Saga Regulatory News (SAGA)

5 July 2022

Saga plc

AGM Trading Update

Saga on-track to return to underlying profit

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 February 2022 to 4 July 2022.

Euan Sutherland, Saga Group Chief Executive Officer, commented:

"During the first five months of the year, Saga has made good progress in what has been a particularly challenging external environment and we are pleased that we are on-track to return to an underlying profit for the 2022/23 financial year. We have continued to adapt our Insurance business to meet the evolving needs of our customers, most recently through the development of new products, providing them with greater flexibility and choice. Meanwhile, our Travel business is continuing to make progress as we emerge from the pandemic.

"At our full year results, in March, we set out an evolution of our strategic approach, to convert the foundations laid over the past two years into sustainable growth. This plan will see us focused on maximising our existing businesses, reducing our debt while step-changing our ability to scale the business and positioning Saga as the superbrand for older people. In support of this, we are delighted to have announced separately today, a series of appointments to strengthen our leadership, all of whom will play a pivotal role in accelerating the pace of change at Saga.

"While the external environment remains challenging in the near-term, I am confident that our strategy, our people and our product offering will create long-term growth and value for our stakeholders."

Highlights

· Disciplined approach to pricing and actions taken to broaden product offering in challenging insurance market environment:

o  Maintained disciplined approach to pricing in the context of ongoing claims inflation, currently in the high single digits; and significant proportion of customers on three-year fixed-price policies.

o  Recovery in travel insurance with policy sales in June in line with pre-pandemic levels. Total policy sales across all products 2% behind the prior year.

o  Motor and home policies in force, for five months ended 30 June 2022, 4% behind 31 January 2022; policy sales 9% behind the same period in the prior year due to decline in new business.

o  Solid customer retention of 83% across motor and home, in line with 2021/22.

o  Motor and home margins per policy broadly maintained at £73, reflecting strong retention alongside significantly lower new business.

o  Actions underway to improve customer choice; launch of new motor products expected to improve sales in the second half of the year.

o  Aim to return to motor and home policy growth in 2023/24 with margins expected to be around £60 per policy.

o  Impact of lower future average margins on the carrying value of Insurance goodwill to be evaluated as part of our interim reporting.

o  Reserve releases for the first half expected to remain above long-term run-rate levels.

· Travel recovery continues:

o  2022/23 Cruise booked load factor at 2 July 2022 of 73% and £319 per diem; expected full year load factor of around 75%. Exceptionally strong booked load factor over the summer.

o  Strong launch of 2023/24 Cruise season with bookings representing a load factor of 34% and per diem of £312, both well ahead of expectations.

o  Holidays business expected to report a small loss for the first half and full year; much-improved result compared to the prior year.

o  Recent launch of Holidays bookings for 2023/24 show encouraging early signs.

· The Group expects to generate 2022/23 Underlying Profit Before Tax of £35-50m and grow future earnings from this level. The expected outcome for 2022/23 is in line with the range of analyst expectations and compares to a prior year Underlying Loss Before Tax of £7m.

· The Group's balance sheet remains resilient with significant available liquidity; simplified revolving credit facility with reduction in commitment from £100m to £50m.

· Continued strategic progress against the growth plan outlined in March:

o  As announced separately today, the Group has appointed two new Non-Executive Directors and three new members of the Executive Team to accelerate strategic delivery.

o  Early positive indications following launch of new equity release product; customer leads 30% ahead of the prior year with loan volumes 29% ahead.

o  Significant increase in customers signing up to receive information about our products through our re-consent initiative; volume of re-consents in the five months to date up over 80% versus the year ended 31 January 2022; on-track to deliver 3m new consents by year end.

o  Strategy to increase frequency of interaction with our customers underway, supported by launch of new 'Saga Weekly' newsletter already reaching 500,000 customers weekly.

Outlook

The Group is navigating a period of global turbulence and remains mindful of the current inflationary pressures. Notwithstanding this, we remain confident in the strength of the Saga brand and that the growth plan set out as part of the preliminary results will return Saga to sustainable growth.

Annual General Meeting

The Annual General Meeting will be held at 11.00am today at Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE. To join the meeting online, visit https://www.investis-live.com/saga-group/62826ac9a4707c1200a4dd45/sagm.

Separately today, we have published a video of Euan Sutherland, CEO, outlining the growth plan announced in March. The video can be found on our website at https://corporate.saga.co.uk/about-us/strategy/.

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

Divisional highlights

Insurance

Retail Broking

During the year to date, the motor and home markets have experienced a period of turbulence as pricing has adjusted to reflect the impact of the new FCA reform of general insurance pricing practices. Throughout this time, market conditions have remained competitive within motor, as we indicated at the time of our preliminary results. Our approach has been to maintain pricing discipline, particularly given the proportion of our customers that choose our three-year product, fixing their price for not just one year per the standard product, but also for the subsequent two renewals. In this context and in an environment that we do not believe is fully reflecting anticipated claims inflation in pricing, maintaining discipline has had some impact on our competitive positioning.

While renewal volumes have been stable, we have experienced a decline in new business sales. As a result, motor and home policies in force for the five months ended 30 June 2022 were 4% behind 31 January 2022, with policy sales 9% behind the same period in the prior year. Travel insurance sales have recovered with policy volumes in June in line with pre-pandemic levels. Total policy sales across all products are 2% behind the prior year.

Motor and home retention throughout the five-month period was broadly in line with 2021/22, at 83%. During this time, a larger proportion of motor and home new business sales were through price-comparison websites, with direct sales representing 52% of new business, compared with 59% during the same period in the prior year.

Motor and home margins in the period to 30 June 2022 were broadly maintained at £73 per policy, benefiting from the higher proportion of renewals which, unlike new business, do not carry a cost of acquisition.

Actions are underway to further improve our customer proposition, while maintaining discipline. As part of this, we have introduced a range of new products including a new one-year standard policy, a multi-car proposition and an offer for electric vehicles. Given the current economic environment, we expect that these new products may become a significant proportion of our sales. These, and other initiatives, are expected to improve policy sales in the second half of the year.

The Retail Broking business is expected to return to motor and home policy growth in 2023/24, albeit with a lower average margin per policy, which we currently estimate to be around £60. Given this, the Group will evaluate the impact of lower future average margins on the carrying value of the £719m Insurance goodwill as part of our interim reporting. Our preliminary view is that we will need to impair Insurance goodwill, with such charges taken outside of Underlying Profit Before Tax.

While the first five months of the year have been turbulent, we have the benefit of an increasingly diversified product portfolio. Moving forwards, we will focus on building on the foundations put in place over the past few years and explore options to grow the business further outside of the competitive motor market, while leveraging our unique insight into our customers.

Underwriting

Motor claims inflation in the year to date has been broadly in line with our pricing assumptions, running in the high single digits, with some pressure on short tail property damage claims due to extended repair times and higher parts costs.

As indicated at the time of our preliminary results, prior year reserve releases for 2022/23 are expected to remain above future run rate levels, albeit to a lesser extent than in the prior year. Longer-term expectations of a reported combined operating ratio of approximately 97% remain unchanged.

Travel

Ocean cruise

For the first half of the year, we expect an ocean cruise load factor of 67% and a per diem of £318. As indicated in March, we have seen some adverse impact from the pandemic on a small number of departures, while the conflict in Ukraine has dampened customer demand for departures to the Baltics and Black Sea. Excluding the impact of customer refunds on two cruises impacted by COVID-19, the load factor would have been around 72%.

The Cruise business has now returned to more normal operating conditions with exceptionally strong load factors over the summer months. At 2 July 2022, the booked load factor for the full year was 73% with a per diem of £319 and we expect to achieve a load factor of around 75% for the full year and 83% for the second half.

The launch of our 2023/24 season has exceeded our expectations. As at 2 July 2022, the booked load factor was 34% with a per diem of £312. The lower per diem is a function of offering customers who book early a lower price than those who book later. We expect the per diem for 2023/24 to be above current year levels.

Holidays

Holidays bookings, for 2022/23 of £141m at 2 July 2022 are 47% below 2019/20 due to the conscious repositioning of the business and a level of ongoing disruption from COVID-19 and other external factors. We have seen customer cancellations returning to pre-pandemic levels and have multiple initiatives underway to return to growth. This includes the launch of the newly combined Titan and Saga touring proposition and the relaunch of a new Saga stays proposition in September. We continue the development of our river cruise business which is currently reported within Holidays, but managed by our ocean cruise team.

We expect the Holidays business to report a small loss for the half year and full year but, given a combination of increased demand and actions on costs, we will report a much-improved result compared with 2021/22.

We have recently launched the 2023/24 season for Titan and Saga Holidays, later in the year than was the case pre-pandemic given the ongoing disruption in the travel industry. While current bookings for 2023/24 are therefore lower than at the corresponding point in 2019/20, we are encouraged by early trends, with a faster pace of post-launch bookings than in earlier years.

Group liquidity and net debt

The Group's balance sheet remains resilient with significant available liquidity and no debt maturities until 2024. We have now simplified the revolving credit facility (RCF) agreement to remove certain clauses that were introduced during the pandemic and reduce the aggregate facility cost. The amendments to the RCF include:

· removal of the £40m free liquidity requirement;

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

· reduction of the RCF commitment from £100m to £50m.

The RCF termination date is 31 May 2025 and the facility is expected to remain undrawn.

Following resumption of the Cruise debt repayments in June, and also due to short term movements in working capital, Available Cash at 31 July 2022 is expected to be around £20m lower than at 31 January 2022, with total net debt marginally higher than at that date. The Group expects to reduce leverage in the second half of the year and, when it falls due, repay the £150m due on the 2024 bond from Available Cash.

Strategic update

The Group has continued to make progress against each of the strategic priorities set out in March as part of our growth plan. We have, as separately announced, moved to strengthen our leadership in support of this growth strategy, with five new appointments. We have two new Non-Executive Directors and three additions to the Executive Team.

Within Personal Finance, as part of our ambition to attract new customers and deepen our existing relationships, we were pleased with the launch our new equity release proposition earlier in the year. Supported by a new television advert, the product has had a positive impact on trading with customer leads, at 30 June, 30% ahead of the prior year, with loan volumes 29% ahead. Equity release remains a significant opportunity for Saga and a key part of our growth plan moving forwards.

In March, we set out two objectives designed to position Saga as the superbrand for older people. These were commercialising and growing our database and increasing the frequency of interaction with our customers. In the past year, our database has undergone a radical transformation, resulting in higher quality, more up-to-date and richer data about many of our customers, as well as a dramatic increase in consent from our customers to contact them with new offers. Consent volumes for the first five months of the year are more than 80% higher than in the whole of 2021/22, with a further 3m expected before the year end.

Frequency of interaction is also supported by the recent launch of our new 'Saga Weekly' newsletter which allows us to interact with our customers in a more frequent way. Already, around 500,000 customers per week benefit from the newsletter which leverages our existing Saga Magazine; and this will substantially extend our reach to customers. We are well advanced in our planning of new engagement propositions to offer our customers through these, and other, channels. They will play a vital role in driving frequency, emotional engagement and brand loyalty, thus creating momentum on our superbrand journey.

END