£’m
113.4
(2.2)
111.2
74.5
–
74.5
68.8
(12.9)
55.9
93.3
350.0
457.4
(8.4)
(23.5)
(363.3)
84.9
326.5
94.1
(77.2)
(29.4)
(29.2)
(2.5)
(138.3)
(72.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
4.3
–
–
–
4.3
–
–
(5.9)
0.2
–
1.0
40.5
(18.2)
22.3
(39.9)
–
(3.8)
(12.6)
–
(6.4)
841.5
–
(405.0)
(6.4)
436.5
6.4
(244.5)
(310.0)
(315.9)
–
–
–
0.7
(12.6)
1.0
2019 (restated)
Revenue
Cost of sales
Gross profit
Administrative and
selling expenses
Impairment of assets
Investment income
Finance costs
Finance income
Profit/(loss) before tax
34.0
45.1
26.7
86.7
192.5
16.7
(34.0)
(310.0)
(134.8)
Reconciliation to
Underlying Profit/
(Loss) Before Tax
Profit/(loss) before tax
34.0
45.1
26.7
86.7
192.5
16.7
(34.0)
(310.0)
(134.8)
Net fair value gain on
derivative financial
instruments
Impairment of cruise
ships
Impairment of
goodwill
Underlying Profit/
(Loss) Before Tax
Total assets
less liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.0)
5.9
–
–
–
–
–
–
(1.0)
5.9
310.0
310.0
34.0
45.1
26.7
86.7
192.5
21.6
(34.0)
–
180.1
335.9
73.4
(184.2)
735.8
960.9
For details on the restatement, please see notes 2.5 and 39.
All revenue is generated solely in the UK.
Total assets less liabilities detailed as adjustments relates to the following unallocated items:
Goodwill (note 14)
Group bond and bank loans
2020
£’m
2019
£’m
778.4
1,175.0
(400.7)
(439.2)
377.7
735.8
149
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 2020
Insurance
Earned premium
on insurance
underwritten by
the Group
£’m
Other
revenue
£’m
Total
insurance
£’m
Travel
£’m
Other
Businesses
and Central
Costs
£’m
233.9
(145.7)
23.8
–
1.3
63.1
233.9
(145.7)
104.7
62.5
67.9
69.1
80.9
62.5
66.6
6.0
346.1
118.0
88.2
216.0
304.2
464.1
2019
Insurance
7.4
6.1
13.3
2.2
29.0
Earned premium
on insurance
underwritten by
the Group
£’m
Other
revenue
£’m
Total
insurance
£’m
Travel
£’m
Other
Businesses
and Central
Costs
£’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
8.2
6.0
18.6
1.3
34.1
Total
£’m
233.9
(145.7)
104.7
62.5
67.9
69.1
346.1
118.0
7.4
6.1
13.3
2.2
797.3
Total
£’m
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
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
150
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 3 Segmental information (continued)
b. Contract balances
The following table provides information about contract assets and contract liabilities from contracts with customers as
accounted for under IFRS 15 (the amounts stated here do not include amounts accounted for under IFRS 4):
Contract cost assets
Contract liabilities
2020
£’m
2.6
153.2
2019
£’m
4.5
144.7
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 £5.9m for
the year ended 31 January 2020 (2019: £7.8m). These fees are amortised over the period of the expected renewal cycle. In the
year to 31 January 2020, the amount of amortisation was £5.9m (2019: £6.1m) 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
Reclassification to assets/liabilities held for sale
Balance as at 31 January
2020
2019
Contract
cost
assets
Contract
liabilities
Contract
cost
assets
Contract
liabilities
4.5
(5.9)
5.9
(1.9)
2.6
144.7
(131.3)
140.4
(0.6)
153.2
2.8
(6.1)
7.8
–
4.5
142.7
(133.6)
135.6
–
144.7
c. Transaction price allocated to the remaining performance obligations
As at 31 January 2020, the amount allocated to the Group’s Membership scheme, Saga Possibilities, is £0.6m (2019: £0.8m).
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 three year fixed price insurance policy renewal options where the remaining performance
obligations are not expected to be satisfied within the next 12 months is £0.8m (2019: £nil). This is expected to be recognised
as revenue in the next one to three years.
The transaction price allocated to customer contracts within the Travel segment where the remaining performance
obligations are not expected to be satisfied within the next 12 months is £1.1m (2019: £13.3m). This is expected to be
recognised as revenue in the subsequent one to two years.
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
151
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 4 Administrative and selling expenses
Staff costs (excluding restructuring costs)
Marketing and fulfilment costs
Short term and low value asset lease rentals
Auditors’ remuneration
Other administrative costs
Amounts ceded under reinsurance contracts
Depreciation – property, plant and equipment (note 17)
Depreciation – right of use assets (note 18)
Amortisation of intangible assets (note 15)
Restructuring costs
Cost of Thomas Cook insolvency
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
2020
£’m
2019
(restated)
£’m
98.7
69.3
0.3
1.7
57.6
(4.6)
4.1
2.0
16.7
1.6
3.9
–
99.1
65.3
0.2
1.3
59.0
(4.3)
4.8
2.0
18.7
–
–
(1.6)
251.3
244.5
2020
£’m
2019
£’m
0.6
0.9
0.2
1.7
0.3
0.8
0.2
1.3
5 Impairment of assets
During the year, the Group has impaired the carrying value of the goodwill balance allocated to the Insurance CGU by
£370.0m (2019: £310.0m) and Destinology CGU by £13.0m (2019: £nil). The Group has also impaired software and acquired
intangibles in the Destinology CGU by £1.3m (2019: £nil) and £5.7m (2019: £nil) respectively. See note 16a for further details.
The Group has impaired property, plant and equipment and right of use assets in its mailing business by £3.1m (2019: £nil)
and £0.2m (2019: £nil) respectively. The Group has also impaired software and property, plant and equipment in its
healthcare business by £0.8m and £0.1m respectively (2019: £nil and £nil).
In the prior year the Group also impaired the carrying value of the Saga Pearl II and the Saga Sapphire in line with third
party valuations received. In the current year management has recalculated the recoverable amount of the Saga Sapphire
based on the higher of fair value less costs to sell and its value in use. The recoverable amount was below that calculated by
management in the previous year and as such, an impairment charge of £6.3m on the Saga Sapphire has been recognised.
The total impairment charge of £6.3m (2019: £5.9m) includes a write-down of the carrying value of property, plant and
equipment of £6.3m (2019: £4.3m) (note 17) and a write-down of the carrying value of technical stock of £nil (2019: £1.6m).
152
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 6 Investment income
Interest income recognised using the EIR method
Gains on assets measured at FVTPL
Amounts ceded under reinsurance contracts
7 Finance costs
Interest and charges on debt and borrowings
Net fair value loss on derivative financial instruments
Net interest and finance charges payable on lease liabilities
8 Finance income
Net finance income on pension schemes
Net fair value gain on derivative financial instruments
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 25)
Total staff costs
2020
£’m
5.7
0.9
(5.4)
1.2
2019
£’m
4.8
1.6
(5.7)
0.7
2020
£’m
2019
(restated)
£’m
19.5
1.1
1.2
21.8
11.5
–
1.1
12.6
2020
£’m
2019
£’m
0.1
–
0.1
–
1.0
1.0
2020
£’m
104.5
10.5
10.6
125.6
2019
£’m
102.9
10.7
10.3
123.9
Staff costs (including restructuring and redundancy costs) of £25.8m (2019: £23.2m) and £99.8m (2019: £100.7m) have been
allocated to cost of sales and to administrative and selling expenses respectively.
Average monthly number of employees:
Insurance
Travel
Other Businesses and Central Costs
Total staff numbers
2020
1,766
2,408
1,030
5,204
2019
1,911
2,134
997
5,042
During the year, the Group purchased Saffron Maritime Limited, which employs the crew that work on the Group’s cruise
ships. In the current year, the number of employees in the Travel segment includes 1,120 crew who were employed directly by
the Group. For the prior year the number of employees in the Travel segment included 852 crew who were 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 81 to 108 in
the Directors’ Remuneration Report.
153
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 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
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
2020
£’m
5.1
0.5
5.6
2019
£’m
4.7
1.0
5.7
2020
£’m
2019
£’m
16.4
(0.8)
15.6
(1.1)
(2.6)
(3.7)
36.5
0.4
36.9
(8.9)
(0.6)
(9.5)
Tax expense in the income statement
11.9
27.4
Reconciliation of tax expense to loss before tax multiplied by the UK corporation tax rate:
Loss before tax
Tax at rate of 19.00% (2019: 19.00%)
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
2020
£’m
2019
(restated)
£’m
(300.9)
(134.8)
(57.2)
(3.4)
72.8
–
(0.3)
11.9
(25.6)
(0.2)
58.9
(6.7)
1.0
27.4
The Group’s tax expense for the year was £11.9m (2019: £27.4m) representing a tax effective rate of 14.5% before the
impairment of goodwill and associated deferred tax (2019 restated: 19.5%).
Adjustments in respect of previous years includes an adjustment for the over provision of tax charge in previous years
of £3.4m (2019: £0.2m).
154
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 10 Tax (continued)
Deferred tax
Excess of depreciation over capital allowances
Intangible assets
Retirement benefit scheme liabilities
Short term temporary differences
Deferred tax credit
Net deferred tax assets
Consolidated
statement of
financial position
2020
£’m
2019
(restated)
£’m
8.5
–
0.9
8.7
4.5
(1.3)
0.5
3.4
18.1
7.1
Consolidated
income statement
2020
£’m
(4.0)
(1.3)
0.5
1.1
(3.7)
2019
(restated)
£’m
(0.9)
(0.3)
0.3
(8.6)
(9.5)
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
Reconciliation of net deferred tax assets
At 1 February
Tax credit recognised in the income statement
Tax credit recognised in other comprehensive income
Tax credit recognised directly into the hedging reserve
At 31 January
2020
£’m
22.3
(4.2)
18.1
2019
(restated)
£’m
14.9
(7.8)
7.1
2020
£’m
2019
(restated)
£’m
7.1
3.7
1.9
5.4
18.1
(2.6)
9.5
0.2
-
7.1
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. On 11 March 2020, it was announced that the corporation tax
rate will remain at 19% from 1 April 2020.
The Group has tax losses which arose in the UK of £4.2m (2019: £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 (2019: £0.7m).
155
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 11 Dividends
Declared and paid during the year:
Final dividend for the year ended 31 January 2019: 1.0 pence per share (2019: 6.0 pence per share)
Interim dividend for the year ended 31 January 2020: 1.3 pence per share (2019: 3.0 pence per share)
2020
£’m
11.2
14.6
25.8
2019
£’m
67.1
33.6
100.7
Proposed after the end of the reporting period and not recognised as a liability:
Final dividend for the year ended 31 January 2020: nil pence per share (2019: 1.0 pence per share)
–
11.2
Given the uncertain implications of COVID-19, the board of Directors do not recommend the payment of a final dividend for
the 2019/20 financial year.
In addition to the dividends declared and paid during the year stated above, dividend equivalents of £nil (2019: £0.2m) have
been paid. These dividend equivalents relate to previously declared dividends which only become payable when certain
share options are exercised.
Saga plc has £48.8m of distributable reserves at 31 January 2020 available for distribution to support the Dividend Policy.
The distributable reserves of Saga plc are £48.8m as at 31 January 2020 which are equal to the retained earnings reserve.
If necessary, its subsidiary companies hold significant reserves from which a dividend can be paid. Subsidiary distributable
reserves are available immediately with the exception of companies within the 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 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.
2020
£’m
2019
(restated)
£’m
(312.8)
(162.2)
m
m
1,119.1
1,118.1
0.2
0.1
–
–
0.9
0.1
1,119.4
1,119.1
(27.9p)
(14.5p)
(27.9p)
(14.5p)
The calculation of basic and diluted EPS is as follows:
Loss attributable to ordinary equity holders
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 and diluted EPS
Basic EPS
Diluted EPS
156
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 12 Earnings Per Share (continued)
The table below reconciles between basic EPS and Underlying Basic EPS:
Basic EPS
Adjusted for:
Derivative losses
Impairment of property, plant and equipment and software
Impairment of goodwill and associated deferred tax
Impact of insolvency of Thomas Cook
Restructuring costs
Underlying Basic EPS
13 Business combinations and acquisition of non-controlling interests
Acquisitions during the year ended 31 January 2020
During the year, the Group purchased Saffron Maritime Limited for £20k.
14 Goodwill
Cost
At 1 February 2018 and 31 January 2019
Reclassification to assets held for sale
At 31 January 2020
Impairment
At 1 February 2018
Charge for the year
At 31 January 2019
Charge for the year (note 16a)
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
Goodwill deductible for tax purposes amounts to £nil (2019: £nil).
2020
2019
(27.9p)
(14.5p)
0.1p
1.6p
34.1p
0.4p
0.6p
8.9p
–
0.5p
27.1p
–
–
13.1p
Goodwill
£’m
1,485.0
(13.6)
1,471.4
–
310.0
310.0
383.0
693.0
778.4
1,175.0
157
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 15 Intangible fixed assets
Cost
At 1 February 2018
Additions – internally developed
Disposals
Transfer of asset class
At 31 January 2019
Additions – internally developed
Disposals
Transfer of asset class
Reclassification to assets held for sale
At 31 January 2020
Amortisation and impairment
At 1 February 2018
Amortisation
Disposals
At 31 January 2019
Amortisation
Impairment of assets
Disposals
Transfer of asset class
Reclassification to assets held for sale
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
Contracts
£’m
Brands
£’m
Customer
relationships
£’m
Software
£’m
Total
£’m
5.8
17.9
11.3
–
–
–
–
–
–
–
–
–
119.5
21.5
(16.3)
(0.3)
5.8
17.9
11.3
124.4
154.5
21.5
(16.3)
(0.3)
159.4
21.5
(1.2)
5.7
(20.9)
164.5
21.5
(1.2)
5.7
(6.0)
144.4
73.1
16.0
93.3
19.6
(16.3)
(16.3)
72.8
14.3
2.1
(1.2)
4.2
(4.9)
87.3
96.6
17.3
7.8
(1.2)
4.2
(17.3)
107.4
–
–
–
(3.9)
7.4
10.4
0.7
–
11.1
0.2
–
–
–
(3.9)
7.4
–
57.1
57.1
0.2
51.6
62.8
–
–
–
(5.8)
–
3.3
1.1
–
4.4
1.0
–
–
–
(5.4)
–
–
1.4
–
–
–
(5.2)
12.7
6.5
1.8
–
8.3
1.8
5.7
–
–
(3.1)
12.7
–
9.6
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)
2020
£’m
0.6
16.7
17.3
2019
£’m
0.9
18.7
19.6
During the year, the Group disposed of assets with a net book value of £nil (2019: £nil). Profit arising on disposal was £nil
(2019: £nil).
158
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 16 Impairment of intangible assets
a. Goodwill
Goodwill acquired through business combinations has been allocated to cash generating units (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
Cruise
Tour Operations, excluding Destinology
Travel, Destinology
2020
£’m
2019
£’m
718.6
1,088.6
–
–
35.8
24.0
–
13.6
59.8
–
–
13.0
778.4
1,175.0
The Group has tested all goodwill balances for impairment at 31 January 2020. The impairment test compares the
recoverable amount of the goodwill of each CGU to its carrying value, including the allocated goodwill. The goodwill
associated with the Destinology business has been considered separately, as this business represents a separate CGU.
The goodwill associated with the Bennetts business has been transferred to assets held for sale. Please see note 36 for
further details.
During the year, the Group has made structural changes to its Travel business such that the cash flows of the Cruise
business are now managed independently of the Tour Operations businesses. This has required a re-evaluation of the
determination of the Group’s CGUs, and the Travel excluding Destinology CGU has now been subdivided into separate
Cruise and Tour Operations excluding Destinology CGUs. The goodwill asset previously allocated to the Travel excluding
Destinology CGU has been allocated to the Cruise and Tour Operations excluding Destinology CGUs based on their relative
value-in-use measurements.
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 2024/25. Terminal values have been included using 2.0% (2019: 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 based on a market participant
cost of capital. The pre-tax discount rates used for each CGU were as follows:
Insurance, excluding Bennetts
Travel, excluding Destinology
Cruise
Tour Operations, excluding Destinology
Travel, Destinology
2020
12.6%
2019
9.6%
n/a
11.8%
11.3%
12.2%
12.2%
n/a
n/a
12.2%
The value-in-use calculation is 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 of goodwill and
other directly attributable assets and liabilities. This stress testing has included a reasonable estimate of the impact of the
COVID-19 crisis.
159
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 16 Impairment of intangible assets (continued)
a. Goodwill (continued)
The resultant headroom/(deficit) for each of the CGUs against the brought forward carrying value is as follows:
Insurance, excluding Bennetts
Cruise
Tour Operations, excluding Destinology
Travel, Destinology
Headroom
/(deficit)
£’m
(370.0)
70.0
62.0
(13.0)
For the Insurance excluding Bennetts CGU, management have used board approved business plans to derive the underlying
forecast cash flows after making downward adjustments for programmes and initiatives that are as yet not committed,
but have discounted these at a materially higher pre-tax discount rate of 12.6% (2019: 9.6%). The 3.0ppt increase in the
pre-tax discount rate is as a result of the fall in Saga’s market capitalisation and an increase in the risk premium that is being
applied to the Insurance CGU in comparison to the previous year. The underlying forecast cash flows have been prepared
on a consistent basis to those used in the prior year, in that they do not include the benefit of management initiatives that
will serve to enhance the performance of the business in the future, which is line with the requirements of IAS 36.
The underlying forecast cash flows for the Insurance business used in this calculation are broadly unchanged from the prior
year, however the increase in the discount rate has driven a lower value-in-use of £791.6m, from which the net asset value
of the Insurance excluding Bennetts CGU of £73.0m must also be deducted. The net asset value excludes intercompany
and tax receivables and payables that do not relate to the working capital movements used to derive the value-in-use.
As a result, management considers it necessary to impair the goodwill asset allocated to the Insurance excluding Bennetts
CGU by £370.0m in the year to 31 January 2020.
Due to the deficit calculated in the Destinology base case for the Destinology CGU, management considers it necessary
to impair the goodwill asset allocated to the Destinology CGU in full. The impairment charge has allowed for the latest view
of the forecast cash flows in light of the current climate in the travel industry.
No impairment of the goodwill asset allocated to the Cruise and Tour Operations excluding Destinology CGUs is considered
necessary, even when considering a stress scenario in which cruises and tours are suspended until September 2020 and
demand is adversely affected for the rest of 2020/21 and 2021/22, as a result of the COVID-19 crisis. The situation remains
highly uncertain, however, and so a more prolonged and severe impact than that currently modelled could result in the need
for impairment.
The headroom/(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 2020 and its impact on the headroom / (deficit) against brought
forward goodwill carrying values is as follows:
Insurance, excluding Bennetts
Cruise
Tour Operations, excluding Destinology
Pre-tax discount rate
Terminal growth rate
+1.0ppt
£’m
–1.0ppt
£’m
+1.0ppt
£’m
–1.0ppt
£’m
(64.0)
(69.0)
(9.7)
77.3
86.0
11.9
54.7
64.5
8.7
(45.3)
(51.9)
(7.2)
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 other intangible assets relating to the Destinology business as at
31 January 2020 and concluded that the value of those assets needed to be impaired by £7.0m, in light of the current
climate and outlook for the travel industry. The Group has also impaired software assets relating to the healthcare business
of £0.8m.
160
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 17 Property, plant and equipment
Cost
At 1 February 2018
Additions
Disposals
Transfer of asset class
At 31 January 2019
Additions
Disposals
Transfer of asset class
Reclassification to assets held for sale
At 31 January 2020
Depreciation and impairment
At 1 February 2018
Provided during the year
Impairment of assets
Disposals
Transfer of asset class
At 31 January 2019
Provided during the year
Impairment of assets
Disposals
Transfer of asset class
Reclassification to assets held for sale
At 31 January 2020
Net book value
At 31 January 2020
Long
leasehold
land &
buildings
(restated)
£’m
Freehold
land &
buildings
£’m
Cruise
ships
£’m
Assets in the
course of
construction
£’m
Plant &
equipment
(restated)
£’m
Total
(restated)
£’m
45.0
–
–
–
45.0
–
(0.4)
(3.7)
(1.1)
39.8
8.4
0.8
–
–
–
9.2
0.8
–
(0.1)
(4.3)
(1.0)
4.6
9.2
–
–
(0.7)
8.5
0.1
–
0.9
–
9.5
2.2
0.2
–
–
0.1
2.5
0.2
–
–
2.9
–
5.6
104.0
–
–
–
104.0
236.2
(22.6)
67.0
–
384.6
58.0
13.7
4.3
–
–
76.0
16.1
6.3
(17.7)
–
–
80.7
60.4
40.6
–
–
101.0
40.3
–
(68.5)
–
72.8
–
–
–
–
–
–
–
–
–
–
–
–
48.1
4.4
(0.3)
2.3
54.5
5.4
(1.0)
12.5
(2.4)
69.0
38.2
4.8
–
(0.3)
1.2
43.9
4.4
3.2
(1.2)
11.4
(1.9)
266.7
45.0
(0.3)
1.6
313.0
282.0
(24.0)
8.2
(3.5)
575.7
106.8
19.5
4.3
(0.3)
1.3
131.6
21.5
9.5
(19.0)
10.0
(2.9)
59.8
150.7
35.2
3.9
303.9
72.8
9.2
425.0
At 31 January 2019 (restated)
35.8
6.0
28.0
101.0
10.6
181.4
The depreciation charge for the year is analysed as follows:
Cost of sales
Administrative and selling expenses (note 4)
2020
£’m
17.4
4.1
21.5
2019
£’m
14.7
4.8
19.5
During the year, the Group disposed of assets with a net book value of £5.0m (2019: £nil). Profit arising on disposal was £0.5m
(2019: £0.1m).
During the year, borrowing costs of £3.5m (2019: £2.5m) have been capitalised in property, plant and equipment and £0.8m
(2019: £0.5m) has been capitalised in software in intangible assets, which represents 2.8% (2019: 3.2%) of capital expenditure
eligible to capitalise borrowing costs.
161
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 18 Right of use assets
Cost
At 1 February 2018
Additions
Disposals
Transfer of asset class
At 31 January 2019
Additions
Disposals
Transfer of asset class
Effect of modification of lease terms
At 31 January 2020
Depreciation and impairment
At 1 February 2018
Provided during the year
Disposals
Transfer of asset class
At 31 January 2019
Provided during the year
Impairment of assets
Disposals
Transfer of asset class
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
The depreciation charge for the year is analysed as follows:
Cost of sales
Administrative and selling expenses (note 4)
Long
leasehold
land &
buildings
£’m
River
cruise
ships
£’m
Plant &
equipment
£’m
13.5
0.7
(0.7)
–
13.5
0.2
(0.2)
–
–
13.5
2.5
1.0
(0.7)
–
2.8
1.0
–
(0.2)
–
3.6
25.6
–
(9.5)
–
16.1
15.9
–
–
(2.6)
29.4
8.9
8.6
(9.5)
–
8.0
10.4
–
–
–
18.4
9.7
0.8
(0.5)
(0.6)
9.4
3.4
(5.4)
0.9
–
8.3
4.4
2.3
(0.5)
(0.6)
5.6
2.0
0.2
(4.9)
0.6
3.5
Total
£’m
48.8
1.5
(10.7)
(0.6)
39.0
19.5
(5.6)
0.9
(2.6)
51.2
15.8
11.9
(10.7)
(0.6)
16.4
13.4
0.2
(5.1)
0.6
25.5
9.9
11.0
4.8
25.7
10.7
8.1
3.8
22.6
2020
£’m
11.4
2.0
13.4
2019
£’m
9.9
2.0
11.9
During the year, the Group disposed of assets with a net book value of £0.5m (2019: £nil). Profit arising on disposal was £0.4m
(2019: £nil).
162
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 19 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
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
2020
£’m
2019
£’m
0.1
–
7.8
45.9
53.8
1.0
0.1
1.1
0.4
0.6
6.2
37.1
44.3
31.2
1.2
32.4
274.2
274.2
280.2
280.2
49.0
49.0
69.3
69.3
378.1
426.2
126.4
251.7
378.1
111.4
314.8
426.2
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.
163
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 19 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 28)
Lease liabilities
Bank overdrafts
Total financial liabilities
Current
Non-current
2020
£’m
2019
(restated)
£’m
2.0
–
2.0
23.4
2.5
25.9
0.5
0.1
0.6
10.1
1.4
11.5
624.3
439.2
28.6
9.5
27.7
2.7
662.4
469.6
690.3
481.7
95.6
594.7
690.3
54.9
426.8
481.7
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 active 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.
164
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 19 Financial assets and financial liabilities (continued)
c. Fair values (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 2020, 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 2020
As at 31 January 2019
Level 1
£’m
Level 2
£’m
Level 3
£’m
Total
£’m
Level 1
£’m
Level 2
(restated)
£’m
Level 3
£’m
Total
(restated)
£’m
–
–
7.8
274.2
45.9
1.1
0.1
–
–
–
–
–
25.4
2.5
–
–
–
–
–
–
–
1.1
0.1
7.8
274.2
45.9
–
–
6.2
280.2
37.1
31.6
1.8
–
–
–
25.4
2.5
–
–
10.6
1.5
–
–
–
–
–
–
–
31.6
1.8
6.2
280.2
37.1
10.6
1.5
Financial assets measured
at fair value
Foreign exchange forwards
Fuel oil swaps
Loan funds
Debt securities
Money market funds
Financial liabilities measured
at fair value
Foreign exchange forwards
Fuel oil swaps
Financial assets for which
fair values are disclosed
Deposits with institutions
–
49.0
–
49.0
–
69.3
–
69.3
Financial liabilities for which
fair values are disclosed
Bond and bank loans
Lease liabilities
Bank overdrafts
–
–
–
624.3
28.6
9.5
–
–
–
624.3
28.6
9.5
–
–
–
439.2
27.7
2.7
–
–
–
439.2
27.7
2.7
There have been no transfers between Level 1 and Level 2 and no non-recurring fair value measurements of assets and
liabilities during the year (2019: none).
The value of the debt securities, money market funds and loan funds are based upon publicly available market prices.
Foreign exchange forwards are valued using current spot and 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.
165
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS
19 Financial assets and financial liabilities (continued)
d. Cash flow hedges
i) Forward currency risk
During the year ended 31 January 2020, the Group designated 571 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 2020
At 31 Jan 2019
Foreign currency cash flow hedging instruments
Volume
£’m
Volume
£’m
Volume
Euro (EUR)
US dollar (USD)
Other currencies
Total
163
127
281
571
(3.1)
(0.6)
(0.8)
(4.5)
245
200
363
808
(23.5)
0.3
(0.9)
(24.1)
251
230
341
822
£’m
18.0
2.5
0.7
21.2
Hedging instruments for other currencies are in respect of Australian dollars, Canadian dollars, Swiss francs, Japanese yen,
New Zealand dollars, Norwegian krone, Thai baht, Chinese yuan, Danish krona and South African rand.
ii) Commodity price risk
The Group uses derivative financial instruments to mitigate the risk of adverse changes in the price of fuel. The Group enters
into fixed price contracts (swaps) in the management of its fuel price exposures. These contracts are expected to reduce
the volatility attributable to price fluctuations of fuel and are designated as cash flow hedges. Hedging the price volatility
of forecast fuel purchases is in accordance with the risk management strategy outlined by the Board of Directors.
Commodity cash flow hedging instruments
Hedging instruments
Volume
–
£’m
–
Volume
£’m
Volume
50
(2.4)
170
£’m
0.2
Designated in the year
At 31 Jan 2020
At 31 Jan 2019
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 2020. 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 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
EUR
£’m
50.5
263.0
14.7
0.9
329.1
USD
£’m
15.9
18.7
4.3
1.4
40.3
Other
currencies
£’m
Currency
hedges
£’m
Fuel
hedges
£’m
9.1
4.2
2.6
0.3
75.5
285.9
21.6
2.6
16.2
385.6
0.8
0.8
0.4
0.4
2.4
Total
£’m
76.3
286.7
22.0
3.0
388.0
The foreign currency hedges which will be determined in August 2020 include £250.6m relating to the delivery of the new ship
(note 35).
During the year, the Group recognised net losses of £4.0m (2019: £5.3m gains) on cash flow hedging instruments
through other comprehensive income into the hedging reserve. Additionally, the Group recognised net losses of £7.2m
(2019: £6.3m) through other comprehensive income into the hedging reserve, in relation to the specific hedging instrument
for the acquisition of two new ships (note 35). The overall net losses of £11.2m (2019: £1.0m) are offset by a net £nil gain
(2019: £1.5m) on forecast transactions recognised in the financial statements. The Group has recognised £0.1m gains
(2019: £nil) through the income statement in respect of the ineffective portion of hedges measured during the year.
There has been no de-designation of hedges during the year ended 31 January 2020 as a result of cash flows forecast
that are no longer expected to occur. During the year, the Group recognised a £2.6m gain (2019: £2.9m) through the income
statement in respect of matured hedges which have been recycled from other comprehensive income. The Group also
recognised £31.9m (2019: £nil) in property, plant and equipment, in respect of matured hedges which have been recognised
directly from the hedging reserve.
166
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 20 Financial risk management objectives and policies
The Group’s principal financial liabilities comprise loans and borrowings and trade and other payables. The main purpose
of 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 and
loan 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.
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.
167
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 20 Financial risk management objectives and policies (continued)
a. Market risk (continued)
2020
2019
Sensitivity of +/– 5%
forex 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
+/- £4.8m
+/- £11.0m
+/- £2.9m
+/– £5.9m
+/– £23.7m
+/– £4.0m
+/- £0.5m
+/- £0.0m
+/- £0.3m
+/– £0.6m
+/– £0.0m
+/– £0.6m
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.
2020
2019
Sensitivity of +/– 5%
rate change in
Effect on profit after
tax and equity
USD – Fuel oil price
+/- £0.0m
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.
Sensitivity
of +/– 0.25%
rate change in
Effect on profit after
tax and equity
LIBOR
+/- £0.2m
LIBOR
+/– £0.3m
2020
2019
168
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 20 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 generally limited as payment from customers is generally required
before services are provided. An exception to this in light of the Thomas Cook insolvency is agency debtors, where if a third
party tour operator takes a booking on behalf of the Travel business but is forced into liquidation, the Group would still be
required to provide the service but would not receive the full amount owed from the third party tour operator. At 31 January
2020, the maximum exposure to credit risk for trade receivables by operating segment was as follows:
Insurance
Travel
Other Businesses and Central Costs
Reclassification to assets held for sale
Amounts past due but not impaired by operating segment were as follows:
Insurance
Travel
Other Businesses and Central Costs
Reclassification to assets held for sale
2020
£’m
50.9
5.5
6.8
63.2
(8.2)
55.0
2020
£’m
15.8
1.1
0.8
17.7
(0.4)
17.3
2019
£’m
51.4
2.3
7.0
60.7
–
60.7
2019
£’m
15.4
1.1
1.7
18.2
–
18.2
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 Board. The limits are set to minimise the concentration of risks and therefore
mitigate financial loss through any potential counterparty failure.
169
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 20 Financial risk management objectives and policies (continued)
b. Credit risk (continued)
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 2020
and 31 January 2019 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.
The Group’s financial assets and reinsurance assets are analysed by Moody’s rating as follows:
Ratings analysis
31 January 2020
£’m
Debt securities
Money market funds
Deposits with financial institutions
Derivative assets
Loan funds
Reinsurance assets
Total
31 January 2019
£’m
Debt securities
Money market funds
Deposits with financial institutions
Derivative assets
Loan funds
Reinsurance assets
Total
AAA
15.3
45.9
–
–
–
61.2
–
61.2
AAA
14.8
37.1
–
–
–
51.9
–
51.9
AA
117.5
–
30.4
–
–
147.9
36.4
184.3
AA
140.3
–
50.8
–
–
191.1
55.5
246.6
A
54.1
–
–
0.7
–
54.8
26.5
81.3
A
41.2
–
–
32.6
–
73.8
40.9
114.7
BBB
87.3
–
18.6
0.5
1.6
108.0
–
108.0
BBB
83.9
–
18.5
0.8
–
103.2
–
103.2
Unrated
–
–
–
–
6.2
6.2
0.6
6.8
Unrated
–
–
–
–
6.2
6.2
0.4
6.6
Total
274.2
45.9
49.0
1.2
7.8
378.1
63.5
441.6
Total
280.2
37.1
69.3
33.4
6.2
426.2
96.8
523.0
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 2020
£’m
Loans and borrowings
Interest on loans and borrowings
Insurance contract liabilities
Derivative liabilities
170
On
demand
Less than
1 year
50.4
21.4
69.3
4.2
–
–
–
–
–
1 to 2
years
20.4
18.6
53.2
23.7
2 to 5
years
431.3
38.8
107.6
–
Over
5 years
132.7
16.2
179.9
–
Total
634.8
95.0
410.0
27.9
145.3
115.9
577.7
328.8
1,167.7
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 20 Financial risk management objectives and policies (continued)
c. Liquidity risk (continued)
31 January 2019
£’m
Loans and borrowings
Interest on loans and borrowings
Insurance contract liabilities
Derivative liabilities
On
demand
Less than
1 year
1 to 2
years
2 to 5
years
Over
5 years
Total
–
–
–
–
–
50.0
12.1
85.5
2.6
150.2
20.0
11.6
58.6
8.8
99.0
120.0
28.8
131.3
0.1
250.0
440.0
4.2
186.1
–
56.7
461.5
11.5
969.7
280.2
440.3
The amounts included above do not include the financing arrangements for the purchase of the new cruise ship to be
delivered during the year ended 31 January 2021 (note 35).
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.
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 limited by a loss ratio
cap of 130%, 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.
171
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 20 Financial risk management objectives and policies (continued)
d. Insurance risk (continued)
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 2020 and 31 January 2019. 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
2020
2019
+/- £0.7m +/– £0.8m
+/- £1.2m +/– £1.5m
Impact of a 0.25 percentage point change in discount rate for PPOs
+/- £3.3m +/– £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.
ii) Travel
The Travel segment operates two cruise ships which are the Group’s largest trading assets. Risk to the operation of these
cruise ships arises from the impact of mechanical or other malfunction, non-compliance with regulatory requirements,
and from global weather and socio-economic events. The tour holidays operated by the segment are also affected by
global weather and socio-economic events which impact either the Group directly or its suppliers. The Travel segment
is in operation with multiple suppliers which minimises the impact of any socio-economic events affecting its suppliers.
The COVID-19 pandemic has created an unprecedented challenge for the Group and a high level of uncertainty for all
companies. Further detail relating to this is provided within the basis of preparation and going concern sections in note 2.1
on pages 130 and 131.
iii) Other 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.
172
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 21 Interests in unconsolidated structured entities
A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements. The Group has interests in unconsolidated structured entities
in the form of investment funds comprising:
• bank loan funds
• money market funds.
The nature and purpose of the bank loan funds are to diversify the investment portfolio and enhance the overall yield, whilst
maintaining an acceptable level of risk for the portfolio as a whole.
Bank loan funds invest in secured loans to companies rated below investment grade.
The nature and purpose of the money market funds is to provide maximum security and liquidity for the funds invested whilst
also providing an adequate return. The money market funds used by the Group are all members of the Institutional Money
Market Funds Association. They are thus required to maintain specified liquidity and diversification characteristics of their
underlying portfolios, which comprise investment grade investments in financial institutions.
The Group invests in unconsolidated structured entities as part of its investment activities. The Group does not sponsor any
of the unconsolidated structured entities.
At 31 January 2020, the Group’s total interest in unconsolidated structured entities was £53.7m analysed as follows:
Loan funds
Money market funds
Carrying
value
£’m
Interest
income
£’m
Fair value
gains
£’m
7.8
45.9
0.3
0.4
–
–
These investments are typically managed under credit risk management as described in note 20. The Group’s maximum
exposure to loss on the interests presented above is the carrying amount of the Group’s investments. No further loss can
be made by the Group in relation to these investments. For this reason, the total assets of the entities are not considered
meaningful for the purposes of understanding the related risks and so have not been presented.
22 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:
2020
2019
2020
£’m
135.7
14.3
36.8
2.6
14.6
5.0
2019
£’m
135.2
18.3
40.5
4.5
14.5
3.6
209.0
216.6
Past due
Neither
past
due nor
impaired
£’m
118.4
117.0
Total
£’m
135.7
135.2
< 30 days
£’m
30-60
days
£’m
61-90
days
£’m
91-120
days
£’m
> 120 days
£’m
2.9
4.9
1.7
2.9
1.6
2.0
2.5
1.3
8.6
7.1
173
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 22 Trade and other receivables (continued)
As at 31 January 2020, impairment provisions totalling £21.2m (2019: £15.9m) were made against trade receivables with
an initial value of £156.9m (2019: £151.1m). The movements in the provision for impairment of receivables are as follows:
At 1 February 2018
Charge for the year
Utilised in the year
At 31 January 2019
Charge for the year
Utilised in the year
Unused amounts reversed
At 31 January 2020
Credit-
impaired
£’m
Not credit-
impaired
£’m
1.1
1.4
(1.3)
1.2
0.7
(0.8)
(0.1)
1.0
9.6
14.8
(9.7)
14.7
13.6
(8.1)
–
20.2
Total
£’m
10.7
16.2
(11.0)
15.9
14.3
(8.9)
(0.1)
21.2
See note 20 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.
23 Cash and cash equivalents
Cash at bank and in hand
Short term deposits
Cash and short term deposits
Money market funds
Bank overdraft
Cash held by disposal groups
2020
£’m
73.1
24.8
97.9
45.9
(9.5)
4.8
2019
£’m
91.9
31.0
122.9
37.1
(2.7)
–
Cash and cash equivalents in the cash flow statement
139.1
157.3
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 £98.2m (2019: £108.6m).
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying
periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn
interest at the respective short term deposit rates.
The bank overdraft is subject to a guarantee in favour of the Group’s bankers and is limited to the amount drawn. The bank
overdraft is repayable on demand.
24 Trade and other payables
Trade and other payables
Other taxes and social security costs
Assets in the course of construction
Accruals
2020
£’m
2019
(restated)
£’m
121.8
136.4
12.4
5.2
46.5
13.5
1.7
55.9
185.9
207.5
In the prior year, accruals amounting to £14.4m were incorrectly classified as trade and other payables and as such the prior
year comparative has been restated.
All trade and other payables are current in nature.
174
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 25 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 £3.6m (2019: £2.2m).
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, 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 scheme, which ranks
before any liabilities under the senior facilities agreement (as detailed in note 28). 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
2020
£’m
372.3
2019
£’m
312.4
(377.8)
(315.2)
(5.5)
(2.8)
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.
175
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 25 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 2020:
1 February 2019
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 2020
Fair value
of scheme
assets
£’m
Defined
benefit
obligation
£’m
Defined
benefit
scheme
liability
£’m
312.4
(315.2)
(2.8)
–
–
–
–
8.4
8.4
(9.7)
51.3
–
–
–
41.6
9.9
(6.8)
(0.2)
(7.0)
–
(8.3)
(15.3)
9.7
–
4.5
(61.4)
0.2
(47.0)
(0.3)
372.3
(377.8)
(6.8)
(0.2)
(7.0)
–
0.1
(6.9)
–
51.3
4.5
(61.4)
0.2
(5.4)
9.6
(5.5)
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
8.1
(7.8)
(5.8)
–
–
–
(13.6)
10.6
312.4
(7.6)
(0.4)
(8.0)
(0.1)
(8.1)
(16.2)
7.8
–
1.9
7.5
(1.5)
15.7
(0.4)
(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.
176
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 25 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
2020
£’m
45.0
222.7
24.5
73.2
3.9
3.0
2019
£’m
58.1
171.0
16.8
61.9
3.4
1.2
372.3
312.4
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
2020
2019
2.70% 3.00%
2.70%
2.65%
1.60%
1.70%
2.80%
2.90%
2.90%
2.60%
2.70%
3.05%
2.70% 3.00%
27.3 yrs
27.6 yrs
29.4 yrs
29.7 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
26.1 years if they are male and on average for a further 28.2 years if they are female.
A quantitative sensitivity analysis for significant assumptions as at 31 January 2020 and their impact on the net defined
benefit obligation is as follows:
Assumptions
Sensitivity
Impact £’m
Discount rate
Future inflation
Life expectancy
+/– 0.25%
+/– 0.25%
+/– 1 year
Future salary
+/– 0.5%
Increase Decrease
Increase Decrease
Increase Decrease
(18.8)
20.6
14.1
(14.8)
11.5
(11.0)
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 £9.3m 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.
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 £2.75m during the year ended
31 January 2020 and will make payments totalling a further £25.4m over the next five years, with the last payment being
made by 29 February 2024. The total expected contributions in the year ending 31 January 2021 are £9.3m, inclusive of
a £3.0m 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.
177
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 26 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
2020
£’m
2019
£’m
338.3
105.3
443.6
392.6
98.0
490.6
2020
£’m
2019
£’m
55.2
6.9
91.2
5.6
62.1
96.8
134.0
63.9
260.0
189.4
70.8
260.0
118.6
57.9
273.3
209.8
63.5
273.3
2020
£’m
2019
£’m
283.1
98.4
381.5
301.4
92.4
393.8
(134.0)
(118.6)
(63.9)
183.6
(57.9)
217.3
149.1
34.5
183.6
182.8
34.5
217.3
178
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 26 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
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
2020
£’m
392.6
(209.8)
182.8
2019
(restated)
£’m
466.4
(194.2)
272.2
159.9
129.7
(129.1)
(120.1)
30.8
9.6
(214.2)
(203.5)
149.7
(64.5)
104.5
(99.0)
338.3
392.6
(189.2)
(209.8)
149.1
182.8
2020
£’m
98.0
(63.5)
34.5
2019
£’m
115.0
(69.4)
45.6
241.2
221.1
(153.0)
(130.1)
88.2
91.0
(233.9)
(238.1)
145.7
(88.2)
136.0
(102.1)
105.3
(70.8)
34.5
98.0
(63.5)
34.5
The net cost on purchasing reinsurance in 2020 was £6.4m (2019: £5.4m net cost).
On 15 July 2019, the UK Government announced a change to the Ogden discount rate from -0.75% to -0.25%. The insurance
liabilities presented here and on the face of the Group’s balance sheet incorporate the effect of this change.
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%
(2019: –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 £410.0m (2019: £461.5m) gross of reinsurance and £174.6m
(2019: £238.9m) net of reinsurance.
179
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 26 Insurance contract liabilities and reinsurance assets (continued)
a. Discounting (continued)
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 33 years (2019: 37 years) and the rate of investment return used to determine
the discounted value of claims provisions was 2.0% (2019: 2.0%).
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:
Analysis
of claims
incurred
Accident
year
2011 and
earlier
2012
2013
2014
2015
2016
2017
2018
2019
2020
Claims
handling
costs
Financial year ended 31 January
2011
£’m
2012
£’m
2013
£’m
2014
£’m
2015
£’m
2016
£’m
2017
£’m
2018
£’m
2019
£’m
2020
£’m
Total
£’m
Claims
paid
£’m
Gross
claims
outstanding
£’m
301.6
(15.2)
(21.6)
(8.5)
(28.9)
(20.5)
(10.9)
330.3
(25.6)
(33.8)
(7.3)
(19.5)
(10.5)
321.2
(14.2)
(45.2)
(22.1)
(13.4)
281.9
(18.9)
(25.7)
271.3
(6.0)
280.4
(7.6)
(6.2)
4.1
(8.0)
(9.4)
(5.6)
(8.8)
(2.6)
(5.9)
(6.5)
(1.0)
(2.9)
220.6 (215.5)
211.8 (202.4)
(11.1)
(10.6)
(2.6)
205.4 (185.8)
(8.2)
(15.3)
(5.0)
230.6 (216.4)
(19.3)
(21.7)
197.1
4.7
(13.1)
194.9
-
(9.0)
(6.6)
(6.4)
234.5 (216.7)
182.1 (150.7)
188.5 (136.3)
189.8
-
189.8 (131.2)
180.3
180.3 (101.7)
301.6
315.1
273.9
225.4
171.0
186.6
152.6
138.0
111.8
140.3
10.1
15.6
17.4
17.2
18.0
21.5
11.5
10.5
27.3
19.9
311.7
330.7
291.3
242.6
189.0 208.1
164.1
148.5
139.1
160.2
43.5
5.1
9.4
19.6
14.2
17.8
31.4
52.2
58.6
78.6
330.4
7.9
338.3
The development of the associated loss ratios on the same basis is as follows:
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Financial year ended 31 January
Accident year
80%
80%
77%
78%
71%
76%
77%
63%
72%
75%
72%
62%
62%
70%
81%
70%
57%
56%
63%
80%
87%
69%
55%
53%
61%
78%
88%
67%
68%
52%
52%
58%
75%
82%
69%
75%
67%
52%
51%
55%
71%
75%
65%
75%
80%
66%
52%
50%
55%
69%
73%
62%
73%
80%
77%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
180
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 26 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:
Analysis
of claims
incurred
Accident
year
2011 and
earlier
2012
2013
2014
2015
2016
2017
2018
2019
2020
Claims
handling
costs
Financial year ended 31 January
2011
£’m
2012
£’m
2013
£’m
2014
£’m
2015
£’m
2016
£’m
2017
£’m
2018
£’m
2019
£’m
2020
£’m
Total
£’m
Claims
paid
£’m
Net claims
outstanding
£’m
266.0
(16.3)
(20.2)
(11.3)
(19.6)
(12.3)
(16.4)
302.3
(25.6)
(31.1)
(0.6)
(17.3)
(11.9)
(8.9)
(6.4)
315.4
(14.6)
(22.9)
(19.8)
(14.6)
(10.2)
(8.8)
(2.6)
(5.9)
276.8
(14.7)
(23.4)
(11.0)
(9.8)
(10.6)
(6.5)
(1.0)
205.8 (204.3)
(2.9)
(2.6)
224.5 (222.1)
204.7 (185.8)
219.1
5.3
(9.2)
(11.1)
(15.3)
(5.0)
183.8 (177.2)
220.9
3.2
(15.1)
(21.7)
94.0
1.5
78.8
(6.2)
–
71.8
266.0 286.0
269.6
219.8
161.3
153.4
34.1
18.8
0.7
178.3 (164.4)
87.7
77.8
71.8
55.6
(73.9)
(69.3)
(47.9)
(27.6)
(9.0)
(1.6)
(1.0)
–
55.6
26.0
10.1
15.6
17.4
17.2
18.0
21.5
276.1
301.6
287.0
237.0
179.3
174.9
11.5
45.6
10.5
29.3
8.9
9.6
4.5
30.5
23.7
1.5
2.4
18.9
6.6
13.9
13.8
8.5
23.9
28.0
141.2
7.9
149.1
The development of the associated loss ratios on the same basis is as follows:
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Financial year ended 31 January
Accident year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
78%
78%
76%
76%
70%
75%
75%
62%
72%
75%
71%
62%
66%
71%
67%
69%
57%
62%
65%
69%
70%
67%
54%
58%
62%
66%
71%
56%
65%
53%
56%
59%
63%
66%
56%
66%
64%
52%
54%
56%
58%
59%
53%
66%
70%
63%
52%
54%
55%
56%
56%
52%
65%
70%
63%
Favourable claims development over the year has resulted in a £29.6m (2019: £71.1m) reduction in the net claims incurred
in respect of prior years.
181
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 27 Contract liabilities
Deferred revenue (note 3b)
Current
Non-current
2020
£’m
153.2
153.2
150.2
3.0
153.2
2019
£’m
144.7
144.7
130.5
14.2
144.7
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 2020.
28 Loans and borrowings
Bond
Bank loans
Ship loan
Revolving credit facility
Accrued interest payable
Less: deferred issue costs
2020
£’m
250.0
140.0
234.8
10.0
3.7
638.5
(14.2)
624.3
2019
£’m
250.0
160.0
–
30.0
2.2
442.2
(3.0)
439.2
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.
In June 2019, the Group drew down its financing for its new cruise ship, the Spirit of Discovery, of £245.0m. The financing
for the new cruise ship, the Spirit of Discovery, represents a 12-year fixed rate sterling loan, backed by an export credit
guarantee. The initial loan value of £245.0m is repayable in 24 broadly equal instalments, with the first payment of £10.2m
paid in December 2019.
At 31 January 2020, the Group had drawn £10.0m of its £100.0m revolving credit facility and since the refinancing £60.0m
of the term loan has been repaid.
At 31 January 2020, debt issue costs were £14.2m (2019: £3.0m) which have increased in the year following the draw down
of the financing for its new cruise ship, the Spirit of Discovery.
Interest on the bond is incurred at an annual interest rate of 3.375%. Interest on the term loan and revolving credit facility
is incurred at a variable rate of LIBOR plus a bank margin which is linked to the Group’s leverage ratio. Interest on the ship
loan is incurred at an effective annual interest rate of 4.31% (including arrangement and commitment fees).
During the year, the Group charged £19.5m (2019: £11.5m) to the income statement in respect of fees and interest associated
with the bonds, term loan, ship loan and revolving credit facility. In addition, finance costs recognised in the income
statement includes £1.2m (2019: £1.1m) relating to interest and finance charges on lease liabilities and net fair value losses
on derivatives are £1.1m (2019: £nil).
182
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 29 Provisions
At 1 February 2018
Utilised during the year
Released unutilised
Charge for the year
At 31 January 2019
Utilised during the year
Released unutilised during the year
Charge for the year
Reclassification to assets held for sale
At 31 January 2020
Current
Non-current
At 31 January 2020
Current
Non-current
At 31 January 2019
PMI
£’m
–
–
–
5.2
5.2
(1.5)
–
–
3.7
–
3.7
PMI
£’m
3.7
–
3.7
PMI
£’m
1.5
3.7
5.2
Other
£’m
Total
£’m
4.5
(1.5)
(0.1)
1.9
4.8
(2.6)
(0.5)
2.4
4.1
(0.1)
4.0
Other
£’m
2.4
1.6
4.0
Other
£’m
2.2
2.6
4.8
4.5
(1.5)
(0.1)
7.1
10.0
(4.1)
(0.5)
2.4
7.8
(0.1)
7.7
Total
£’m
6.1
1.6
7.7
Total
£’m
3.7
6.3
10.0
The provision in respect of PMI relates to an accumulated loss on the PMI product as a result of prior year claims experience
on profit share arrangements.
Other provisions primarily comprise provisions for the return of insurance commission in respect of policies cancelled mid-
term after the reporting date or as a result of being cancelled during the statutory cooling off period after the reporting date,
credit hire claims handling costs on income booked as at the reporting date, fleet insurance at the estimated cost of settling
all outstanding incidents at the reporting date, and an employer liability provision relating to various Group related, self-
funded insurance arrangements.
These items are reviewed and updated annually.
183
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 30 Reconciliation of liabilities arising from financing activities
The following tables analyse the cash and non-cash movements for liabilities arising from financing activities:
Lease liabilities (note 35)
Bank loans (note 28)
Ship loan (note 28)
Revolving credit facility (note 28)
Bond (note 28)
Deferred issue costs (note 28)
Lease liabilities (note 35)
Bank loans (note 28)
Revolving credit facility (note 28)
Bond (note 28)
Deferred issue costs (note 28)
2019
(restated)
£’m
Cash flows
£’m
Non-cash changes
New
Leases
£’m
Foreign
exchange
movement
£’m
27.7
160.0
–
30.0
250.0
(3.0)
(15.0)
(20.0)
234.8
(20.0)
–
(7.9)
15.9
–
–
–
–
–
–
–
–
–
–
–
2018
(restated)
£’m
Cash flows
£’m
Non-cash changes
New
Leases
£’m
Foreign
exchange
movement
£’m
37.1
180.0
15.0
250.0
(4.2)
(12.3)
(20.0)
15.0
–
–
2.9
–
–
–
–
–
–
–
–
–
Other
£’m
2020
£’m
–
–
–
–
–
28.6
140.0
234.8
10.0
250.0
(3.3)
(14.2)
Other
£’m
2019
(restated)
£’m
–
–
–
–
27.7
160.0
30.0
250.0
1.2
(3.0)
Included within ‘Other’ is the amortisation of deferred issue costs of £3.4m (2019: £1.2m) and the transfer of debt issue costs
paid in the prior year, from prepayments, to deferred issue costs in the current year of £6.7m (2019; £nil).
31 Called up share capital
Allotted, called up and fully paid
As at 31 January 2018
Issue of shares
As at 31 January 2019
As at 31 January 2020
Ordinary shares
Nominal
value
£
Value
£’m
Number
1,120,295,419
1,707,909
1,122,003,328
1,122,003,328
0.01
0.01
0.01
0.01
11.2
0.0
11.2
11.2
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 167,566 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 194,133 shares have been treated as treasury shares at 31 January 2020.
184
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 32 Reserves
Share-based payment reserve
Prior to vesting, the share-based payment reserve is used to recognise the value of equity-settled share-based payments
provided to employees, including key management personnel, as part of their remuneration. More detail is provided in note 34.
Fair value reserve
The fair value reserve comprises the unrealised gains or losses of fair value through other comprehensive income (or FVOCI)
assets pending subsequent recognition in profit or loss once the investment is derecognised.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments
used in cash flow hedges pending subsequent recognition in: (a) profit or loss as the hedged cash flows or items affect profit
or loss; or (b) the statement of financial position as the hedged cash flows or items affect property, plant and equipment.
33 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 £588.2m (2019 restated: £960.9m)
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
2020 or 31 January 2019.
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 provisional and unaudited.)
The Group monitored its ability to comply with the requirements of Solvency II throughout the year to 31 January 2020,
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 2020 available capital was £86.2m against a Solvency Capital Requirement of £53.8m, giving
160% coverage. As at 31 January 2019, available capital was £89.7m against a Solvency Capital Requirement of £60.5m,
giving 148% coverage. At 31 March 2020, coverage is estimated to have reduced to around 140% based on current asset
liability valuations and movements in swap curves since the end of January.
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 2020 was £5.3m (2019: £5.5m).
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 month in respect of these tests. The Group monitors its
compliance with these tests on a monthly basis including forward-looking compliance using budgets and forecasts.
At 31 January 2020 and 31 January 2019, the travel businesses had sufficient coverage against both covenants.
As of 31 January 2020 the CAA changed the liquidity test requirement to a fixed 70% coverage rate on the last day
of each month, whereas previously it was a variable coverage rate from month to month and has removed the leverage
test requirement.
185
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 34 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)
• 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. From 1 February 2019, these options are 75% linked to non-market
vesting conditions (50% linked to operational and strategic measures and 25% linked to ROCE) and 25% linked to
a market vesting condition, TSR.
– On 12 August 2019, share options over 11,567,708 shares were issued which vest and become exercisable on the third
anniversary of the grant date.
– On 1 October 2019, share options over 594,059 shares were issued which vest and become exercisable on the third
anniversary of the grant date.
– On 6 January 2020, share options over 1,353,965 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 former Chief Executive Officer.
Vesting occurred 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 was equity-settled and had no cash
alternative. The exercise price of the share options was £1.85. Following the cessation of his employment, and under
the scheme rules, these share options have lapsed.
• 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. Deferred Bonus Plan (DBP)
• On 11 July 2019, share options over 564,695 shares were issued under the DBP to the Executive Directors reflecting
their deferred bonus in respect of 2018/19, which vest and become exercisable on the third anniversary of the
grant date.
e. Employee Free Shares
• On 17 July 2019, 2,035,246 shares were awarded to eligible staff on the fifth 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.
186
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 34 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 2019
361,699 13,022,737
715,847
2,261,714 1,648,143
18,010,140
Granted
Forfeited
Exercised
– 13,515,732
564,695
– 2,035,246
16,115,673
– (7,603,156)
(257,062)
(2,162,162)
(181,612)
(10,203,992)
(167,566)
(99,601)
(19,598)
–
(129,811)
(416,576)
At 31 January 2020
194,133 18,835,712
1,003,882
99,552
3,371,966
23,505,245
Exercise price
£nil
£nil
£nil
£nil
£nil
£nil
Exercisable at 31 January 2020
194,133
838,315
307,814
-
564,382
1,904,644
Average remaining contractual life
0.0 years
1.9 years
1.4 years
0.2 years
1.7 years
1.9 years
Average fair value at grant
£1.85
£0.87
£1.15
£2.02
£0.89
£0.91
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
0.33%
3 years
£0.44
41.9%
n/a
0.33%
n/a
n/a
3 years
3 years
£0.44
31.4%
£0.46
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 2020 is £2.1m (2019: £3.8m). This has been
charged to administrative and selling expenses £2.1m (2019: £3.6m) and non-trading items £nil (2019: £0.2m).
The Group did not enter into any share-based payment transactions with parties other than employees during the
current period.
187
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 35 Commitments and contingencies
a. Lease commitments
The Group leases various river cruise ships, offices, warehouses, equipment and vehicles. The contract length of the lease
varies considerably and may include extension or termination options. Where it is reasonably certain that an extension
option will be triggered in a contract, lease payments to be made in respect of the option are included in the measurement
of the lease liability. Future minimum lease payments under lease contracts together with the present values of the net
minimum lease payments are as follows:
Within one year
Between one and five years
After five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
2020
£’m
9.8
10.8
45.5
66.1
(37.5)
28.6
2019
(restated)
£’m
11.6
7.7
46.4
65.7
(38.0)
27.7
As at 31 January 2020, the value of lease liabilities contracted for but not provided for in the financial statements in respect
of right of use assets amounted to £88.1m (2019: £15.9m). The increase is due to signing off contracts for two new river
cruises ships.
b. Commitments
On 20 September 2017, the Saga plc Board approved the purchase of the second cruise ship, the Spirit of Adventure, with
a delivery date of August 2020, and the Group exercised the option in December 2017.
Four stage payments for the Spirit of Adventure were made between December 2017 and August 2019. The remaining
element of the contract price is due on delivery of the ship, and the Group entered into appropriate financing for this on
20 September 2017.
As at 31 January 2020, the capital amount contracted but not provided for in the financial statements in respect of the ships
amounted to £271.9m (2019: £543.5m).
The financing for the 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.
As at 31 January 2020 the Group entered into Euro currency forwards totalling £250.6m to lock in the cost of the ship.
The hedge has been designated as a cash flow hedge and remains outstanding as at 31 January 2020 (note 19d).
c. Contingent liabilities
The Civil Aviation Authority and the Association of British Travel Agents regulate the Group’s UK tour operating business
and requires the Group to put in place bonds to provide customer protection. At 31 January 2020, the Group had £48.0m
(2019: £23.9m) of bonds in place.
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.
188
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 36 Assets held for sale
During the year, the Group made the decision to initiate an active program to locate a buyer for its insurance biking brand,
Bennetts and its healthcare segment.
As at 31 January 2020, the requirements of IFRS 5 were met and accordingly Bennetts and the healthcare segment have
been classified as separate disposal groups held for sale in the statement of financial position. Neither of the disposal groups
met the requirements of IFRS 5 to be classified as discontinued operations.
On 17 February 2020 the Group announced that it had reached agreement for the sale of Bennetts for an enterprise value
of £26m to Atlanta Investment Holdings C Limited (“Atlanta”). Atlanta is part of The Ardonagh Group, one of the largest
independent insurance brokers in the UK. Completion is subject to receiving regulatory approval and other closing conditions.
On 3 March 2020 the Group reached agreement for the sale of its Country Cousins and Patricia White’s branded healthcare
businesses for an enterprise value of £14m to Limerston Capital LLP. Limerston Capital LLP is a private equity firm with over
£300m under management. Country Cousins and Patricia White’s are introductory care agencies, and represent two of the
three divisions comprising the Group’s healthcare segment. The remaining division is Saga Care at Home.
The sale of the Bennetts and the healthcare segments are expected to be completed by 31 January 2021.
The assets and liabilities of the two disposal groups classified as held for sale as at 31 January 2020 are as follows:
Goodwill
Intangible fixed assets
Property, plant and equipment
Trade receivables and other receivables
Cash and short term deposits
Total assets
Provisions
Contract liabilities
Trade and other payables
Total liabilities
Net assets directly associated with disposal group
Disposal groups
Healthcare
segment
£’m
Bennetts
£’m
–
0.3
0.3
1.3
1.5
3.4
–
–
0.2
0.2
3.2
13.6
3.3
0.3
9.9
3.3
30.4
0.1
0.6
7.6
8.3
22.1
Total
£’m
13.6
3.6
0.6
11.2
4.8
33.8
0.1
0.6
7.8
8.5
25.3
No remeasurement on reclassification to held for sale was necessary for either of the disposal groups as the fair value
of each disposal group is in excess of its carrying value.
37 Post balance sheet events
The COVID-19 pandemic has created an unprecedented challenge for the Group and a high level of uncertainty for all
companies. The board of Directors are focused on protecting the viability of the Group over the coming months. Whilst the
Directors consider the event to be non-adjusting in nature, they have duly considered the impact of the crisis on the financial
performance and position of the Group. As one of the mitigating actions, the Directors have renegotiated the banking
covenants on the Group’s short term debt facilities. Further detail relating to this is provided within the basis of preparation
and going concern sections in note 2.1 on pages 130 and 131, and it is also referenced in the goodwill impairment review
detailed in note 16 on pages 159 and 160. The impact of the pandemic on the financial outlook of the Group is also detailed
in the Operating and Financial Review within the Strategic Report on pages 34 to 47.
Please see notes 33 and 36 on pages 185 and 189 respectively for details on post balance sheet events in respect of
solvency coverage and assets held for sale respectively.
189
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 38 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. The registered office address of Saffron Maritime Limited is Aspire Corporate Services Limited,
PO Box 191, Elizabeth House, Ruettes Brayes, St Peter Port, Guernsey, GY1 4HW.
Name
Saga Personal Finance Limited
ST&H Limited
Acromas Insurance Company Limited
ST&H Transport Limited
CHMC Limited
PEC Services Limited
Saga Retirement Villages Limited
Destinology Limited
MetroMail Limited
Saga Cruises Limited
Enbrook Cruises Limited
Saga Cruises IV Limited
Saga Cruises V Limited
Saga Cruises VI Limited
Saga Cruises GmbH
Saffron Maritime Limited
Saga Crewing Services Limited
Saga Healthcare Limited
Saga Mid Co Limited
Saga Publishing Limited
Saga Services Limited
Saga Transport Limited
(formerly 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
Bennetts Motorcycling Services Limited
(formerly Enbrosun Limited)
Confident Services Limited
Consolidated Healthcare Agencies Limited
Consolidated HC Agency Holdings Limited
(formerly Country Cousins (Horsham) Limited)
Driveline Europe Limited
Driveline Travel Limited
Consolidated HC Agencies Limited
(formerly Patricia White’s Personal Home Care Limited)
190
Country of
registration
England
England
Gibraltar
England
England
England
England
England
England
England
England
England
England
England
Germany
Guernsey
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
Tour operating
Motor accident management
Repairer of automotive vehicles
Marketing of retirement villages
Tour operating
Mailing house
Cruising
Cruising
Cruising
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
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 38 Subsidiaries (continued)
Name
Saga 500 Limited
Saga Coach Holidays Limited
Saga Cruises BDF Limited
Saga Cruises I 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
Spirit Of Adventure Limited
Titan Aviation Limited
Titan Transport (UK) Limited
Titan Travel (UK) Limited
Titan Travel Holdings Limited
Titan Travel Limited
Country of
registration
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Nature of business
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
191
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS As
reported
31 Jan 19
£’m
IFRS 16 adjustment
Insurance
£’m
Travel
£’m
OB&CC
£’m
As
restated
31 Jan 19
£’m
238.1
(136.0)
102.1
739.4
841.5
(129.7)
120.1
(9.6)
(396.1)
(405.7)
435.8
(244.5)
(315.9)
0.7
(11.7)
1.0
(134.6)
(27.4)
(162.0)
(162.0)
(14.5p)
(14.5p)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
0.7
0.7
(0.3)
–
–
(0.3)
–
0.1
–
0.1
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
(0.6)
–
238.1
(136.0)
102.1
739.4
841.5
(129.7)
120.1
(9.6)
(395.4)
(405.0)
436.5
(244.5)
(315.9)
0.7
(12.6)
1.0
(0.3)
(134.8)
–
(27.4)
(0.3)
(162.2)
0.1
(0.3)
(162.2)
(14.5p)
(14.5p)
39 Transition to IFRS 16
Gross earned premium
Earned premiums ceded to insurers
Net earned premiums
Other revenue
Total revenue
Gross claims incurred
Reinsurers’ share of claims incurred
Net claims incurred
Other cost of sales
Cost of sales
Gross profit
Administrative and selling expenses
Impairment of assets
Investment income
Finance costs
Finance income
Loss before tax
Tax expense
Loss for the year
Attributable to:
Equity holders of the parent
Earnings Per Share:
Basic
Diluted
192
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 39 Transition to IFRS 16 (continued)
(Loss)/profit for the year
(162.0)
–
0.1
(0.3)
(162.2)
As
reported
31 Jan 19
£’m
IFRS 16 adjustment
Insurance
£’m
Travel
£’m
OB&CC
£’m
As
restated
31 Jan 19
£’m
Other comprehensive income
Other comprehensive income to be reclassified to the income
statement in subsequent periods
Net gains 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 during the period
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
0.5
(2.9)
(2.4)
0.4
(1.3)
0.2
(3.1)
2.1
(0.4)
1.7
(1.4)
Total comprehensive losses for the year
(163.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
(2.9)
(2.4)
0.4
(1.3)
0.2
(3.1)
2.1
(0.4)
1.7
(1.4)
0.1
(0.3)
(163.6)
193
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS 39 Transition to IFRS 16 (continued)
Assets
Goodwill
Intangible assets
Property, plant and equipment
Right of use assets
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 18
£’m
IFRS 16
adjustment
£’m
As restated
31 Jan 18
£’m
As reported
31 Jan 19
£’m
IFRS 16
adjustment
£’m
As restated
31 Jan 19
£’m
1,485.0
61.2
163.4
–
513.5
13.7
100.2
5.8
215.1
6.8
83.2
–
–
(3.5)
33.0
–
0.7
–
–
–
–
–
1,485.0
1,175.0
61.2
159.9
33.0
513.5
14.4
100.2
5.8
215.1
6.8
83.2
62.8
183.9
–
426.2
14.2
96.8
4.0
216.6
–
122.9
–
–
(2.5)
22.6
–
0.7
–
–
–
–
–
1,175.0
62.8
181.4
22.6
426.2
14.9
96.8
4.0
216.6
–
122.9
2,647.9
30.2
2,678.1
2,302.4
20.8
2,323.2
7.0
581.4
4.7
468.5
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
–
–
(0.2)
33.7
–
–
–
(0.1)
33.4
–
–
(3.2)
–
–
–
7.0
581.4
4.5
502.2
15.2
17.0
142.7
185.8
2.8
490.6
10.3
457.0
17.2
7.8
144.7
207.7
1,455.8
1,338.1
11.2
519.3
661.6
11.4
(0.7)
19.5
11.2
519.3
404.8
13.3
(1.8)
17.5
–
–
(0.3)
24.7
–
–
–
(0.2)
24.2
–
–
(3.4)
–
–
–
2.8
490.6
10.0
481.7
17.2
7.8
144.7
207.5
1,362.3
11.2
519.3
401.4
13.3
(1.8)
17.5
(3.2)
30.2
1,222.3
2,678.1
964.3
2,302.4
(3.4)
20.8
960.9
2,323.2
194
Saga plc Annual Report and Accounts 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED C O M P A N Y F I N A N C I A L S TAT E M E N T S O F S A G A P L C
B A L A N C E S H E E T
Non-current assets
Investment in subsidiaries
Current assets
Debtors – amounts falling due after more than one year
Debtors – amounts falling due within one year
Creditors – amounts falling due within one year
Net current assets
Note
2020
£’m
2019
£’m
2
4
4
5
552.3
1,069.8
284.6
3.0
287.6
323.2
2.8
326.0
(4.0)
(3.2)
283.6
322.8
Creditors – amounts falling due after more than one year
6
(248.6)
(248.3)
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss reserve
Share based payment reserve
Total shareholders’ funds
587.3
1,144.3
7
11.2
519.3
48.8
8.0
11.2
519.3
600.2
13.6
587.3
1,144.3
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 £532.7m (2019: £549.3m).
Company number: 08804263
The notes on pages 197 to 200 form an integral part of these financial statements.
Signed for and on behalf of the Board on 8 April 2020 by
E A Sutherland
Group Chief Executive Officer
J B Quin
Group Chief Financial Officer
195
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS C O M P A N Y F I N A N C I A L S TAT E M E N T S O F S A G A P L C
S TAT E M E N T O F C H A N G E S I N E Q U I T Y
At 31 January 2018
Loss for the financial year
Dividends paid
Share-based payment charge
Exercise of share options
At 31 January 2019
Loss for the financial year
Dividends paid
Share-based payment charge
Exercise of share options
At 31 January 2020
Called
up share
capital
£’m
Share
premium
account
£’m
Retained
earnings
£’m
Share-
based
payment
reserve
£’m
Total
equity
£’m
11.2
519.3
1,249.2
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
–
–
–
–
–
–
–
–
(532.7)
(25.8)
–
7.1
11.2
519.3
48.8
–
–
2.1
(7.7)
8.0
(532.7)
(25.8)
2.1
(0.6)
587.3
196
Saga plc Annual Report and Accounts 2020 N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S
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, and are prepared on a going concern basis.
(please refer to note 2.1 of the Saga plc consolidated accounts on pages 130 and 131 for assessment of the going concern
basis for the Group and the company.).
The Company’s financial statements are presented in sterling and all values are rounded to the nearest hundred thousand
(£’m) except when otherwise indicated.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 31 January 2020.
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 paragraphs 17 and 18a of IAS 24 ‘Related Party Disclosures’.
• The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between 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. Investment in subsidiaries
Investment 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.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset
is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted
at the reporting date. Deferred tax is charged or credited in the income statement, except when it relates to items charged
or credited in other comprehensive income, in which case the deferred tax is dealt with in other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
197
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S
C O N T I N U E D
1 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.
Where the equity-settled transactions have market performance conditions (that is, performance which is directly or
indirectly linked to the share price), the fair value of the award is assessed at the time of grant and is not changed, regardless
of the actual level of vesting achieved, except where the employee ceases to be employed prior to the vesting date.
For service conditions and non-market performance conditions, the fair value of the award is assessed at the time of grant
and is reassessed at each reporting date to reflect updated expectations for the level of vesting. No expense is recognised
for awards that ultimately do not vest.
At each reporting date prior to vesting, the cumulative expense is calculated, representing the extent to which the vesting
period has expired and, in the case of non-market conditions, the best estimate of the number of equity instruments that will
ultimately vest or, in the case of instruments subject to market conditions, the fair value on grant adjusted only for leavers.
The movement in the cumulative expense since the previous reporting date is recognised in the income statement, with the
corresponding increase in share-based payments reserve.
Upon vesting of an equity instrument, the cumulative cost in the share-based payments reserve is reclassified to reserves.
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.
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.
f. Audit remuneration
Amounts receivable by the Company’s auditor and its associates in respect of services to the Company and its associates,
other than the audit of the Company’s financial statements, have not been disclosed as the information is required instead
to be disclosed on a consolidated basis in the consolidated financial statements.
1.1 Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the Company to select accounting policies and make estimates and
assumptions that affect items reported in the primary Company financial statements and notes to the Company
financial statements.
198
Saga plc Annual Report and Accounts 2020 1.1 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 Company considers susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Acc. policy
Items involving estimation
Sources of estimation uncertainty
2.3h
Investment in subsidiaries
impairment testing
The Company determines whether investment in subsidiaries needs to be
impaired when indicators of impairment exist. This requires an estimation
of the value-in-use of the subsidiaries owned by the Company.
The value-in-use calculation requires the Company to estimate the
future cash flows expected to arise from the subsidiaries, discounted at
a suitably risk-adjusted rate in order to calculate present value.
Sensitivity analysis has been undertaken to determine the effect of
changing the discount rate, the terminal value and future cash flows
on the present value calculation, which is shown in note 2 on pages 199
and 200.
2 Investment in subsidiaries
Cost
At 31 January 2018
Capital contributions arising from share-based payments
At 31 January 2019
Capital contributions arising from share-based payments
At 31 January 2020
Amounts provided for
At 31 January 2018
Amounts provided in the year
At 31 January 2019
Amounts provided in the year
At 31 January 2020
Net book value
At 31 January 2019
At 31 January 2020
£’m
4,130.6
1.6
4,132.2
0.5
4,132.7
2,026.4
1,036.0
3,062.4
518.0
3,580.4
1,069.8
552.3
See note 38 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 2020 due to the carrying
value being in excess of the Company’s market capitalisation. 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 2024/25. Terminal values have been included using 2.0% as
the expected long term average growth rate of the UK economy, and calculated using the Gordon Growth Model. The cash
flows have then been discounted to present value using a suitably risk-adjusted discount rate derived from the Group’s
weighted average cost of capital being 8.8%.
In the current year, the recoverable amount when compared against the carrying value of the investment in subsidiaries
resulted in a deficit of £518.0m, therefore management considered it necessary to impair the investment in subsidiaries
balance to its value-in-use of £552.3m. An impairment charge of £518.0m was recognised in the year to 31 January 2020.
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 2020 and its impact on the headroom/(deficit) against the carrying value of
investment in subsidiaries is as follows:
199
Saga plc Annual Report and Accounts 2020FINANCIAL STATEMENTS N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S
C O N T I N U E D
2 Investment in subsidiaries (continued)
Impact
Pre-tax discount rate
Terminal growth rate
+1.0ppt
£’m
(148.7)
–1.0ppt
£’m
+1.0ppt
£’m
–1.0ppt
£’m
185.3
135.3
(109.8)
In the prior year, the recoverable amount when compared against the carrying value of the investment in subsidiaries
resulted in a deficit of £1,036.0m, therefore management considered 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 was recognised in the year to 31 January 2019.
3 Dividends
The Company did not receive any dividends during the current year.
In the prior year the Company received a dividend of £62.5m per share from one of its subsidiaries, Saga Midco Limited,
totalling £500.0m.
4 Debtors
Amounts falling due after more than one year
Amounts due from Group undertakings
Amounts falling due within one year
Deferred tax asset
Other debtors
5 Creditors – amounts falling due in less than one year
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 2018
Issue of shares
As at 31 January 2019
As at 31 January 2020
2020
£’m
2019
£’m
284.6
284.6
323.2
323.2
2020
£’m
2019
£’m
1.2
1.8
3.0
1.4
1.4
2.8
2020
£’m
2019
£’m
2.2
1.8
4.0
1.4
1.8
3.2
2020
£’m
2019
£’m
250.0
250.0
(1.4)
(1.7)
248.6
248.3
Ordinary shares
Nominal
value
£
Value
£’m
Number
1,120,295,419
1,707,909
1,122,003,328
1,122,003,328
0.01
0.01
0.01
0.01
11.2
0.0
11.2
11.2
8 Commitments
The Company has provided guarantees for the Group’s bond, term loan, ship debt, revolving credit facility and bank overdraft
(please refer to notes 23 and 28 of the Saga plc consolidated accounts on pages 174 and 182 respectively for further details.)
200
Saga plc Annual Report and Accounts 2020 G L O S S A R Y
A LT E R N AT E P E R F O R M A N C E M E A S U R E S ( A P M )
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.
Underlying basic earnings per share
Underlying basic earnings per share represents basic
earnings per share excluding the post-tax effect of
unrealised fair value gains and losses on derivatives, the
impairment of the carrying value of fixed assets including
goodwill, the impact of the insolvency of Thomas Cook
and restructuring costs. This measure is reconciled to the
statutory basic earnings per share in note 12 to the accounts
on page 157.
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.
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 35.
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 42.
Adjusted net debt
Adjusted net debt is the sum of the carrying values of the
Group’s debt facilities less the amount of available cash
it holds but excludes the ship debt and the cruise business
available cash. It is linked to the Group’s debt covenants,
being the numerator in the Group’s leverage ratio calculation,
and is analysed further within the Operating and Financial
Review on page 45.
APMs may not necessarily be defined in a consistent
manner to similar APMs used by the Group’s competitors.
They should be considered as a supplement rather than
a substitute for GAAP measures.
Underlying Profit Before Tax
Underlying Profit Before Tax represents loss before
tax excluding unrealised fair value gains and losses on
derivatives, the impairment of the carrying value of fixed
assets including goodwill, the impact of the insolvency
of Thomas Cook and restructuring costs. It is reconciled
to statutory profit before tax within the Operating and
Financial Review on page 35.
This measure is the Group’s key performance indicator
and is useful for presenting the Group’s underlying trading
performance, as it excludes non-cash technical accounting
adjustments and one-off financial impacts that are not
expected to recur.
Adjusted Trading EBITDA
Adjusted 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
impact of IFRS 16 and the Trading EBITDA relating to the
our two new cruise ships, the Spirit of Discovery and Spirit
of Adventure in line with the Group’s debt covenants. It is
reconciled to loss before tax within the Operating and
Financial Review on page 43.
This measure is linked to the Group’s debt covenants, being
the denominator in the Group’s leverage ratio calculation.
201
Saga plc Annual Report and Accounts 2020ADDITIONAL INFORMATION G L O S S A R Y
Accident year the financial year in which an insurance
loss occurs
Executive Director executive director of Saga plc
(unless otherwise stated)
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
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
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
GDPR General Data Protection Regulation
GHG Protocol a global standard for how to measure,
manage, and report greenhouse gas emissions
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
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
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
Holidays passengers the number of passengers that
have travelled on a Saga, Titan or Destinology holiday
in a given period
Group the Saga plc group
Combined operating ratio (COR) 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
IASB International Accounting Standards Board
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
Companies Act the UK Companies Act 2006, as amended
from time to time
IFRS International Financial Reporting Standards
Company Saga plc
Core policy an insurance policy that is actively marketed
and sold on its own
Cruise passenger days the total number of days passengers
have travelled on a ship, or ships, in a given period
IIA Standards Chartered Institute of Internal
Auditors Standards
IPO (Initial Public Offering) the first sale of shares
by a previously unlisted company to investors on
a securities exchange
Leverage ratio the ratio of adjusted net debt to adjusted
Trading EBITDA
Cruise passengers the number of passengers that have
travelled on a Saga cruise in a given period
LIBOR London inter-bank offered rate
DBP Deferred Bonus Plan
Diems the total amount of cruise revenue earned per cruise
passenger per day
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
Load factor the total number of cruise passengers booked
in proportion to the total cruise ship capacity
Loss ratio a ratio of the claims costs (numerator) to the
net earned premium (denominator) in a given period
LR (Listing Rules) a set of mandatory regulations of
the UK Financial Conduct Authority and applicable
to a company listed in the UK
Debt ratio (Leverage) the ratio of adjusted net debt to
adjusted Trading EBITDA
LTIP Long Term Incentive Plan
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
Malus an arrangement that permits the forfeiture
of unvested remuneration awards in circumstances the
Company considers appropriate
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
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
202
Saga plc Annual Report and Accounts 2020 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
PBT profit before tax
PECR Privacy and Electronic Communications Regulations
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
RCF Revolving Credit Facility
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
RPI Retail Price Index
Saga Way the internal framework that guides the behaviours
of our employees
SIP Share Incentive Plan
Simpler Saga Group wide project launched in January
2020 with the goal of increasing the pace of execution and
efficiency across the business. The project involves the
review of all areas on the business with a focus on flattening
our structures to become closer to our customers and
ensuring we are being as efficient as possible.
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
Sustainable Development Goals set in 2015 by the United
Nations General Assembly are the blueprint to achieve a
better and more sustainable future for all. . They address the
global challenges we face, including those related to poverty,
inequality, climate change, environmental degradation,
peace and justice
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
203
Saga plc Annual Report and Accounts 2020ADDITIONAL INFORMATION S H A R E H O L D E R I N F O R M AT I O N
Financial calendar
2020 Annual General Meeting – 22 June 2020
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.
204
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
Headland Consultancy
Cannon Green
1 Suffolk Lane
London, EC4R0AX
Independent auditors
KPMG LLP
15 Canada Square
London E14 5GL
Legal advisers
Herbert Smith Freehills LLP
Exchange House, Primrose street
London EC2A 2EG
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
Registered in England. Company Number: 08804263
Corporate websites
Information made available on the Group’s websites does
not, and is not intended to, form part of these Results.
Saga plc Annual Report and Accounts 2020 S
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Saga plc
Enbrook Park
Sandgate
Folkestone
Kent
CT20 3SE