Saga plc (SAGA) Earnings Call Transcript & Summary

Good morning all. Welcome to the Saga Annual General Meeting. My name is Adam, and I'll be coordinating your call this morning. I will now hand you over to your host, Patrick O'Sullivan to begin. So Patrick, please go ahead.

Good morning, ladies and gentlemen. And as I've just been introduced, I'm the Chairman of your company, Saga plc. Can I extend a warm welcome and thank you for attending this rather unusual Annual General Meeting of Saga today and particularly to all of you who are shareholders participating online through our virtual meeting platform. As the Chinese proverb goes, may you live in interesting times, and we certainly are. As I explained in the letter, which accompanies the notice of meeting, in light of the government's current prohibition on nonessential travel and public gatherings, we put in place measures to allow shareholders to listen to the AGM proceedings remotely rather than attend in person. This decision wasn't taken lightly. But our hope is that this solution will provide the best possible opportunity for you, our shareholders, to participate in the proceedings of the meeting without attending in person. We need 2 shareholders' presence, however, in person, to ensure a quorum is formed. I'm pleased to inform you that our Group Chief Executive Officer, Euan Sutherland, who joined us in January this year; and our Group Chief Financial Officer, James Quin, are with me at our head office here in Enbrook, Folkestone. And therefore, we have the necessary quorum. I'm sure you'll be delighted to know that we're taking appropriate steps to be socially distant and safety measures are in place. I'm pleased to say also that we've been -- we've arranged for all the Board members to attend the meeting virtually. By way of introduction, we have Cheryl Agius, an Executive Director and our Chief Executive Officer of Insurance -- Officer of Insurance, who also joined us in January. And our Non-Executive Directors are: Orna NiChionna, our Senior Independent Director and Chair of our Risk Committee; Eva Eisenschimmel, who is our Remuneration Committee Chair and representative of the Board on our Customer Advisory Committee; Julie Hopes, who chairs our Insurance Broking Board, Saga Services; Gareth Hoskin, who chairs our underwriting company, Acromas Insurance Company Limited; Ray King, current Chair of the Audit Committee; and Gareth Williams, our Board representative for the People Committee. Sitting on my left is Vicki Haynes, our Group Company Secretary; and Mark Watkins, our Director of Investor Relations also here in Enbrook. This is, sadly, Ray King's last AGM with us as he is retiring and won't be standing for reelection this year. Gareth Williams has also advised that he intends to step down as Director by the end of December this year. Both Ray and Gareth have been with the company since the IPO. I would like to thank them very much for their valued contribution during this time. Gareth Hoskin will assume the Audit Committee Chair role with effect from the close of this meeting. Turning now to the formal business of the meeting. Voting this year will be conducted by a poll. The resolutions were listed and explained in the notice of meeting, and I do not propose to summarize these again before we commence the formal voting process. As the notice was published on our corporate website and was sent or made available to shareholders in accordance with their instructions, I will take this as read. We will also consider any questions that you may have about the annual report in general and any of the resolutions in particular. You can start submitting questions now using the online meeting platform, which is to click on the messaging icon in the navigation bar, and we will address these later in the proceedings. May I now ask Vicki Haynes, our Group Company Secretary, to explain the voting procedure that will be used today and confirm again that you can now submit questions. Vicki?

Thank you, Chairman. Good morning, ladies and gentlemen. As Patrick said, a poll will be conducted on each of the resolutions put to the meeting. The company's registrar, Link Asset Services, have been appointed to act as scrutineers. Each resolution is set out in full in the notice of the meeting, which you will have received in the post, electronically or by being directed to the copy available on our website. Resolutions 1 to 17 are proposed as ordinary resolutions and require a simple majority to be passed. Resolutions 18 to 21 are proposed as special resolutions, which require a majority of 75% to vote in favor of the resolution to be passed. For those shareholders attending online using the online meeting platform, you will see the voting icon on the navigation bar. Once you click on this, a summary of each resolution will appear on your screen, along with the for, against and withheld voting options. Simply select one of these options by clicking on the relevant box to cast your vote. If you change your mind, you can select another option. You can change your vote as many times as you wish up to the close of the poll. Your vote will have been submitted when Patrick confirms that voting has closed later in the meeting. At this point, the voting option icon will change color and a vote received message will appear. There is no final submit button as the voting is live. Please rest assured that we will provide reminders throughout the meeting prior to the poll being formally closed. If any meeting -- if any person attending the meeting online is having any difficulties with using the platform, there is a user guide that has been prepared that you can access through the platform on the information tab. This should address any questions that you might have. Please note that any shareholders, proxy holders or shareholder representatives may vote. You can vote at any time during the proceedings until the voting is declared closed. Patrick will close the voting after we have concluded the question-and-answer section. As I mentioned earlier, Patrick will give you a clear prompt later in the meeting to warn of the close in voting. Now to the question. [Operator Instructions] Please note, if we receive questions around a similar topic, we will group these and provide an answer which covers these in the aggregate to make the most efficient use of time. You can ask a question at any time during the meeting up to the point where the Chairman formally closes the question-and-answer session. Thank you for your attention. I will now hand back to Patrick.

Thank you very much, Vicki. I can now confirm that voting on the resolution is open. As I mentioned earlier, Euan Sutherland joined as Group CEO in January this year. Saga, I'm pleased to tell you, has made significant operational progress through the financial year and before the COVID-19 outbreak. Work had already started to strengthen our financial position by reducing debt, cutting costs and improving our cash flow. So I'll now hand over to Euan so he can provide you an update on current trading and mitigating actions we have taken to reduce the impact of COVID-19 on earnings and cash. After Euan's comments, we will move on to the formal part of the AGM. So Euan, welcome.

Thank you very much, Chairman. Good morning, everybody. I'm very pleased to be talking to you today at my first AGM of the company. I joined Saga because it's a unique British brand with a strong heritage as well as a great future. This business has an important part to play in the U.K. supporting older people. The time that I've spent here has reinforced my view that there is huge potential to return Saga to growth. Having said that, this will undoubtedly be a tough year, but I remain confident in the long-term potential for the group. I would like to thank our stakeholders for their ongoing support, including our customers for their incredible loyalty they've shown Saga, all of our shareholders and also my colleagues for their hard work who have demonstrated both passion and drive in what has been a challenging time. I'm proud of what we've of what we've achieved in continuing to provide our customers with high levels of service that Saga is known for despite the obvious disruption caused by COVID-19 pandemic. We have issued a trading statement to the market this morning, and this is available on our corporate website for those of you who have not had the chance to read it yet. The key highlights are that the Insurance business is in good shape and continues to make progress with the performance led by the success of our 3-year fixed price policy. Retail Broking has -- had performed well across home, motor and private medical insurance partially offset by an expected lower sales of travel insurance during the lockdown. We've just announced a market-leading travel insurance product, including COVID-19 cover, which has full worldwide repatriation and medical cover up to GBP 10 million per individual claim. This is an important innovation to give all of our customers peace of mind and their independence back ahead of traveling all over the globe. Motor and Home policies for the period of 567,000 are 1% higher than in the prior period, reflecting higher retention, partially offset by a continued disciplined approach to new business. Customer retention across Home and Motor business of 79%, is 6 percentage points better than in the prior period, reflecting a range of initiatives. Motor and Home margins per policy after marketing costs in the first 4 months of the year were GBP 68, broadly in line with our expectations. Total policies for the period of 620,000 are 5% lower than in the prior period due to the lower number of new travel policies sold from mid-March, as I've outlined already. For the insurance underwriting business, reserve releases of GBP 20 million in the first 4 months of the year are ahead of our expectations. This is due to the favorable experience on large bodily injury claims relating to prior accident years. Current claims frequency from March onwards has been much reduced as a result of lower miles driven following the start of the COVID-19 lockdown. The group has not recognized any COVID-19-related claims upside on the current year results or on our financial projections. Moving now to our Travel business. Our Travel business has remained on pause since mid-March due to COVID-19. The group has been focused on ensuring customers whose holidays have been canceled have been rebooked on future trips or offered a cash refund. The group continues to expect some travel to resume this year. Retention levels continue to be high particularly in cruise, and a significant number of changes have been made to how the travel businesses operate to provide peace of mind and ensure the safety of our customers and our colleagues. Included in this is over 100 enhancements to our new cruise ships, which, being smaller than many of the competitors, are more suited to operating in a COVID-19 world. Our 100% balcony cabin ships also have the latest fresh air conditioning in the public spaces. As at 31st of May, the group had canceled all travel departures up to and including August and had refunded GBP 44 million of advance receipts to customers mainly relating to the Tour Operations business. For Cruise, customer loyalty has been exceptional. Advance receipts at the end of May were GBP 43 million, which is at a similar level to the end of March and well ahead of expectations. The group has retained over 70% of advance receipts on canceled cruise departures, and new bookings for next year have been positive. The sale of the Saga Sapphire was completed on the 12th of June on terms in line with expectations. And the latest indication for the Spirit of Adventure is that she will be delivered by the end of October. The group has been working hard with industry bodies and the government to establish operational practices that would enable a return to operations in both Tour and Cruise businesses as the current restrictions are lifted. As I've said, the group's new midsized ships are ideally placed to offer safe sailing, and all these measures will be in place by the end of August. As Patrick said, we have made good progress against the backdrop of COVID-19 crisis. We have been clearly focused on serving our customers and keeping colleagues safe through this period of major disruption. We reacted quickly to the imposition of lockdown, moving more than 3,000 colleagues to work from home while maintaining our industry-leading customer service levels. It is clear from the short time I've been part of the Saga team that we play a really important role in the lives of our customers, and this underlines my belief in the strength of our brand. I'm excited about what we will be able to achieve with a tighter focus on differentiated products and the right investment in strengthening our data and digital capability and driving our brand and membership proposition forward. Thank you. I'll now hand back to the Chairman.

Thank you very much, Euan. I would like now to proceed by dealing with questions, which are, of course, relevant to this meeting. I encourage those of you wishing to put a question to preregister them in order to deal with these as efficiently and effectively as we can. We actually received a number of questions, and I will now respond to these in the first instance before responding to the electronic questions.

We received a question from Mr. [ Graham Edward Moore ] which was why is there so much focus on investment on cruises as opposed to insurance? Thank you. A very interesting question, Mr. [ Moore ]. I'll ask Euan to respond.

Thank you, Mr. [ Moore ]. Thank you, Patrick. Our decision to invest in the 2 new ships completes the transformation of our Cruise business and will significantly underpin the profit plan in the years to come. But I'd like to tell you about the investments that we've made in Insurance as well, which enabled us in April 2019 to announce to the market our change in approach to selling insurance with the launch of a highly differentiated Home and Motor insurance product that guarantees the same premium for 3 years, providing there are no claims in the period and that there is no change to the insurance premium tax. This is available to customers who have come to us direct. We also changed our approach to renewal pricing. This is in recognition of the fact that the industry is going to go through a period of major change. We want to encourage our customers to see more of a benefit in remaining with Saga for the long term. These changes were supported by the fact that we've come a long way in terms of IT, and there's a big investment in that part of the business, too. We've continued to implement Guidewire in our Retail Broking business with the motor product now fully operational on the platform and the home product is due to go live in 2020/'21 financial year. This investment in our systems has led to a better customer experience and call center efficiency, lower support maintenance and change costs in really driving the next generation of our product development. Patrick?

Thank you, Euan. I trust that answers your question, Mr. [ Moore ], and gives you confidence that despite all of the challenges, Saga continues to invest in our future. Our next question was from Mr. [ Gordon Dunbar Christy ] who asked whether the Board would consider reducing the number of paper copies of the annual report and accounts sent to shareholders, and whether an abridged copy could be provided, or indeed, whether documents could be accessed online instead. Well, thanks for that, Mr. [ Dunbar Christy ]. We received a lot of these questions more widely around the production of the annual report, as I'm sure you probably have heard. And these vary from shareholders requesting a paper copy in larger font, which clearly would increase the cost of production and postage, to moving to an online version. It's quite a topic. I have to tell you, I just listened into Sir John Thompson of the FRC talking about this in the context of future regulation as to what annual reports should begin to look like. And he is aware of the conflicts between the different demands that are there. At the moment, we are completely conforming to the requirements of the Companies Act, and that requires these very large documents, but they are available online. So we always look to reduce the overall size of it while reducing the level of detail and transparency we feel that you, our shareholders, want and require. It is, as I said, available on the website, the annual report that is. I encourage anyone who feels able to sign up for electronic communications to view the report via the website. In addition, we regularly review ways to improve communication with shareholders and encourage electronic communication where available. This has a number of advantages, as you all know, including increasing the speed of communication, minimizing our impact on the environment and reducing print and distribution costs. For example, historically, Saga sent over 53,000 paper proxy forms each year. 85%, I'm sad to say, were never returned. And as of this year, we no longer send paper proxy forms to shareholders registered for paper communications unless they specifically ask for one. We've urged our shareholders to register for electronic communications generally as I said now a few times. You may register online using the Saga Shareholder Services portal or by contacting our registrars, Link Asset Services. Contact details are set out on Page 2 of the notice of the AGM, which is available on our website. The last set of preregistered questions were from Mr. [ Desmond Salmon ] who asked whether directors are cutting their salary, and if so, by how much? He commented that this recognizes, in his words, that staff have been made redundant, some are furloughed and shareholders are not receiving a dividend, and prospects are not good following the lockdown. Mr. [ Salmon ] also asked how the bonus paid to Euan is justified given that he joined us on the 6th of January and this represents 25 working days. I might add, Mr. [ Salmon ], very hard-working days. He has been tremendous at the way he's gone with the challenges that he faced. Finally, you asked what mechanism is in place for a response after this meeting. I can answer that last one, which is before asking our Rem Com, Remuneration Committee Chair, Eva Eisenschimmel, to respond to the rest of the questions that you've raised. So we do, as you know, aim to be as transparent as we can be and post details of any shareholder consultation or communication on the website. We welcome the opportunity to communicate with our shareholders and hear what they have to say at any time. So we look forward to hearing from you. Shareholders should contact us again by the Saga Shareholder Services, a service our registrars provides on our behalf or via our Investor Relations team. Contact details for both are again provided on Page 2 of the AGM notice. For queries or feedback relating to remuneration specifically, we do provide Eva's e-mail address in our annual report. So Eva, with that, over to you on the specific questions from Mr. [ Salmon ].

Thank you, Chairman. And for your questions, Mr. [ Salmon ], I really welcome the opportunity to provide a little context and a response. So starting with your first question, if I may, around director pay, I can assure you that the Remuneration Committee is acutely aware of the need for equity of treatment between Saga's directors and its colleagues. And this is a highly important principle to us all. The executive team at Saga has not taken any reduction in salaries because of COVID-19, but nor have there been any reduction in salaries for any employees of the company. And I would like to clarify that the company has also not taken any government assistance. And in particular, it has not participated in the much publicized COVID-19 job retention scheme (sic) [ Coronavirus Job Retention Scheme ]. And all of this is driving the view of the committee of just how important it is to focus on the need to maintain the passion, commitment and the energy of Saga's workforce including the executive team, to ensure that the company emerges from the current challenges as a stronger and more sustainable business. So now let me turn to your question about the bonus payment made to Euan. And just for clarity, this was in relation to the financial year which ended in January 2020, and that's to say, of course, before the start of the COVID-19 pandemic. But let me explain the reasoning of the Remuneration Committee on this. The Board was absolutely delighted with the needed impact that Euan has made when he started work with us and believe he is central and core to the turnaround of the company. Euan's bonus has been prorated for the period in the financial year that he worked in line with our remuneration policy and as approved by our shareholders. So Euan's bonus reflects the fast start that he made to 2021 as leader of the company and as outlined in our recent full year results. He was awarded a partial bonus at a level of 66.8% compared to his full bonus opportunity of 150%. And therefore, taken together, that led to an equivalent payment of 100% of salary. So to summarize, I apologize, it's a long answer to your question, but an important one. The committee has taken the view that Euan's immediate impact on Saga has been so strong that the bonus was justified based on the scheme's formulaic outcome. And also Euan has not been in the role over the period during which the Saga share price performance deteriorated, and therefore, there was no reason for exercising discretions to depart from that formulaic outcome. The bonus were prorated to 1/12 to reflect the period of service during the year, and therefore, we believe the actual bonus was commensurate with Euan's impact over the period. Back to you, Patrick.

Thanks very much, Eva. And if I may now turn to the questions, which you have submitted online. I'll ask Mark to help me out here in making sure that we all can hear those questions, and then we'll try and give you as good an answer as we can. If I can remind you please that the -- still possible to send us those questions and that after we've finished the questions that have come in online, voting will close. So I would ask you to submit your vote now if you haven't done so already. Mark?

Thank you, Chairman. The next question is from the [ Reverend Roger Noor ]. Offering travel insurance without cancellation cover because of COVID-19 is like selling chocolates to buy gum. It does not encourage booking cruises where the cost of the cruise can be thousands of pounds and that money at risk to the customer should they need to cancel due to COVID-19.

Thanks, Mark. And if I can remind you that, in fact, in our trading update this morning, we talked about the new cover standard in our insurance policies for all trips from the 1st of June. We've added that cover to help customers feel more comfortable traveling once the government advice changes. Hopefully, that will be clearer later this week, and we will continue to look at what we can do to meet the needs of our customers. In terms of our own holidays, we provide flexible cancellation cover should you need to cancel due to coronavirus. Back to you, Mark.

Thank you, Chairman. The next question is from Mr. [ Thomas Kidman ]. Thank you for organizing this interactive virtual AGM. Can you please tell us how many shareholders have logged on? If this is a significant number, would you consider combining this with a real AGM in future years?

Yes. We can certainly confirm the number of shareholders attending after the meeting once we've got feedback and very happy to commit to looking into a digital AGM in our future plans.

The next question is from Mr. [ Paul Castle ]. Why has Saga Share Direct moved entirely to Equiniti, losing the association with Saga?

Well, you may be aware that we moved away from share dealing to focus on our other financial -- personal finance products, and that is under the careful ownership of Cheryl Agius, our new CEO of Insurance and Financial Services. Cheryl, would you like to comment?

Yes. So at the start of the year, we reviewed some of our core financial products, and share dealing was one of those. So we have taken the decision to move away from that because it's not core and focus more prominently in our savings products and our equity release.

Thank you, Cheryl. As you will have noticed, I'm sure, since Euan's arrival, he has been very focused with his management team on narrowing down the product range that the company has on offer while improving substantially our existing product offering and it's a focus you'll see -- Euan, I -- if you'd like to comment going forward?

Yes. Thank you, Chairman. I think that's right. We are very keen here to focus on driving the true brand differentiation that Saga can offer. And that meant that we've gone through the current product portfolio very carefully to make sure that we select, promote and drive forward those that will further the DNA of Saga. So we have, as you said, gone through a process of rationalizing down noncore businesses and the noncore offers. And as we come through 2020 into 2021, we are very keen to grow products that will deliver on the Saga DNA and Saga brand promise, but more of that at the update next year.

Thank you, Euan. We have one final question that I see here. Will we be increasing the number and type of saving accounts at Saga Savings assuming financial -- that they're financially viable? From Miss [ Sheila Davies ]. I think Cheryl addressed that in response. But Cheryl, if you would like to?

Yes. So thank you, Patrick. We have been very successful with our partnership with Goldman Sachs. So we've had -- you'll have seen we've had a 1-year fixed and instant savings account, and which has been very competitive and a digital-only proposition. We have and continue to monitor the product that we offer and look at how we are building their size and to consider other alternative products that would complement that. To date, we have over GBP 2 billion of savings under management, and this is a tremendous achievement by the team since launch. So we will continue to monitor this and see what natural ancillary products we would like to expand on that over the coming months.

Thank you very much, Cheryl. Well, ladies and gentlemen, I've been looking at our screen here. I don't see any more questions. I'll just give it a moment or 2 here in case you have anything else you would like to ask. So we'll just give that a minute and remind you again about voting. Well, ladies and gentlemen, that seems to have completed the questions. I can confirm that the poll is now closed, and the provisional results are that all resolutions have been carried. Results will be available on the website shortly. So this concludes the meeting. Thank you for your attendance and interest in being with us today. I can only say that your Saga team are absolutely dedicated to getting us back on the high seas again as soon as possible. And in the meantime, we hope you stay safe and well. Thank you very much.

Ladies and gentlemen, this concludes today's call. You may now disconnect your lines.