Saga (LSE:SAGA) — Interim results

0:00 Good morning, and welcome to the SAGA PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Ewan Sutherland, CEO. Good morning, sir.

0:32 Good morning, and thank you everybody for, joining us today. We have a slightly shorter version of the presentation that we gave yesterday in the city. The aim of this morning is to take you through that overview and then allow plenty of time for your questions. We will try and answer every question, that, comes to us. If we do run out of time, clearly, we're very happy to take questions out of the meeting and afterwards. So let me just move you on to, the overview of the first half and our forecast for full year earnings. The first half came in ahead of analyst expectations, with underlying PBT broadly in line with the prior year, and we're taking it on an IFRS four basis.

1:22 We're obviously transferring across IFRS 17 as the regulation gets implemented this year. At headline level, the full year earnings are expected to be significantly ahead of market estimates by the end of the year with a strong double digit revenue and profit profit growth. That is driven by a combination of cruise, travel and money. Strong performances from ocean cruise, underlying profit before tax, cash flow load factor per diems and customer net promoter score all significantly ahead of the prior year and looking very positive as we go into f y twenty four and '25, and I'll cover more of that detail later. River cruise now mirroring ocean cruise, so we're very confident that we've got the proposition right too.

2:12 And in travel, again, we are seeing strong growth, in both customer numbers, revenue, and profitability this year with a good outlook into next year. SAGA money has had lots of innovation, work in the first half and has just launched two new products in September with two further new products to be launched in October and more to come in November and into 2025 '4 '5. In insurance, broking still a significant part of our business. If you look at the, home travel and PMI products, we have all seen strong growth. However, motor is weighing on our earnings, which has led to a £68,000,000 impairment reflecting, the, latest projections as we look forward in that marketplace.

3:03 Quick update on the sale of the insurance underwriter. We did secure a deal, but, we have paused that for now. We believe that there's more value to be had when looking at the impact of that sale and the impact on the broker as we move into 2024. So there is a deal there. It's effectively on ice, and we have enough available cash to be able to repay our 2024 bond when it falls due in May next year.

3:33 Net debt reduced in the half to 657,000,000, down 54,000,000, which was lower than January 2023, and we had available cash of 180,000,000. So just to reiterate, this is a profit upgrade for the year as we are forecasting full year PBT well ahead of current estimates. Moving on to a little bit more detail in our core businesses, and I'll come back and give you an up to date set of numbers after James has run through the financials. But just the headlines here across cruise, travel, money, and insurance. Cruise, as we said, very strong performance in the half, 83% load factor up from 66%, the same half last year. Per diem's again moving forward significantly up from £318, £333 for the half. River cruise back in profitability, mirroring the load factors and per diem numbers that we've seen in ocean.

4:35 And, the the net promoter score growing significantly in rivers. Travel, again, the same story. Growth in passenger numbers up from 20,000 to almost 26,000 in the half. Lots of innovation. I'll talk later about the private jet touring, which each of those products are worth significant margin contribution to the bottom line. Revenue up from 44,000,000 to 70,000,000, and we're launching internationally with our operations. Clearly, we we already send our guests everywhere in the world, but launching internationally with some of our touring operations to Australia. In money, two major products in the first half, savings and equity release. Savings benefited from the interest rates and hikes, but equity release held back. We've gained share in equity release, but the results have been below where we wanted them to be because of the wider market impacts.

5:26 As I've said, new products launching, I'll cover those later, and very strong net promoter scores. Our customers are really trusting SAGA money with their money. And insurance, 1,600,000 policies in force, across all of our insurance, products, slightly down year on year. The area of concern for us is motor, which is has been widely trailed in the marketplace. That's put margins under pressure slightly below our target of £60 per policy at 56, but we do aim to get back to £60 by the end of the year. Travel revenue and PMI revenue showing strong double digit growth. So I'm gonna pause at that point, hand over to James just to run you through the highlights of the financials, and I'll come back and give you the up to date numbers on the core business units after that. James?

6:21 Thank you, Ian. So I'll just say a few words on the half year results, and on the outlook for the second half as well. Just turning to the, the first slide here. Revenue is up 15% year on year. That's entirely due to, the recovery of cruise and travel where we are pretty much back to normal and in some cases ahead of where we were pre pandemic. In terms of the profit before tax, on the previous basis reporting, which was IFRS four for insurance, we are more or less flat. Under an IFRS 17 basis, profits are down, and the impact of IFRS 17 on the first half was about a £5,400,000 negative. This, however, is for a variety of quite technical reasons.

7:10 It doesn't change our view of the longer term outlook. It doesn't change our view of the economics of the business.

7:17 And indeed, there is a pretty good chance that some of the factors that were holding us back in terms of IFRS 17 in the first half will either be neutral or positive in the second half. So, I would not read too much into that. In terms of the loss before tax, an improvement year on year, but still obviously a loss. There is a goodwill impairment in the first half numbers as you had mentioned, and that reflects a more challenging outlook for the broking business as we look into next year and beyond. There is, however, one very clear bright spot in these numbers, and that's the operating cash flow, in the first half. So, more well, almost tripled compared to the first half of last year.

8:02 That is entirely due to the cruise and travel business where we went from about cash breakeven in the first half of last year to a 70,000,000 £73,000,000 positive cash inflow in the first half. And that has enabled us to, reduce our net debt by 9% in the first half, which is ahead of what the, the expectations we had at the beginning of the year. Turning to the next slide, this shows a little bit more of the breakdown of the underlying profit before tax. As you can see here, cruise and travel, almost a perfect, reversion from an £11,600,000 loss in the first half of last year to an £11,800,000 profit in the first half of this year. We will see a much stronger result, in the second half, and that's due to seasonality.

8:52 So two bits of seasonality, really. The first one is in relation to the travel business, where about 60% of our revenues are booked in the second half of the year. That's just due to the timing of when customers come holiday for the most part. And then similarly in cruise, we had a a load factor of 83% in the first half of this year, and we would expect a load factor in the second half of somewhere above 87%. Cruise results are extremely sensitive to small changes in load factor. So, again, you'll see, a much better result from cruise and travel in the second half of this year. That is what gives us confidence that, the underlying profit before tax, overall, will be well ahead of what we reported, last year. The challenge in these results is obviously the insurance business. This was something that we flagged back in April when we reported our full year results.

9:44 It's probably fair to say that the, the broking business is under further pressure compared to what we had anticipated, and that is a function of, very high levels of inflation, which is squeezing the margin of the broking business. So, if I put it simply, the input price here, which is the the price charged by panel insurers, is going up faster than the price we can charge to the consumer. That is partly a function of the three year fixed product that we have. It's also just partly a fact of a very competitive marketplace as well. And, obviously, what we're constantly doing there is evaluating the trade off between margin and volume. Nonetheless, still a very positive contribution to the cash flows of the business. In terms then of other businesses, this went from a £400,000 profit to a £2,200,000 loss.

10:37 That is mainly due to investments in new

10:39 businesses. And then in terms of central costs, we are keeping a tight lid on central expenses, and that's certainly in relation to property costs, and we're also getting a bit more income on our cash deposits as well. So overall, those are the main driving factors behind underlying PBT.

11:01 Obviously, no presentation, would be complete without, without a view on, how we look at net debt. Obviously, this is a very high priority for the company, and, there's no change to that. Net debt did fall in the first half of the year by, 8%, as I mentioned before, a little bit ahead of expectations. There are a couple of one off factors within that that have helped us, and therefore, we expect that net debt for the full year to be a a touch higher than it was at the half year. But nonetheless, the trajectory here is still for further debt reduction over the next few years. In that respect, we absolutely, will repay the May 2024 bonds from available cash, and that is supported partly from the cash that's on the balance sheet as well as our two facilities. And we have an increased facility with Roger de Haan, which has been increased from 50,000,000 to 85,000,000 and with maturity extended to 12/31/2025.

12:03 And we also have the RCF in place, which is a further £50,000,000. The anticipation here is that we will probably draw on Roger's loan facility, for working capital purposes, and we would then keep the RCF in reserve.

12:20 So a quick word then on what we expect for the full year. So as you had mentioned, we are expecting double digit growth, significant, double digit growth in revenue and underlying PBT. And that is the case when you look at this under IFRS four or under IFRS 17. That is backed up by, Ocean Cruise where we think we will exceed the 40,000,000, trading EBITDA target per ship and with further growth next year given the very strong bookings profile. And similarly, we expect River Cruise and Travel together, to, generate at least the level of earnings that we were making before the pandemic, probably higher. SAGA money will probably be around breakeven given that we are investing in new products.

13:08 Insurance and motor is probably going to be a similar picture in the second half to the first, but we are looking to compensate for those pressures by, improving efficiency and reducing central operating expenses by at least £15,000,000 per annum. And last, but definitely not least, we will repay the 150,000,000 bond due in May 2024 from available cash, and that's backed up by the, Roger DeHaan facility and then, of course, the RTF, as a further backstop. With that, I'll hand back to you. Thanks, James. So just to cover a little bit more detail and bring you up to date with where we are with our core businesses and their results. These numbers are largely up to the end of September, last week. So ocean cruise first, again, as James has said, and I outlined at the start, ahead of our expectations for this year and for next year. Load factor now at 86, strong second half at 87%, still some opportunity for us to book, and to move that number forward.

14:09 Strong per diems in line with first half and very strong customer feedback at terms of 82 as a very strong net promoter score. We're reconfirming our, commitment to now beat the 40,000,000 EBITDA per ship original target for ocean cruise. And if you look forward into 2425, the numbers are even stronger. So trading ahead of where we were to get the numbers in 2324 with load factors so far booked of just under fifty percent and three hundred and fifty nine pounds per day, and we're already at 359 pounds with a lot of the itineraries that we have in the back end of 2324. River Cruise, again, a very similar position. Really pleased that the improvements in River Cruise has now matched the service proposition that we have on ocean.

14:58 Load factor in this year at 85%, so almost mirroring where we got to where we've got to so far with cruise. Per diems, two 185, just so that you understand that difference. That does not include the cost to the guest of getting to the river. So if you add in the cost of either train or air travel to get to the cruise, then you get up to a fairly equivalent number to the ocean cruise value. It's back end profit in the first half. We'll continue to make profit now and grow that profitability through the next five years. And looking forward to 2024, again, strong load factor of thirty percent and three hundred and twenty one per diem, very significant move forward in our monetization of that of that proposition.

15:45 Moving on to travel, similar story. So if you look at 2324 on the left hand side first and then 2425, Revenue up 46% on last year and passengers up 27%. That's reflective of higher average selling prices per passenger and a stronger margin base. We've lowered our costs, went digital, and we have, more interesting itineraries, which are monetizing the brand much better. That growth, continues into 2425 with revenue already at this stage in the year, up 15% before the major booking period, and number of passengers up seven on the numbers that you see on 2324. Lots of innovation in there. I've touched on briefly our private jet touring. It's a very premium product between £29,000 and £49,000 per person depending on the itinerary.

16:39 Each one of those tours were significant bottom line margin. So even though they may well be smaller numbers, they're very big in terms of their impact. Touring continues to grow very significantly, and our customers getting more confident about traveling worldwide. And we've opened up an operation in Australia that would be a precursor to testing, opening up an operation in North America at some point in the next eighteen months. And, you know, I think it's a it's a consistently growing business. We're back to, the levels of profitability pre pandemic, and we have, a key objective to drive double digit profit growth from travel each year in the next five years.

17:26 Moving on to insurance, still a significant part of our business under a bit of pressure, as we've said, in in motor. The other lines, operating well and showing growth. We announced in the last couple of months a new private medical

17:41 partnership with Bupa, which kicks in in January 2024. That opens up digital health and well-being opportunities as well as helping us to grow the core PMI product, within SAGA insurance. The team there have identified a number of efficiencies to offset some of the margin pressures that they're seeing in motor, which should deliver between 5 and 10,000,000, per annum as we go through into 2024. And we keep our minds open in terms of when is the right time to dispose of the underwriter. In money, lots of new products coming through. I think I've covered the kind of purple bar on the left hand side already in terms of our core savings product.

18:27 But this month, we launched fixed rate savings accounts and also legal services, including wills, probates, lasting powers of attorney, which have both started well. In October, we're in we are launching an investment ISA. And in November, we're launching later life mortgages, and there is a good and strong pipeline of new product development set for 2024 and into 2025, all wrapped up in a new website with a new customer newsletter, which will reach over a million people. So in conclusion, it's been strong progress, across the first half, particularly strong in cruise travel money and in media. We have identified, the final chunk of our two year program of central cost savings, and also identified some insurance efficiencies to offset the margin pressure that that business is under.

19:23 We will continue to look at the options for insurance underwriting, and we are committed to repaying a £150,000,000 bond in May 2024. And final point, which is the point I started with, which is that we're on track for significant full year double digit growth in both revenue and underlying profit before tax, and we believe and are confident that is ahead of market estimates. So with that, I think we'll pause and go to your questions. You and James, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review these questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via our investor dashboard.

20:13 As you can see, we have received a number of questions throughout today's presentation. Emily, could I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. No problem. Thank you. So firstly, we've had a series of questions from Tim L. In relation to the facility with Roger Dehaan. The first of those is, will the Dahan facility only be drawn down in May 2024? If not, why not? James, do wanna pick up those ones? We might have lost James. So I think as let me Hello. Sorry. I'm there. I was just on mute. Sorry. Okay. The the so yeah. Yes. So the, the Roger facility enabled us to draw down on the loan ahead of the repayment of the May 2024 bonds, and that is almost certainly what we will do.

21:10 Thanks, James. The next one on the facility is given that this facility was presented at the time of the full year results as a backstop in case the sale of April did not proceed, what has changed since then such that the facility, sorry, needed increasing by £35,000,000, especially in light of the release of the £26,000,000 from the travel escrow monies in h one? I'll take that one as well. So, so, I mean, the first thing, obviously, is that we had said before that, I think, in effect, if we were not to sell the underwriting business, then we would draw down on the Roger loan. And and I think as we announced yesterday, right now, we're not planning to sell the underwriting business ahead of the May 2024 bond repayment, albeit that we may well sell it, thereafter, maybe shortly thereafter.

22:04 In terms of the increase in the facility, this was really just giving us a further level of headroom. And the extension of the facility, again, just gives us a company significantly more breathing space over the next, at least two years now, in order to see that the cash generation of the business, including the expense savings and perform performance of the travel business in particular start to come through and that debt starts to reduce. Thanks, James. The next one from Tim on this is how would this this facility be repaid if not from the sale of April? In other words, is SAGA leaving itself as a hostage to Fortune by delaying the sale? So I think what we're trying to avoid is exactly that hostage to Fortune outcome in the sense that, obviously, if we had to, for example, repay the, Roger facility in next June or next September or something, then clearly, we would need to be in a position where we would be having completed the sale of the underwriting business.

23:08 So, basically, this thing gives us a much longer time horizon to do that. It also means that you could look at, other actions as well. So one of the things that we've evaluated for the underwriting business is would it make sense to sell it, or would it make sense to effectively, run off the liabilities ourselves and release the capital that way? And, obviously, the longer that, we have to do that, the more cash you would get out. And certainly, if you look at it over a two year view, there's actually not much difference between the cash you would get out from a runoff and the cash you would get from a sale. So the point here, I think, is it just gives the company a bit more flexibility and time to work out the plan for the underwriting business. Thank you, James. The next question from Tim is, in what circumstances would more than £50,000,000 of the facility need to be drawn?

24:01 Well, I think this comes back to the cash position of the company, next, May when the bonds are due for repayment. I mean, we can pay them a little quicker than that. So we whenever we pay the bonds. In terms of the the the the the overall circumstances, I mean, we need to hold certain amount of liquidity, on the balance sheet for working capital purposes. So, I mentioned yesterday that, typically, we would need around £50,000,000 of cash after the repayment of the bonds, just for normal everyday working capital purposes, mainly relating to the travel business. And so it's really a question of, how much do we need to draw on Rogers facility in order to meet that £50,000,000 minimum requirement.

24:50 Thank you. The next one from Tim is given that the facility would cost £8,500,000 in annual interest costs and £5,100,000 in fees is fully drawn. How confident is the board that delaying the sale will create shareholder value? Yeah. I mean, these are obviously considerations that we've put together. And I think that, I mean, the simple answer here is I think if we were to rush into the sale of the underwriting business or I mean, rushing to it is probably the wrong word. But if we were to execute the sale today, we would definitely have a margin squeeze, in the broking business that would be a counterproductive place to be. And the reason for that is because what we've been looking at in conjunction with the sale of the underwriting business is, a piece of work to transfer the underwriting that is, undertaken by April to other people.

25:46 And given the pressures on motor profitability right now, the only way we would be able to do that today would be by, essentially accepting higher net rates from a new partner. And therefore, we think it makes more sense to hold off on that to, look at a wider range of options for the panel. And once you've done that, then you can complete the sale of the underwriting business. And we do have a deal on the table, which we would have signed. We, and what and we've also spoken to the, the buyer, who would be willing, we believe, to, essentially restart the sale process once there is a solution to the panel in place, next year.

26:34 Thank you, James. We've had a series of questions from Matthew T. The first is, is the runoff from ACORD likely to fully cover the £85,000,000 loan from Roger? It's well, I mean, I think it I'm not sure if we'll get all the way to the 85. We would probably close a significant significant gap of it over time. But, obviously, we are generating cash in the business as well. Thank you. The next one from Matthew is, you mentioned that central costs are being reduced by £15,000,000, but city brokers seem to be predicting central costs are likely to rise next year by £5,000,000. What would be the reason for that? Well, that's a good question. I mean, we we weren't anticipating that costs, centrally were going to increase.

27:21 And I think we can now say that we would expect central costs to be lower. There's also an element of how much of that ends up in the businesses in the form of lower recharges for the services that provided to them. So, whether or not the full £15,000,000 is seen within central costs or whether some of that is in businesses, still still something we would work through. But but either way, you should see a £15,000,000 reduction in costs. I think that is more part of the timing. I think you'll see notes coming out in the next, week or so, which will more accurately reflect what we updated yesterday, which is the reduction in central costs. Brilliant. Thank you. The next question from Matthew is, is there any guidance on the timing of £30,000,000 available for sale properties actually being sold?

28:10 So we're very close to the finalization of that. As you know, the commercial property market has been incredibly tough place to be over the last six months. All of the, the properties in Kent are closing in on their final, exchange and completion, so we should be able to update in the weeks ahead. Thank you. The next one from Matthew is in the Citi presentation yesterday, you mentioned that debt to EBITDA would need to be sub three to 3.5 times to refinance the bonds in 2026. Assume this is net of ship debt, and what is the current ratio on that basis? So yeah. I mean, it's I mean, I think, this would be all of our debt, whether it's ship debt or any other debt.

28:55 On that basis, in the first half, it's seven times, so there's still a long way to go. But I think that the I think that that what you see in the first half is is certainly not reflective of where we expect earnings to be on a full year basis in the next couple of years. Thank you. Just a follow-up from Matthew t on the central cost point. He said this no RE central cost was from Numis as of yesterday, so it's up to date. Could it be a clarification issue? I mean, yeah, I mean, we we can we can talk to, Nick Johnson at Numis and make sure that he understands, all of the moving pieces. Well, I think whether I don't think Nick at this point has necessarily updated his I mean, he he obviously put out a note yesterday. I'm not sure he's updated his numbers, though. So I think that would typically come in the next few days.

29:45 Thank you. The next one from Matthew is oil seems to be back on the rise. Are you currently hedging? Yep. So we're hedged for next year, and we're hedged for part of the year after. And that's typically the way we would do it. So we typically start to hedge at the point at which the, business goes on sale. So we're obviously on sale for next year, and we would plan to be, well hedged for the year after by the time we get to the end of the year. Thank you. Related to that, Eamon S has a question who asked, how would the increased oil prices affect margins going forward? Yeah. So so as I said, I mean, for next year so we locked in oil prices for next year, some time ago, in fact, when the oil price was at a lower level. So, I mean, that ought to be a positive for, profitability in cruise next year, on the basis that we were certainly hedging for next year at a lower level than we're paying for this year.

30:47 Beyond that, to be honest, it's it's a bit of a hard question to answer. Typically, obviously, we would, I mean, look to if there's a need for us to put up, prices in cruise to reflect the fact that oil prices are higher, then that is what we would do. And that is indeed what we've been doing in the last, few years. Thank you. Also had another question, but it was in relation to the property sales. I believe we covered that. Matthew t asks, when do you expect cruise ship debt repayment to normalize back to original debt amortization schedules? So we've got an agreed repayment schedule for the bits of the ship debt that were deferred during COVID, and those, payments have been paid off over four and five years depending on which year it which year they relate to.

31:38 So, basically, we've got £62,000,000 of debt, repayments this year, 62 next year. I think it's 56 the year after that. And and and fairly soon after that, we get back down to a a more normal run rate, which would be around 45. Thank you. Zander m asks, thank you for the update on 2024 bonds. Are you able to say anything about the 2026 bonds and how you plan to refinance those? So, it's a bit hard to be, too prescriptive on something that's three years away. So, I think, without being flippant about this, I mean, I think that, obviously, we're very aware of that, refinancing need, but there is quite a long way to go. And, clearly, the priority at the moment is to get the net debt to EBITDA, including cruise, down to that three times level. Because at that point, refinancing, should not be, an especially onerous job.

32:39 I mean, certainly, we would be paying more than the five and a half percent we're paying today, but but I think at that level, it wouldn't be, a particularly difficult, exercise for us to do. So that that's really where the company's focus is, get get the net debt to EBITDA down. And that's a combination, obviously, partly of, of disposals. So for example, SAGA PLC partly also improving the economics of the business because that not only helps us to reduce debt, it also helps us to reduce the, net debt to EBITDA ratio. Thank you. Zander also asks, in reference to the 26 bonds, what do you think the level of leverage will be at at that point, and how do you anticipate avoiding a bump up in the coupon? So, I mean, I'd love to say that we would be, able to refinance at five and a half percent, but I think that's probably a little unlikely.

33:33 And so, we are going to have to pay more. The question is just, you know, obviously, how much more. It is three years away. It does mean that we've got time to improve the, economics of the business and to reduce net debt. And let's say the goal would be to get net debt to EBITDA down somewhere below three times. I mean, ideally, you'd go below that further. So that that's obviously the priority, as I say. So we will end up paying more in terms of the coupon. Almost certainly, would imagine. How much more really depends on, obviously, the credit rating of the company and the, other factors at the time. Thank you. There are no further questions. Ewen, James, thank you. And I think you've addressed all those questions you have investors. And, course, the company can review all questions submitted today, we'll publish those responses on the Investor Meet company platform.

34:24 Before redirecting investors to provide you with their feedback, which I know is particularly important to yourself and the company, Ewen, could I please just ask you for a few closing comments? Thank you. Thank you, everybody, for joining the call. I'm very pleased to have answered everybody's questions. We look forward to updating you next in January, where we should be able to confirm more details of the progress that we've made on revenue and profitability as we've guided. Thank you very much, and see you then. Ewen, James, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of SAGA PLC, we'd like to thank you for attending today's presentation.

35:11 Good morning to you all.