24 January 2023

Saga plc

Trading Update

Saga expects to report significant growth in revenue

and underlying profit in line with guidance

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 2022 to 23 January 2023.

Highlights

·      We remain on track to report an Underlying Profit Before Tax of between £20m and £30m, in line with previous guidance.

·      Revenue for the Group is expected to be between 40% and 50% ahead of the prior year, driven by continued Cruise and Travel recovery following the pandemic.

·      Our Ocean Cruise business achieved strong load factors and per diems in the second half of the year with an encouraging pipeline of bookings:

o  Load factor for the second half of 2022/23 is expected to be 84%, delivering a full year load factor of around 75% which is in line with guidance and compares with 68% in the prior year.

o  Per diem for the full year is anticipated to be £318, also in line with guidance and compares with £299 for the year ended 31 January 2022.

o  These metrics, when combined, result in expected year-on-year revenue growth for 2022/23 in excess of 100%.

o  Our booking position for 2023/24 is strong, with a load factor and per diem of 60% and £337 respectively at 22 January 2023.

·      Following its successful relaunch earlier this year, our Travel business delivered significant growth in revenue with strong bookings for next year:

o  In 2022/23, revenue will have increased tenfold when compared with 2021/22 however, after allowing for marketing and administrative expenses, the business will report a small underlying loss before tax for the year, in line with guidance.

o  Our 'Tailor-Made by Saga' proposition has been expanded to include 15 new worldwide destinations, self-drive and motorhome holidays, ahead of the full launch in February 2023.

o  Touring bookings for the 2023/24 year are strong, with increased demand for long-haul destinations. Incoming call volumes over the first three weeks of January are also ahead of pre-pandemic levels.

o  At 22 January 2023, booked revenue for 2023/24 was £110m which is 13% ahead of the same point last year.

·      Insurance Broking is expected to be broadly in line with guidance:

o  Total policies in force, at 31 January 2023, are expected to be 3% behind the prior year, with policy sales also 3% behind.

o  Customer retention continued to improve across motor and home in the second half, now at 84% and 1ppt ahead of the prior year.

o  Our motor and home margin per policy is expected to be around £71.

o  Travel insurance is expected to deliver more than 200% growth in revenue vs. the prior year, with policy sales increasing by more than 95%.

·      Insurance Underwriting, in line with the wider market, continued to experience high levels of claims inflation which we estimate to have averaged 13% for the year as a whole:

o  The underlying current year combined operating ratio for the full year, excluding quota-share reinsurance, is expected to be around 125%. This is higher than previously forecast, mainly due to a modest increase in claims frequency and an above-average level of current year large losses.

o  This is largely offset within our result by quota share reinsurance recoveries and favourable development on prior year large losses, albeit, in line with previous guidance, prior year reserve releases in the second half are expected to be materially lower than the first.

o  We continue to focus on reducing the current year combined operating ratio as prudent double-digit increases to pricing begin to flow through to earned premium.

·      Saga Money delivered top line growth and increasing customer numbers when compared with the prior year, supported by incremental TV and media advertising.

·      This morning, our Media business launches Saga Exceptional, a brand-new website containing best-in-class consumer advice and inspirational stories that celebrate the 'Experience Generation'. Further details, including how Media will act as a pipeline for customers into the Group and also become profit-generative in its own right, will be presented at this afternoon's Capital Markets Event.

·      Available Cash is expected to be around £140m at 31 January 2023 and net debt, at the same date, is anticipated to be slightly higher than at 31 July 2022.

·      We have concluded discussions with our lending banks to amend the covenants in relation to our revolving credit facility (RCF), providing us with greater flexibility in relation to liquidity used for short-term working capital purposes.

Euan Sutherland, Saga Group Chief Executive Officer, commented:

"Saga continued to demonstrate progress in the second half of the year, delivering a trading performance which is broadly in line with expectations. Our Ocean Cruise business saw strong customer demand and an encouraging pipeline of forward bookings while, in Travel, we launched our new digital offer and continued to expand our range of products. We continued to navigate a challenging period for the UK motor insurance market and, although there has been some pressure on our Underwriting business, our Retail Broking result will be in line with expectations.

"Overall, we are well-placed to continue our growth as we make progress against our three-step plan which is focused on maximising our existing businesses, step-changing our ability to scale while reducing debt and positioning Saga as 'The Superbrand' for older people in the UK."

Capital Markets Event

As detailed in our separate announcement this morning, management will be holding a Capital Markets Event for institutional investors and analysts at 3.00pm today in London. If you would like to attend, please email saga@headlandconsultancy.com. There will also be a live webcast, with registration available at www.investis-live.com/saga-group/63b6c964d426f40c0004b5ff/scme.A recording, alongside the presentation slides, will be available shortly after the event at www.corporate.saga.co.uk/investors/results-reports-presentations/.

For further information, please contact:

Saga plc

Emily Roalfe, Head of Investor Relations and Treasury                 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

Group performance

The Group remains on track to report an Underlying Profit Before Tax, in line with previous guidance, towards the lower end of the £20m to £30m range.

Cruise

Ocean cruise

For the second half of the year, as impacts from the pandemic lessened and customer demand continued to build, we expect to report an ocean cruise load factor of around 84%. When combined with the 66% reported for the first half, this results in a full year load factor of around 75% which is in line with guidance and a significant increase when compared with 68% for the prior year. The per diem, for the full year, is expected to be around £318 which is also significantly ahead of the prior year. These two factors, when combined, equate to year-on-year revenue growth for 2022/23 in excess of 100%.

Bookings for 2023/24, at 22 January 2023, are strong, reflecting a load factor of 60% and per diem of £337.

River cruise

As communicated with our interim results, river cruise will be reported as a component of the Cruise business for our full year results and, for 2022/23, river cruise is expected to report a small loss before tax.

Travel

Following the successful relaunch of our Travel business earlier in the year, we continued to expand the range of products that we offer our customers, including our new Egyptian tours on the Nile and a further two private jet tour departures in 2023/24 following the bookings success of our first tour, along with our 2024/25 programme which launches in late February. As a result, we have observed exceptionally high levels of customer calls in the first three weeks of January, with volumes higher than those observed prior to the pandemic.

Ahead of the full brand marketing launch, planned for February 2023, our 'Tailor-Made by Saga' proposition has been enhanced through 15 new worldwide destinations, self-drive and motorhome holidays, and private touring options across south-east Asia.

For the 2022/23 financial year, revenue is expected to increase tenfold when compared with 2021/22 however, after allowing for marketing and administrative expenses, we expect to report a small loss before tax in line with previous guidance and before returning to profit in 2023/24. In support of this, at 22 January 2023, booked revenue for 2023/24 was £110m which is 13% ahead of the same point last year.

Insurance

Retail Broking

The second half of the year continued to be a challenging period for the UK insurance market, particularly within motor as market pricing, although beginning to increase, remained competitive and, in our view, not fully reflecting the anticipated cost of claims.

Our total policies in force, at 31 January 2023 and across all products, are expected to be 3% behind the prior year, with policy sales also 3% behind. This reflects further recovery in the volume of travel insurance policies sold which are expected to be over 95% ahead of the prior year, broadly stable sales of private medical insurance and motor and home policy sales 7% behind the prior year. Customer retention continued to improve across motor and home in the second half, now standing at 84% and 1ppt ahead of the prior year.

Motor and home margins per policy, for the full year, are expected to be around £71, slightly lower than for the first half of the year and in line with our previous guidance. Our direct proportion of motor and home new business remains lower in the short term at around 49%, compared with 59% in the prior year due to the competitive nature of the market.

Underwriting

Our Underwriting business, in line with the wider sector, has continued to experience high levels of claims inflation which we estimate to have averaged 13% for the year as a whole. In addition, we have seen a modest increase in claims frequency across some limited perils and have observed a higher level of large current year claims. The absolute number of reported large losses is, however, small and, we believe, largely attributable to normal volatility.

The combined impact of these factors means that we expect to report an underlying current year combined ratio of around 125% for the full year. In our results, this has been largely offset through recoveries on quota share reinsurance, as well as favourable development on prior year large claims.

In response to these trends, we have, since the middle of the year, been taking significant actions to re-price the motor book, with pricing now in line with technical requirements. These price increases will begin to flow through to earned premium and we expect to report a significantly lower underlying combined operating ratio in 2023/24.

Money

In Saga Money, revenue from our equity release product has grown significantly in the current year, supported by incremental TV and media advertising. This uplift reflects a 33% increase in loan volumes compared to the prior year, with the average loan value also around 16% higher. Our savings product, which is provided in partnership with Goldman Sachs, has also grown with the number of accounts 17% ahead of the prior year and assets under management in the region of £3.5bn. For the year ended 31 January 2023, Saga Money is expected to report an underlying profit before tax of around £2m, with the potential to become a meaningful part of the Group's earnings over the next five years.

Media

Saga Media has a key role to play in our ambition to build Saga into 'The Superbrand' for older people in the UK as we increase the depth and frequency of interaction with our customers. We are pleased to announce that, this morning, we launched Saga Exceptional, a new website that celebrates the 'Experience Generation' by providing best-in-class consumer advice and inspirational content. More details about Saga Exceptional, and how our Media business will not only act as a pipeline for customers into the Group but also become profit-generative in its own right, will be presented by management in our Capital Markets Event later today.

Group liquidity and net debt

Available Cash, at 31 January 2023, is expected to be around £140m. This is lower than previous guidance, reflecting margin calls on fuel hedging, a short-term reduction in Cruise advanced receipts and working capital support provided to the Travel business. The majority of these factors are temporary timing differences and are, therefore, expected to reverse in 2023/24.

We have concluded discussions with our lending banks behind the RCF and, as such, have agreed the following amendments to the facility which provide us with increased financial flexibility in relation to liquidity used for short-term working capital purposes:

·      The introduction of a restriction whereby, no utilisation of the facility is permitted prior to repayment of the 2024 bond if leverage exceeds 5.5x, or liquidity is below £170m.

·      During 2023 and 2024, should the RCF be drawn, leverage covenant testing will be quarterly.

·      Repayment of the 2024 bond, ahead of maturity, is restricted while leverage remains above 3.75x.

·      Amendments to the leverage and interest cover covenants attached to the facility, as follows:

Net debt, at 31 January 2023, is expected to be slightly higher than the position at 31 July 2022 as the net operating cash generated and dividends received from our Underwriting business are offset by the £31m repayment made on our cruise ship facilities alongside interest and financing costs.

Wider strategic progress

We continued to make further progress against the third step in our growth plan, building Saga into 'The Superbrand' for older people in the UK. The Insight, Data and Media progress, alongside future plans will be detailed at this afternoon's Capital Markets Event and a full strategic update will be included within our preliminary results announcement on Tuesday 4 April 2023.

END