Saga Regulatory News (SAGA)

4 April 2023

Saga plc

Unaudited preliminary results for the year ended 31 January 2023

Saga reports significant revenue growth and return to underlying profit

Saga plc (Saga or the Group), the UK's specialist in products and services for people over 50, announces its unaudited preliminary results for the year ended 31 January 2023.

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

"Over the past year, through what continued to be a particularly challenging external backdrop, Saga made progress against its strategy while achieving significant revenue growth and returning to underlying profit.

"Our Ocean Cruise business continued to see strong customer demand and bookings for 2023/24 are on track to meet our targets. In Travel, bookings are significantly ahead of the same point last year and that business will return to profit this year.

"Our Insurance Underwriting business took pricing action to reflect the rise in claims inflation, while our Insurance Broking business navigated a challenging landscape, adjusting to significant regulatory changes and increased competitive pressure.

"We also took a number of key steps to reposition the business, consistent with the strategy we set out 12 months ago to create 'The Superbrand' for older people. Our top priorities for the next 12 months are to strengthen our financial position and continue to build Saga into the largest and fastest-growing business for older people in the UK, delivering long-term, sustainable growth for our stakeholders."

Operational and financial highlights

· The Group reports an Underlying Profit Before Tax1 of £21.5m, within the guided range of £20m to £30m.

· Revenue growth, when compared to the prior year, was 54% due to continued Cruise and Travel recovery following the pandemic.

· The reported loss before tax of £254.2m reflects the £269.0m impairment of Insurance goodwill reported within our interim results.

· Available Cash1, at 31 January 2023, was £157.5m with Net Debt1 of £711.7m, £17.3m lower than the year before.

· The Group remains in discussions in relation to the possible sale of its Insurance Underwriting business, consistent with the ambition to move towards a capital-light model and reduce debt.

Divisional performance

Cruise - Strong Ocean bookings on track to meet our targets with River set to return to profit

· Ocean Cruise reported an Underlying Loss Before Tax1 of £0.7m for the full year but with considerable improvement in the second half, when the business reported an Underlying Profit Before Tax1 of £6.2m.

· Ocean Cruise revenue, of £168.3m, was more than 100% ahead of 2021/22, supported by a full year load factor of 75% and per diem of £318. This compares with 68% and £299 in the prior year.

· Ocean bookings for 2023/24 are strong, representing a load factor of 72%, and per diem of £339 at 26 March 2023. This places us on track to achieve our target of £40m EBITDA (excluding overheads) per ship.

· Our River Cruise business, which we now report separately from our Travel business, reported revenue of £28.8m compared with £1.7m in the prior year, and an Underlying Loss Before Tax2 of £5.1m.

· River Cruise bookings for 2023/24 are very positive with the number of booked guests 23% ahead of the same point last year, reflecting a load factor of 63% and per diem of £298 at 26 March 2023.

· Customer satisfaction across both Ocean and River Cruise remains exceptional at 9.0 and 8.2 out of 10, respectively at 31 January 2023.

Travel - Launch of new products boosting bookings position

· Our Travel business reported revenue of £108.4m, more than 10 times that in the previous year, and a small Underlying Loss Before Tax1 of £4.1m, in line with previous guidance.

· Building from a recovery in touring revenues, in addition to the launch of new products including our private jet tours and 'Tailor-Made by Saga' proposition, total booked revenue for 2023/24, at 26 March 2023, was £136.6m, 32% ahead of the £103.7m booked at the same point in the prior year.

Insurance Broking - Underlying Profit Before Tax2 in line with the prior year

· Overall, the business reported a written Underlying Profit Before Tax2 of £67.7m, in line with the £66.6m in the previous year.

· Total policies in force across all products, at 31 January 2023, was 1.7m, 3% behind the prior year, with total policy sales 2% behind.

· The number of travel insurance policies sold was 103% ahead of the prior year, achieving revenue growth of more than 200%.

· Customer retention across motor and home insurance strengthened further, now at 83.8% and 1.0ppt ahead of the prior year.

· As a result of significantly lower new business sales, the total number of motor and home insurance policies sold was 7% behind the prior year with an average margin of £71 per policy, compared with £74 in the year before. The direct share of new business was 49%, compared with 59% in the prior year, reflecting challenging market conditions.

Insurance Underwriting - Material pricing increases applied to offset the rise in claims inflation

· Our Underwriting business reported an Underlying Profit Before Tax2 of £19.1m for the year ended 31 January 2023, including underlying prior year reserve releases of £25.1m.

· As indicated within our January Trading Update, the current year underlying combined operating ratio (excluding the impact of our quota share reinsurance arrangements) was 125.8% compared with 96.3% in the prior year. This reflects the unwind of COVID-19 frequency benefits, a sharp rise in claims inflation and an above-average level of current year large losses.

· This is largely offset within our result by recoveries under our quota share reinsurance arrangements and favourable development on prior year large losses.

· We continued to apply material price increases to the motor book, reflecting not only retrospective, but also our prospective view of inflation.

Wider strategic progress - Positioning Saga for growth

· Saga Money reported an Underlying Profit Before Tax2 of £2.3m and top line growth across our equity release and savings products.

· Following the launch of Saga Media in late January, our brand-new website, Saga Exceptional, has exceeded our initial expectations and attracted more than 500,000 visitors to date.

· In the fourth quarter of 2022, the Group reported its highest ever net promoter score. The score of 51 was 2 points higher than the same point in the prior year and reflects improvements within our contact centres which reduced wait times and improved the customer journey.

· Following the pandemic, and the move to our hybrid working approach, far fewer colleagues are choosing to work regularly from the office. We, therefore, made the decision to close our Enbrook headquarters in Folkestone in favour of two smaller hubs in Kent, in addition to our existing London hub. This will reduce operating expenses while we explore longer-term options for the site.

· To allow us to reach a wider audience, our aim is to grow our database. In support of this we set a target to achieve three million new customer marketing consents by 31 January 2023, which we met.

· Following the acquisition of the Big Window at the start of the year, we further developed our insights through the creation of our customer segmentation, expansion of our Experienced Voices customer panel and, most recently, the release of our 'Generation Experience' economic study which dispels some of the myths around ageing and the contribution that people over 50 make to the economy.

Financial position

The Group continues to focus on reducing leverage, with Net Debt1 decreasing by £17.3m in 2022/23. To further reduce debt and increase liquidity ahead of the £150m bond maturity in May 2024, and consistent with the ambition to move to a more capital-light model, the Group has initiated a sale process for the Insurance Underwriting business that is continuing.

To provide additional financial flexibility ahead of the May 2024 bond maturity, the Group has agreed a loan facility with Sir Roger De Haan, on normal commercial terms, that enables the business to draw down up to £50m of cash, if required, with 30 days' notice. The facility will be effective from 1 January 2024 and will expire on 30 June 2025, with interest incurred at 10% and with draw down and milestone fees of up to a maximum of 6% of the facility.

Outlook

The progress made in 2022/23 places us in good stead as we enter 2023/24. We expect to see customer demand continue to build for our Ocean Cruises and we are aiming to achieve a load factor of at least 80% and our targeted £40m EBITDA per ship, excluding overheads. We expect both our River Cruise and Travel businesses to significantly increase the number of passengers that travel with us and return to profit.

While the UK insurance market remains very challenging, our disciplined approach is the right one. We expect lower sales in motor and home insurance but with a margin in line with previous indications, trending towards £60 per policy. We expect Insurance Underwriting to report a broadly break-even result in the current year with material rate increases fully benefiting future years.

Subsequent to the launch of new products planned for the second half of 2023/24, the contribution from Saga Money is expected to grow when compared with 2022/23 levels.

We remain focused on reducing our debt through the continued repayment of our ocean cruise ship debt and the £150m bond on maturity in May 2024 which, following actions taken to improve our financial flexibility, we expect to repay from Available Cash3.

We will also continue our strategic pivot to become a capital-light, direct-to-customer marketing, content and distribution business through investment in Media, data and insight. As we increase the frequency and depth of our customer relationships, we will transform Saga into the largest and fastest-growing business for older people in the UK.

END

Management will hold a presentation for analysts and investors at 9.30am today. The webcast can be accessed by registering at https://www.investis-live.com/saga-group/6419aee93e92bb0c006728f0/dsgh and a copy of the presentation slides is available at www.corporate.saga.co.uk/investors/results-reports-presentations/.

Audited results for the year ended 31 January 2023 will be published within the 2023 Annual Report and Accounts later in April.

For further information, please contact:

Saga plc

Emily Roalfe, Head of Investor Relations and Treasury 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 travel, insurance, personal finance and media. www.saga.co.uk

[1] Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

2 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Chairman's Statement

I am pleased to report that last year the performance of our core Cruise, Travel and Insurance businesses enabled us to return to underlying profitability whilst we also made good progress in relation to the strategy we set out 12 months ago.

Saga continued to build on the progress reported at the half year, with revenue for the Group increasing by over 50% when compared with the previous year, following the return to more normal Cruise and Travel operations post the pandemic.

Our Ocean Cruise business, with its new ships, performed well in the second half of the year, sailing with an average 84% occupancy, testament to the exceptional service we provide on board, the model that we are now mirroring on board our River Cruise vessels. Looking ahead, the level of revenue booked for the 2023/2024 financial year is very encouraging and we are now in a good position to generate our targeted levels of EBITDA, £80m excluding overheads, from the two ships.

There have been exciting new developments in our Travel business in the past year, including the move to a more agile, more digital operation, and the launch of our new "Tailor-Made by Saga" holidays. Currently, demand for our holidays is strong, particularly for our touring programmes.

Our Insurance business operated in the highly competitive market last year following continued disruption and uncertainty created by the regulatory changes to the industry's pricing and the high cost of settling insurance claims. We continued to take a disciplined approach to our pricing.

As we have indicated previously, we have decided to focus on Insurance Broking and to sell our Insurance Underwriting business, a move that will reduce the risk we take and release capital and allow us to further reduce our debt. With this in mind, I was pleased to be able to provide a £50m facility to give the Company additional flexibility.

In order to increase the products and services we offer and the frequency of our customer interactions and the understanding we have of them, I am delighted that we strengthened our leadership team during the year. Three very experienced and talented executives were appointed to set up and lead our new Media business, our Personal Finance operations, Saga Money and our Data team. Each of these areas has great potential.

As I set out in my statement last year, Saga has always had a strong sense of purpose and we have embraced our Environmental, Social and Governance (ESG) responsibilities. During the year, we conducted an assessment to understand fully the ESG factors that are most material to our business. Our new sustainability strategy will be published in our 2023 Annual Report and Accounts, and in due course we will set out further details of the key metrics that we will use to track our performance.

I am very positive about the future potential of Saga. We have managed our way through three difficult years and, in 2023/24, we expect all of our three main businesses to be profitable. I am confident that our strategy is the right one and will lead to growth and a significant reduction in our levels of debt.

Finally, I'd like to thank the team at Saga for their hard work over the past year. It is evident to me that there is a tremendous opportunity for Saga to broaden its services to its customers, reduce its debt, enlarge its business and increase its profitability and that the Company is now well placed to take advantage of this.

Group Chief Executive Officer's Statement

Continued pandemic recovery

During 2022/23, we made strong progress against the growth plan that we set out in March 2022, as our Cruise and Travel businesses continued to recover from the pandemic, and we navigated a particularly challenging motor insurance market as it adjusted to regulatory changes, a sharp rise in claims inflation and a highly competitive environment in light of those changes. This was achieved alongside the launch of our new Media business, significant enhancements to our data capabilities and the strengthening of our leadership team.

Return to underlying profit

I am pleased to report that, for the year ended 31 January 2023, Saga generated an Underlying Profit Before Tax1 of £21.5m, compared with an Underlying Loss Before Tax1 of £6.7m in the prior year. This reflects significant improvements across Cruise and Travel as those businesses returned to more normal operations, and consistent Insurance Broking performance, which was partially offset by reduced earnings from our Insurance Underwriting business.

After reflecting the £269.0m Insurance goodwill impairment that we reported within our interim results, alongside other smaller one-off below-the-line items, we report a loss before tax of £254.2m. This compares to a loss before tax of £23.5m in the prior year.

In addition, we reduced our level of Net Debt1 which, at 31 January 2023, was £711.7m and continued to hold significant Available Cash1 of £157.5m at the same date. Net Debt1 and Available Cash1, at 31 January 2022, were £729.0m and £186.6m respectively.

To further reduce debt and increase liquidity ahead of the maturity of our £150m bond in May 2024, we have taken a series of actions which include the initiation of a sales process in relation to our Insurance Underwriting business and the agreement of a £50m loan facility with Sir Roger De Haan.

The progress made throughout the course of the year demonstrates that Saga is on the right track to, in time, deliver long-term sustainable growth for our stakeholders.

Our growth plan

In March 2022, we set out our ambition to become the largest and fastest-growing business for older people in the UK which we will achieve through delivery of our three-step growth plan. This plan is focused on the following three priorities:

1. Maximising our existing businesses

2. Step-changing our ability to scale while reducing debt

3. Creating 'The Superbrand' for older people

An update on our progress, during the past year, in each of these areas is set out below.

1. Maximising our existing businesses

Cruise

Our Ocean Cruise business reported an Underlying Loss Before Tax1 of £0.7m for the year ended 31 January 2023. This comprises an underlying loss of £6.9m in the first half and a profit of £6.2m in the second half as the impact of COVID-19 lessened. This compares to an Underlying Loss Before Tax1 of £47.7m in the prior year.

For the 2022/23 financial year, Ocean Cruise achieved a load factor of 75%, made up of 66% in the first half of the year and 84% in the second, accompanied by a per diem of £318. This compares with a 68% load factor and £299 per diem in the prior year. These factors, when combined, result in Ocean Cruise year-on-year revenue growth in excess of 100%.

Looking ahead to the 2023/24 financial year, our booked load factor positions us well to meet our target of at least 80%. At 26 March 2023, we had secured bookings equivalent to a 72% load factor and £339 per diem. This positions us well to deliver our target of £40m EBITDA per ship, excluding overheads, in the year ending 31 January 2024.

As our Ocean and River Cruise businesses are now managed by the same team, we have taken steps to not only ensure that our River Cruise guests experience the same exceptional service as within Ocean Cruise, but also provide more visibility over the performance of our River Cruise operation.

Our River Cruise business, in line with the guidance within our January Trading Update, reported an Underlying Loss Before Tax2 of £5.1m which compares with a £6.4m loss in the prior year. This improvement was largely driven by significantly more guests sailing with us, being 12,000 in 2022/23 compared with just 1,000 in the prior year.

For the 2023/24 financial year, the River Cruise business is expected to generate a small Underlying Profit Before Tax2 before becoming a more meaningful proportion of the Group's earnings over time. In support of this, bookings for the year ending 31 January 2024 are strong and, at 26 March 2023, we had already secured bookings from more than 12,500 guests which equated to a load factor of 63% and per diem of £298.

We actively encourage our guests to openly express their views and provide feedback in relation to our Cruise offering as it is this that allows us to continuously enhance our guest experience. We are exceptionally proud that, at 31 January 2023, our guest satisfaction score was 9.0 out of 10 for Ocean Cruise and 8.2 for River Cruise.

Travel

Our Travel business returned to more normal operations following the COVID-19 pandemic and, as such, revenue for the year ended 31 January 2023 increased by more than 10 times when compared with the year before. The business reported a small Underlying Loss Before Tax2 of £4.1m.

2022/23 was a year of transformation for our Travel business, moving from a largely traditional paper-based business to one that offers awe-inspiring holidays through a more digital and agile operating model.

As part of the move, we developed a series of exciting new products, including 'Tailor-Made by Saga', which offers customers a truly personalised travel experience, and our private jet tours which represent our most luxurious holidays yet with a succession of unforgettable encounters and travel exclusively by chartered plane. In addition, all bookings now benefit from our Saga Deluxe and Titan VIP Travel Services which include home-to-airport pick up, airport lounge access and fast-track security clearance at selected UK airports.

Customer feedback received to date in relation to our revamped Travel offering has been incredibly positive and is reflected in our forward bookings. At 26 March 2023, booked revenue totalled £136.6m which is 32% ahead of the same point in the prior year. This level of bookings places the business firmly on track to return to profit in 2023/24.

Insurance

The UK insurance market has faced particularly challenging times over the past year as insurers adjusted to market-wide regulatory changes and high levels of claims inflation.

Overall, Insurance Broking reported an Underlying Profit Before Tax2, on a written basis, of £67.7m which compares to £66.6m in the previous year.

The number of policies in force across all products, at 31 January 2023, was 1.7m or 3% behind the position at 31 January 2022. Total policy sales for the year as a whole were 2% behind the prior year, reflecting a 103% increase in the number of travel insurance policies sold, broadly stable sales of private medical insurance and motor and home sales that were 7% behind the prior year.

While the level of new motor and home policies sold was significantly behind the prior year at 50% and 17% respectively, customer retention improved to 83.8%, or 1.0ppt ahead of the prior year. The average margin per policy was £71, compared with £74 in the year before.

The proportion of customers coming to Saga directly, rather than through price-comparison websites, was 49%, compared with 59% in the prior year, reflecting the competitive nature of the market.

Our Insurance Underwriting business reported an Underlying Profit Before Tax2 of £19.1m for the year, supported by £25.1m of underlying prior year reserve releases.

Excluding the impact of these reserve releases, and our quota share reinsurance arrangements, our current year underlying combined operating ratio was 125.8% which compares with 96.3% in the prior year. This reflects the expected unwind of the prior year COVID-19 frequency benefits, a sharp rise in inflation to the cost of settling claims and an above-average level of current year large claims.

In response to the rise in claims inflation, throughout the year, we applied material increases to our pricing which incorporated both the level of inflation already observed, and the expected inflation in the coming year.

Money

Our personal finance business, Saga Money, reported an Underlying Profit Before Tax2 of £2.3m for the 2022/23 financial year, broadly in line with that of the prior year.

In equity release, which was supported by the launch of our new television advertising, total loan volumes were 29% ahead of the prior year, with the average loan value also 19% higher.

Our savings product, provided in partnership with Goldman Sachs, secured 17% more accounts than in the year ended 31 January 2022, with assets under management of around £3.5bn.

2. Step-changing our ability to scale while reducing debt

The second focus within our growth plan is on reducing our level of debt and step-changing our ability to scale the business. At 31 January 2023, Net Debt3 was £711.7m, £17.3m lower than at 31 January 2022. This represents the Group's gross debt at that date, less £157.5m of Available Cash4.

Following two years of agreed deferrals, we re-commenced payments on our two ocean cruise ship facilities and a total of £46.4m was repaid during 2022/23. Future Cruise bookings are encouraging and, over time, we expect to generate sufficient cash from Ocean Cruise to meet interest and capital repayments, including catch-up payments on elements deferred during the pandemic.

To maintain flexibility in relation to our short-term liquidity needs, we concluded discussions with the lending banks behind our revolving credit facility and agreed a series of amendments, including changes to the leverage and interest cover covenants attached to the facility. Full details of the changes and revised covenant levels can be found on page 24.

As part of our property strategy, we are continuously assessing our ways of working and how best to support colleagues. Following the pandemic, and in line with our hybrid working approach, we saw that far fewer colleagues were choosing to work regularly from our Enbrook Park headquarters in Folkestone. We made the decision to close the site in favour of two smaller hubs in Kent, in addition to our existing London hub. This will reduce operating expenses while we explore longer-term options for the site.

As part of our plan to reduce debt and move towards a more capital-light model, we are continuing to evaluate our options in relation to our Insurance Underwriting business and an active sales process is ongoing.

3. Creating 'The Superbrand' for older people

The final step in our growth plan is to create 'The Superbrand' for older people through focus on our brand, data, insights and customer interactions.

Saga is a brand that has exceptionally high awareness amongst people over 50, however, historically too many have seen Saga as something that 'isn't for them'. Over the past couple of years, our mission has been to reframe the conversation with a focus on experience as opposed to age. The brand relaunch in 2021 was only the start and, since then, we have expanded our new marketing campaigns to cover more products, and increased our customer net promoter score (NPS) to its highest ever level. When compared to 2021, NPS in the fourth quarter was two points higher, at 51. This reflects improvements within our contact centres which reduce wait times and improve the customer journey.

As we highlighted at our Capital Markets Event in January 2023, the data we hold and the way that we use it, will be key to our success in becoming a superbrand. At the beginning of the year, we set a target to achieve three million new consents by 31 January 2023 which would allow us to communicate our products and services to a wider audience than before. I am pleased to confirm that we achieved this, and more.

The insights we hold about 'Generation Experience' are crucial as they allow us to develop products and services that meet the specific needs of our customers. Following the acquisition of The Big Window Consulting Limited at the start of the year, we have taken great strides in this space. These include developing our detailed customer segmentation, building our Experienced Voices panel which now consists of more than 10,000 of our customers and championing a conversation on positive ageing, most recently supported by the release of our 'Generation Experience' economic study.

In addition, increasing the depth, and frequency, of our interactions with customers is a key part of our superbrand plan. Through this, we are able to learn more about their specific interests and viewpoints, enabling us to continuously improve the products and services we offer. Saga Media, which was launched in January 2023, is pivotal to this process. Through Saga Media, and our brand-new Saga Exceptional website, we are providing people over 50 with an online home and a corner of the internet that is designed specifically for them. Not only does this allow us to become part of our customers' lives and learn more about what they want, but it will also become a profit-generative business in its own right within five years, through advertising and affiliate partnerships.

In order to transform Saga into 'The Superbrand' for older people, we need to create an exceptional colleague experience, giving each and every colleague the opportunity to do the best work of their lives. During 2022/23, we made great progress in this space, providing colleagues with access to a new reward platform and enhancing the financial support available through acceleration of our annual pay review cycle and two additional cost of living support payments for our colleagues with lower earnings.

The engagement of our colleagues, measured through a survey hosted by an independent third party, remains high at 8 out of 10.

Building Saga into the largest and fastest-growing business for older people

We are continuing with the delivery of our three-step growth plan, focused on maximising our existing businesses, reducing debt while step-changing our ability to scale and creating 'The Superbrand' for older people. We will continue to pay down our ocean cruise ship debt, and we expect to repay the £150m bond maturing in May 2024 from Available Cash4.

Overall, I am pleased with the progress made during the year as we began to make the strategic pivot towards becoming a capital-light marketing, content and distribution business. We now have the right team, strategy and structure in place that will return Saga to sustainable long-term growth.

Finally, I would like to pass my thanks on to our colleagues for their relentless efforts during this period of change. I recognise that any business is only as strong as its colleagues and, looking at the team around me, that fills me with confidence.

1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

2 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

4 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Group Chief Financial Officer's Review

Although the last 12 months have been challenging in both Insurance and Travel, in 2022/23 the Group returned to an Underlying Profit Before Tax1 of £21.5m compared to an Underlying Loss Before Tax1 of £6.7m in the prior year. This was mainly due to a £69.4m improvement in the results of our Cruise and Travel operations, offset by a £35.0m reduction in the results from Insurance Underwriting.

For Cruise and Travel, the first half of 2022/23 was far from 'plain sailing'. The Cruise business was affected by ongoing impacts from COVID-19, which led to the curtailing of two ocean cruises and higher cancellations on other departures. The Travel business was impacted by lower demand and also experienced higher-than-normal cancellations, in part due to the operational issues impacting the industry. These factors were much less of an issue in the second half, although revenues and profitability have yet to recover to levels anticipated pre-pandemic.

Insurance Broking has been under pressure from a combination of pricing reforms, inflation squeezing distribution margins and from a generally highly competitive environment. This led to a significant decline in new business sales for motor and home. The overall Insurance Broking result was at a similar level to the prior year, with lower motor and home profits offset by improved results on other products, especially travel insurance.

Results for Insurance Underwriting were, however, much lower than in the prior year. Part of this was expected, with the prior year benefiting from reduced motor claims frequency during periods of lockdown. This reduction in claims frequency reversed as we expected, but results for the second half of the year were adversely impacted by a sharp increase in claims inflation and an increase in large losses. This resulted in us reporting an underlying current year combined operating ratio (COR) of 125.8% for the full year, considerably adverse to expectations, albeit with a significant portion of the lower result ceded to our reinsurers.

While the Group generated an Underlying Profit Before Tax1, we reported a loss before tax of £254.2m, mainly due to a £269.0m impairment of the goodwill related to our Insurance business, included in our interim results. As reported at the half year, the combination of a very competitive motor market and regulatory changes equalising new business and renewal pricing are adversely impacting motor and home new business sales and pricing, which in turn has led to a reduction in the discounted cash flows that underpin the carrying value of Insurance goodwill.

For the 2023/24 financial year, we expect to see a further recovery in the Cruise and Travel businesses. Ocean Cruise bookings are positive, and we expect our load factors for the current year to be in line with the levels expected pre-pandemic. The River Cruise and Travel businesses are also starting to see much better booking momentum and we are on track to return to profit in 2023/24. In Insurance Broking, we expect policy sales to continue to reduce, as lower new business in 2022/23 translates into lower renewals in 2023/24, with motor and home margins of around £60 per policy, as previously indicated. For Insurance Underwriting, we expect a broadly break-even result; while underlying performance should be considerably better than in 2022/23, significant rate increases will not be fully reflected in earned premiums until the second half and improvement in results will, in the first instance, go towards reducing reinsurer losses. In addition, we also expect only limited reserve releases in future years.

In terms of our financial position, in 2022/23, our Net Debt1 reduced from £729.0m to £711.7m with gross debt reducing by £46.4m, all relating to the debt financing of our two ocean cruise ships, of which £29.1m was financed from a reduction in Available Cash1. While this was a lower pace of reduction than we had anticipated, reflecting the challenges we faced in 2022/23, we continue to have significant liquidity, with £157.5m of Available Cash1 at 31 January 2023.

Over the course of the past year, we have taken a series of actions which increase our financial flexibility. These include amendments in relation to our revolving credit facility, the initiation of a sales process for our Insurance Underwriting business and, most recently, the agreement of a loan facility with Sir Roger De Haan. This facility, which was provided on an arm's-length basis, commences on 1 January 2024 and would allow the Group to draw down up to £50m, as required, to support liquidity needs and specifically the repayment of £150m bonds maturing in May 2024.

Our focus now is on growing earnings and significantly reducing leverage as our Cruise and Travel businesses continue their positive momentum and as we capitalise on investment in Media, Money and data.

Operating performance

Group income statement

The Group's business model is based on providing high-quality and differentiated products to its target demographic, predominantly focused on cruise, travel and insurance. The Cruise and Travel business comprises Ocean Cruise, River Cruise 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. Other Businesses comprises Saga Money, Saga Media, Saga Insight and CustomerKNECT (formerly MetroMail), a mailing and printing business.

Revenue2

Revenue2 increased by 54.1% to £581.1m (2022: £377.2m) due to increased trading in the Cruise and Travel businesses. The current year has a full year of trading in Cruise and Travel compared to a suspension of these businesses for the majority of the first half of the prior year.

Underlying Profit/(Loss) Before Tax3

The Group generated a total Underlying Profit Before Tax3 of £21.5m in the current year compared to an Underlying Loss Before Tax3 of £6.7m in the prior year. This is primarily due to a £69.4m reduction in Cruise and Travel losses, of which £47.0m relates to the Ocean Cruise business. This was partially offset by a reduction in Insurance Underwriting profitability due to lower reserve releases and an increased current year loss ratio.

Net finance costs4 in the year were £21.9m (2022: £18.6m), which excludes finance costs that are included within the Cruise and Travel businesses of £19.2m (2022: £19.5m). The increase of 17.7% was due to the higher bond interest costs following the completion of the new bond issue in July 2021. This was partially offset by a reduction in debt issue costs in current year compared with the prior year.

Loss before tax

Loss before tax for the year of £254.2m includes a £269.0m impairment to Insurance goodwill and other exceptional items of £6.7m. Other exceptional items are made up of £1.1m of impairments to assets (net of amounts recoverable under quota share arrangements), £3.7m of restructuring costs, a £2.0m foreign exchange loss on river cruise ship leases, £0.6m IFRS 16 adjustment loss on river cruise ships, £0.7m acquisition costs on the purchase of The Big Window Consulting Limited and a £1.4m fair value gain on derivatives de-designated in the year.

The loss before tax in the prior year of £23.5m includes a £2.7m fair value loss on derivatives de-designated in the year due to the suspension of Travel operations, £6.3m of restructuring costs, mainly relating to the Travel business, a £2.0m charge due to the closure of the defined benefit pension scheme and £2.4m of costs incurred on the ship debt holiday, partially offset by £0.9m foreign exchange gains on river cruise ship leases.

The prior year also includes a net impairment of assets of £4.3m that represents £10.2m and £0.5m of impairments and loss on disposals of software and property, plant and equipment respectively, mainly relating to the Travel business, £1.0m of impairment on assets held for sale, a £7.1m profit on disposal of assets, after costs of £0.1m in relation to a sale of property and a £0.3m gain on a lease modification within right-of-use assets.

Tax expense

The Group's tax expense for the year was £5.0m (2022: £4.5m), representing a tax effective rate of 33.8% (2022: negative 19.1%), excluding the Insurance goodwill impairment charge. In the prior year, the difference between the Group's tax effective rate and the standard rate of corporation tax of 19%, was mainly due to the Group's Ocean Cruise business being in the tonnage tax regime.

There was also an adjustment in the current year for the under-provision of prior year tax of £0.8m (2022: £1.0m). In the prior year, there was an adjustment for the impact of the change in the tax rate on opening deferred tax balances of a £2.6m credit. Excluding the impact of the Ocean Cruise business being in the tonnage tax regime, Insurance goodwill impairment and adjustments to prior year tax, the tax effective rate for the current period is 28.4%.

Earnings/(loss) per share

The Group's Underlying Basic Earnings Per Share5 was 11.9p (2022: Loss of 11.1p). The Group's reported basic loss per share was 185.8p (2022: loss of 20.1p).

1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

2 Revenue is stated net of ceded reinsurance premiums earned on business underwritten by the Group of £111.3m (2022: £123.8m)

3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

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

5 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Cruise and Travel

Ocean Cruise

Ocean Cruise returned to more normal operating conditions and achieved a load factor of 75% (2022: 68%) and a per diem of £318 (2022: £299). These two factors, when combined, equate to year-on-year revenue growth in excess of 100% and have resulted in a significantly reduced Underlying Loss Before Tax6 from £47.7m to £0.7m. The first half of the prior year only included a month of Spirit of Discovery trading and a few days of Spirit of Adventure trading, at a government-enforced load factor restriction of 50% that was removed towards the end of July 2021.

In the first half of the current year, there were some adverse impacts on a small number of cruises due to COVID-19, while the conflict in Ukraine dampened customer demand for departures to the Baltics and Black Sea, resulting in late itinerary changes and some limited cancellations, which led to a first half load factor of 66%.

In the second half of the year, as impacts from the pandemic lessened and customer demand continued to build, a load factor of 84% was achieved.

River Cruise

The River Cruise business has long-term leases in place for two boutique river cruise ships, Spirit of the Rhine and Spirit of the Danube, alongside other charters which are managed on an annual basis. Although the business is now operating, both the Omicron variant of COVID-19 and the conflict in Ukraine impacted the number of passengers travelling in the current year, especially in the first half, due to continued customer caution in relation to Central Europe. The River Cruise business did not operate for the majority of the prior year due to the travel restrictions that were in place at the time.

This resulted in a reduced Underlying Loss Before Tax6 from £6.4m to £5.1m.

Travel

The Travel business, which includes both the Saga Holidays and Titan brands, has seen much increased volumes compared to the prior year, with passenger numbers increasing from 8k to 47k. The recovery in volumes has been impacted by a level of disruption from a variety of factors, including operational challenges faced by airlines and airports, particularly in the first half.

The recovery in passenger volumes led to an improvement in the Underlying Loss Before Tax6 from £25.2m to £4.1m.

In the second half of the year, we saw customer cancellations returning closer to pre-pandemic levels, with multiple initiatives underway to return to growth, including the recently launched 'Tailor-Made by Saga' proposition.

6 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Forward Cruise and Travel sales

Ocean Cruise load factors for 2023/24 are behind the same point last year for 2022/23 by 3ppts. This is partly due to the release of itineraries in the prior year being earlier than usual as we emerged from COVID-19 lockdowns, and partly due to the prior year including bookings which had been postponed during the period of COVID-19 suspension. The per diem for 2023/24 is 6.3% higher than the same point last year for 2022/23 as the Group has reflected the inflationary impact on operating costs in customer pricing.

River Cruise revenue and passengers booked for 2023/24 are ahead of the same point last year for 2022/23 by 29.8% and 22.5% respectively. This is due to increased customer demand for 2023/24 compared to customer caution in respect of Central Europe in 2022/23. For 2023/24, the Cruise team have aligned management information for the River Cruise business to the Ocean Cruise business so load factor and per diems are now key performance indicators for River Cruise.

Travel bookings for 2023/24 are ahead at the same point last year for 2022/23 by 31.7% and 17.1% for revenue and passengers respectively. The increased revenue is due in part to higher passengers but also increases in operating costs being incorporated in customer pricing and a move towards a higher revenue, higher margin product range. The increase in passengers is due to higher uptake of long-haul travel within our Titan brand as customer confidence returns.

Insurance

Insurance Broking

The Insurance 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, 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.

Insurance Broking Underlying Profit Before Tax7 on a written basis (which excludes the impact of the written to earned adjustment) increased slightly to £67.7m from £66.6m, and on an earned basis (which includes the impact of the written to earned adjustment), increased to £69.1m from £66.4m.

A key metric for the Insurance Broking business is written gross profit, after deducting marketing expenses, but before deducting overheads. This reduced from £153.2m in the prior year to £151.4m in the current year due to reduced new business volumes and lower renewal margins on motor and home business. The fall of £12.9m in written gross profits after marketing expenses in motor and home was partially offset by an £11.1m improvement in Other Broking, mainly due to a recovery in sales of travel insurance compared to the prior year.

For motor and home insurance, in terms of the total gross margin after marketing expenses, new business profits increased by £9.5m, while there was a £22.4m reduction in renewal profits.

The changes in profitability of motor and home business are, in part, attributable to the equalisation of pricing between new business and renewals following the implementation of the General Insurance Pricing Practices (GIPP) review by the Financial Conduct Authority (FCA) from 1 January 2022. This led to an improvement in new business margins, partially offset by a 50% and 17% reduction in motor and home new business policies sold respectively compared to the prior year. The reduction in renewal profits is due to lower motor and home renewal margins, partially offset by a 7% increase in motor renewal policies sold.

The average gross margin per policy for motor and home combined, calculated as written gross profit less marketing expenses, divided by the number of policies sold, was £71.3 in the current year, compared with £73.9 in the prior year. Comparison of margins across the two years is impacted by a significant reduction in the sales of lower margin new business relative to the number of renewals. Based on the same mix of new business and renewals as in 2021/22, the average gross margin per policy in 2022/23 would have been £67.2.

While the pricing implications of the FCA's review into GIPP have impacted Insurance Broking earnings in the year, it has also impacted some of the key metrics in the past 12 months:

· Motor and home policies in force decreased by 7.7% in the year.

· Increase in customer retention at 83.8% across motor and home from 82.8% in the prior year.

· 714k three-year fixed-price policies were sold in the year; 47% of total motor and home policies incepting, with 35% of direct new business taking the product.

· Direct new business sales for motor and home were 49% of the total, 10ppts lower than the prior year with the Group balancing volumes and renewals post the GIPP reforms across direct and price-comparison website distribution channels.

Written profit and gross margin per policy for motor and home are stated after allowing for deferral of part of the revenues from three-year fixed-price policies, which is then recognised in profit or loss when the option to renew those policies at a predetermined fixed price is exercised or lapses, recognising inflation risk inherent in this product. As at 31 January 2023, £9.7m (2022: £8.7m) of income had been deferred in relation to three-year fixed-price policies, £7.9m (2022: £7.3m) of which related to income written in the year to 31 January 2023.

Motor Broking

Gross written premiums decreased by 7.9% due to a 10.0% decrease in core policies sold, partially offset by a 2.3% increase in average premiums. Gross written premiums from business underwritten by AICL decreased 12.0% to £180.9m (2022: £205.5m) due to a 13.0% decrease in core policies sold that were underwritten by AICL, offset by a 1.2% increase in average premiums.

Written gross profit minus marketing expenses was £57.4m (2022: £68.1m), contributing £67.6/policy (2022: £72.2/policy). The decrease in written gross profits and margin per policy is mainly due to lower renewal margins, partially offset by a 7% increase in renewal policies and higher new business margins.

Home Broking

Gross written premiums decreased by 2.0% due to a 3.7% reduction in core policies sold, partially offset by a 1.8% increase in average premiums.

Written gross profit minus marketing expenses was £50.9m (2022: £53.1m) and, on a per policy basis, this was £76.0/policy (2022: £76.3/policy). The decrease is due to lower renewal margins and a 17% decrease in new business policies sold, partially offset by higher new business margins.

Other Broking

The Other Insurance Broking business primarily comprises private medical insurance (PMI) and travel insurance.

Gross written premiums increased 27.2% as a result of higher sales of travel insurance, with policy sales increasing from 77k in the prior year to 158k as a result of increased customer confidence in the travel outlook and fewer restrictions on travel than in the prior year.

Gross profits after marketing costs relating to travel insurance products increased by £9.5m.

While sales of the PMI product were broadly stable, gross profit after marketing costs was £2.2m higher. This increase is a result of increased renewal margins, alongside a higher profit share.

7 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

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

Insurance Underwriting

The Group's in-house underwriter, AICL, underwrites over 65% of the motor business sold by Insurance Broking. AICL also underwrites a portion of the home panel, although all home underwriting risk is passed to third-party insurance and reinsurance providers. AICL also has excess of loss and funds-withheld quota share reinsurance arrangements in place relating to its motor underwriting line of business, which transfer a significant proportion of motor insurance risk to third-party reinsurers.

Excluding the impact of the quota share reinsurance arrangements10, net earned premiums decreased by 8.2% to £148.3m (2022: £161.5m) reflecting a 6.9% reduction in the number of earned policies underwritten by AICL coupled with a 1.6% decrease in average earned premiums. The reduction in the number of earned policies was due to lower volumes on non-Saga panels.

Also excluding the impact of the quota share arrangements10, AICL saw an increase in the current year underlying COR to 125.8% (2022: 96.3%) and the current year reported COR to 115.4% (2022: 61.9%).

The first half of the prior year benefited from significantly reduced motor claims frequency due to customers driving fewer miles during the COVID-19 lockdown, with motor claims experience in the second half of the prior year broadly in line with pricing assumptions.

In the current year, motor attritional claims experience and claims inflation have been well in excess of pricing assumptions for the current accident year, with claims inflation estimated to have averaged around 13% for the year as a whole. In addition, there was a modest increase in claims frequency and an above-average level of current year large losses. In response to these trends, we have been taking significant actions to re-price the motor book, in line with technical pricing. These price increases will begin to flow through to earned premium in 2023/24 and will be reflected in full in the 2024/25 result.

Underlying prior year reserve releases of £25.1m (2022: £42.1m) resulted in an underlying reported COR of 109.1% (2022: 70.9%). The Group retains an economic interest in motor reserve development with reserve releases on other lines typically having limited net impact on AICL profit. Reserve releases for the past two years can be analysed as follows:

Reserve releases reflect continued favourable experience on large bodily injury claims relating to prior accident years. Also, the final part of the additional component of reserve margin for the increased uncertainty over claims development held in respect of the 2020/21 accident year was released in the first half of this year.

While the Group remains prudently reserved and expects to see a level of reserve releases in 2023/24, these are expected to be at a much lower level than in 2022/23.

Excluding the impact of the quota share arrangement11, the investment return decreased by £0.2m to £7.6m (2022: £7.8m) due to a reduced investment portfolio and lower reinvestment yields.

During 2022/23, the Group recorded a recovery from quota share reinsurance of £25.3m, compared to a cost of £2.0m in the prior year. The recovery is due to the high underlying current year COR of 125.8%, with 80% of current year losses in excess of an underlying current year COR of around 105% ceded to quota share reinsurers. The result for the last 12 months will be aggregated with the results of the next two financial years in determining the final outcome for the current quota share contract.

9 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

10 Underlying within Insurance Underwriting shows the commercial position of the business by removing the impact of the proportional line-item accounting of the quota share reinsurance arrangements

11 Underlying within Insurance Underwriting shows the commercial position of the business by removing the impact of the proportional line-item accounting of the quota share reinsurance arrangements  

Other Businesses and Central Costs

The Group's Other Businesses include Saga Money, Saga Media, Saga Insight and CustomerKNECT.

Underlying Profit Before Tax12 for Other Businesses combined has decreased by £2.6m from £1.8m to an Underlying Loss Before Tax12 of £0.8m, partly due to an investment in marketing in the Saga Money business of £2.7m above the prior year, which has been partially offset by a £2.0m increase in revenue. A further £1.9m of investment has been made in Saga Media and Saga Insight in the year.

Central operating expenses increased to £37.7m (2022: £32.9m). Administration costs, adjusted for transfers to local business units, decreased by £1.0m in the year, but net costs increased by £4.8m due to lower Group recharges to the business units, particularly Travel. The IAS 19R pension charge ceased following the closure of the defined benefit pension scheme in the second half of the prior year.

Net finance costs in the year were £21.9m (2022: £18.6m), which excludes finance costs that are included within the Cruise and Travel businesses of £19.2m (2022: £19.5m). The increase of 17.7% was due to the higher bond interest costs following the completion of the new bond issue in July 2021.

12 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Cash flow and liquidity

Available Operating Cash Flow13

Available Operating Cash Flow13 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 Insurance Broking (excluding specific ring-fenced funds to satisfy FCA regulatory requirements), Other Businesses and Central Costs, and the Group's Ocean Cruise business. Restricted businesses include AICL, River Cruise and Travel.

Excluding cash transfers to and from the Cruise and Travel businesses, the Group continued to be cash generative in the year, with an Available Operating Cash Flow13 of £49.1m compared with £89.4m in the prior year. Trading EBITDA13,14 from unrestricted businesses reduced by £5.3m, mainly due to lower Group recharges from the Other Businesses and Central Costs segment. There was also a decrease in working capital which fell from a £15.2m inflow to a £6.5m outflow, mainly relating to the Insurance Broking segment, and a £10.0m reduction in dividends paid by AICL.

For River Cruise and Travel, the Group provided £17.8m of cash to the business to cover trading cash flows in the current year. This is a reduction of £18.6m when compared with the £36.4m funded in the prior year. The Group continues to provide additional liquidity into the River Cruise and Travel businesses, although at a lower level, to meet supplier and other trading payments as both businesses operate under a ring-fenced trust arrangement and so cannot access customer cash from the trust until they have returned from their river cruise or holiday. At 31 January 2023, the ring-fenced businesses held cash of £44.3m, of which £36.2m was held in trust. The Group must hold a minimum of £5.9m of cash outside of trust within the ring-fenced businesses as agreed with the Civil Aviation Authority.

The Ocean Cruise business reported an operating cash inflow of £23.6m (2022: £22.8m), with net trading income of £31.6m (2022: net trading costs of £2.7m), partially offset by a decrease in advance customer receipts of £4.1m (2022: increase of £28.5m), and capital expenditure of £3.9m (2022: £3.0m). Net of interest costs of £15.2m (2022: £15.2m), the Ocean Cruise business reported net cash inflow before any capital repayments on the ship debt of £8.4m for 2022/23 compared to £7.6m in the prior year.

As a result of a reduction in cash generation from unrestricted businesses, partially offset by a reduction in cash injections to the River Cruise and Travel businesses, Available Operating Cash Flow13 decreased from an inflow of £75.8m in the prior year to £54.9m in the current year.

13 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

14 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

15 Adjusted to exclude IAS 19R pension current service costs

Other cash flow movements

Interest and financing costs were higher in the prior year due to the debt issue costs associated with the new bond, the tender of the bond due in May 2024 and amendments to the revolving credit facility (RCF). This has been partially offset by higher interest costs on the new bond in the current year.

In the current year, business and property acquisitions and disposals relate to the purchase of The Big Window Consulting Limited. The prior year included cash received from the sale of property, net of related 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 of £5.8m (2022: £4.2m). These are included within other receipts/(payments).

During the year, the Group released £5.0m of restricted cash to Available Cash16 that it had previously agreed with the FCA to hold on a temporary basis. The Group has also released a further £1.1m in respect of the Threshold Condition 2.4 balance that the Insurance Broking business holds as restricted cash. Both of these are included within other receipts/(payments).

In the current year, the Group restarted capital repayments against its ship debt facilities, with two payments totalling £30.6m on Spirit of Discovery's debt facility and one payment totalling £15.8m on Spirit of Adventure's debt facility. In the prior year, 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.

16 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Reconciliation between operating and reported metrics

Available Operating Cash Flow17 reconciles to net cash flows from operating activities as follows:

Trading EBITDA17 reconciles to Underlying Profit/(Loss) Before Tax17 as follows:

Adjusted Trading EBITDA17 is used in the Group's leverage calculation for the RCF covenant and is calculated as follows:

17 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

18 EBITDA includes central Ocean Cruise overheads

Statement of financial position

Goodwill

During the first half of the current year, the Group's new business sales of motor and home insurance were significantly lower than expected as a result of competitive market conditions and a challenging environment following the implementation of the FCA's review of GIPP from 1 January 2022. In order to remain competitive and to restore the business to policy growth in future years, the Group launched a new standard motor product. This product, and other actions taken to improve competitiveness, are expected to lead to materially lower margins per policy in future years, and lower overall profit before tax, compared to prior assumptions. Since the lower expected future cash flows represent a potential indicator of impairment, the Group conducted an impairment review of the £718.6m goodwill asset at 31 July 2022 relating to the Insurance business that was included on the statement of financial position at 31 January 2022.

The Group's revised five-year financial forecasts incorporated the modelled impact of the changes in the market environment, including also an expected reduction in margins from a switch to more standard products and lower sales of more feature-rich policies. Further stress tests were also considered including the continuation of the current competitive environment for an extended period and further downsides compared to revised base case assumptions. This resulted in management taking the decision to impair Insurance goodwill by £269.0m in the first half of 2022/23. Consistent with the approach taken in prior years, this impairment is not included within Underlying Profit Before Tax19.

At 31 January 2023, the Group conducted a further impairment review of the remaining £449.6m goodwill asset relating to the Insurance business and concluded that its recoverable amount was above the carrying value, and no further impairment was considered necessary.

Carrying value of ocean cruise ships

At 31 July 2022 and 31 January 2023, the carrying value of the Group's ocean cruise ships was £612.5m and £607.0m respectively (31 January 2022: £621.3m). Due to the continued challenging operating environment in the first half of the year for the Ocean Cruise business, the Group carried out an impairment review of both of its vessels at 31 July 2022. The results of the review showed that there was headroom in the central and stress test scenarios for both Spirit of Discovery and Spirit of Adventure, with no impairment required.

In the second half of the year, further COVID-19 restrictions were lifted for cruise passengers and trading was in line with forecasts. Discount rates have risen, but not to the extent that they materially change the headroom in the impairment calculation. The Directors therefore concluded that there were no additional indicators of impairment at 31 January 2023 and, accordingly, no further impairment review was deemed necessary.

19 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Investment portfolio

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

The amount held in invested funds decreased by £50.3m to £279.9m (31 January 2022: £330.2m), partly due to payment of £25.0m of dividends from AICL in the year. At 31 January 2023, 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 investment holdings.

Insurance reserves

Analysis of insurance contract liabilities at 31 January 2023 and 31 January 2022 is as follows:

The Group's total insurance contract liabilities, net of reinsurance assets, decreased by £21.8m in the year to 31 January 2023 from the previous year end, primarily due to a £11.2m reduction in unearned premiums, coupled with an £8.6m 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, the final part of the additional component of reserve margin held in respect of the 2020/21 accident year was released in the current year. The 31 January 2022 position has been restated due to an incorrect classification between reported claims and incurred but not reported of £16.1m. The restatement had no net impact on total claims outstanding.

20 Excludes funds-withheld quota share arrangement

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

Financing

At 31 January 2023, the Group's Net Debt24 was £711.7m, £17.3m lower than at the beginning of the financial year.

In the first half of 2022/23, the RCF agreement was reduced from £100m to £50m and was simplified by the removal of certain clauses that were introduced during the pandemic, including:

· removal of the £40m minimum free liquidity requirement; and

· removal of the condition that the facility is terminated on 1 March 2024, should the 2024 bond not be repaid by that date.

In the second half of the year, we concluded discussions with our lending banks and agreed the following amendments to the facility which, in aggregate, provide us with increased financial flexibility:

· The introduction of a restriction whereby no utilisation of the facility is permitted prior to repayment of the 2024 bond if leverage exceeds 5.5x, or liquidity is below £170m.

· During 2023 and 2024, should the RCF be drawn, leverage covenant testing will be quarterly.

· Repayment of the 2024 bond, ahead of maturity, is restricted while leverage remains above 3.75x.

· Amendments to the leverage and interest cover covenants attached to the facility, as follows:

The Group's total leverage ratio was 7.5x as at 31 January 2023 (31 January 2022: 11.7x). Excluding the impact of debt and earnings relating to the ocean cruise ships, the Group's leverage ratio relating to the RCF was 4.3x as at 31 January 2023 (31 January 2022: 3.0x), within the 4.75x covenant.

The Group resumed repayments on its ship debt facilities with repayments made on its Spirit of Discovery ship facility in June 2022 and December 2022 and on its Spirit of Adventure ship facility in September 2022.

Net Debt24 is analysed as follows:

Adjusted Net Debt26 is used in the Group's leverage calculation and reconciles to Net Debt26 as follows:

The Group entered into a £50m unsecured loan facility with Sir Roger De Haan on 3 April 2023. This facility can be drawn, on 30 days' notice, from 1 January 2024 and terminates on 30 June 2025. As is the case with the senior bonds in issue and with the RCF, the loan is guaranteed by Saga plc, Saga MidCo and Saga Services Limited. The Group is able to use the funds drawn under the facility for general corporate purposes although in practice would only do so to support repayment of the £150m bonds due in May 2024.

The interest rate paid on the drawn funds under this facility is 10%. In addition, a drawing fee of 2% is payable, alongside milestone payments of 2% of any uncancelled amounts of the facility on each of 31 March 2024 and 31 December 2024. The facility would automatically terminate on the completed sale of AICL. 

Pensions

The Group's defined benefit pension scheme surplus, as measured on an IAS 19R basis reduced by £13.2m to a £12.1m liability at 31 January 2023 (£1.1m surplus as at 31 January 2022).

During the year ended 31 January 2023, the net position of the scheme decreased by £13.2m, resulting in an overall scheme deficit of £12.1m. The movements observed in the scheme's assets and obligations have been impacted significantly by macroeconomic factors during the year where, at a global level, there have been rising inflation and cost of living pressures, as well as shifts in long-term bond yields. The present value of defined benefit obligations decreased by £174.7m to £236.2m, primarily due to a 245bps increase in the discount rate which is based on increases in long-term trend corporate bond yields. The fair value of scheme assets decreased by £187.9m to £224.1m. A £5.8m deficit funding contribution was paid by the Group in February 2022 in relation to a recovery plan agreed under the latest triennial valuation of the scheme as at 31 January 2020.

Net assets

Since 31 January 2022, total assets have decreased by £324.7m and total liabilities have decreased by £41.3m, resulting in an overall decrease in net assets of £283.4m.

The decrease in total assets is primarily due to:

· a reduction in goodwill of £269.0m following the impairment to the Insurance cash generating unit;

· a decrease in property, plant and equipment of £35.5m of which £19.5m has been transferred to assets held for sale, £23.5m relates to depreciation in the year, partially offset by £8.2m of additions in the year;

· a decrease in financial assets of £49.7m, mainly relating to a reduction to the Insurance Underwriting investment portfolio, partly to fund £25.0m of dividends from AICL;

· a decrease in cash and short-term deposits of £50.4m;

· an increase in trade and other receivables of £43.0m due to the quota share contract with AICL's reinsurance partners being in a receivable position and the further ramp-up of Cruise and Travel operations;

· an increase in assets held for sale of £18.3m; and

· an increase in trust accounts of £12.8m.

The decrease in total liabilities reflects:

· a decrease of £18.4m in insurance contract liabilities due to reserve releases during the year;

· a decrease of £39.4m in financial liabilities, which is mainly due to a reduction of £41.9m in bond and bank loans, as a result of capital repayments on Spirit of Discovery and Spirit of Adventure facilities; and

· the recognition of a defined benefit pension scheme liability of £12.1m.

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

10 years

23 At 31 January 2022, the terms also included a requirement to repay the RCF on 1 March 2024 if the remaining £150m of the 3.375% bond notes had not been redeemed prior to this date. This term has now been removed and does not apply at 31 January 2023

24 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

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

26 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Going concern

The Directors have performed an assessment of going concern to determine the adequacy of the Group and Company's financial resources over a period of 14 months from the date of issue of these unaudited preliminary results, a period which includes the maturity of £150m of senior bonds in May 2024.

This assessment is based on higher and lower case financial projections which incorporate scenario analysis and stress tests on expected business performance.

The Group's higher case modelling assumes good performance in the Cruise division in 2023/24, on the back of strong booked load factors and per diems. Travel is also expected to achieve continued growth in revenues with encouraging bookings for 2023/24 as at the end of March 2023. As previously indicated, the outlook for Insurance is likely to be challenging over the next 12 to 18 months, with high cost and claims inflation in a competitive market expected to squeeze margins.

The Group's lower case scenario incorporates lower load factors for Ocean Cruise, lower levels of demand in River Cruise, and slower growth in the Travel business across the going concern period. Downside risks modelled for the Insurance business include the impact of worsening competitive market pressures on the Insurance Broking business, continued high cost and claims inflation putting pressure on margins, among other stress tests. These stresses are partially offset by discretionary cost savings and the deferral of investment expenditure that would be achieved in the event of downside trading risks materialising.

To increase liquidity, and consistent also with a strategy of reducing capital intensity, in the autumn of 2022, the Group commenced a sale process for its Insurance Underwriting business, AICL. The Group aims for this sale process to be concluded in the second half of 2023.

However, given that there is no certainty that a sale of AICL will be concluded in the next 14 months, the Group has agreed a loan facility with Sir Roger De Haan. Under the terms of this facility, if the sale of AICL is not completed prior to the end of 2023, the Group will, from 1 January 2024, be able to borrow up to £50m to fund any liquidity needs, including repayment of the 2024 bonds. This facility is unsecured, on arms-length terms and can be drawn at the option of the Group on 30 days' notice. The facility matures on 30 June 2025, at which point any outstanding amounts, including interest, must be repaid. Availability of funds under the facility is not contingent on financial performance or on compliance with any financial covenants.

Under both higher and lower case scenarios, the Group expects to meet scheduled Ocean Cruise debt principal repayments as they fall due over the next 14 months, and to also meet the financial covenants relating to its secured cruise debt facilities (see Note 16) throughout the assessment period, except for the July 2023 testing date where lenders have agreed to a waiver of the EBITDA to debt repayment covenant ratio (see Note 21).

In addition, in both higher and lower case scenarios and incorporating either the expected net proceeds from a sale of the Insurance Underwriting business or a draw down of the £50m loan facility with Sir Roger De Haan, the Group expects to have sufficient resources to continue operations for at least the next 14 months and to repay the £150m senior bonds on maturity in May 2024 from Available Cash27 resources.

Over the same time frame and on the same basis, the Group also expects to remain within the renegotiated financial covenants and other terms relating to its £50m RCF, as set out in Note 16, enabling it to draw down on this currently undrawn facility in 2024/25 to meet short-term working capital requirements should the need arise.

Noting that it is not possible to predict accurately all possible future risks to the Group's future trading, based on this analysis and the scenarios modelled, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for a period of at least 14 months from the date of from the date of issue of these unaudited preliminary results. They have therefore deemed it appropriate to prepare the financial statements to 31 January 2023 on a going concern basis.

Dividends and financial priorities for 2023/24

Dividends

Given the Group's priority of reducing Net Debt27, the Board of Directors does not recommend payment of a final dividend for the 2022/23 financial year, nor would this currently be permissible under financing arrangements due to the leverage ratio being above 3.0x and while the ship debt facility deferred amounts are outstanding.

Financial priorities for 2023/24

The Group's financial priorities for the current financial year are to reduce Net Debt27, build on the already positive load factor and per diem in Ocean Cruise, return the River Cruise and Travel businesses to profitability, and to continue progress in execution of its Insurance strategy.

Principal risks and uncertainties (PRUs)

The PRUs shown below are the principal risks facing the Company, including those that would threaten its

business model, future performance, solvency, or liquidity. The table also includes the mitigating actions being

taken to manage these risks. The trend denotes the anticipated future direction of each risk after mitigation, which is influenced by known key external or internal factors. Saga takes a 'bottom-up' and 'top-down' approach to developing and reviewing its PRUs, which occurs at least twice a year with oversight from the Executive Leadership Team (ELT) and the Board. Each PRU has been aligned to the most relevant strategic priorities.

Key to growth plan elements

1. Maximising our existing businesses

2. Step-changing our ability to scale while reducing debt

3. Creating 'The Superbrand' for older people

27 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for definition and explanation

Consolidated income statement

for the year ended 31 January 2023

1 Movements in the credit loss allowance for the year ended 31 January 2022 have been restated due to an incorrect allocation between amounts written off during the year and changes in the provision recognised in the income statement

Consolidated statement of comprehensive income

for the year ended 31 January 2023