Saga plc

Morning, everybody, and welcome to Saga's results for the six months ended 31st of July, 2024. I'm Mike Hazel, Group CEO, and I'm joined today by Group CFO, Mark Watkins, and Steve Kingshot, the CEO of Saga Insurance. Before I begin, I'd like to thank you for being with us today, particularly after the delay to our results, while our partnership discussions would continue. On that note, you will have seen that today we released a separate announcement confirming that we are now in exclusive negotiations with Aegeus for a proposed transaction. This is a fantastic opportunity for Saga, Aegeus and our customers. Creating a low-risk business model for home and motor insurance by combining the capabilities of two great businesses. The move would support our growth ambitions simplify our business and move us to a more capital-light model in insurance in line with our stated strategy. The first part of this is a sale of our insurance underwriting business, AGL, and the second is a 20-year affinity partnership with AGEUS for motor and home insurance, moving us away from underwriting and risk to a lower-cost commission-based model. I'll cover these in more detail later. However, we're excited by the opportunity to work with a partner of the pedigree of Aegeus, and we believe this partnership will deliver great value for our shareholders and great products to our customers. It's been a busy half to the year. and a period that was ultimately resulting in us reporting a strong overall financial performance, while we continued to explore partnership opportunities across our ocean and insurance businesses. During this period, we grew underlying revenue by 11% and reported underlying profit before tax of £27.2 million. more than three times that of the prior year, reflecting strong growth across travel and cruise, offsetting cyclical challenges in our insurance broking business. In line with the approach we set out in April, we took action in insurance broking to more effectively balance margins and policy volumes. Conditions, however, remain challenging, ultimately hampering the effectiveness of those actions. These market conditions, most notably the net rate environment in home, have impacted insurance broking volumes and profitability this year, resulting in a further goodwill impairment of £138.3 million. The Group has therefore reported a loss before tax of £104 million after this impairment. While insurance broking remained challenged, our insurance underwriting business finished the first half in a strong position, having returned to an underlying profit. Debt reduction continues to be a key strategic priority for the Group, and we made good progress in the first six months of the year, having reduced net debt by £42.8 million in the past 12 months and £22.6 million in the last six months. Our group remains highly cash generative and we delivered £54.4 million of available operating cash flow in the first half. Our focus on driving customer engagement continued And following enhancements made to our customer websites, we saw a 21% increase in visits alongside the progress with our group customer consent initiative, which saw the number of consented individuals rise by 16% on the same point last year. Before I hand over to Mark to talk through the financials, I'm going to cover off some of the highlights from each of our core businesses. Starting with cruise, both our ocean and river offerings continue to go from strength to strength. In ocean cruise, we achieved a load factor of 90% in the first half of the year, which is seven percentage points higher than last year, with a per diem that was 9% higher. It's a similar story for river cruise, with a load factor of 86%, up three percentage points and a per diem that's 15% higher. Our travel businesses reported first half profit for the first time since the pandemic, with the revenue and passengers 29% and 13% higher than in the prior year on a comparable basis. In insurance, our underwriting business is in a strong position. Price increases applied over the past couple of years are now flowing through to the result, with average earned premiums 39% higher than in the year before. It's this action that also supported the net combined operating ratio, reducing by 23 percentage points to 102%. The challenging market conditions in insurance broking mean that that business reports 13% fewer policy sales, albeit slightly higher margins. Our money business reports a result consistent with that of the prior year as we build awareness of our new range of products. And finally, data continues to underpin our strategy. With 9.5 million individuals on our database, and a growing number of these consenting to hear more about our products and services, thanks to the initiatives that we have in flight. I'll now hand you to Mark, who will talk through our financials.

Thanks, Mike. Good morning, everybody. It's a pleasure to be here today. I'll spend the next few minutes covering the financial results for the group for the six-month-ended 31st July 2024. I'll then follow that with the outlook for the remainder of the year. Saga had a positive start to the year, delivering strong financial performance in the first half. Underlying revenue, which is net of reinsurance premiums and excludes some accounting adjustments and one-off items, increased 11% on the prior year. Underlying PBT of £27.2 million is more than three times that of the same period last year, largely driven by the growth in our cruise and travel businesses, improved performance in insurance underwriting and a lower central costs, which were only partially offset by lower insurance broking results. As Mike touched on a moment ago, We reported a statutory loss before tax of £104 million, reflecting a £138.3 million impairment of insurance broke in Goodwill, and we'll cover some of the drivers behind this shortly. We continue to generate strong cash flows, with available operating cash flow of £54.4 million, As expected, this figure was lower than the prior year, largely reflecting the one-off benefit of around £20 million from the river cruise and travel businesses, moving from 100% trust arrangements for customer deposits to a 70% escrow arrangement, which occurred in the prior year, alongside lower insurance, broking earnings, and underwriting dividends. Net debt reduction continued. And the position at 31st of July was 614.6 million pounds, 42.8 million pounds lower than 31st of July 2023, and 22.6 million pounds lower than at the year end. Alongside strong trading EBITDA, which grew 27%, this supported further deleveraging with the total leverage ratio now at 4.6 times compared with seven times at the same point in the prior year. are now focused on the headline underlying profit contribution from each of our business units. Our cruise and travel businesses continue to generate strong customer demand, delivering £31.2 million of underlying PBT in the first half, more than double that of the year before. The insurance market continued to be challenging, and as expected, insurance broking reported a materially lower contribution, predominantly driven by the home product. Insurance underwriting, however, returned to an underlying PBT versus a loss in the prior year. Other businesses also returned to profit in the first half following the decision to exit some of our smaller loss-making activities. This included Saga Insight and Saga Exceptional, which occurred in the second half of last year. The actions taken to reduce our cost base late last year meant that central costs were 14% lower this year than last, despite slightly higher financing costs. The result of all of this is that underlying PBT increased from £8 million in the prior year to £27.2 million in this current year. I'll now spend some time covering each of our core businesses in a bit more detail, and I'll start with Ocean Cruise. Our ocean cruise businesses had an exceptional start to the year, more than doubling its profitability and securing forward bookings that only continue to grow. Revenue grew 17%, supported by increased load factors and per diems. The load factor in the first six months of the year was 90%, which compares with 83% last year, and the per diem was £362, 9% higher than the year before. At the time we purchased the two new ships, we set ourselves a target to deliver £80 million of annualised EBITDA, excluding overheads. We achieved that target for the first time last year, and I'm pleased to report we're tracking in excess of last year's position by £15.7 million in the first half. This places us on track to materially exceed that target for this financial year. After allowing for the scaling of operating expenses and lower financing costs as we repay the debt, profitability grew 117%. Looking ahead to the full year, the booked position is very strong with a load factor that is up three percentage points and a per diem that is 8% ahead. Importantly, we launched the 25-26 season one week later than last year, but despite this, the book load factor is in line with the same time last year, with the per diem continuing to increase at 7% ahead. In River Cruise, revenue grew 13% when compared with the prior year, also driven by increased customer demand. The 86% load factor in the first half was three percentage points higher than last year, and the per diem of £340 was 15% higher. This supported growth in profitability of 93%, from £1.5 million in the prior year to £2.9 million this year. Bookings for the full year are strong. The load factor is 88% and the per diem of £327 is ahead of the same time last year, albeit lower than H1, reflecting the expected seasonality within the business. Bookings for 25-26 are also in a good position with strong load factors alongside growing per diems. Another significant milestone for the group was the travel business returning to profitability in the first half. This is the first time it's happened since the pandemic. Revenue grew 13% on a reported basis, however, on a like-for-like basis. So after reflecting the decision to cease our Titan River cruise operations in the prior year, revenue increased 29%. Part of this was due to the 13% more customers traveling with us, with the remainder due to higher average revenues per customer. As you'll see from our booked position, revenue growth is set to continue into the second half of the year, with current full-year booked revenue 16% of the prior year, with passengers 8% ahead. Booked revenue and passengers for next year are also currently ahead of the same time last year. Insurance broking continued to be impacted by a range of challenges, some market-wide and some specific to Saga. Mike will provide more context of these within his update. This meant that written insurance broking profitability, so before the impact of written to earned adjustment, of £11.6 million was significantly lower than the prior year, in line with the guidance we gave at last year end. The graph on this slide shows the material drivers of the movement. The motor contribution before overheads increased £1.8 million year-on-year, driven by higher renewal margins, particularly for our three-year fixed price policies, as market-wide net rates reduced. Home was the most significant driver of the overall decline, with a £6 million lower contribution as net rate inflation, which was more pronounced with our panel, led to a reduced competitiveness and 14% fewer policy sales. Private medical insurance was impacted by market-wide net rate inflation, which resulted in lower margins, particularly for renewing policies. The travel insurance market became particularly competitive in the first half, with many of our peers increasing their advertising and offering greater customer discounts to win business. This impacted our ability to compete, and as a result, new business volumes were impacted. And offsetting some of this, the first half benefited from reduced operating expenses following the cost efficiencies implemented in the second half of last year. Turning to our insurance underwriting business, with the pricing action over the last couple of years continuing to earn through to the result, gross underlying revenue of £102 million increased 30% when compared with last year. While the number of earned policies was 6% lower, average earned premiums were 39% higher. Our net current year core also benefited from increased premiums and the first six months of the year, this was 101.7%, 23 percentage points lower than the prior year. On a reported basis, you'll see that the core also reduced despite materially lower positive prior year development. As a result, the business returns for a profit of 1.9 million pounds compared with the loss of 3.6 million in the year before. Debt reduction is a clear strategic priority for Saga, and I'll cover this in the next couple of slides. We made good progress in this space during the first half of the year. Net debt at 31st of July 2024 was 614.6 million pounds. This was 42.8 million pounds lower than the position 12 months ago and 22.6 million lower than at the year end. Available operating cash flow for the first six months was 54.4 million pounds. 37% lower than last year. This was expected, given that the prior year included the one-off benefits of around £20 million from the river cruise and travel moving from 100% trust arrangement to a 70% escrow arrangement, alongside lower trading EBITDA from insurance broking and no dividends payable from insurance underwriting. This was, however, partially offset by a 15% increase in Ocean Cruise available operating cash flow, driven by strong trading and some positive working capital phasing within that business. Many of you will be familiar with this graph, which shows the expected deleveraging profile of the group under a range of possible scenarios, represented by the faded area at the top of each bar. Mike touched on the fact that we were in exclusive discussions with Aegeus for the sale of ACOL and an insurance partnership. However, as we have yet to sign documentation, these cash flows are not included here. Before we step into the detail, it's important to remember that in May 24, we repaid the £150 million bonds through a combination of available cash and a £75 million drawdown on the loan facility provided by Roger Dahan. While this didn't change net debt, it was a key milestone for the group. Looking ahead to the full year, we're expecting net debt to be slightly higher than at 31st of July. This is due to lower cash generation from the insurance business, some unwind of the working capital timing differences in the first half of the year and continued repayments on our two cruise ship facilities, which total 31.1 million pounds. At 31st of July, the group held available cash of 86.3 million pounds, which excluded the undrawn 50 million pounds RCF. the 10 million pounds remaining undrawn portion of the loan provided by roger we recently concluded discussions with our lenders which resulted in certain amendments to the rcf facility which provides us with greater financial flexibility these included an extension to the facility's maturity from may 25 to march 2026 alongside a revised definition of the leverage test, which used to exclude the ocean cruise business, but will now be tested on a total group basis. The level of the covenant has been reset to six times until the maturity of the facility. So let's now turn to the full year. Ocean Cruise had a fantastic start to the year and bookings for the full year are strong. We do expect profitability in the second half to be impacted by the Spirit of Adventure routine dry dock for 18 nights later this month. In River Cruise, bookings for the full year are also ahead of the same point last year and we expect the same from profitability. The usual seasonal trends will mean that profitability in the second half is likely to be lower than the first. The peak trading months for our travel businesses are typically August to October. And as a result, we expect that profitability will be meaningfully higher in H2 as we benefit from the operating leverage from higher revenue on the same cost base. In insurance broking, we expect the trends that we saw towards the end of the first half of the year to continue for the second half. And Mike is going to touch on these shortly. As insurance underwriting is now on a much stronger footing, we expect further underlying profitability growth in the second half of the year, alongside a continued reduction in the reported net combined operating ratio. What this all means for the group is that while we expect the mix has changed with more weighting towards cruise and travel, we still expect the full year underlying PBT to be broadly consistent with that of 23-24, in line with our previous guidance. And with that, I'll now hand back to Mike, who's going to cover our strategic progress.

Thanks, Mark.