Saga : 2022 23 Interim Results Statement Vf

27 September 2022

Saga plc

Interim results for the six months ended 31 July 2022

Saga returns to underlying profit as cruise and travel growth begins

Saga plc (Saga or the Group), the UK's specialist in products and services for people over 50, announces its interim results for the six months ended 31 July 2022.

Euan Sutherland, Saga's Group Chief Executive Officer, said:

"I am pleased to report that, for the first six months of the year, Saga returned to an underlying profit, as we were able to resume more normal cruise and travel operations.

"Following our return to service after the pandemic, our Ocean Cruise business secured strong bookings and is on track to achieve our targets for this year and next, while we also made the final preparations for our new digital Saga Travel business which has just launched the first of our new products.

"Trading conditions in the UK insurance market continue to be challenging. While total policies in force grew by 3% compared with the first half of the prior year, this was led by significant growth in travel insurance with motor and home new policy sales behind the prior year. Customer retention continued to improve, increasing by a further two percentage points, and we continued to remain disciplined with our pricing. We also introduced a new range of motor insurance products including a lower-cost standard one-year product as well as electric vehicle and multi- car products. In our personal finance business, Saga Money, sales of our newly launched equity release product are also well ahead of last year.

"Following the launch of our multi-yearthree-step growth plan and the strengthening of our leadership team, we are focused on delivery of step one, maximising our existing businesses, step two, reducing our debt and step three, creating THE Superbrand for older people in the UK.

"Looking ahead, while we are mindful that the external environment remains challenging, we are confident that Saga is now in a stronger position than it was before the pandemic. We are determined to build Saga into the largest and fastest-growing commercial network for older people in the UK, building a customer lifetime value model and creating long-term value for our investors."

Operational and financial highlights

• The Group delivered an Underlying Profit Before Tax1 of £14.0m for the first half, compared with an Underlying Loss1 of £2.8m in the prior period.
• We delivered a strong Ocean Cruise return to service in spite of the continued effects of the pandemic in the early part of the year. Based on current bookings, we are on track to achieve our target load factors for this year and next.
• In River Cruise, to ensure that guests receive the same exceptional experience as on our ocean cruises, we have updated our offering to include more within the ticket price and also offer early booking discounts.
• We have also just launched the first of our new Travel2 products which followed the combination of Titan Travel and Saga earlier in the year. The business is now more digital, has an enhanced website, and is able to offer greater customer choice and peace of mind, at higher margins. More new product releases are expected over the coming months.

1. Refer to the Alternative Performance Measures Glossary on pages 61-62 for definition and explanation
2. Travel refers to Saga and Titan Travel's touring, stays and tailor-made products

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• The UK insurance market continues to be challenging following implementation of regulatory changes which required equalisation of pricing between new and renewing motor and home insurance policies.

1. Total policies in force, across all products, grew by 3% compared with the first half of the prior year, led by the recovery of travel insurance.

1. Although sales of new motor and home policies were lower than the prior year, our customer retention improved and our margin per policy was in line with 2021/22.

1. Sales of new travel insurance policies returned to similar levels as before the pandemic, while private medical insurance sales were broadly in line with the prior year.

• 1. Our Underwriting business, along with the wider market, has experienced high levels of claims inflation, currently around 13%. This increases the cost of insurance claims which is having some impact on our profitability.
• In our personal finance business, Saga Money, following the launch of our new equity release product earlier in the year, total loan volumes were 33% ahead of the same point in the prior year.
• We maintained a strong liquidity position with £179.0m of Available Cash3 and a £50.0m undrawn revolving credit facility.
• Net debt reduced to £721.3m which is £7.7m lower than at 31 January 2022.
• We resumed repayment of our ocean cruise ship facilities in June 2022, following two years of agreed deferrals.
• Our reported loss before tax of £257.5m reflects a £269.0m impairment of Insurance goodwill, representing a reduced view of future motor and home margins per policy, as signalled in our July Trading Update. At 31 July 2022, £449.6m of Insurance goodwill remained on the balance sheet.

Outlook

Looking ahead to the second half of the year, we expect a continued recovery in our Cruise4 and Travel businesses. We anticipate that the headwinds experienced in the first six months will recede as customer demand continues to rebuild and we are able to grow our bookings. Whilst we are mindful of the broader inflationary environment in the UK, the exposure within these businesses has been largely offset or, in the case of fuel, hedged, and at present, we are not seeing any impact to demand from our customers.

We expect the current high levels of insurance claims inflation to continue and the sales of motor and home insurance policies to be similar to the first half. The launch of our new range of products, alongside increases to our pricing and our continued focus on discipline, will allow our Insurance business to return to policy growth over time.

For the full year, while our view on the Cruise, Travel and expense outlooks remain largely unchanged, based on the current inflationary pressures within the insurance market which are anticipated to continue, we now expect to report an Underlying Profit Before Tax3 in the range of £20m to £30m and grow future earnings from this level. This compares to our previous guidance of £35m to £50m.

Looking further ahead, to the next five years, Saga is making a strategic pivot to become a marketing, content and distribution business by continuing to deliver exceptional experiences for our customers every day, growing our database and maximising our Cruise, Travel, Money, Media, Insight and Insurance businesses. The most significant profit growth will be delivered by Cruise and Travel, supported by growth in Saga Money.

We are confident that Saga is in a stronger position now than before the pandemic and we are committed to building Saga into THE Superbrand for older people in the UK.

1. Refer to the Alternative Performance Measures Glossary on pages 61-62 for definition and explanation
2. Cruise refers to our Ocean Cruise and River Cruise operations

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Divisional performance

Cruise5 - Strong Ocean Cruise bookings and progress on River Cruise

• We are pleased with Ocean Cruise which generated positive EBITDA and cash flow in the first half of the year, supported by a load factor of 66% and a per diem of £318.
• Ocean Cruise bookings for the full year, at 18 September 2022, reflected a 74% load factor with a per diem of £319.
• We are on track to achieve the 75% target load factor for 2022/23 (84% in the second half) as we return to pre-pandemic operating conditions following the removal of all temporary COVID-19 measures.
• We have already seen strong early 2023/24 bookings, representing a load factor of 42% and per diem of £325. This is on track to deliver our commitment of £40m EBITDA per ship.
• We have maintained exceptional levels of customer satisfaction throughout the first part of the year with a net promoter score of 62 and a guest feedback score of 8.8 out of 10.
• During the last six months, we combined the Ocean and River Cruise teams into a single team to deliver the same consistently high service across all ships, encouraging guests to cross-sell between the two.
• River Cruise to Ocean Cruise cross-sell at 31 July 2022 was 18% and vice versa was 6%. Both represent improvements year-on-year and demonstrate a tremendous opportunity moving forwards.

Travel6 - Phased launch of new digital business

• In the first half of the year, we combined Titan Travel and Saga touring to create the UK's largest and market- leading touring business. This delivers cost efficiencies, margin benefits and improved customer choice with 134 tours available to Saga and Titan customers globally.
• We have also radically improved our Travel business, moving it from a largely paper brochure-based business, to a digital business, with dynamic pricing which allows customers to access the lowest global prices for their flights and hotels.
• The new business, which has recently launched the first of our new products, is supported by an enhanced website and booking platform, and includes the return and enhancement of the Saga Exceptional Departure Experience. This provides customers with a range of services including our home-to-airportpick-up, our visa completion service, included travel insurance with our touring and stays products, our 24/7 English-speaking emergency response service and our UK airport experience which includes lounge access and the option to fast-track through the airport.
• At 18 September, our booked revenue for 2022/23, which currently includes River Cruise, was £137.6m and does not represent a typical year due to COVID-19 restrictions at the beginning of the year, deliberately delayed product launches and the reset of the business. As such, the business is expected to report a small loss for the full year, but this will be significantly ahead of the prior year.
• Consequently, the bookings of £76.0m for 2023/24 are behind the same point in the prior year, reflecting the conscious re-positioning of the business ahead of our new touring, escorted stays and tailor-made propositions which have begun a phased launch.
• Our call centre has seen record levels of call volumes in the last month, as demand for holidays and tours picks up. This has resulted in longer average wait times for customers as we ramp up the capability in our teams.

1. Cruise refers to our Ocean Cruise and River Cruise operations
2. Travel refers to Saga and Titan Travel's touring, stays and tailor-made products 3

Insurance - Challenging market conditions with steps taken to return to growth

Retail Broking

• A mixed performance across motor and home with strong customer retention but significantly lower new business volumes:

1. We have continued to be disciplined in our approach to pricing in the context of the challenges facing the insurance market during the first half of the year.

1. Policies in force were 1.5m, 3% behind the prior period with policy sales 8% behind. Policy sales for the second half are expected to be similar to the first.

1. We have seen a continued improvement in customer retention, now at 83% and 2ppts ahead of the prior year.

1. The decline in new business volumes was caused by maintaining a disciplined approach to pricing which had some impact on our competitiveness.

1. During the first half, we introduced a range of new motor insurance products to respond to the cost- of-living crisis and the changing nature of driving. These included a new, lower-cost standard one-year policy alongside electric vehicle and multi-car products which are expected to improve policy sales over time.

1. Our share of direct new motor and home business was lower in the short-term at 50%, compared with 58% in the prior year, with the remaining 50% coming indirectly from price-comparison websites.

1. Our margin per policy was in line with 2021/22 at £74 for the first half of the year, reflecting a higher proportion of renewals and lower new business. This is expected to be slightly lower for the full year, moving to around £60 in 2023/24 as lower-margin, standard one-year policies become a larger proportion of our sales.

1. Margins on our three-yearfixed-price product remain adequate on existing business, protected by our pricing strategy which incorporated contingencies to allow for a higher inflation environment.

• 1. Motor insurance to home insurance cross-sell at 31 July 2022 was 18% and vice versa was 22%, highlighting a significant opportunity as we continue to enhance our customer data and insights.
• The Insurance goodwill impairment of £269.0m reflects an updated view of potential motor and home margins and incorporates prudent downside scenarios.
• Sales of new travel insurance policies returned to pre-pandemic levels and were over 200% ahead of the same period in the prior year.
• Following on from pricing actions taken over the last two years, sales of our private medical insurance product were broadly in line with the prior year.
• At 31 July 2022, total policies in force across all products were at a similar level to 31 January 2022.

Underwriting

• Our underlying current year combined operating ratio was 110%, 22ppts higher than the prior period reflecting high levels of claims inflation which we observe to be currently around 13%, alongside closer to normal claims frequency.
• The reported combined operating ratio (excluding the impact of quota share reinsurance arrangements) was 86%, 18ppts higher than the prior period which benefited from reduced claims frequency.
• Reserve releases of £18.4m in the first half benefit from a one-off £10.0m reduction in prudent reserves established for the 2020/21 accident year. Releases in the second half are expected to be materially lower than the first.
• While we are seeing some short-term earnings pressure from high claims inflation, we are applying material increases to our pricing. The current year combined operating ratio for the full year is expected to be at similar levels to the first half but we expect an improvement into 2023/24 as price increases flow through to earned premium.

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Wider strategic progress

• Tremendous progress has been made in strengthening our leadership team to deliver our growth plan. Recruitment of the new Executive Team is now complete with investment in CEOs to lead the Saga Money, Media and Data teams.
• Our colleague engagement has increased further to 8.0 out of 10 as we've continued to enhance the support available to colleagues, providing access to a new reward platform which offers a series of benefits, wellbeing tools and a range of discounts in one place and, given the current inflationary pressures, accelerating our annual pay review and providing two-additional support payments for colleagues with lower earnings.
• Building on the acquisition of the Big Window in February, we conducted detailed customer segmentation research, identifying eight distinct segments of the over 50s population. This research has allowed us to identify which of these segments represent a significant growth opportunity for Saga and will allow us to effectively target these customers moving forward.
• Volumes of new customer marketing consents were significantly ahead of the prior year, at over 350%, and are on track to reach three million by the financial year end, enabling us to be in a better position to grow our marketable database and share new offers with a wider audience.
• There has been continued improvement in our customer net promoter score, which is now at 50, compared with 47 at the same point in the prior year, driven by a significant increase within Saga Money.
• Our new weekly email Saga magazine has been a particular highlight, reaching over half a million people every week, showcasing the best of our monthly magazine. Reader numbers are increasing, and we hope to hit between 800k and 1 million readers by the year-end.

END

Management will hold a presentation for analysts and investors at 9.30am today. The webcast can be accessed by registering at https://www.investis-live.com/saga-group/6315bbf979e5831200bc3fb1/saga. A copy of the presentation slides is available at www.corporate.saga.co.uk/investors/results-reports-presentations/.

A separate live presentation for retail investors will be held via the Investor Meet Company platform on 28 September 2022 at 9.30am. The presentation is open to all existing and potential investors. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9.00am on 27 September 2022, or at any time during the live presentation. Investors can sign up to Investor Meet Company for free and follow Saga plc via www.investormeetcompany.com/saga-plc/register-investor. Investors who already follow Saga plc on the Investor Meet Company platform will automatically be invited.

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 travel, insurance, personal finance and media. www.saga.co.uk

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