Company Announcements

26 January 2021

Saga plc

("Saga" or "the Group")

Trading Update

Strengthened Saga delivers resilient Insurance performance, with Travel well placed to resume operations

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 2020 to 25 January 2021.

Highlights

·          Group to report full-year underlying profit before tax, despite COVID-19 challenges.

·          Secure financial position as a result of actions taken over the last 12 months:

o  Net debt to EBITDA (excluding Cruise) of 3.0x as at 31 December 2020, within the current covenant in short-term bank debt of 4.75x;

o  Liquidity position remains strong with total available cash of £51m at 31 December 2020.

·          Insurance business performance continues to be resilient in highly competitive market:

o  Motor and Home policy sales 1% ahead of prior year; customer retention of 80%, an increase of 5 percentage points; underlying margins in line with expectations.

o  596,000 three-year fixed price policies sold, representing over 60% of direct new business sales.

o  Direct customers account for 59% of new business, 2 percentage points ahead of the prior year.

o  Reduced claims frequency expected to have positive impact of at least 5ppts on current year loss ratio.

·          Travel business well positioned to resume operations, focused on customer retention and controlling costs:

o  Retention rates remain high, at 69% in Cruise and 41% in Tour Operations.

o  Cash burn rate for second half towards lower end of previous guidance of £6-8m per month.

o  Introduction of requirement for Saga travellers to be vaccinated, based on customer feedback; restart dates pushed back to reflect vaccine roll out timings.

o  First cruise operator awarded Lloyds Register Shield+ new COVID safety accreditation.

·          Key priority through the year has been the health and wellbeing of colleagues and enhancing customer care across both Insurance and Travel.

·          Good progress against all five pillars of the strategic objectives outlined in September.

Euan Sutherland, Group Chief Executive Officer, commented:

"We have made good progress in delivering our new strategy and have accelerated the pace of change at Saga, against the backdrop of the challenges that the COVID-19 pandemic has brought to our business. Insurance remains resilient, while within Travel we are focusing on ensuring the safest possible environment for our guests when cruise and holidays resume, whilst appropriately controlling costs until that time.

"We are confident in our strategy, the strength of our brand and the loyalty and economic resilience of our customers. We know they are ready to travel in great numbers and live their lives to the full as the vaccine programme is rolled out. We are excited about the opportunities ahead as we focus on delivering more exceptional experiences for our customers."

Divisional Highlights

Insurance

The Retail Broking business has continued to perform well across the Motor, Home and Private Medical product offerings. We expect Saga-branded Motor and Home policy sales for the full year to be 1.6m, 1% ahead of the prior year, reflecting higher retention, offset in part by a disciplined approach to new business in a highly competitive market. Travel policy sales continue to be impacted by COVID-19 with travel restrictions significantly dampening demand; total policy sales have reduced by 6% to 1.7m.

Customer retention grew by 5 percentage points across the Motor and Home products to 80%, in part due to the positive impact of the three-year fixed-price product. As at 25 January, 596,000 three-year fixed price policies have been sold in the year to date, representing over 60% of all direct Motor and Home new business sales. Direct customers account for 59% of new business, 2 percentage points ahead of the prior year.

Motor and Home margins are anticipated to be slightly higher in the second half of the year than in the first half, mainly due to a disciplined approach to new business and changes in mix, with a lower weighting of new business compared to an increased volume of renewals. On an underlying basis, margins are expected to be in line with indications set out at the beginning of the year.

In Insurance Underwriting, in line with wider market experience, we have experienced significantly lower Motor claims frequency due to reduced vehicle usage by our customers. This is expected to amount to at least a 5 percentage point improvement to the current year loss ratio when compared to the first half of the year, before the impact of the quota share reinsurance arrangement.

In addition, favourable large claims experience on prior accident years is expected to continue supporting reserve releases in the second half of the year, albeit to a lesser extent than in the first half. 

We have taken a number of steps to support our Insurance customers through the COVID-19 pandemic which include providing a range of additional financial flexibility measures for those customers facing financial hardship. We have also extended underwriting flexibility for those customers who are unable to leave their homes due to illness or shielding and are proactively adjusting premiums to reflect reduced driving activity through the pandemic, where appropriate.

Travel

Following our rapid response to COVID-19 in the earlier part of the year, the Travel business has remained suspended and we have focused on customer retention, keeping costs under control and ensuring that both our businesses are ready for return to service. Against this backdrop, we have maintained an agile approach and are ready to resume operations at the earliest possible opportunity. We are ready to restart both Cruise and Tours in May, although any changes to government travel guidance may impact those plans.

For all Saga Travel customers, we have introduced the requirement that guests are fully vaccinated at the time of travel. This is in addition to our previously agreed enhanced safety procedures. In Tours these include the implementation of strengthened due diligence across our supplier base, stringent documentation of enhanced training procedures and preparation of clear guest communications detailing destination specific COVID requirements ahead of their departure. In Cruise these include reduced guest capacity to allow for appropriate social distancing, enhanced medical areas and air conditioning, multi-layer COVID-19 testing ahead of departure, increased crew/guest ratios in order to deliver enhanced cleaning regimes and a quarantine and testing procedure for crew.

These measures further compliment the nature of our spacious, boutique ships which offer fresh air in all cabins, control of airflow in public spaces and ionisation and ultra-violet filter capability, enabling the safest experience for our guests. Following implementation of these health and safety standards, the highest in the industry, Saga was awarded the first Lloyd's Register Shield+ accreditation, the highest level of health assurance available.

In order to minimise the financial disruption during the period of travel suspension, significant savings have been achieved in both marketing and administrative costs which have reduced the cash burn rate. For the second half, on average, this is towards the lower end of our previous guidance of £6-£8m per month.

Customer retention across both businesses remains high; the average proportion of Cruise guests who have re-booked rather than take a refund stands at an average of 69% through the travel suspension period, but rose to 86% more recently, showing the pent up demand for Cruise amongst our guests who will benefit from the first round of the vaccine roll out.

Customer demand has also been very resilient, with £140m of total Cruise bookings as at 23 January, representing 68% and 28% of the latest revenue targets for 2021/22 and 2022/23 respectively. These figures exclude £8m of bookings that have been cancelled and customers have chosen to receive a voucher rather than re-book a specific cruise. As at 31 January 2020, total bookings were £127m, representing 78% and 6% of the revenue targets at that date for 2020/21 and 2021/22.

Group Liquidity and Net Debt

The Group's liquidity position remains strong, benefitting from our diversified sources of income. At 31 December 2020, the Group held available cash balances, excluding the Saga Tour CAA ring fenced group, of £51m and an undrawn £100m revolving credit facility (RCF).

Available cash balances have increased by £22m since 31 July 2020 due to the capital raise (£139m) and disposal proceeds (£12m), partially offset by repayment of the drawn portion of the RCF and half of the term loan (£120m in aggregate), and a net £9m of other trading items.

The Saga Tours ring fenced group held £25m of cash at 31 December 2020, representing 114% of the £22m of advance customer receipts. For the ST&H legal entity, which covers all Tour Operations, 100% of applicable tour cash receipts are now held in trust, providing our customers with greater protection and peace of mind.

Excluding the two cruise ships, net debt at 31 December was £271m, compared to £411m at 31 July, and the ratio of net debt to EBITDA was 3.0x, within the 4.75x banking covenant applicable to the Group's term loan and RCF. Total net debt at 31 December 2020 was £785m, £139m higher than at 31 July 2020, reflecting delivery of the Spirit of Adventure, partially offset by proceeds from the capital raise.

Whilst the Group has significant liquidity and headroom to the current covenants in short term bank facilities, given the backdrop of continued disruption to the Travel business, we are taking actions to further enhance financial flexibility. We have commenced constructive discussions with lenders, who remain supportive. We are reviewing the covenants attached to our term loan and RCF, to increase flexibility ahead of the resumption of Travel. As part of a package of measures available for the Cruise industry, separate discussions are underway in relation to a further debt deferral and covenant waiver for the two ship facilities. This could allow for deferral of up to £45m of principal payments due to be made from 1 April 2021 to 31 March 2022 and would be in addition to £32m already deferred, due in the period from 1 April 2020 to 31 March 2021. These are early stage discussions and we will provide an update with our full year results.

Strategic Update

Since the release of our turnaround strategy in September, Transforming Saga - Experience is Everything, we have made good progress, delivering against each of our five key pillars. Highlights for the second half include the launch of our new Motor price comparison website proposition and our digital self-serve portal which allows customers to make policy amendments online; both of which are designed to ensure we deliver exceptional experiences for our customers and form longer and deeper relationships with them. Work continues on plans to invest in digital and data, and on the Brand relaunch, which has been postponed to September, against the backdrop of the pandemic. We look forward to providing a full strategic update alongside our preliminary full year results.

FCA Market Study

In September the Financial Conduct Authority published the General Insurance Pricing Practices final report which set out remedies in order to address the gap between new business and renewals pricing within the Motor and Home insurance markets. Although it remains too early to outline the impact to Saga, we support the aims of the FCA study and have continued to work with them as they consult on rules and guidance, ahead of a policy statement due in the second quarter of 2021. We believe that, in aggregate, the changes proposed for the market will be good for consumers and will benefit strong brands with a clear focus on delivering for customers, and so be positive for our place in the market.

Outlook

Our focus remains on the disciplined execution of our strategy that will strengthen our brand, improve our focus on customers and return our Insurance and Travel businesses to sustainable growth. 2021/22 will be a year of transition, against the backdrop of the continued COVID-19 pandemic, ahead of the full roll out of a vaccine programme and before the final recommendations of the insurance market study are made. In this uncertain backdrop the Group's near-time priorities continue to be to manage costs and preserve cash, both to support our return to full Travel operations and further reduce debt. Despite the impact of the pandemic, we remain confident that we will unlock the potential of Saga, creating significant long-term value for all our investors.

ENDS

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Notes to editors

About Saga

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