Saga Regulatory News (SAGA)

27 January 2022

Saga plc

Trading update

Well-positioned for growth

Saga plc ("Saga" or "the Group"), the UK's specialist in products and services for people over 50, provides the following update on trading covering the period from 1 August 2021 to 26 January 2022.

Highlights

· Insurance performance in line with expectations; second year of positive momentum across key metrics. Compared with the prior period:

o Motor and home policies in force are 1% ahead; customer retention increased 2ppts to 82%; margin per policy of c.£75 (vs. £74).

o Continued popularity of three-year fixed-price offer, representing 47% of the motor and home book (vs. 35%).

o Underwriting reserve releases expected to be slightly ahead; current year claims trends in line with pricing assumptions for the second half.

· Travel business continued to be affected by the pandemic; strong Cruise bookings and completing the restructuring of Tour Operations:

o Cruise generated positive EBITDA in the second half, a strong load factor of 68% and per diem of £299 at 22 January 2022.

o After ship depreciation and financing costs, Cruise Underlying Loss Before Tax expected to be £45-50m.

o Strong 2022/23 Cruise bookings; load factor of 86% for first half, 73% for full year and per diem of £318 and £316 respectively, at 22 January 2022.

o Completing the restructure of Tour Operations to deliver growth and create lower-cost, more agile, customer-focused business, ready for resumption of international travel.

· Strong financial position following actions taken over the last 12 months:

o At 31 December, Available Cash of £151m and £100m undrawn revolving credit facility.

o Available Cash at 31 January 2022 expected to be broadly in line with the half year.

· Wider strategic progress continues:

o Early positive signs following brand relaunch in October; new TV adverts have stronger appeal than previous campaigns and industry benchmark.

o Colleague engagement increased to 7.7 out of 10, an improvement of c.20% over two years; first major UK business to offer Grandparent's Leave.

· Confidence in outlook despite remaining COVID-19 uncertainty:

o Given underlying disruption and restrictions in Travel through the second half, the Group is expected to make a small Underlying Loss Before Tax for 2021/22.

o Although mindful of potential for continued uncertainty, we expect to return to profit in 2022/23.

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

"Saga has delivered a successful second half of the financial year with our Insurance business remaining in growth and delivering positive momentum across all key metrics, while our cruise ships resumed their international itineraries. With a stronger Insurance business and progress being made in transforming our Travel business, our turnaround strategy is working well. While Omicron has impacted travel bookings through December and January, our outlook for Cruise in 2022/23 and beyond is positive.

"We approach the future with confidence, having demonstrated our ability to manage our way through recent challenges. We remain confident that the strength of our brand, our management team and our strengthened financial position will now allow us to return the business to sustainable growth, creating long-term value for our stakeholders."

Divisional highlights

Insurance

Retail Broking

The progress reported in the first half has continued with all key metrics, for the full year, expected to be ahead of the prior period. We are expecting 1.6m motor and home policies in force, an increase of 1% versus 2020/21. This performance is underpinned by strong customer retention of 82%, 2ppts ahead of the prior period, supported by further strong uptake of our three-year fixed-price products which account for 47% of the motor and home book (vs. 35% in the prior period).

Motor and home margin per policy, for the full year, is expected to be around £75, marginally lower than the first half, reflecting investment in marketing, although ahead of the year ended 31 January 2021. The proportion of new business acquired directly, rather than through price-comparison websites, remains stable at 59%.

Underwriting

Motor claims frequency, in the second half of the year, has been broadly in line with current pricing assumptions.

Reserve releases are expected to be slightly ahead of the prior period due to the partial release of the additional component of reserve margin held in respect of the 2020/21 accident year. Longer-term expectations of a reported combined ratio of approximately 97% remain unchanged.

Further to the policy growth reported within our interim results, AICL policies in force in relation to the Saga book, at 31 December 2021, were 3% ahead of the prior period following investment in enhanced pricing capability.

FCA market study

Following the implementation of the Financial Conduct Authority (FCA) pricing rule changes, from 1 January 2022, we have seen some pricing volatility within the motor and home markets however, given that it will take some time for pricing to stabilise, it remains too early to quantify any longer-term impact. We continue to adopt a disciplined approach to pricing and believe that we are well-positioned for the future.

Travel

Cruise

Despite some challenges in the second half of the year, the Cruise business operated without interruption, delivering positive EBITDA with a load factor of 68% and per diem of £299 at 22 January 2022. After accounting for ship depreciation and financing costs, the Cruise business is expected to report an Underlying Loss Before Tax in the range of between £45m and £50m.

Looking ahead to 2022/23, customer demand remains strong with a booked load factor, at 22 January 2022, of 73% and per diem of £316 for the full year, and a load factor of 86% and per diem of £318 for the first half.

Tour Operations

Our Tour Operations business (comprising Saga Holidays and Titan Travel), like the rest of the market, has been significantly impacted by COVID-19. We are completing the restructuring of our Tour Operations business to position ourselves for growth and create a lower-cost, more agile and dynamic operation which is focused on the changing needs of our customers.

We are combining the operations of Saga Holidays and Titan Travel. This will maximise efficiency in touring, where the product offerings are highly complementary, and we will create a new hotel stay proposition to be launched later in 2022. Management of our River Cruise operation is also being moved to Ocean Cruise. These actions place us in a strong position as travel restrictions ease and pent-up customer demand builds.

By initiating these changes, we expect to incur 'below the line' restructuring costs in the range of £10-15m in the year ended 31 January 2022, with around two-thirds of this amount relating to impairments of IT assets which are non-cash in nature.

Group liquidity and net debt

The Group's liquidity position remains strong following actions taken in the last 12 months. At 31 December 2021 the Group held Available Cash, excluding amounts held in restricted businesses, of £151m and an undrawn revolving credit facility of £100m.

Available Cash has reduced by £24m since 31 July 2021, largely due to £19m support provided to the Tour Operations business, £6m cash movement from available to restricted funds in order to satisfy FCA requirements, and a net £2m inflow from underlying trading. Due to the impact of seasonality within Retail Broking and the timing of dividends from AICL, Available Cash at 31 January 2022 is expected to be broadly in line with the half year.

Total net debt, at 31 December 2021, was £764m, £24m higher than 31 July 2021. This reflects the movement in Available Cash, with gross debt remaining unchanged.

Wider strategic progress

In October, as part of our data, digital and brand transformation, we relaunched our brand, showcased through three new TV adverts and the relaunch of our websites. The "Experience is Everything" campaign is aimed at reflecting the attitude of our customers rather than their age. Early indications are positive with adverts having significantly stronger appeal than our previous advertising (37% vs. 23%) and the industry benchmark (29%).

As part of our people and culture reset, our colleague engagement has also continued to improve and is now 7.7 out of 10, representing an improvement of c.20% over two years. We were also proud to become the first major UK business to offer Grandparent's Leave.

A full strategic update will be included within our preliminary results announcement on Wednesday 23 March 2022.

Outlook

Although we are mindful that disruption from the pandemic could continue into the first half of 2022/23, we are well-positioned as customer confidence rebuilds and we move to a new Tour Operations proposition. This, paired with strong Cruise bookings and a strengthened Insurance business, place us in good stead for the future. We will continue to take an agile, proactive approach to navigate any challenges but are confident that the strength of our proposition, management team and the brand will create sustainable long-term value for our stakeholders.

END

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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