Saga plc

Morning everybody and welcome to Saga's full year results for the year ended January 2024. For those of you who haven't met yet, I'm Mike Hazel, Group CEO. I'm joined today by Mark Watkins, our Group CFO, and Steve Kingshot, CEO of our insurance business, who will update on insurance later in this presentation. Firstly, let me draw out some key threads that I'll cover off in more detail as we go through this presentation. Taking the year as a whole, we've delivered a fantastic set of results, having successfully delivered a profit outturn that is more than double that of the prior year and ahead of expectations. Strong cash generation has also resulted in a significant reduction in net debt, which fell by around £75 million across the year. This has been driven by strong performances in our cruise and travel businesses, where customer demand for our unique offering has translated into significant increase in profits. This year we've placed a renewed focus on our money business, increasing the number of products that we have to offer our customers and establishing solid foundations for growth in that business. our insurance business continue to be challenged by market conditions. This has impacted our competitiveness and in turn, the number of policies that we've sold. We understand the drivers of this performance and we're taking action to address that. We're encouraged by the recent performance of our insurance underwriting business, which having applied material price increases over the past 18 months, is now on a much stronger footing. We've also moved towards a leaner central operating model, delivering £12 million of in-year cost efficiencies, supported by our decision to exit some smaller loss-making activities. All of this has been delivered alongside further progress in our customer and data strategy. We're focused on growing the number of customers we serve and deepening the connection we have with those customers, and we're making great strides in that area. to support our strategic initiatives, we are also accelerating our capital light partnership strategy. I believe that the right partnerships in the right area to really amplify our growth ambitions and reduce our debt. We've previously spoken about potential opportunities in ocean cruise, and now we're exploring similar opportunities across our insurance business. Meanwhile, our money business is fundamentally already a partnership model. I'll present some more detail later on these partnership opportunities. When I joined Saga last year, I had clear views about the strength of the business I had joined and the brand. Since then, these opinions have only strengthened. And it's clear to me that Saga is a business with solid foundations in place, a trusted brand, brilliant colleagues, and a large and loyal customer base. Across the group, we have a database containing 9.6 million customers, covering a significant proportion of our target over 50s demographic. It's this wealth of data and insight that has driven the performance across each of our core businesses. Cruise was the outstanding performer, with a boutique ocean and river offer continuing to resonate with our customer base. Load factors and per diems were materially up in Ocean Cruise, with both revenue and passenger numbers in our river cruise operations also growing significantly. You'll see later that bookings for the year ahead are also very strong. In travel, increased passenger numbers driven by our product set and improvements to our operational efficiency meant that we returned to profitability for the first time since the pandemic. Our money business is now well set for growth and we have worked with a number of experts, expert partners, to launch a series of new and well-received products across that area. Challenging conditions in insurance have resulted in further decline, impacting both margins and policy numbers. Steve will take you through the drivers of this shortly and the actions that we are taking to address them. It is important that we strike the right balance between short-term profitability and market competitiveness, the latter being the key to driving customer volumes that are ultimately necessary to deliver long-term sustainable growth. We are already seeing the early signs that the actions we are taking to rebalance that business are having the desired effect. With that, I'll now hand over to Mark to talk you through the financials.

Thanks Mike and good morning everybody. It's a pleasure to be here today and great to see some familiar faces in the audience. I'll spend the next few slides covering the financial results for the year ended 31st January 2024 and an outlook for the year ahead. Just to remind everybody, the group adopted IFRS 17 at the start of last year, and while it changes the presentation and timing of the result, there is no change to the underlying economics of the business. You'll see that the 22-23 comparatives have been restated throughout. As you can see, we delivered a strong set of results for the year, with an improvement across all of our key metrics. Underlying revenue, which is net of reinsurance premiums and excludes some accounting adjustments and one-off items, is 13% higher than it was in the prior year. Underlying PBT under both the previous IFRS 4 and the current IFRS 17 is more than double 22-23%. This reflects positives from ocean cruise performance beating our guidance, significant growth across river cruise and travel, and lower central costs. However, these were partially offset as by a lower result from insurance. The groups lost before tax is materially lower than in the prior year, and this reflects exceptional and one-off items that sit below the line. The most material of these one-off items is an insurance goodwill impairment of £104.9 million, reflecting the impact of historical action to focus on value. In addition, there were restructuring costs of £40.3 million arising from the move to a leaner operating model, the exit of some of our smaller loss-making activities and the rationalisation of our property portfolio. significant growth in available operating cash flow of 88.9 million pounds was driven by the underlying trading results and a positive one-time benefit from river and cruise and travel moving to a 70 escrow arrangement in the first half of the year the significantly improved cash flow drive to deleveraging with a 74.5 million pound reduction in net debt and an improved trading EBITDA, the combination of these resulted in total leverage of 5.4 times down from 7.5 times in the prior year. Now turning to the profit contribution from each of our business units, our cruise and travel businesses delivered a strong result with 40 million of underlying PBT returning to profit for the first time since the end of the pandemic. This has been possible because of the high level of demand from our customers, particularly in our cruise business. Our insurance businesses had a challenging time. Underlying claims inflation has had a profound impact on both our broking and underwriting businesses, with the impact being particularly felt across our three year fixed price products in motor and home. I'll cover these businesses in more detail in a few slides time. Other businesses return to profit following the exit of our smaller loss-making activities, and central costs reflect significant savings following efficiencies gained from the move to a leaner central operating model, which was delivered in the second half of last year. Turning now to each of our core businesses in a bit more detail, and we'll start with Ocean Cruise. The first thing to say about our ocean cruise business is that we have, for the first time, not only hit but exceeded the financial target of 40 million pounds EBITDA, excluding overheads, per ship that was set when we invested in the new vessels, with each ship delivering 45 million. This is a fantastic achievement, especially given that this business was loss-making only last year following some residual pandemic impacts in the first half of 22-23. Underlying revenue growth of 28% reflects a strong load factor of 88% and per diems of £331. And looking ahead to what this means for 24-25 and beyond, we have a strong pipeline of bookings displaying further growth potential. Load factors for 24-25 are already 78%, with the ships almost fully booked for Q1 and into Q2. The per diems of £367 are 9% higher than the prior year, reflecting the continued investment in the customer proposition being met with exceptional demand. River Cruise, while smaller than Ocean, is also doing well, having also returned profit this year. The revenue increase of 52% was driven by a 43% increase in passengers. We're introducing load factors and per diems as new metrics for this business. And for 23-24, the load factor was 85% and the per diem was 285 pounds. Again, looking forward, there is potential to take this even further with the load factor of 72% already six percentage points ahead of the prior year and the per diem of 339, 13% ahead. There is a similar story in travel. We have seen a 22% increase in passengers and an 18% increase in the revenue per passenger, driving revenue growth of 44%. At an underlying PBT level, this revenue growth translated into an improvement of 5.6 million pounds, taking the business from a loss of 4.1 to a profit of 1.5 million. Further growth is expected in 2024-25 as forward bookings show encouraging signs with revenue 12% ahead of the same point last year. Conditions in insurance continue to be challenging. Broking was impacted primarily through increased net rates from underwriters in response to the prolonged high claims inflation. As a result, the written underlying PBT was £34.4 million compared with £66.5 million in the prior year. This graph shows the material drivers of the movements. And as you can see, the decline in underlying PBT is almost entirely driven by motor, with the other products broadly flat. While the contribution from motor new business was higher, with increased margins offsetting lower volumes, the motor renewals contribution was £31 million lower. This is a combination of lower volumes of around 13% and a significantly lower margin arising from underwriting rates increasing faster than customer pricing, particularly for our three-year fixed price products. The contribution from home was £1.6 million lower, reflecting increased new business margins offset by a 6% fall in policy sales. Private medical insurance or PMI benefited from the one-off contribution from Bupa in the first half. The increase in operating expenses reflects the full year impact of the cost of living support provided to colleagues, which was in part offset by some operational efficiencies. In underwriting, we're beginning to see the green shoots as the significant price increases applied and claims mitigation actions taken throughout the past 18 months begin to flow through to the results. This can be seen in underlying revenue, which was 7% higher than the prior year, despite the number of earned policies being almost 19% lower. There was also a reduction in the combined operating ratio, net of reinsurance, which is now 117.1%, 3.4 percentage points lower than the year before. Looking ahead, we're confident that our pricing is adequate and as a result, we're now achieving our target loss ratios. Turning now to look at the group's cost base, underlying marketing costs reduced by 1.5 million pounds or 4.2 million pounds after excluding the written to earned adjustment. This reflects an increase across cruise and travel to support the increased customer demand alongside an increase in insurance, which reflects an investment in colleague cost of living support, partially offset by some operational efficiencies. These are, however, offset in part by significant cost savings within our central functions in line with the guidance given at the half year as we delivered efficiencies and moved to a leaner operating model. In addition, the changes in core admin costs, we saw a year on year reduction from the exit of some of our smaller loss making activities and a slight increase in the written to earned adjustment within insurance. During the year we made significant progress with continuing to reduce our level of debt. Net debt reduced by £74.5 million with £143.8 million of available operating cash flow only partially offset by debt servicing and restructuring costs. The increase in cash generation arising from a 101.2 million pound improvement in cruise and travel cash flows, albeit around 20 million of that relates to the one-off benefit from moving to a 70% escrow arrangement. Cash flows from our insurance business were however lower due to the trading conditions covered earlier. At the year end, net debt was 637.2 million pounds as you can see on the next slide. Presented here is the expected organic deleveraging profile over the next couple of years. The range of expected outcomes is represented by the shading area at the top of each bar. Net debt reduction remains the group's number one priority. 23-24 benefited from some one-time cash positives and we expect 24-25 to return to a more normal cash generation profile. With an expected further reduction in net debt, even in our downside scenarios. We expect to repay the £150 million bonds maturing in May through a combination of available cash and drawing on the £85 million debt facility from Roger De Haan. As we continue with our deleveraging plans, we're grateful for the continued support from Roger, who recently extended the maturity of his facility to April 2026. This change provides us with a runway to fully explore the partnership opportunities that Mike mentioned briefly and we'll talk about in more details later. So what does this all mean for the coming year? We expect to continue to see growth in ocean crews as we continue to maximise the load factor and per diems, which after a certain point drop through entirely to the bottom line. This will lead to growth in revenue, EBITDA and underlying PBT. In river cruise, the introduction of our new ship, Spirit of the Juro, last month means we also expect continued growth here. As a rough guide, each of our new river ships is expected to generate an incremental one to one and a half million pounds of underlying PBT per year. Growth in passenger numbers and revenue is expected to continue in travel, supporting a significant increase in underlying PBT. The challenges in insurance are suspected to continue, at least in the short term. However, we are taking steps to stabilise the business and ultimately return to growth. This means that we're entering a transitional period with lower motor and home broking margins as we invest in price to slow the decline in policy sales. Steve will cover this in more detail in a moment, but underlying PBT for insurance broking in the short term is expected to be materially lower than 23-24. Insurance underwriting is now on a stronger footing having applied the significant price increases over the past 18 months. As these continue to flow through, this is expected to drive a return to profitability and a continued reduction in the combined operating ratio. The outcome of all of this is that we expect group underlying PBT to be broadly flat year on year, with growth in cruise and travel offsetting the lower insurance outlook. And of course, a reduction in net debt. With that, I'll hand you over to Steve, who's going to cover insurance in a bit more detail.

Thank you, Mark. Good morning, everybody. I wanted to begin by taking a step back and reiterating the clear underlying strengths of Saga Insurance. At its heart, Saga Insurance is a profitable business with a number of clear and differentiating attributes. These attributes set us apart from our competition in the over 50s market and provide the basis for future opportunities. Key to this is the fundamental strength of the Saga brand amongst our loyal over-50s customer base, with whom we have an 81% retention rate in motor and home and more than 88% prompted brand awareness across the group. This is supported by our significant group customer database of 9.6 million customers, 6.9 million of which we are able to contact about our insurance products. In addition, we know that Saga customers do not shop on price alone and we offer products that differentiate us from our competitors. For example, our three-year fixed product account for 41% of our motor book and 51% of our home book. And our travel and private medical products include product features that reflect the insights that we have into older customers' needs. In insurance broking, we have a strong distribution network, insuring more than 1.5 million customers. As for underwriting, we are now on a much stronger footing, having repriced our portfolio and implemented claims cost reduction actions. Our underwriting and pricing capabilities also enable us to tailor our risk selection and net pricing to reflect our over 50s target market. And of course, all of these attributes are brought together by the focus on service from our colleagues who cater for the very specific requirements of our customer base. Before we move on, given the much improved position and outlook for our insurance business, I'll focus on our insurance broking business and the actions we're taking to address our challenges in the next few slides. While Saga has very clear points of differentiation, our insurance broking business has been affected by the specific and well-publicised issues that the industry has faced over the past two years. The FCA's regulatory changes introduced in January 2022 led to a reduction in our price competitiveness. Our margins on motor and home business were affected by the increase in new business pricing being offset by our reduction in renewal pricing. In addition, from the second half of 2022, the exceptionally high inflation in motor claims experienced across the market was passed on to us in net rate increases from our panel insurers. Our margins were further impacted by our three year fixed product, which we were unable to reprice during the fixed period. We also reduced our marketing spend and held back our investment plans to manage our short term profitability. Against this backdrop, our strategy has been to maintain a disciplined approach to retail pricing to protect margins in the short term. As the charts on the right show, this has had the effect of reducing our customer and policy numbers as well as profitability. This left us with a reduced customer base to manage alongside a relatively fixed cost base. Before I talk about the actions we're taking to address these challenges, I wanted to talk you through the impact of our three year fixed price policies in more detail specifically. Our three-year fixed price motor and home policies introduced in 2019 ahead of the FCA changes are a prime example of how we differentiate ourselves within a commoditized market. The products resonate well with our demographic who are less likely to buy on price alone and value price certainty along with peace of mind and the value of Saga Insurance service. However, it is a product which has been significantly impacted by the inflationary and regulatory backdrop which I've described. As this chart shows, the business we wrote in early 2021 was adequately priced when looking forward across the period of the fix. As inflation increased beyond expected levels, new policies were underpriced as inflation far exceeded expectations in the following years. This affected some business written in 2021 and throughout 2022. Looking at where we are now with the three year fixed product, much of the pressure on margins from that inflationary impact is now starting to reduce. New and refixed policies are being repriced with prudent inflation assumptions. And we expect all of the policies that were written pre-inflation to have been repriced fully by the middle of the year. We have been prudent in our inflation assumptions. And while there will be some profit drag into 24-25, the easing pressure on margins from three-year fixed has given us the headroom to take action on pricing to stabilise the insurance business. So why shift our focus to protecting our scale as well as our margins now? The short answer is that the change of approach I've described would not have been possible before now. During that period of volatility, we made the decision to protect short-term profitability. Now that we're beginning to see some stability emerging in the market, it is right that we begin to focus on the longer-term outlook and take decisions to recover the volumes lost during that volatile period. Given the improving market conditions we've begun to observe in motor pricing and the easing pressure on three-year fixed price margins, now is the right moment for us to change approach and begin to rebalance protection of our margins with customer growth. We're now focused on this longer-term view, switching our approach to focus even more on protecting existing customers by improving our competitive position so that we can grow customer numbers to ensure the sustainability of the business. With this, our approach is split into two parts. Firstly, short-term stabilisation and then preparing for growth in the longer term. On short-term stabilisation, we have, over the past few months, taken clear steps to steady the business. Firstly, we've taken action in broking across all our products, particularly in home and motor, to sharpen our competitive position. This not only protects our existing business, but also stimulates new business, which will slow the decline in policy sales. To date, the impact of these changes is tracking in line with our expectations with improvements seen across conversion, retention and margin. We've also begun to increase our marketing spend and are investing further in our marketing tools to more effectively target customers. This has led to increasing lead volumes aligned to our marketing spend efficiency and short-term payback targets. In addition, we remain focused on keeping tight control of costs across our operational and non-operational functions. We also remain focused on offering differentiated products and will be launching a new travel product designed to meet the specific needs of our customer base in the second quarter. Finally, continued development of our partnerships across all our products remains a key part of our insurance plans. We've worked closely with Collinson to develop that new travel product I just mentioned, and you may recall that we recently partnered with Bupa for private medical insurance. We also extended our relationship with Aegeus, who now partner with us for both motor and home insurance on our panels. If I now move to preparing the business for long-term growth, our focus is very clearly on scaling the business. And as part of this, we're exploring further options for partnership models in insurance. This is consistent with our group strategy to move towards a capital light business model and follows the move to explore similar partnership arrangements in Ocean Cruise. We believe this will enable us to improve the efficiency of our customer service while at the same time crystallizing value reducing debt and enhancing long-term shareholder returns there are clearly a range of options available and while it's too early to comment on any potential avenues we'll keep you updated on progress so to conclude the actions we're taking are absolutely the right ones and we're taking them at the right time for saga The easing margin pressure on three-year fixed policies gives us the headroom to make these changes, and we're already seeing encouraging signs that it is working. While we are entering a transitional period with lower profitability in the near term, the rebalancing of price and margin to grow the customer base is necessary for both short-term stability and long-term sustainability. Looking further ahead, I'm very confident for the future prospects of Saga Insurance, which includes the exploration of potential partnership opportunities. Saga has an outstanding brand, a loyal customer base and the differentiated product set, leaving us very well placed as we target future growth. I'll now hand over to Mike.