Saga plc (LON: SAGA), the UK’s specialist in products and services for people aged 50 and over, announces a trading update for the period from 1 February to 18 June 2019, ahead of its Annual General Meeting at its headquarters in Folkestone today at 11:00am.
The Group is making progress in the implementation of the strategy announced in April despite challenging trading conditions in both insurance and travel markets. Trading for the period is broadly in line with expectations with good early progress in the launch of the new insurance products, although Tour Operations is being impacted by current political uncertainties.
Divisional Summary
Insurance
The launch of three-year fixed price products in Motor and Home is progressing in line with expectations. As of 16 June, we have sold over 60,000 three-year fixed price policies, of which over 30,000 relate to new business. More than half of direct new business customers have chosen the fixed price product, which is in line with our business case assumptions.
The new product is starting to have an impact in moving Saga back to a direct distribution model. Direct Home and Motor policy volumes are similar to the first four months of last year. For motor, this means direct policy volumes are running well above the run rate level in the second half of the 2018/19 financial year. For Saga branded Home and Motor new business, around 60% is currently being written on a direct basis, compared to 50% for the 2018/19 financial year as a whole, and 45% in the second half. With slightly improved retentions, core Saga branded Home and Motor policies were flat at 564k at 31 May 2019.
Overall Retail Broking policy volumes were 753k at 31 May 2019 (2018: 803k), reflecting lower travel insurance volumes and the decision to put value over volume in the Group’s motorcycle broking business, Bennetts.
Gross margins for Home and Motor business combined, after marketing costs, are within the indicative target range for the 2019/20 financial year of £71-£74 per policy.
While we have seen encouraging progress, it is very early days in the turn-around strategy for the Retail Broking business and the insurance market remains challenging. We will continue to test and learn over the coming months as we refine the approach to our new products.
Claims trends in the Group’s underwriting business are running in line with expectations.
Travel
Conditions in the travel market are very competitive and affected by current political uncertainties. The Group’s Tour Operations business is not immune to such pressures, with booked revenues for the full year down 4% as of 15 June when compared to the same period last year. In addition, margins for this year will be impacted by competitive discounting.
Cruise bookings are more resilient. The Group expects to be in line with target booking levels for departures this year. Forward bookings for the 2020/21 year for the two new ships are broadly on track, with a significant step up in marketing activities planned for the next three months to coincide with the launch of the Spirit of Discovery.
Trading to week ended 8 June 2019
| % of full year target revenue booked | Spirit of Discovery | Spirit of Adventure |
| 2019/20 departures | 85.9% | N/A |
| 2020/21 departures | 31.1% | 30.6% |
In line with our plans, Saga expects to report an operating loss of around £3m for the cruise business for the half year. This is due to the sale of the ‘Saga Pearl II’ in April, and consequent short-term reduction in revenues, as well as training, launch and marketing costs relating to the Spirit of Discovery. The financial benefits of the new ship are expected to start accruing from the date of the first cruise in July.
Membership
Possibilities has 1.1m active members, with the number of engaged members growing by 15% to 208k since April 2019. The Group’s focus continues to be on building our Membership proposition and growing engagement.
Emerging Businesses
As recently announced, a new long-term savings partnership with Marcus by Goldman Sachs will be launched in autumn 2019. This will be a key part of expanding the Group’s personal finance business and deepening the relationship with Saga customers.
Lance Batchelor, Saga plc Chief Executive Officer, said:
“We are resolutely focused on the execution of our new strategy and have a clear set of priorities. Against challenging headwinds in both travel and insurance, we see early signs of progress in stabilising our Retail Broking business and forward bookings for the Cruise business have been resilient.”
