Saga Regulatory News (SAGA)

22 September 2021

Saga plc

Interim results for the six months ended 31 July 2021

Continued strategic progress positions Saga to emerge stronger from the pandemic

Successful resumption of Cruise; robust Insurance performance

Saga plc ("Saga" or "the Group"), the UK's specialist in products and services for people over 50, announces its interim results for the six months ended 31 July 2021.

1 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation

Group and financial highlights

· Performance in line with expectations against backdrop of continuing COVID-19 challenges.

· Strong liquidity position; available cash of £175.3m and £100m undrawn revolving credit facility.

· Positive operating cash flow of £41.9m, reflecting the resumption of Cruise operations.

· Travel monthly cash burn rate of £5.9m, below guidance of £7m-£9m; overall Cruise cash flow positive.

· Financial position further strengthened with issuance of five-year £250m fixed-rate bond, repayment of £70m term loan and £100m tender of existing bond, driving increased liquidity, greater covenant flexibility and extension of debt maturity profile.

· Leverage ratio (Adjusted Net Debt to Adjusted Trading EBITDA) of 2.4x, 0.3x lower than 31 January 2021.

· Steve Kingshott, new CEO of Saga Insurance, joining on 8 November 2021.

· Supported colleagues with focus on safety and wellbeing first, through continued home working, additional holiday entitlements and enhanced mental health support.

Divisional performance

Insurance - robust performance across all KPIs

Retail Broking

· 835,000 motor and home policies sold, 0.5% improvement versus the prior period.

· Retention remains strong at 80.6%, 0.7ppts ahead of the prior period, supported by increased uptake of three-year fixed-price product, accounting for 45% of all motor and home policy sales.

· Improved motor and home margin per policy of £76, versus £74 in the year ended 31 January 2021.

· 58% of new business acquired directly.

· Final recommendations of FCA market study in line with expectations; further progress made with preparations.

Underwriting

· Current year combined operating ratio of 88%; continued benefit from reduced claims frequency.

· Underwriting Underlying Profit Before Tax of £31.1m, 11% ahead of prior period, including £18m reserve releases.

· New pricing models have driven footprint expansion and return to policy growth in the second quarter, the first time since 2012.

Travel - successful Cruise restart and phased return to Tour Operations

· Successful restart of Cruise from June 2021, with international sailing underway from end of August 2021.

· Spirit of Adventure naming ceremony held on 19 July 2021 and inaugural cruise on 26 July 2021.

· Current booked Cruise load factors at 70% for 2021/22, following government capacity restrictions on early cruises, and 59% for 2022/23 departures; bookings for next year ahead of pre-pandemic levels.

· Cruise per diems ahead of expectations at £302 for 2021/22 and £306 for 2022/23 bookings.

· Tour Operations bookings for 2021/22 of £18m and £109m for 2022/23. Whilst bookings for 2022/23 are also ahead of pre-pandemic levels, there remains some uncertainty within the travel industry surrounding the longer-term impact of COVID-19.

Wider strategic progress

· Improved colleague engagement score of 7.5 out of 10, with record 93% participation rate.

· On track to build data and digital capabilities ahead of brand relaunch later this year.

· Brand Net Promoter Score improved to 47, an increase of 3pts from 31 January 2021, reflecting delivery against our customer-focused strategy.

· Encouraging results from recent product improvements, including mid-term adjustment re-broking process, online self-serve functionality and our new motor price-comparison website product.

· Development of product enhancements, ahead of launch in H2.

Euan Sutherland, Saga's Group Chief Executive Officer, said:

"Over the past six months we have made strong progress across Saga, continuing to deliver for our customers, strengthening our balance sheet and delivering the foundations for future growth. We have achieved this performance at a time of unprecedented challenge for our businesses, and I would like to thank each of my colleagues for their hard work and dedication.

"We have successfully recommenced our Travel operations, including the launch of our newest ship, Spirit of Adventure. I am delighted with the positive feedback received so far and encouraged by the strong pipeline of future bookings. In Insurance, customer retention remains strong, and the attraction of our offer is borne out by the increased uptake of our new three-year fixed-price product. From a financial perspective, we further strengthened our position through a series of financing transactions, including the recent completion of our bond issue.

"Following the successful restart of operations in our Travel business, we continue to work towards a full return to service, while remaining mindful of future potential volatility relating to COVID-19. As we have demonstrated through the last 18 months, we will continue to take an agile, proactive approach to navigate any challenges.

"As we plan to relaunch our brand in the coming months, I am confident that we have the right strategy, team and structure in place to return Saga to sustainable growth and create significant long-term value for all our stakeholders."

END

A presentation for analysts and investors will be available to view on Saga's corporate website from 7.00am today. The webcast can be found at www.corporate.saga.co.uk/investors/results-reports-presentations/.

Euan Sutherland and James Quin will hold a conference call for analysts and investors at 9.30am today. The conference call can be accessed on UK: +44 (0) 20 3936 2999, all other locations: +44 (0) 20 3936 2999. Participant access code: 109182.

A separate live presentation for retail investors will be held via the Investor Meet Company platform on 24 September 2021 at 11.30am. The presentation is open to all existing and potential investors. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9.00am on 23 September, or at any time during the live presentation. Investors can sign up to Investor Meet Company for free and follow Saga plc via www.investormeetcompany.com/saga-plc/register-investor. Investors who already follow Saga plc on the Investor Meet Company platform will automatically be invited.

For further information please contact:

Saga plc

Emily Roalfe, Head of Investor Relations Tel: 07732 093 007

Email: emily.roalfe@saga.co.uk 

Headland Consultancy

Susanna Voyle Tel: 07980 894 557

Will Smith Tel: 07872 350 428

Tel: 020 3805 4822

Email: saga@headlandconsultancy.com

Notes to editors

Saga is a specialist in the provision of products and services for people over 50. The Saga brand is one of the most recognised and trusted brands in the UK and is known for its high level of customer service and its high quality, award winning products and services including cruises and holidays, insurance, personal finance and publishing. www.saga.co.uk

Appendix

This statement is published in accordance with Provision 4 of the UK Corporate Governance Code which

states that companies should publish an update of the actions taken following a vote against an AGM

resolution of 20 per cent or more.

At the Saga plc AGM on 14 June 2021, Resolution 2 - to approve the Directors' Remuneration Report

received support of 77.72 per cent from shareholders. Whilst the Company is pleased that the majority of

shareholders supported the resolution, the Remuneration Committee took various steps to understand the

reasons behind the votes against.

In the week after the AGM, the Remuneration Committee Chair wrote to the largest shareholders who

voted against the resolution to understand the reasons for their vote. The Remuneration Committee ("the Committee") appreciates and values time taken by investors who expressed their views and understands that the

views expressed were primarily connected to the payment of formulaic bonuses when taking into account

the range of circumstances experienced by the Company during the year.

Following this valuable exchange with shareholders, the Committee has determined that the points raised were items which were considered when the relevant bonus decisions were made and where possible,

were taken into account in the setting of the targets. In addition, the Committee considers bonuses in the

full context when determining whether a payment should be made, will continue to do so for future

bonuses and thus does not consider the voting outcome to be indicative of a structural or systemic

problem with the bonus design, nor the Remuneration Policy as a whole. The Committee will continue its

constructive dialogue with shareholders and seek to incorporate this feedback into future remuneration

decisions.

Chairman's Statement

Saga has reported a robust performance for the first half of the year, and has continued to achieve the strategic objectives set out by the management team in September 2020.

I am pleased that, despite the challenges posed by the COVID-19 pandemic, we are in a far stronger position than we were a year ago. Our Insurance Broking and Underwriting divisions, the mainstay of our business, have performed resiliently, meeting our expectations in all key areas. Unfortunately, we had to wait until the end of June before we were able to begin our cruise operations and, even then, were subject to a restricted capacity on our early sailings and we invested in special measures to maintain a safe environment for our passengers and crew.

Both our cruise ships are now sailing with fewer restrictions and are achieving satisfactory levels of occupancy. Guests are giving us exceptionally positive feedback. We have begun a phased resumption of our tour operations. However, COVID-19 is still affecting them and we expect to take far fewer customers on holiday than we would normally in the second half of our financial year.

We are encouraged by the fact that confidence is returning in overseas travel for next year and that the Government is continuing to relax the COVID-19 rules relating to travel and have therefore now increased our marketing activity.

In July 2021, we successfully issued a new £250m bond, set to mature in 2026. The proceeds have been used to repay debt, buy back a proportion of our existing bond and significantly improve our cash position. This places us in good stead for the future.

On behalf of the Board, I would like to thank our colleagues for all they have achieved and for their continued dedication to giving the very best service to our customers. Due to their hard work, the strength of our strategy and the progress being made, I am confident that Saga is on track to deliver long-term, sustainable value for our shareholders.

Finally, I would like to thank our loyal customers for their ongoing support. We will be working hard to continue to provide them with exceptional experiences every day, as we emerge stronger from the pandemic.

Group Chief Executive Officer's Statement

The last six months have seen us make further significant progress against our strategic priorities. For this, I am hugely thankful to each and every one of my colleagues for their hard work and continued support.

Whilst the external environment has remained volatile, we successfully navigated the return to service within the Travel business and continued to deliver against our strategy, laying the foundations for future growth.

Following the continued suspension of the Travel business for much of the first half of the year, we reported an Underlying Loss Before Tax of £2.8m, which was in line with our expectations. This reflects stable performance within Insurance, offset by the aforementioned Travel suspension, restricted capacities on early Cruise sailings and the incremental costs associated with the restart of that business. Overall, the Group reported a profit before tax of £0.7m, after reflecting the profit on a property disposal.

The Insurance business continued to deliver against all KPIs, with positive results across both the Broking and Underwriting businesses. Despite the disruption in the early part of the year and capacity restrictions on our early sailings, the Cruise business is once again operating with fewer restrictions, bringing both peace of mind and exceptional experiences to our customers.

Strategic update

Delivery continued against the turnaround plan announced in September 2020, Transforming Saga - Experience is Everything, with strong progress made against all five strategic priorities.

1. People and culture step change

In the first half of 2021/22, we continued to provide colleague support through a number of channels focused on safety and wellbeing. These include delaying the return to our newly refurbished office space in order to continue to protect not only our colleagues, but also their loved ones, additional holiday entitlements and encouragement to participate in our numerous charitable events.

We continue to see improved engagement from our colleagues. The latest survey reported a record score of 7.5 out of 10, with a participation rate of 93%.

2. Data, digital and brand transformation

During the first half of the year, progress against our data, digital and brand transformation was focused on the build and preparation required ahead of our brand relaunch later this year.

Progress to date continues to be recognised by our customers through a number of means including an increased Net Promoter Score of 47, 3pts higher than 31 January 2021, in spite of the suspension of the Travel business. Saga also continues to be recognised more widely with a magazine nomination for 'cover of the year', wins in seven categories at the recent Consumer Intelligence Awards and ranking seventh in the Institute of Customer Service's top 50 organisations for customer satisfaction.

3. Optimising our businesses

Insurance

The Insurance business continued to deliver a robust performance against all KPIs, with motor and home policy sales 0.5% ahead of the prior period. Offsetting the challenging new business market in the first half of the year, retention remained strong at 80.6%, an improvement of 0.7ppts versus the prior period, supported by increased uptake of our three-year fixed-price product which accounted for 45% of all motor and home sales. The proportion of customers acquired directly, as opposed to through price-comparison websites stands at 58%. Our margin per policy has increased to £76, although is expected to reduce in the second half of the year as we invest in advertising to coincide with the brand relaunch.

Performance within Acromas Insurance Company Limited (AICL), our in-house Underwriting business, remains strong with policy growth in the second quarter for the first time in many years, representing the benefit of our new pricing models and expansion of our footprint. AICL also benefited from reduced current year claims costs following lower miles driven throughout the COVID-19 pandemic. Reserve releases continued, albeit to a lesser extent than in the first half of 2020/21, and we remain prudently reserved.

The final recommendations of the FCA's review into general insurance pricing practices were in line with our expectations and work continues in preparation for the new pricing rules required from 1 January 2022. Although the extent of the potential volatility in pricing across the market is as yet unknown, we continue to expect some short-term financial impact from the change, as pricing adjusts across both new business and renewals.

We continue to approach the changes with confidence and, following our recent price changes and planned enhancements to our product offering, believe that we are well placed to operate successfully in a price equalisation market.

Travel

The Cruise business resumed operations in June 2021, following the industry-wide travel disruption experienced in the early part of the year. Alongside the rest of the Executive Leadership Team, I took the opportunity to spend some time with our guests onboard the first Spirit of Discovery cruise and saw first-hand the spectacular and safe cruising experience the team have created. Since resuming cruising, I have been incredibly pleased, but also proud of the positive feedback received and have every confidence that we will continue to provide exceptional experiences for our guests. Future bookings are strong with load factors at 70% for 2021/22 and 59% for 2022/23 as at 11 September 2021. Per diems, reflecting the revenue per passenger per day, also remain strong at £302 and £306 respectively.

In Tour Operations bookings for 2021/22 and 2022/23 stand at £17.8m and £108.7m respectively. Whilst bookings for 2022/23 are ahead of pre-pandemic levels, there remains some uncertainty within the travel industry surrounding the longer-term impact of COVID-19.

4. Driving simplicity and efficiency

Our focus on driving simplicity and efficiency for both our customers and our colleagues, continues to be a key priority for Saga. We have now completed the first phase of refurbishments at our Enbrook headquarters in line with our future working strategy, enabling colleagues to work smarter and in a more collaborative way.

In addition, the early view of customer take-up on our recent enhancements to our offering is encouraging. We have sold 51,000 policies of our new motor price-comparison product, 8,000 motor and home mid-term adjustments (MTAs) and 13,000 renewals have now been completed through our online self-serve portal and 20% of MTAs are now being re-broked, enabling us to retain more customers and offer greater flexibility when making a policy change midway through the term.

Our underlying marketing and overhead cost base is stable in comparison to the prior period, after excluding business disposals and the recent investment in marketing in the lead up to resumption of Travel operations. We do however expect some cost increases in the second half due to a combination of timing differences, operational demand and investment in marketing as part of the brand relaunch later this year.

5. Reducing our debt

Given the remaining uncertainty surrounding the longer-term impact of the COVID-19 pandemic, we took significant steps in the first half of the year in order to strengthen our financial position and maximise our flexibility. Although gross debt increased as a result of the issuance of a £250m fixed-rate senior unsecured bond, this allowed us to repay the £70m covenanted term loan, tender £100m of the existing bond and provides us with ample liquidity and greater flexibility to support the business through the remaining uncertainty. These actions will allow us to reduce gross debt and continue to reduce net debt over the next few years.

Summary

I would like to take the opportunity to once again, thank our colleagues for their continued hard work and commitment through these uncertain times. I am exceptionally proud to lead such a committed team, which we look forward to expanding as we welcome Steve Kingshott as CEO of Insurance in November 2021.

Finally, I am delighted to inform you, in addition to the existing benefits already in place for shareholders, we are now offering a complimentary digital subscription to the Saga Magazine. Communications with full details of the offer, including how to redeem have been issued and will be arriving with shareholders imminently.

Looking forward

Whilst we are mindful of the remaining uncertainties, we continue to make progress against our strategic priorities, and we are confident that we have the right strategy, team and structure in place to emerge even stronger from the pandemic. Our priorities for the rest of the year remain the execution of our strategy, whilst continuing to ensure a full and safe return of our Travel business.

Environmental, social and governance

During the first half of 2021, we sought ways to meet our ESG responsibilities more effectively and will continue to develop our reporting to reflect the progress we are making. Our focus has been on compliance and mandatory reporting in relation to greenhouse gas (GHG) emissions and carbon disclosures, and in preparing for Taskforce on Climate-related Financial Disclosures (TCFD). We continue to ensure that our Environmental, Social and Governance (ESG) initiatives, performance, and targets support our responsibilities to our stakeholders. Looking ahead, as we strengthen this reporting, we have also begun the detailed work to develop a wider, more robust ESG strategy. We are exploring new opportunities and looking at how we can foster innovation across our business in order to better engage colleagues, support our customers and our communities, and ensure sustainable and responsible growth for our investors over the short, medium and long term.

An overview of our ESG activity and progress in the first half of the year is outlined below.

Environmental 

Our reported GHG emissions are verified annually by Carbon Intelligence (CI) to the ISO 14064-3 Standard and we have adopted a materiality threshold of 5% for GHG reporting purposes. For the latest data in relation to our GHG emissions, please refer to page 24 of the 2021 Annual Report and Accounts and our submission to the Carbon Disclosure Project which can be found at www.cdp.net/en.

We have also engaged CI to support us in establishing the baseline from which we will undertake TCFD reporting within the mandatory timeframe. This will also be used to inform areas of focus in our ESG strategy. CI give us visibility of our energy use and emissions and will provide insight and guidance on how we reduce these through optimising the sustainability and performance of our buildings.

Cruise ships

The design of our two new state-of-the-art ocean cruise ships has improved our sustainability performance versus our previous fleet. Their hull design maximises fuel efficiency, onboard technology minimises our fuel consumption and catalytic converters reduce our carbon emissions, equating to an overall reduction of 30% per passenger.

Our ocean ships are fully compliant with all International Maritime Organisation Conventions and of particular relevance, is compliance with the International Convention for the Prevention of Pollution from Ships. This ensures there is no pollution through oil and sewage and mandates strict sulphur and nitrogen oxide limits, in addition to the prevention of pollution through garbage.

Our latest river cruise ship, Spirit of the Rhine, has received a silver rating from the Green Award Scheme. This tests all ships on a number of factors from how they manage waste, how polluting they are, what type of fuel they use and their level of insulation. The ship uses the latest technologies, with examples being when cruising from port where it is designed to create less pollution through engine management, and lower air-conditioning usage through tinted glass and insulation.

Our next river ship, Spirit of the Danube, which is due to be delivered in March 2022, is being designed to even better efficiency and pollution standards, and the builders are confident that it will achieve a gold rating. The ship has been re-designed to incorporate four smaller engines, instead of the traditional two larger ones and will collect much more of the polluting gases from the exhaust system (representing an 80% reduction versus Spirit of the Rhine).

We are engaging marine architects and other experts in marine operations to assess emerging fuel and battery technology to identify opportunities to further reduce the carbon emissions from our ocean and river cruise ships.

Waste, recycling and single-use plastic

In addition to a focus on recycling and robust waste management on our cruise ships, we launched Project Ocean, aimed at educating crew on our ambition to be more environmentally friendly.

Following recent changes, food waste from our Enbrook Park Head Office is now turned into biofertiliser, allowing it to be re-used to support the generation of future food sources. Catering at our new Enbrook hub is provided by local suppliers, with an emphasis on in-season fresh produce, supporting local farmers and businesses and reducing food miles.

Electric vehicles

We have updated our company car policy to exclusively cover only hybrid or electric vehicles.

Travel customer transport

Currently, we have a fleet of 136 diesel Euro 6 engines which are used to operate the chauffeur service provided to our Travel customers. Engines that comply with Euro 6 have been tested against specific limits for harmful exhaust emissions.

Vehicle and driver performance is reviewed to monitor miles per gallon achieved and highlight vehicles and/or drivers that are below target. Remedial measures are then applied as required.

Saga premises

For the past two years, we have been working with an external sustainability consultant to maximise the energy efficiency of our buildings. These savings have been achieved through a number of building management systems control interventions, related to plant schedules and optimising heating and cooling plant on our key assets. This has reduced our carbon emissions by 50 tCO2. 

The refurbishment of our Enbrook Park office included recycling removed materials, alongside the donation of IT equipment, desks, chairs, stationery and other office equipment to local schools and community projects. We also used recycled products in the refurbishment and installed an energy efficient air handling unit, which will contribute to our commitment to a 30% reduction in our Scope 1 and 2 emissions by 2030.

Social

Diversity and inclusion

We put people and culture at the heart of our strategy. We are committed to creating a culture that gives everyone the opportunity to be their exceptional self, by building a diverse and inclusive environment where our colleagues can feel they belong, and they are engaged to make a difference.

So far this year, we've listened to more colleagues through our inclusion forums and gathered more insight on age, religion, gender, race and ethnicity, LGBTQ+, nationality and disability, with the view to better understand colleague experiences at Saga and how our workforce is made up.

We've also held more training for managers to support our diversity agenda, upskilled our recruitment team and hosted external speaker events on such topics as the menopause, as well as proudly celebrating calendar events such as Pride month. We've also continued to actively work with our partners to champion women in leadership and age at work.

We are a member of the 30% Club, which in partnership with Women Ahead, offers us the opportunity to take part in a leading, global, cross-company, leadership mentoring scheme to champion female talent. 

We are an official Disability Confident committed employer and ensure that our recruitment process is inclusive and accessible, making reasonable adjustments as required. 

We are also a signatory of the Armed Forces Covenant and have received a Silver Award from the Employer Recognition Scheme. This represents a pledge that, together, we acknowledge and understand those who serve or who have served in the armed forces, and their families, should be treated with fairness and respect in the communities, economy and society they serve with their lives.

Charitable giving

Supporting local events is key to Saga's role in the community and in the first half of 2021, we have been proud to sponsor Creative Folkestone, the Folkestone 10k Run for 3 years and two youth teams at Hythe Town Football Club.

In the first half of the 2021/22 financial year, we have made donations to the following UK charities: 

We also administer a Saga Workplace Lottery which Saga colleagues can play and raise funds for good causes. Funds are distributed quarterly to Folkestone based charities. During the first half of 2021, a total of £7,092 was raised through the Saga Workplace Lottery and distributed to Dover Pantry, Leas Lift, The Shed Foundation, The Gurkha Memorial Fund, Changeling Theatre, Ensor's, 2nd Sandgate Scouts, Channel Rotary and Shepway Sports Trust.

Communities

In March 2021, Saga offered the NHS the use of our Thanet office as a COVID-19 vaccination centre, operating a drop-in vaccination service, as well as booked appointments. Since opening, the centre has vaccinated 115,000 members of the public, including a number of Saga colleagues.

Saga gives to charities and good causes in a number of different ways including sharing skills and resources through initiatives such as our colleague volunteer days and financial donations. 

We are continuing our strong ties with our local community, in terms of our corporate social responsibilities. Our long history of volunteering and fund raising continues and activity in the first half of the year is summarised below:

Governance

We are increasing our governance focus through requiring new, or renewing, contracts to demonstrate ESG credentials and alignment to UN Sustainability Goals. We have also surveyed our top 100 suppliers to determine their current and planned approach to ESG.

In 2022, we plan to align executive compensation to the achievement of agreed ESG targets.

Operating and Financial Review

The Group has reported an Underlying Loss Before Tax of £2.8m, compared to an Underlying Profit Before Tax of £15.9m in the prior period. This reflects:

· solid Insurance trading, with resilient results from the Retail Broking business and good performance from Insurance Underwriting, supported by positive motor claims experience in relation to both current and prior years; and

· increased losses in the Cruise business due to the ownership of two cruise ships for the full current period, including related financing costs, and return to service costs for both Spirit of Discovery and Spirit of Adventure, which recommenced trading at the end of June and July, respectively. Cruise results for the first half were in line with expectations.

The Group has reported an overall profit before tax of £0.7m (H1 2020: loss before tax of £55.5m). The first half of last year included an impairment of Travel goodwill of £59.8m and restructuring costs of £28.3m.

During the first half, the Group generated positive operating cash of £41.9m compared to an operating cash outflow of £23.2m in the prior period. The improvement in the current period is due to positive working capital movements in Cruise, as the business recommenced trading, compared to significant cash injections to the Travel businesses in the first half of 2020.

While the impact of COVID-19 continued into the first half of 2021, the Group has made positive steps in the resumption of the Travel business. The Cruise business was operating both ships by the end of July, with Spirit of Discovery sailing on 27 June 2021 and Spirit of Adventure's inaugural cruise on 26 July 2021. This was in line with the Group's base planning assumptions for the 2021/22 year. Both ships' initial itineraries were UK-based in line with government restrictions but, following the lifting of the international cruise ban on 2 August 2021, the Group has since commenced international cruises in August 2021. In Tour Operations, UK-based holidays commenced in June 2021, and a small number of international tours to certain green list countries and river cruises have commenced during September, with a gradual and phased return to service expected over the remainder of the year as more countries are added to the green list.

During the period, the Group took the opportunity to further strengthen its financial position and provide additional financial flexibility. In July 2021, the Group concluded the issuance of a new five-year £250m fixed-rate unsecured bond. The proceeds of the bond were used to fund the settlement of £100m of the existing outstanding unsecured bond and to repay in full the £70m term loan. After transaction costs, these transactions increased the Group's Available Cash by £76m. In addition, the Group agreed with its lending banks to extend the maturity of the revolving credit facility (RCF) to May 2025, along with a series of covenant changes (as set out in the COVID-19 and going concern section of this report).

Due to the combination of the bond issuance and other actions taken by management to improve cash flow and costs, the Group ended the period with a strong financial position and ample liquidity. As at 31 July 2021, the Group had £175.3m of Available Cash resources in addition to the £100m available and undrawn RCF that is available through to May 2025.

Operating Performance

Group income statement

2 Revenue is stated net of ceded reinsurance premiums earned on business underwritten by the Group of £63.3m (H1 2020: £73.1m)

3 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation

4 Net finance costs exclude Cruise finance costs, net fair value gains/(losses) on derivatives and IAS 19R pension interest costs

5 The figure for the prior year has been restated to reflect the effect of the share consolidation that was completed in October 2020

The Group's business model is based on providing high-quality and differentiated products to its target demographic, predominantly focused on insurance and travel. The Insurance business operates mainly as a broker, sourcing underwriting capacity from selected third-party insurance companies, and, for motor and home, also from the Group's in-house underwriter. Travel is comprised of Tour Operations and Cruise. Other Businesses comprises Saga Personal Finance, Saga Publishing and MetroMail, a mailing and printing business.

Revenue

Revenue decreased by 18.7% to £156.4m (H1 2020: £192.4m) due to the suspension of the Travel business from March 2020, combined with lower Retail Broking revenues largely as a result of the sale of the Bennetts business in August 2020.

Underlying (Loss)/Profit Before Tax3

Underlying Profit Before Tax decreased from £15.9m to an Underlying Loss Before Tax of £2.8m. This was primarily due to a £17.0m reduction in Travel profitability, resulting from the increased losses of the Cruise business. This was mainly due to financing costs of Spirit of Adventure, which the Group took ownership of in September 2020, and return to service costs in the current period, and compares to a prior half year during which the Cruise business was in operation for six weeks prior to its suspension.

Net finance costs in the period were £9.5m (H1 2020: £8.6m) and this excludes finance costs that are included within the Travel division of £9.6m (H1 2020: £5.2m). The increase of 10.5% was largely due to the higher bond interest costs following the completion of the new bond issue in July 2021, additional debt issue costs incurred in connection with amendments to the Group's leverage covenants in March 2021 and June 2021, and the further ship debt holiday agreed in March 2021 that was more expensive than the previous ship debt holiday agreed in the prior period. This was partially offset by a reduction in bank debt interest costs due to a lower level of bank debt in the current period compared to the prior period.

Profit/(loss) before tax

Profit before tax for the period of £0.7m includes a £7.1m profit on disposal of assets in relation to the sale of property, a £3.2m fair value loss on derivatives de-designated in the period due to the suspension of Travel operations and £0.4m of restructuring costs incurred to date to separate the Saga and Titan Tour Operations businesses. The prior period includes a £59.8m impairment to goodwill and £28.3m restructuring costs offset by the £10.3m profit on the disposal of non-core businesses, a £4.5m net profit on completion of the sale of Saga Sapphire cruise ship and a £1.7m fair value gain on derivatives de-designated in the period.

Tax expense

The Group's tax expense for the period was £3.8m (H1 2020: £1.6m), representing an abnormally high tax effective rate of 542.9% (H1 2020: 37.2%, excluding the goodwill impairment charge). The Group's tax effective rate is higher than the standard rate of corporation tax, mainly due to the Group's Cruise business entering the tonnage tax regime from 1 February 2020. This regime is specific to the shipping industry and provides a source of tax efficiency by fixing an element of tax payable based on the tonnage of each ship. While this is the appropriate long-term approach, in the short term, losses accumulated in the Cruise business as a result of the COVID-19 suspension are not eligible for group relief to other profitable companies within the Group. In addition, there was an adjustment in the current period for the over provision of prior-year tax of £1.1m (H1 2020: £1.6m under provision) and the impact of the change in the tax rate on opening deferred tax balances of £2.6m credit (H1 2020: £1.7m credit). Excluding the losses on Cruise and the adjustments in respect of prior years, the tax effective rate for the period was 20.8%.

Earnings Per Share

The Group's Underlying Basic Loss Per Share6 was 2.7p (H1 2020: Profit 30.7p). The Group's reported basic loss per share was 2.2p (H1 2020: loss of 69.7p). The figures for the prior period have been restated to reflect the effect of the share consolidation that was completed in October 2020.

6 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation

Retail Broking

The Retail Broking business provides tailored insurance products and services, principally motor, home, private medical and travel insurance. Its role is to price the policies and source the lowest cost of risk, whether through the panel of motor and home underwriters or through solus arrangements for private medical and travel insurance. The Group's in-house insurer, Acromas Insurance Company Limited (AICL), sits on the motor and home panels and competes for that business with other panel members on equal terms. AICL offers its underwriting capacity on the home panel through a coinsurance deal with a third party, and so the Group takes no underwriting risk for that product. Even if underwritten by a third party, the product is presented as a Saga product and the Group manages the customer relationship.

7 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation

8 Third-party underwriter's share of the motor panel for Saga-branded policies 

Retail Broking Underlying Profit Before Tax on a written basis (which excludes the impact of the written to earned adjustment) increased to £39.5m from £38.7m, and on an earned basis (which includes the impact of the written to earned adjustment) reduced to £37.9m from £42.0m.

The written to earned adjustment of negative £1.6m in the current period compares to a £3.3m positive adjustment in the prior period. The prior period result benefitted from price reductions implemented by AICL in February 2019 which on an earned basis are spread over a 12-month period.

A key metric for the Retail Broking business is written gross profit, after deducting marketing expenses but before overheads. This reduced from £85.2m in the prior period to £81.0m in the first half of the current financial year due to the sale of Bennetts in August 2020. Excluding Bennetts, written gross profit after marketing expenses increased by £2.4m, due to a £4.5m improvement in motor, offset by a £0.3m reduction in home and a £1.8m reduction in other broking. The latter includes a £1.2m decrease in written gross profits due to a reduction in travel insurance policy sales versus the prior period.

For Saga-branded motor and home insurance, in terms of the total gross margin after marketing expenses, new business profits reduced by £1.0m, while there was a £5.2m improvement in renewal profits.

The reduction in new business profits reflects lower motor new business policies and margins due to competitive market conditions, particularly in motor. The increase in renewal profits is principally due to a 6% increase in motor renewal policies, coupled with higher renewal margins driven by the continued growth of the three-year fixed-price product.

The overall gross margin per policy for Saga-branded motor and home combined, calculated as written gross profit less marketing expenses divided by the number of policies, was £75.6 in the first half of the year, compared with £70.9 in the prior period.

Whilst Retail Broking earnings have reduced period on period, the Insurance business has shown good progress throughout the COVID-19 pandemic:

· Saga-branded motor and home policies increased by 0.5% in the first half of the year.

· The higher policy count is due to the sustained improvement in customer retention of 80.6% across motor and home, which was 0.7ppt higher than the prior period, and the introduction of mid-term adjustment (MTA) rebroke policies in the period, partially offset by a reduction in new business policies. Excluding MTA renewal rebroke, home and motor policies would have decreased by 0.2% in the first half.

· 374k three-year fixed-price policies were sold in the period; 45% of total motor and home policies incepting, with 58% of direct new business taking the product.

· The margin per policy is tracking in line with expectations.

Written profit and gross margin per policy for motor and home are stated after allowing for deferral of part of the revenues from three-year fixed-price policies, recognising inflation risk inherent in this product. As at 31 July 2021, £9.6m (H1 2020: £7.6m) of income had been deferred in relation to three-year fixed-price policies, £3.4m (H1 2020: £4.0m) of which related to income written in the six months to 31 July 2021.

Motor Broking

Gross written premiums decreased by 16.5% due to the sale of the Bennetts business on 7 August 2020, therefore the 2021/22 first half results include no trading results for Bennetts compared to a full six months in the prior period.

Excluding Bennetts, gross written premiums decreased by 5.4%. This reduction reflects decreases in average gross written premiums following lower premiums being charged to customers due to further pricing actions. This was partially offset by a 0.6% increase in the number of core Saga-branded policies. Gross written premiums from business underwritten by AICL decreased by 3.8% to £105.0m (H1 2020: £109.1m), partly due a 0.9ppt increase in third-party panel share to 30.8% (H1 2020: 29.9%). Other revenue declined by £2.5m due primarily to the sale of Bennetts.

Written gross profit minus marketing expenses was £36.1m (H1 2020: £38.2m), contributing £73.1/policy (H1 2020: £60.8/policy). Excluding Bennetts results from the prior year, motor written gross profit minus marketing expenses for H1 2020 was £31.6m, contributing £65.3 per policy.

The increase in written gross profits excluding Bennetts is mainly due to a 6% increase in motor renewal policies, higher renewal margins on the three-year fixed-price product and new business price reductions in the early part of the prior year.

Home Broking

Gross written premiums decreased by 0.8% due to a 1.1% reduction in average premiums more than offsetting a 0.3% increase in core policies.

Written gross profit minus marketing expenses was £27.0m (H1 2020: £27.3m), and on a per policy basis this was £77.6/policy (H1 2020: £78.7/policy).

Other Broking

The other insurance broking business is primarily comprised of private medical insurance (PMI) and travel insurance.

Gross written premiums declined 8.2% as a result of lower sales of travel insurance, which declined from 38k in the prior period to 22k. This was due to the impact of COVID-19 related travel restrictions. Gross profits after marketing costs relating to travel insurance products declined by £1.2m.

Sales for the PMI product were broadly stable, however gross profit after marketing costs was £2.9m lower. This reduction is a result of pricing rule changes that have reduced renewal margins, alongside a lower profit share.

Profitability of the Group's claims management and credit hire businesses was adversely impacted during the prior period due to lower claims volumes as a result of reduced repair activity during the COVID-19 lockdown, as well as the exit from a claims handling contract for a third party. This has again continued in the first half of this year due to a further COVID-19 lockdown but was offset by better-than-expected credit-hire debt recovery against provisioning levels in the period.

Insurance Underwriting

9 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation 

The Group's in-house underwriter AICL continues to play an important role on the motor panel, providing a significant source of competitively priced underwriting. AICL also underwrites a portion of the home panel, although all home underwriting risk is passed to third-party insurance and reinsurance providers.

Excluding the impact of the quota share reinsurance arrangements, net earned premiums decreased by 9.1% to £84.1m (H1 2020: £92.5m) reflecting a 7.8% reduction in the number of earned policies underwritten by AICL coupled with a 1.7% decrease in average earned premiums.

Also excluding the impact of the quota share arrangement, the Underwriting business saw an improvement in the current period combined operating ratio (COR) to 88.4% (H1 2020: 101.6%). This reflects the earned impact of COVID-19 on claims costs and customer driving habits and is not expected to recur in future periods, with current claims experience broadly in line with pricing assumptions.

Prior year reserve releases of £18.0m (H1 2020: £27.0m) have resulted in a reported COR of 67.7% (H1 2020: 72.4%), excluding the impact of the quota share arrangement. The Group retains economic interest in motor reserve development. To the extent they accrue under the quota share arrangements they are recognised within other revenue as a profit share. Reserve releases can be broken down as follows:

Reserve releases reflect continued favourable experience on large bodily injury claims relating to prior accident years. In addition, part of the additional component of reserve margin for the increased uncertainty over claims development held in respect of the 2020/21 accident year has been released in the current period.

Excluding the impact of the quota share arrangement, the investment return increased by £0.6m to £4.1m (H1 2020: £3.5m) due to lower expected credit losses in the current period and fair value losses on loan funds in the prior period. This was partially offset by lower reinvestment yields.

Travel

10 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation 

The Group's Travel businesses were suspended in mid-March 2020 as a result of government restrictions introduced as a result of the COVID-19 pandemic. The Cruise business resumed on 27 June 2021 with the first sailing of Spirit of Discovery, and Spirit of Adventure's inaugural cruise sailed on 26 July 2021. The Cruise business operated Spirit of Discovery through July with a government-enforced load factor restriction of 50%. This was removed from the end of July.

The Tour Operations business commenced a small number of UK-based holidays in June. When compared to the prior period, which included one and half months of full operational trading, there has been a further decline in revenues in the first half of this year.

Since March 2020, the Group has focused on ensuring customers whose holidays have been cancelled are rebooked on future trips or offered a cash refund. The Group has experienced high levels of customer loyalty, particularly in Cruise, with 74% of Cruise advance receipts transferred to a future booking. Similarly, 39% of Tour Operations advance receipts have also been transferred to a future booking.

Marketing expenses have increased by £1.8m to £8.5m (H1 2020: £6.7m) to support the restart of operations. Other operating expenses have decreased by £3.9m as a result of actions taken after the decision to suspend operations in the prior year to downsize the overhead cost base whilst the operations were suspended. The overheads cost base has begun to scale up to support the return to service, but not to the same levels as before.

A significant number of changes have been made to how the Travel businesses operate to provide peace of mind and ensure the safety of customers and colleagues, including the requirement that all guests must be fully vaccinated against COVID-19 at least 14 days before departure.

Through the first half of the year, the focus has been on ensuring the safe restart of the Travel business, while keeping costs and subsequent cash burn to a minimum. The monthly cash burn for the six months to 31 July 2021 was £5.9m, which is lower than the previous guidance of £7m‐£9m per month.

Forward Travel sales

Tour Operations bookings for 2021/22 are below the same point two years ago by 93% and 90% for revenue and passengers respectively. This is due to the suspension of operations as a result of the government's COVID-19 travel restrictions and continued customer caution in relation to overseas travel. Customer demand for 2021/22 is primarily focused on the second half and Saga has maintained a disciplined approach to marketing activity during this period. Around 44% of revenue booked for 2021/22 is from customers choosing to rebook holidays cancelled in 2020.

Bookings for 2022/23 departures are ahead of the same point two years ago by 18% and 10% for revenue and passengers respectively. Whilst bookings for 2022/23 are ahead of pre-pandemic levels, there remains some uncertainty within the travel industry surrounding the longer-term impact of COVID-19.

Similarly, Cruise bookings for 2021/22 are lower than the same point two years ago by 17% and 29% for revenue and passenger days respectively due to the decision to suspend operations for Spirit of Discovery until 27 June 2021 and for Spirit of Adventure until 26 July 2021. However, demand is very strong for 2022/23 departures and ahead of the same point two years ago, with revenue and passenger days ahead by 58% and 39% respectively.

Around 37% of revenue booked for 2021/22 is from customers choosing to rebook cruises cancelled in 2020. These figures exclude bookings cancelled in 2020/21 and 2021/22 where the customer has indicated that they want to rebook but have yet to rebook onto a specific cruise.

Other Businesses and Central Costs

11 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation 

The Group's other businesses include Saga Personal Finance, the Saga Publishing business and MetroMail, a mailing and printing business.

Underlying Profit Before Tax for other businesses combined decreased by £0.1m, largely due to the sale of the non-Saga branded healthcare businesses of Country Cousins and Patricia White's in March 2020, which generated one month's worth of profit for the Group in the prior period.

Central operating expenses decreased slightly to £12.8m (H1 2020: £13.2m). There were £5.3m of cost savings driven by the Group's restructuring programme in the prior period that were offset by a reduction in recharges to the operating divisions.

Net finance costs in the period were £9.5m (H1 2020: £8.6m), an increase of 10.5%, which was largely due to the higher bond interest costs following the completion of the new bond issue in July 2021, additional debt issue costs incurred in connection with amendments to the Group's leverage covenants in March 2021 and June 2021, and the further ship debt facility agreed in March 2021 that was more expensive than the previous ship debt holiday agreed in the prior period. This was partially offset by a reduction in bank debt interest costs due to a lower level of bank debt in the current period compared to the prior period.  

Cash flow and liquidity

Available Operating Cash Flow

Available Operating Cash Flow is made up of the cash flows of unrestricted businesses and the dividends paid by restricted companies, less any cash injections to those businesses. Unrestricted businesses include Retail Broking (excluding specific ring-fenced funds to satisfy Financial Conduct Authority (FCA) regulatory requirements), Other Businesses and Central Costs, and the Group's Cruise business. Restricted businesses include AICL and Tour Operations.

Excluding cash transfers to and from the Travel business, Group cash flows demonstrated considerable resilience in the period, with an Available Operating Cash Flow of £52.1m compared with £45.4m in the prior period. Although Trading EBITDA for unrestricted businesses reduced by £5.0m, working capital improved from an outflow of £1.0m to an inflow of £12.5m, mainly due to the Retail Broking segment. Dividends paid by AICL were £12m in both periods.

Trading in the Group's Travel businesses was suspended in March 2020 and since that date the Group has provided additional liquidity into the Travel businesses to meet supplier and other trading payments, and to enable repayment of customer refunds where requested.

For Tour Operations, which now operates as a ring-fenced fund, the Group provided an additional £19.9m of cash to the business to cover trading cash flows in the first half of the current year. This is a reduction of £26.1m when compared to the prior period, which is mainly due to the fact that the business now operates as a fully ring-fenced business. As at 31 July 2021, the Tour Operations ring-fenced business held cash of £26.3m, of which £23.6m is held in trust.

During the period, the Cruise business reported an operating cash inflow of £9.7m, with an increase in advance customer receipts of £25.1m, offset by trading costs of £13.4m and capital expenditure of £2.0m. Net cash inflow, after interest costs of £7.6m, was £2.1m.

The improvement compared to the prior period is a result of the Cruise business resuming operations in the latter part of the first half, enabling the business to start collecting payments on the cruises that have sailed in the first half and on some of the cruises that will sail in the beginning of the second half. In line with current plans, if the Cruise operation continues with no further interruption in the second half, it is expected that the Cruise business will become self-funding again and will start to repay the £16.5m intercompany loan provided by the Group during the period of closure.

The cash outflows for the Travel business since the onset of the COVID-19 crisis are well within the assumptions used in management's base and stress test scenarios.

As a result of the reduction in cash injections to the Travel business in the last six months when compared to the prior period, Available Operating Cash Flow increased from an outflow of £23.2m in the prior period to an inflow of £41.9m in the current period.

12 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation

13 Trading EBITDA includes the line-item impact of IFRS 16 with the corresponding impact to net finance costs included in net cash flows used in

financing activities

14 Adjusted to exclude IAS 19R pension current service costs

Other cash flow movements

Non-operating cash flow movements in the prior period include significant cash costs relating to the restructuring activities undertaken in the first half of the prior year, which principally relate to redundancy costs. There has been no such restructuring programme in the current period.

Interest and financing costs increased due to the financing costs relating to the Spirit of Adventure debt facility that was drawn down at the end of September 2020, combined with an increase in debt issue costs relating to the fees paid to date associated with the new bond issue, the tender of the existing bond and the amendments to the existing RCF facility along with the second ship debt holiday being more expensive than the first in the prior period.

Business and property disposals relate to the cash received from the sale of property in the current period and from the sale of the Healthcare business in the prior period, net of any directly attributable sale costs and expenses.

The Group continued to make the agreed payments to the defined benefit pension fund as part of the deficit recovery plan in both the current and prior period which totalled £4.2m (H1 2020: £3.7m) and are included within other payments.

In June 2021, the Group issued a five-year £250m fixed-rate unsecured bond. The proceeds of the bond were used to fund the settlement of £100m of the existing bond and to repay in full the £70m term loan. The balance of the proceeds, together with the Available Cash brought forward from the prior year, provides sufficient liquidity in the event that a further suspension of the Travel business was to occur in either the second half of 2021 or in 2022.

The Group has been in discussions with the FCA regarding the magnitude of the Threshold Condition 2.4 balance that the Retail Broking business holds as restricted cash and the potential need to hold an additional amount on a temporary basis as a result of COVID-19. It has been agreed that from August 2021, an additional temporary liquidity provision of £5m will be held as restricted cash. This will be reflected within the second half and funded from Available Cash. 

Reconciliation between operating and reported metrics

Available Operating Cash Flow reconciles to net cash flows from operating activities as follows:

Trading EBITDA reconciles to Underlying (Loss)/Profit Before Tax as follows:

Adjusted Trading EBITDA is used in the Group's leverage calculation and is calculated as follows:

15 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation

16 EBITDA includes central Cruise overheads

Balance sheet

Goodwill

As at 31 July 2021, the carrying value of the Group's goodwill asset totalled £718.6m (31 Jan 21: £718.6m) and is wholly attributable to the Insurance business. The Group is required to perform an annual impairment review of goodwill and the most recent review was performed for the full-year results, demonstrating headroom against the carrying value of the goodwill asset in all scenarios modelled. At the half year, the Group is only required to perform additional impairment reviews if new indicators of impairment exist. Due to the Insurance business trading in line with the latest business plan, which includes the anticipated impact of the outcome of the FCA Market Study into general insurance pricing practices from February 2022, no new indicators of impairment exist as at 31 July 2021 and so no impairment review is required at this point.

Carrying value of ocean cruise ships

As at 31 July 2021, the carrying value of the Group's ocean cruise ships totalled £631.2m (31 Jan 21: £635.0m). Due to the continued impact of the COVID-19 pandemic on the Group's operations, with the suspension of the Cruise business between March 2020 and June 2021, and the continued uncertainty in the outlook for the Travel industry, the Group carried out a further impairment review of both of its vessels. The results of the review showed that there was headroom in both the central and stress test scenarios for both Spirit of Discovery and Spirit of Adventure, with no impairment required, albeit there remains limited headroom for Spirit of Adventure. Please refer to note 10 on page 46 for further details of the review that was undertaken.

Investment portfolio

The majority of the Group's financial assets are held by its underwriting entity and represent premium income received and invested to settle claims and to meet regulatory capital requirements.

The amount held in invested funds increased by £3.4m to £362.5m (31 Jan 2021: £359.1m). As at 31 July 2021, 98% of the financial assets held by the Group were invested with counterparties with a risk rating of BBB or above, which is in line with the prior period and reflects the relatively stable credit risk rating of the Group's counterparties.

Insurance reserves

Analysis of insurance contract liabilities at 31 July 2021 and 31 January 2021 is as follows:

The Group's total insurance contract liabilities, net of reinsurance assets, have decreased by £6.3m in the period to 31 July 2021 from the previous year end, primarily due to a £15.4m decrease in net incurred but not reported claims reserves. The reduction in net incurred but not reported claims reserves is due to reserve releases that reflect continued favourable experience on large bodily injury claims relating to prior accident years. In addition, part of the additional component of reserve margin held in respect of the 2020/21 accident year has been released in the current period.

Financing

At 31 July 2021, the Group's net debt was £740.3m which is around £20m lower than at the beginning of the financial period.

The Group issued a new five-year £250m fixed-rate unsecured bond in June 2021. The proceeds of the bond were used to fund the settlement of £100m of the existing outstanding unsecured bond and to repay in full the £70m term loan. After transaction costs, these actions increased the Group's Available Cash by £76m. As at 31 July 2021, the £100m RCF remained undrawn and available to the Group, and the maturity of the facility has been extended to May 2025. The terms also include a requirement to repay the RCF on 1 March 2024 if the remaining £150m of original bond notes have not been redeemed prior to this date.

Excluding the impact of debt and earnings relating to the ocean cruise ships, the Group's leverage ratio was 2.4x as at 31 July 2021 (31 Jan 2021: 2.7x), well within the 4.75x covenant applicable to the Group's RCF.

No repayments were made on the ship loans during the period, with the Group agreeing a second debt holiday with its lenders as part of a package of proposals to support the wider cruise industry. The second debt holiday agreed in March 2021 allowed repayments to be deferred to March 2022, which was for an additional year in excess of the first debt holiday. The Group expects to resume ship loan debt repayments after March 2022.

Adjusted Net Debt is used in the Group's leverage calculation and reconciles to net debt as follows:

Pensions

17 Excludes funds-withheld quota share arrangement (please refer to note 15 for further detail)

18 Includes amounts for reported claims that are expected to become periodical payment orders

19 Maturity date represents the date that the principal must be repaid, other than the ship loans, which are repaid in instalments over the next

12 years

20 Refer to note 13 of the financial statements for information as to how this reconciles to a statutory measure of cash

21 Refer to the Alternative Performance Measures (APM) Glossary on page 62 for definition and explanation 

The Group's defined benefit pension scheme deficit as measured on an IAS 19R basis improved by £17.1m to a £12.8m surplus as at 31 July 2021 (£4.3m deficit as at 31 Jan 21).

While the present value of defined benefit obligations increased by £10.3m to £425.8m due to a 30bps increase in RPI inflation, that was partially offset by a 10bps increase in the discount rate based on high-quality bond yields, the fair value of scheme assets increased by £27.4m to £438.6m. The increase in asset values has been largely driven by the fall in interest rates in the period, which in turn has led to a marked increase in the value of liability hedging assets within the portfolio.

The pension trustees and the Group concluded the triennial valuation of the scheme as at 31 January 2020 in the first half of this year. The Company and trustees have agreed to a new deficit recovery plan totalling £39.0m over the next seven years, with the first payment of £4.2m paid in February 2021 and subsequent payments of £5.8m due each February thereafter until February 2027.

In July 2021, following the completion of a review of the Group's pension arrangements, a consultation process with active members was launched. With effect from 31 October 2021, the Group is proposing to close both of its existing schemes to future accrual, the Saga Pension Scheme (its defined benefit plan) and the Saga Workplace Pension Plan (its defined contribution plan). In their place, the Group is proposing to introduce a new defined contribution pension scheme arrangement that will be operated as a master trust. This move will serve to reduce the risk of further deficits developing in the future on the defined benefit scheme, while moving to a fairer scheme for all colleagues.

Net assets

Since 31 January 2021, total assets have increased by £108.7m and total liabilities have increased by £102.0m, resulting in an overall increase in net assets of £6.7m.

The increase in total assets is primarily due to an increase in cash and short-term deposits as the financing transaction completed in the first half of the year resulted in an increase in Available Cash of £76m.

The increase in total liabilities reflects a £77.8m increase in financial liabilities, which was due to an increase in gross debt from the receipt of the £250m new bond proceeds offset by repayment of £100m of the existing bond and the full £70m of the outstanding term loan. There was also an increase in contract liabilities of £23.5m following the restart of Travel operations in the period.

Impact of COVID-19 and going concern

The Group continues to monitor the impact of COVID-19 on its operations, and since the year-end the Travel business has reopened with a phased return to service.

Due to the continued success of the vaccine rollout in the UK and the easing of lockdown restrictions, the Cruise business was able to recommence operations in June 2021 with UK-only cruises aboard Spirit of Discovery, shortly followed by the inaugural cruise of Spirit of Adventure at the end of July. Now that the ban on international cruising has been lifted, Cruise itineraries have extended to international waters from the end of August, with cruises to the Baltic Sea and other parts of Europe operating during September.

The Tour Operations business also commenced UK-only tours from June 2021, and international tours to certain green list countries and river cruises have commenced during September, with a gradual and phased return to service expected over the remainder of the year as more countries are added to the green list. Departures to many long-haul destinations are not expected to commence until the end of the year.

The Insurance business continues to be largely unaffected by COVID-19, with resilient trading in the Retail Broking business and some positive impacts on motor claims frequency, albeit that this latter factor is reducing following the end of lockdowns.

In order to provide further financial flexibility, Saga plc issued a new £250m fixed-rate unsecured bond in early July, using £170m of this cash to repay existing borrowings and with £76m added to available cash reserves after payment of £4m of transaction fees. The Group also renegotiated and relaxed the maintenance covenants attached to the £100m RCF, as follows:

* Quarterly covenants are only tested if leverage is above 4.0x times at the previous covenant test date. This requirement ceases on 31 January 2022.

Under the terms of the RCF, dividends remain restricted while leverage (excluding Cruise) is above 3.0x and the Group remains subject to a minimum liquidity requirement of £40m, which can be met either through cash or undrawn and committed facilities (such as the RCF itself). The terms also include a requirement to repay the RCF on 1 March 2024 if the remaining £150m of original bond notes have not been redeemed prior to this date.

The new unsecured bond includes an event-based fixed charge covenant ratio, of 2x EBITDA, which must be satisfied if and when the Group intends to issue new debt. The Group has no current plans to issue any new debt.

The Group's ship debt facilities also require certain EBITDA to debt and EBITDA to interest payment ratio covenants to be met, however the ship debt repayment holiday in place has waived the need to test these covenants until July 2022.

As part of the analysis conducted to support the financing transactions outlined above, planning scenarios were updated to reflect the latest outlook for the current year, including also the impact of the financing transactions completed in July. Specifically, the Group updated the base case scenario based on the latest return to service plans in Travel as outlined above, and further revised a reasonable worst case (RWC) scenario to reflect a reasonably-possible outcome that the Tour Operations business has to delay its full restart to early next year (March 2022) in response to ongoing uncertainty in the travel industry and that the Cruise business has to suspend operations for a two-month period at the end of this year in response to the possibility that COVID-19 cases could rise in the winter and may necessitate this.

In both the base case and RWC scenarios modelled, the Group forecasts there to be sufficient headroom against its debt covenants until at least February 2023, being 18 months from the date of the signing the interim financial statements, which more than accommodates the minimum 12-month assessment for going concern. The Directors therefore have a reasonable expectation that the Group will continue to trade through the continued COVID-19 disruption and will have sufficient liquidity for at least the next 12 months, and accordingly have prepared the financial statements on a going concern basis.

Dividends

Given the Group's priority of reducing net debt the Board of Directors does not recommend payment of an interim dividend for the 2021/22 financial year, nor would this currently be permissible during the period of the ship debt repayment holiday.

Financial priorities for 2021/22

The Group's financial priorities for the current financial year are to reduce net debt, ensure a full and safe return to service in its Travel business, and to continue progress in execution of its Insurance strategy. Given the continued uncertainty arising from COVID-19, the Group is not providing any earnings guidance for the 2021/22 financial year.

Principal risks and uncertainties

The Group is subject to a number of risks and uncertainties as part of its activities. The Board regularly considers these and seeks to ensure that appropriate processes are in place to manage, monitor and mitigate these risks. The Board included full details of the risk and uncertainties pertinent to the Group on pages 28 and 29 of its latest Annual Report and Accounts for the year ended 31 January 2021, available at www.corporate.saga.co.uk.

Since the publication of the latest Annual Report and Accounts, the Board have reviewed and updated the list of principal risks and uncertainties (PRUs) and the outlook for each. By exception, the following changes have been made:

Principal risks and uncertainties for which the outlook has worsened

Principal risks and uncertainties for which the outlook has improved

New principal risks and uncertainties

Condensed consolidated income statement

for the period ended 31 July 2021

22 In accordance with IAS 33 'Earnings per Share', basic and diluted loss per share figures for the period ended 31 July 2020 have been

restated and adjusted for: (a) the bonus factor of 1.1 to reflect the bonus element of the Firm Placing and Open Offer from 5 October 2020; and (b) the consolidation of the Company's shares on 13 October 2020. Amounts as originally stated were (5.1p) for basic and diluted loss per share.

Condensed consolidated statement of comprehensive income

for the period ended 31 July 2021

Condensed consolidated statement of financial position as at 31 July 2021