Saga plc (SAGA) Earnings Call Transcript & Summary

Good morning, and welcome to the Saga plc preliminary results investor presentation for the full year ended 31st of January 2022. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself, however, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand over to you, Euan Sutherland, CEO; James Quin, CFO; and Lisa Edgar, CEO of the Big Window and Member of the Saga executive team. Good morning.

Good morning, everybody, and thank you very much for joining us today. It's very important that we get to speak to as many investors as possible. So fantastic to see so many people joining the call this morning. We're going to try and walk you through the full presentation in the next half an hour or so and then leave lots of time for your questions. Last time we did this, we had a tremendous engagement and great question. So we're hoping for the same again today. As was introduced on the next slide, thanks, Dan. I'm joined by James Quin, our Group CFO, who will take you through the numbers for last year and a little bit of a view on the outlook. And also today, Lisa Edgar, who is the CEO of the Big Window, who's the leading insight agency into older age and aging, which Saga acquired 4 weeks ago and a fascinating update from Lisa, which I'm sure you will enjoy. So just moving on then to a brief summary of the year last year. Thanks, Dan. It was a tough year, I think, for all organizations, but Saga has shown a strong progress, stabilizing the business from the legacy overhang issues that we inherited pre-pandemic and navigating the pandemic successfully. In insurance, it was the second year of a strong focus and growth across the balanced scorecard, which we issued back in 2019, showing continued growth in policies as well as stable margin and profitability. And in Cruise, it was a very successful restart to cruising again back last June, and we have been able to sale uninterrupted all the way through to the year-end and more detail of that in a couple of minutes. And we've worked hard behind the scenes to restructure our Tour Operations business, which is now a lower cost, more digital, a streamlined business, which has the opportunity for significant growth when our customers come back into the market. We've also spent a lot of time relaunching our brand, which has landed incredibly well with our customer group, moving the debate from older age to experience and celebrating this experience is something that our older customers have more than any other age demographic. We continue also to support our colleagues through what has been a tough time and colleague engagement has moved forward by over 20% in the last 2 years. And one we are, I guess, one of the few organizations that is able to claim that moving forward. And we've also taken that out further, and we were the first organization of its type to launch grandparents leave. We are in a much stronger financial position as we end the last financial year with GBP 187 million of available cash on the balance sheet. And we are well set for stabilizing the business and moving it into growth in the years ahead. We continue to focus on debt reduction and good progress there and efficiencies and there's more work that we will be doing over the next couple of years, and we'll outline in this presentation. So overall, we are strategically well positioned for growth despite some of the short-term headwinds that the world is seeing through geopolitical interruptions right now. Thanks, Dan. Let's move on to the next slide. So just dropping down into a little bit more detail in insurance and in travel. As we said, good performance across both of these sectors in the last 12 months, stabilized business and absolutely ready for growth as we step into '22 and beyond. In insurance, our headline products are 3-year fixed has moved forward again and that accounts for 47% of our combined Home and Motor book. Retention also stepped forward to market-leading levels in home and very strong levels in motor of a combined number of 82.8%. For the first time in over 10 years, we saw our underwriter move forward in policies in force, up over 3% and continued progress in the broker policies in force up 1.4% for the year. We continue to focus on being a direct-to-customer business, and that percentage was stable in the year at 59% direct for Home and Motor and margins stable as well for -- at GBP 74 per policy. Moving on to travel, as I've said, successful restart of Cruise in June last year, obviously, under government restrictions for the first 2 to 3 months, but then driving strong load factors through to the year-end. We ended up at 68% load factor, which we believe was industry leading for last year with our Cruise per diem of GBP 299 again stepped on from pre-pandemic levels. That load factor was a couple of percentage points lower than we were forecasting due to Omicron coming out in December and January, interrupting some of our customers' ability to cruise with us and also canceled South American cruise at the same time of year due to the red-list COVID status of those countries at that point in time. Our cruise customer satisfaction and Net Promoter Scores are very strong with Cruise at 9.1% and customer satisfaction and the Net Promoter Score at 71%. So again, industry-leading in terms of our proposition. And as we move forward into the '22, '23 financial year, we've seen improvements in the load factor, and we've indicated that it would be at a minimum of 75% this year, but probably more towards high 70s, low 80s percent. And the Cruise per diem moving forward again to GBP 319, so a very healthy move forward in the monetization of our proposition. We've also added 2 river ships to our fleet on the Rhine and the Danube, and this week, we announced a commitment to a further 4 river ships over the next 4 years. So a strong position for Cruise as we exit the pandemic and we move forward into growth. As I've said on tour operations, a major restructure there combining [ Tyson ] Touring and Saga Touring to become the market leader in the U.K. and a restructured stays business, which is more digital, lower cost and will have a wider and broader product set as we come back up into service when our guests are more confident to travel as we get through to the spring and autumn key periods. So at that point, I'm going to hand over to James, who will cover a few slides on the financials, and I'll come back and give you an update on our strategy before handing over to Lisa.

Good morning. My name is James Quin, I'm the Group CFO for Saga. So I'll just take you through a few of the key slides. So Dan, if you wouldn't mind moving on to the first slide. So the -- sorry, it's a bit hard to read on here over a sort of pop-up, which has come up. Right. I may have to do it over here. Right. Okay. Let's I will -- let me continue on using this screen until it fits. So the key point for this year or last year was, obviously, we've reported an underlying loss before tax of around GBP 7 million for the full year. That includes a GBP 79 million loss from the travel business, and that loss from travel was at a similar order of magnitude to the year before. I think the fact that we have been able to continue making very good profits out of the Financial Services business is a significant positive of the Saga strength in terms of the diversification this brings us and ability to ride out what obviously has been a very challenging period for the travel business. In terms of the overall loss before tax, a loss before tax for the year was GBP 23.5 million. This does include certain restructuring costs relating to our tours business. It is, however, a significant improvement on the GBP 61 million loss in the prior year. In terms of the numbers, overall, obviously, it has been a challenging period for travel. A significant positive for us, though, having has been our cash flow. Clearly, 2020/'21 was a very tough year for all travel companies. Essentially, we had to provide a significant cash injection to the travel business. We were slightly cash positive despite that in the previous year. This year, we've seen a really strong recovery. So our available operating cash flow increased from GBP 3 million in the prior year to GBP 76 million last year. This, in turn, has enabled us to start to deleverage the business. So our net debt reduced from GBP 760 million to GBP 729 million, and clearly, reducing debt remains a high priority over the next few years. Next slide, please. This slide here shows a breakdown of our P&L for the 2 years and takes you through the moving parts of our results. Starting with insurance. So the insurance result was GBP 120.5 million profit for the year, which is slightly ahead of expectations. It is a little bit lower than the prior year, and there are a few reasons on this. One of them is due to an increase in investment in above-the-line advertising to support future growth potential. One of the other factors was slightly lower profits from our private medical business. That is principally due to a catch-up in treatment backlogs over the last 12 months as private hospitals have returned back to normal service and clear all those backlogs from prior years. And the third piece of this was lower result -- lower underwriting result -- and this in part -- or largely due to essentially a normalization of claims frequency in motor, following a very exceptional period the prior year when essentially lower claims frequent or lower miles driven did result in a significant reduction to motor case frequency. In terms of the travel results, the travel result was a loss of GBP 79 million for the year. So at a very similar level to the prior year. Cruise did report a bigger loss for the year despite getting back to service in the middle of 2021, and there are various reasons for this, including the fact that in the prior year, we only had 1 ship in operation for part of the year. We also took on the second new ship towards the end of 2020. So we have a full year of the interest cost relating to that plus also the increase in marketing costs as we look to support the business, get back to its full post-pandemic potential. In terms of central costs, these were a bit higher as well than the prior year. That is mainly due to the level of investment that we've made in advertising plus also some higher interest costs following the bond issue that we did in the middle of 2021. So I think the headline here is the critical one. It has been in the last couple of years about navigating both pandemic challenges. And we feel that in every way that all parts of our business are in better shape than they were 2 years ago. Next slide, please. As I mentioned, a key feature of last year's results was a reduction in net debt. This is a high priority. As you can see, that has been one of the 5 pillars of our strategy is to reduce net debt. In terms of this chart, it shows the moving pieces from the starting to closing net debt. And you can see here that the available operating cash flow before support provided to travel was an GBP 89 million positive cash inflow, which is at a very similar level to the year before. We then provided GBP 36 million of cash support to the tours business. This was a much better number than the year before and reflects the fact that the business is now fully ring-fenced. What we would expect going forward is that this cash flow will be substantially lower and absolutely within the next 18 months or next 12 months should return to a positive level as the business starts to trade again. Cruise last year was cash positive, and that's mainly due to a swing in advanced customer receipts as we started to return back to normal service. And so that was a real -- that was positive for us during the year. And in fact, if you look at what most cruise lines are targeting, they're toting to be cash positive by the middle of this year at the earliest. And then the last feature of this result, of course, is the interest cost which is the combined interest cost of the Cruise business, plus also the other debt that the group has. In aggregate, we were able to reduce the group's net debt by GBP 31 million despite some significant challenges within the travel business. This slide here shows where we expect debt to go from here. This is based on our internal planning and also factors in a number of downside scenarios, particularly over the 12 -- next 12 months. So for example, our downside scenario here would incorporate the potential from what we would view as a remote risk is having to lay up both ships for a period of time and ongoing lower load factors. And I guess the critical point is that we do expect net debt to continue to reduce and to start to reduce faster than it has done in the last 12 months. And our goal here is to get the overall debt-to-EBITDA or net debt-to-EBITDA below 3.5x. And our goal is to do that by 2024 or during 2024. On to the outlook for this year. So 1 thing, as I'm sure many people on this call will be aware of is that, we have moved to a new world of pricing for the insurance business for Motor and Home. And this means that essentially we now have to price renewals at no more than the equivalent new business price. This does create a bit more uncertainty for us. Certainly, in the last couple of months have been a bit more volatile and the motor insurance market is very competitive. For us, we will continue to take a disciplined approach for pricing, which means that we may see some loss of market share. We wouldn't necessarily expect that to be significant, but that should also be counterbalanced by improved results from our travel business amongst other things. In terms of underwriting, we have in the past signaled that we expect our underwriting results to be at lower levels in the future than they have been in the past. That does remain the case. But we do think this year may be a year of still relatively high reserve releases compared to what we expect in the longer term. The Cruise, we expect a much improved result for this year compared to last year. There are obviously multiple uncertainties at the moment around Omicron and, of course, the Ukraine situation but we do think that our loan factor should be north of 75%. In terms of overall profit before tax for this business, there are some one-off impacts we expect this year, not these are new. But essentially, we expect about GBP 8 million cost from the discounts that we gave customers during COVID and the cost of COVID-safety protocols. The goal here is very much to get back to our target profitability from next year onwards. In tours, we are aiming to breakeven in this part of the business. It is right. It is fair that there have been somewhat subdued bookings in the last few weeks. Obviously, given the geopolitical situation. But the target still is to get back to breakeven or close to breakeven for the full year and then to get this business back into profit from next year onwards. And in terms of central costs, we're investing around GBP 4 million this year in adding to our insight capabilities and also building out our innovation pipeline. So very much the goal here is that despite what is, of course, a challenging external environment, we expect to return the profit while investing to support future growth.

Great. Thank you, James. Let me just turn to a few slides to cover the outline of our strategy. Just starting with the kind of base position around our vision, our purpose and Sage's positioning. Our vision longer term is to help even create a U.K. where all the people are valued for their experience, not their age, but have greater confidence, contribution and connections. And we've already started that work with the brand relaunched last year. Our purpose has been absolutely consistent over the last 2 years, is very clear to achieve exceptional experiences every day whilst being a positive driver of change in our markets and communities. We've broken that down into -- so what does that mean for us. Exceptional means always standing out and always being memorable and experience is an event that leaves a positive impression on someone and every day is the consistency that our customers expect of us. We talk to our customers every day, and they expect that consistently high level of service. And actually, in our businesses today, within Cruise certainly, and also in our insurance call centers, we've won customer service awards across the board in 2021 as we have emerged from the pandemic. Our positioning is incredibly important, and this helps to laser point where all of our efforts go. Our customers want peace of mind, quality and reassurance. They want good value from their products, not necessarily the cheapest product and price. And quality and care is really where our customers want us to perform at the highest level long after the price is forgotten while value is still important. A brief intro into what we're working through in terms of the lifetime model for our customers. And this is incredibly important to direct the efforts of everyone in the organization. A very simplified version of our business model is on this slide. We will return to consistent customer growth. We're seeing that in insurance and in Cruise, and we're starting to see that in tour ops as well. Personal Finance had a good year last year and is forecast to have a further year of growth in '22/'23. Retention is strong in our business. When customers come into the Saga product portfolio, they tend to stay loyal to that. We've seen that again in insurance and in Cruise, and we'll extend that to all of our businesses. We have had a good success in the past around cross-sell and we're reintroducing that as a major strategic lever going forward. Again, we have improved this within insurance over the last 12 months, and we intend to take that across all of our businesses as we build the portfolio of products that our customers hold across the Saga family of businesses. And then we add into that a higher frequency of purchase. Typically, with insurance and Cruise, it's a once or twice a year interaction. But with our content business, led by our magazine, we're moving that from once a month to once a week, with a new digital magazine that will arrive at people's e-mail inboxes every week in the next 4 weeks. We intend to reach 500,000 customers a week from April, growing to over 1 million as we get to the end of the year. If you take that level of interaction and you spread it across loyal customers interacting with us over a potential 30-year lifetime, then there is a real opportunity for us to rerate the value of this business as we go forward into the next 5 years of work. To do this, we have reorganized ourselves within Saga to drive both the independence and accountability of our different business units and also to drive the core IP of what makes Saga different. We will move to a capital-light direct-to-customer marketing content and distribution business. So right at the center of Saga's point of difference is innovation, brand and culture, data and insight, supporting all of our businesses, existing today and new businesses where we can serve our customers where they're underserved today. And that is across the 30-year lifetime from about age of 65 through to about 95. Thanks, Dan. So therefore, this week, we're calling a move on in our strategy from stabilization to growth. We have stabilized the business from its legacy issues pre-pandemic and also navigating the pandemic to provide a stronger and more stable business in 2022. The 5-pillar turnaround plan that you see on the left of this slide has served us well, and we've achieved very strong results from it in people and culture step change and improvement, as I said, by 20% in colleague engagement. In our brand transformation, we have moved our Net Promoter Score forward by 11 points in the period, which is a very significant move to a group total of 49. In optimizing our businesses, we've covered the return to Cruise, the restructure of holidays and the consistency of results in insurance. And we've driven more simplicity and accountability across the business, while taking our debt into a more controlled position with a greater cash available on our balance sheet. So we're moving now to the right-hand side of the page to have a simplified growth plan in 3 steps, moving from optimizing our businesses to maximizing our businesses, to step change our ability to scale Saga whilst focusing on debt reduction and creating the super brand for older people to be their #1 choice for products and services in that age demographic. So just a couple of final slides for me just to take that down a level into what we mean by those 3 steps. The first is maximizing our existing businesses. And as you would expect, we have specific growth plans for each of our businesses, driving growth, accountability, efficiency in all of those. In short form, in insurance, we have a 4-point plan led by our new CEO, Steve Kingshott, focusing on optimizing our products and services and broadening our range to be the #1 general insurance provider for our demographic. We'll build out our CRM capability, improve our marketing and cost to sell and we'll move even more direct and away from aggregators and refocus our product sourcing approach. In Cruise, we put ocean cruise and river cruise together under Nigel Blanks, our CEO there, and we have exceptional service already on ocean, and we'll extend that to the growing Rivers business with ultimately 6 ships in the next 4.5 years in that category. In holidays, under John Constable, we're creating a market-leading a much more digital business from a low-cost operating platform that will serve all of our customers' holiday needs globally. And in Personal Finance, we're out in market looking for a new CEO, and we'll take our product portfolio broader than equity release and savings that we have now that part of the business is in growth today, and we are forecasting further growth as we go forward in the next 5 years. In step 2 and step 3, there are 2 steps to step 2. One is about innovating to help grow our existing businesses; and secondly, innovating into adjacent markets where we see there is growth opportunity for Saga and where our customers are underserved, while at the same time looking to accelerate the reduction in debt. And finally, it's all about creating the super brand for older people. This is all about commercializing and growing our database, which is already significant. We have 6.5 million people on that database that we can market to today out of the 12.5 million people over 65 in the U.K. We have reconsented and consented more people in the last year, and they've been predisposed to having that marketing consent from us. So the database is stabilized and going back into growth. We've added to that exceptional insights through the Big Window, and we are already repositioning our brand where experience is everything, and our customers are responding to that. And more than that, we're building out a high-frequency content platform from the magazine into further media to drive the connections with our customers and a lot more of that to come as we go through the year and we update at the next opportunity. So with that, I'm going to pass over to Lisa Edgar, just to give you a little bit of insight into our insight, I guess, and take you through some of what we understand of our older customer group, which is underpinning the growth plans that we have today. Lisa?

Thank you, Euan. Good morning, everyone. A brief introduction. I've spent 30 years in Insight in the last 10 to 15 of them exploring older consumers' changing needs. And I recognize back then that people do indeed changes the age, not just physically or because they've moved into a different life stage, but because age changes them emotionally and psychologically, and this matters, it matters because changing emotions and psychologies mean changing needs and purchasing behaviors. So this is essentially when my team joined the Sage Group just 4 weeks ago, and I personally have worked with Saga at different times around 20 years, and I always felt Saga in a unique position with a huge opportunity to not simply understand cohorts of older consumers, but to understand the process they go through as they age and what that means in terms of needs. So over the last year or so, working with you and the team, it became clear to me that this was their vision too. So needless to say, I'm absolutely delighted that my passion is married with Saga's commitment to investing in bringing it to fruition. So together, we know that this will increase both consumer and commercial value as a result. Thanks, Dan. So vision recognizes the unique position that Saga is in, and our plan is built around ensuring that every Saga stakeholder and every product and service will increasingly reflect customers' needs at the age in a way that no other provider does. And this is because, yes, we do currently have a strong understanding of our customer base. But moving forward, we're making strides to being the experts in aging, what it means to get older and how Saga can incredibly, meaningfully and relevantly fulfill the needs of the aging forms. So we will drive excellence and expertise through our colleagues, our products and services and thought leadership. And so each of these 3 pillars you can see on this chart will reflect the truth about aging such that customers and stakeholders absolutely know that Saga knows how to and delivers on making getting older in the U.K., the best and most positive experience, it can be. Thanks, Dan. So I said just then that we are already in a strong position as far as understanding customers per se is concerned, and this gives us a solid platform. For example, in the last year alone, we've built a group-wide segmentation to give us a clear view of our key targets. We've launched and are now growing our customer panel already 5,000 strong and working towards 10,000. And of course, we've got a strong legacy already in effective performance marketing. But we've recognized though that what will make Saga completely unique and compelling to our customers is our understanding of what it really means to get older. When the key aging moments come to the fore, when the hope stays, aspirations and challenges develop and critically, how they manifest themselves in terms of consumer needs and what it means to fulfill them. So thanks, Dan. So as I said, whilst we were acquired just a few weeks ago, we've been working with Saga for some time and more intensely over the last year or so, and that really gives me the opportunity to cover with you 3 real commercial examples from the last year alone that demonstrate how our knowledge of an expertise in aging has translated to real consumer benefit and real commercial benefit. So starting with the aging mind here, this chart that you can see in front of you. Our knowledge to work on the aging mind here at the Big Window help just shed light on the accumulation of wisdom. As a society, we typically focus on what declines as we age. And yes, some cognitive faculties do decline. But the significant offset is that we crystallize our intelligence as we age. We build knowledge units, which we saw really effectively and can subsequently rely on. In fact, we make our best financial and complex decisions from our early to mid-50s, as you see here, and retain that wisdom, experience and knowledge store into our older years, experience really is everything. So this knowledge gave us a grounded basis for our brand position, leading it to have an intuitive and positive truth about aging, which resonated with our customers and wider consumer audience. And this is why we believe it's performed so well. So if you could click on, please, then. So just having a think about this complexity versus familiarity map that you see in front of you now, so the deep insight fueled by the latest academic thinking built on our award-winning work with the financial regulator into what becomes more fundamental as we aid i.e., that as we age, we see familiarity and we seek predictability and we look to simplify our decision-making. And this mapping and what lies behind it helped us identify meaningful, relevant and commercially successful consumer solutions, such as the 3-year fixed price. And that will help us identify other solutions, too. Thank you, Dan. So I want you to bring you finally to the U-shape. We're consistently seeing a strong relationship between age and different measures of well-being, for example, happiness, being worthwhile, life satisfaction, purpose and so on. The bottom of that U-shape is around 48 years after which, across several meta analysis we've looked at, there is a consistent upturn. In other words, consumers undergo a positive change of outlook just as Saga wants to talk to them. As a result, Saga's absolutely focused on is building products around reflecting this changing mindset. We're developing products that liberate not lament the aging experience. And further, we now understand the key drivers for what sustains this upward curve and our contribution on delivering on. For example, it's long for the extrinsic aspirations, goals, money, career, wealth and so on, received as more intrinsic goals wellbeing, satisfaction, center purpose, start to dominate around that 50-year mark. In other words, and again at that Saga moment. Thank you, Dan. So the lifetime map of consumers' experience of aging, of course, it's always the case that identifying trigger moments is the key in successful proposition development. And this is why, ultimately, we will build on our expertise in aging, such we can identify pivotal aging moments as our customers and potential customers transition through the main retirement phases. We will then translate those moments into needs that Sage will be in a unique position to satisfy. Effectively, we're building a lifetime map of consumers experience of aging, a longer, more detailed version of what you see in front of you now. So this map here plots what we already know about the key moments in the aging process. Further, it superimposes on them, the typical stages that people go through before and post retirement. So you can see here in turquoise preretirement, then on to orange, the active retirement phase, passive retirement in light blue and then in purple, supported retirement. In fact, these stages are being used in the retirement planning sector now, so they're really useful. Plotting further onto these stages, the projected population numbers for 2026, we can start to see where the opportunities are for Saga and what needs we must speak to unlock them. But what I want to emphasize is that the map I show you now is a strong start, but it's not enough. We will build this map out. We will add more detail. We will overlay the changing socioeconomic context and key, we will use it to develop solutions that solve problems and fulfill the aspirations that present themselves. So as part of this plan, I'm delighted to announce that from April, a chartered psychologist who specialize in aging is joining my permanent team of highly experienced insight specialists. Her job will be to work with me in the brightest minds from across the U.K. and overseas to continually refresh our knowledge of aging and build out what we know into a much more detailed tool to drive commercial ideas and translate them into real solutions. And that points to this first top-left stage on the plan for leading the way that you can see in front of you now. So becoming the experts in aging -- and as I've intimated, we're kind of really kind of building on that and making sure we translate that thinking into compelling consumer solutions. So effectively, we seek to be the knowledge engine for Saga and have started already on that process. So if you turn to -- you can see the stage on the top right in kind of lighter blue here. We plan to open up the funnel of consumers' needs through the lens of aging. And to do that, we're about to embark on a flagship insight program, aimed at exploring relevant life areas and understanding how aging manifests itself through those areas. So for example, starting with aging in the home, a much wider funnel you agree than aging and home insurance, and that allows a broader set of needs to come through. And this, of course, may include consumer needs in relation to insurance itself, but it won't be confined to them. And this will be the first of a whole series of such programs and the planning for these are already underway again. Down to the bottom right, in orange, driving that knowledge through the busy units such that every colleague in every part of the organization knows how people age and what that means for them in their roles and interactions with customers. Again, we've started with a training and engagement plan already [ kept blemished ] ensuring that new colleagues get the basics of aging as they join. Practitioners know what it means to apply some of the principles I've spoken about today to communications and products. And the senior team are always making decisions through the lens of aging. So further, it's key that we automate and habitualize this knowledge. So propositions will be developed through the lens of what we already know because we're going to embed it into the business decisions and into the business processes, and this work is planned for later this year. And finally, bottom left, Stage 4, the final stage of our cycle, Thought Leadership. So we will be savvy about its application, but we want to be out and proud about our market-leading knowledge. We want to attract the best minds and input, and we recognize that in part, this means driving the industry as a whole forward, being first and being respected. And this will help us continually fuel our engine, enabling us to keep traveling around this circle that you can see in front of a few. So ultimately, our understanding of what getting older means and our desire to make U.K. the best place to get older will pervade everything that we do. So thank you, Euan. I'll hand back to you to summarize.

Great. Thank you, Lisa. And thank you, James, as well. So just in a very quick summary, as I've been talking for about 40 minutes, we have addressed the legacy issues that we inherited back in 2019. As a team, we have navigated the pandemic successfully, and we have emerged stronger from that. We refocused the vision, purpose and positioning of the business and all business units are now prepared and ready for growth. In all scenarios that we look at in our stress test planning, we will return to profitability this year. And we have a structure and a focus across the business that will do that. I want to pause at that point there and go to questions, and make sure that we've got enough time to take everybody's questions.

Euan and James, thank you very much indeed for you presentation. [Operator Instructions] I would just like to remind you that the recording and the presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. Investors have submitted a number of questions both pre-submitted and during today's presentation. So thank you very much indeed for all of those. I'd now like to hand you over to Emily Roalfe, Head of Investor Relations to host the Q&A session. Emily, if I may just ask you to read out the question where appropriate to do so and direct it to the team, that will be fantastic.

Brilliant. Thank you, Paul. So if we come up with the preregistered questions first. The first one is, "Is the company considering selling its insurance business, releasing funds to maintain and expand the holiday side?"

I guess, well, the short answer to that is no. We believe that the insurance business is a fantastic part of Saga. We have a new CEO, a strengthened insurance team in there, actually, a very strong team there now. We have plans for continued growth and accelerating that growth. Steve in the more detailed presentation a couple of days ago talked about growth ahead of the demographic growth for our segment. And so we are confident that this is a great part of the business and will continue to contribute with profitability and cash. We also believe that there is a big market for holidays and tour ops as well. We don't need to sell the insurance business to grow that part of the organization.

Thank you, Euan. The next question is, " In the September meeting, you said that the then share price undervalued the company. Given that the share price has been lower since, why have the executive directors not bought shares?"

So I think we have bought shares since then. Both James and I bought more shares, what I certainly agree with the question in terms of the share price being very disappointing today, we believe it is significantly undervalued. I think it is -- and I guess we are very frustrated with the slower exit out of COVID and the Ukraine situation, obviously awful over there and impacting some confidence from our demographic to return to international travel. That's aligned with inflationary pressures and cost of living pressures across all U.K. equities, I think we're all seeing more short-term headwinds than we were predicting at the time. And that doesn't change our medium- and long-term aspirations for growth. And indeed, we are more confident today that we can achieve that. And that, we believe, is very significant growth in terms of company value and share price. So James and I are pretty well invested into Saga shares personally. And clearly, all of our rent policies support that, too. But I guess, I share the underlying frustration with where the share price is today.

Thank you, Euan. The next question is, " In your base case modeling assumptions, how margin impact on growth in PBT for 2022, '23 and '23, '24, does the FCA market study have?

James, do you want to pick that one up?

Yes. So we've not given a specific number around that. And what we've been looking today is rather than think of necessarily one outcome, we've been thinking more around a range of outcomes. When I look to -- should try and give you some sense, I guess, of what that might mean. When I look at what some of the analysts have been looking to estimate as the possible impact, they were modeling an impact of sort of GBP 10 million to GBP 15 million, which I would say doesn't feel like an unreasonable number. There's probably a wider range around that, given that it is quite a significant change for the whole industry and the industry, I think, is slightly feeding its way in terms of how it drives new business and how to think about trading in a world where both new business and renewal pricing essentially has to be the same. I do think there are other things. There are other moving pieces in the results, obviously, in just the market study -- so certainly, there's a number of self-help initiatives, which we have underway. So things are around cross-sell, improving retention. And then we would expect a recovery in the travel business. So there are -- there are elements of our results in broking going, I guess, in both directions, but hopefully that helps around the impact of the new pricing regulations.

Thank you, James. " Given the expected reduced underwriting reserve releases this year and then a further reduction next year and the adverse impact on broking PBT in your base case modeling, is it realistic to expect a marked reduction in overall insurance profits over the next 2 years?"

James, do you want to take, that? It's a bit of moving parts between [indiscernible].

Yes. I mean I would probably split it very much into 2 pieces. So I think the broking piece is -- I mean, I've just sort of talked about that as I said, there are moving pieces, probably in both directions. On the underwriting side of things, we have been, I think, pretty consistent around this in the sense that we expect to move towards lower earnings for the underwriting business over the next year or 2. And we've given a target combined ratio of around 97%. And if you sort of work that through, that would be PBT for the underwriting business of around about GBP 10 million a year. That is still the case, albeit that the results for this year are unlikely to be better than that. And probably somewhere between that GBP 10 million number and what we saw last year, given that we still have a level of sort of high level of prudence within our results. But I think -- just to be clear, yes, I mean, absolutely, in terms of the outlook for '23, '24 and beyond, we probably would be expected to be around about that sort of normalized level, which we've been settling for the last couple of years.

Thank you, James. Based on the indicative Cruise numbers given in November 2019 and this week, Cruise operating cost per capacity day arising at a much faster rate and per diems. Would you expect it to continue, and therefore, for the EBITDA margin to fall over time assuming a constant load factor?

So yes, I wouldn't say that they're rising much faster. I think that the -- if you look at what we've set out within the slides of the investor deck, we've shown essentially that we can still very much get to the target GBP 40 million of EBITDA per ship with the inflationary cost that we've encountered in the last year or so. And that isn't based on sort of employing any sort of heroic assumptions either on load factor or the per diems. So the original targets that we set in the original business case for the investment ownership still very much holds true in the current inflationary environment. As I said, we've done a lot to move up the per diems, which have moved up by -- I think it moved up from 285 to about 319 since the provisional business case was set. So we still think that the targets that we've set in the past around the EBITDA numbers still hold true.

Thank you, James. A 50% increase in indicative central Cruise costs since 2019 has reduced PBT per share by 10%. What has caused this increase?

So I've got a -- this is -- I've got to commend the person who asked this question, so there's a real attention to detail there. So that is -- you're absolutely right. There is a higher level of administrative costs in the Cruise business relative to, I think, what we've set out a couple of years ago. One thing, though, just to emphasize is, this is not an increase in total costs across the travel business. So one of the things that we have naturally been doing, and I think this comes on to another question in a minute. We have been very focused around the direction of the tours business on the basis that results for last 2 years clearly are nowhere near what we would be prepared to live with going forward. One of the things that we've done with that is a true ground-up review of all costs in the travel business include and especially around the tours business. And I think one of the points within that is we've separated out the cruise business from other parts of tours is that there's probably costs which have been included within the tours part of the business, that you probably would allocate back to the Cruise business as we get to more of a self-standing or stand-alone businesses. So what that means is, yes, there are slightly higher costs within the Cruise business that would be counterbalanced by lower costs within the tours part of the business.

Thank you, James. What degree of inflation has been built into the indicative Cruise operating cost? For instance, is this the current run rate of course, annualized and adjusted for known and anticipated inflation in '22, '23?

Yes. So when we set the plan for this year, it obviously factored in the inflation that we were seeing. And certainly, for example, when you look at fleet cost, there has been quite high inflation over the last 6 to 9 months. So that was factored into the numbers. And I think sort of to the previous point, it has been one of the reasons why we've been looking to put up per diems as well to keep our operating margins intact. We actually have set out a chart on Slide 65 of the investor presentation, which shows the breakdown of our operating costs. I think probably what you can see there is that a fairly significant chunk of those costs are not necessarily sort of directly inflation related -- so the costs, obviously, which you would look at there, which would have some inflation sensitivity, I guess, specifically are hotel costs, which is food and consumables and then fuel oil. So on the fuel oil front, we're hedged for this year. So that has been -- that exposure is a fixed exposure. On the hotel costs, it's probably fair to say there's a little bit of inflationary pressure there, maybe a little bit beyond what we have been seeing in the last 6 months. Having said that, it is only 15% of our total cost base. So the absolute impact, I don't think is necessarily a significant one. And we've also been a little bit prudent, for example, around what we expect as the per diem target.

Brilliant. Thank you, James.

Can I just add to that? I think there's -- I mean, clearly, inflation is front of everybody's mind today. I think with the Cruise business, we have to stand back a little bit and go back to the business model that we set out a few years ago, which the team is now delivering, which was to continue to add value and take price. So it was always our stated aim that we would grow per diems, which we're doing. So in effect, we're adding more into the all-inclusive offer for Cruise that is not affecting load factor. On the contrary, load factor is improving with that. So customers are clearly seeing great value for money while the per diems move forward. So it is our stated intent that we will continue to take the price by adding more value in. So they move from 285 in the original business case up to 319 is a pretty significant positive move, and we will continue to do that. And on page 54 of the bigger slide deck, we kind of try and talk on the right-hand side of the journey that we've gone on so far with that, and there are still more levers available to Nigel and the team. So there's a short-term impact on inflation from that, but it's not particularly major in terms of the actions we've already taken. But we will move forward our per diem offer as we go forward.

Thank you. The next question is from Wallie H., it's about the tour operations business. He asks, "If it's viewed as an investment based on the profitability post-pandemic, what kind of returns are going to justify the GBP 5.9 million per month burn this year? The division was a low single-digit margin pre-pandemic. So surely, the future outlook hasn't improved enough to justify its existence."

So I think, I guess just to kind of headline that and perhaps James can pick up some of the detail as well. So the GBP 5.9 million burn cost last year was not just tour operations, that was tour operators and Cruise. And Cruise, I think, was slightly larger than half and half there. Clearly, with 2 ships tied up for the first almost 6 months of the year, that was the major contributor to the burn cost. Clearly, we have, in the time since then, refocused, streamlined, lowered the cost of our tour operations business, taken it much more digital. So it is a lower cost to serve business as we come back into service. We see that there is a huge opportunity to grow that business for our demographic. They -- in a normalized year, they would take a 33 million trips every year. And even at our lower market share, that is a very significant growth opportunity for us. And we think that we've corrected the historic cost base to be able to serve that market at a profitable level. Key is to see consumer demand coming back over the last -- over the next couple of months, because we have an offer that we think is right and will grow profitability going forward. James, you want to add on the breaking that cost.

Yes. So the -- I mean, I don't think there's any question. I mean, I think we agree with you the tours business -- it's been a tough place to be for the last couple of years. And equally, I think that, as you mentioned, if you look at the cash burn of the tours business, that -- so that 5.9 was Cruise and tours when neither were operating. If you look at the average per month last year for tours, it was around about 3. Now in terms of the future, the -- I mean the key point here is, we know full well that we need to get this business back to a position where it is not burning through cash. So the goal here has to be to get it back to a breakeven level, and there's a number of things that we've done this year to enable us to do that in terms of restructuring the business and putting together the Saga Holidays and the Titan businesses to give us a much more efficient platform such that we can get to breakeven even if volumes remain significantly below the pre-pandemic levels. Beyond that, given what we've done around costs, and given what we've done around proposition and a much clearer strategy for what we want to be in that business, we do think you could get back to at least double-digit profits over the next year or 2. And that doesn't require us to get back to anything like the level of passengers that we were taking pre-pandemic. So we've got a much clearer focus on what we do well, particularly around river cruise and particularly around aspects of touring but have a much more efficient platform because we had 2 tours businesses in the past. We actually had 3 different travel businesses, all which had their own leaders, had their own finance teams, their own everything basically. And we will be in a position -- well, we are in a position now where effectively, certainly from a holiday's perspective, we now have 1 team operating on 1 system. So there's a lot of -- a much greater level of simplicity in that business than we have in the past. And that should drive much better economics.

Thank you, James. Yusuf S. asks, " Why have you not provided guidance even with ranges for the year ahead? Is there significant uncertainty girding your insurance business?"

So I mean, the main reason we haven't provided a range is because within cruising, the results for the year are very sensitive to the load factor. And -- so you can see that for every 1 point change in load factor is worth about GBP 2 million in terms of PBT. Now we have said that we do expect the load factor to be 75 or better. And I think that is absolutely the case. I mean we would still be targeting a number of probably in sort of low to mid-80s. Obviously, that does give -- you can see for yourself, I guess, the gearing around that. The other side of it is that it is quite hard to predict exactly where the insurance business will land. We've only had really 2 months of experience post the introduction of the new pricing rules. And so if you take those 2 things together, it's just very hard for us to give a range other than a rather wider range than you would find satisfactory or helpful. But absolutely, I mean there are no scenarios here where we would expect to be in a -- not make a profit, if that helps.

Yusuf S. also asks, "Your presentation on customer insight implies you're about to launch into new businesses and services for older people. The past record shows Saga has not been very successful in broadening its proposition to experience all other people. Why do you think you can make a difference now? And would it not be better to reduce debt, sharpening facts on existing lines of Cruise and motor insurance?"

So that's exactly what we're doing in terms of the last, I guess, couple of lines of the question, and that's step 1 in our growth strategy. So moving from optimizing to maximizing our businesses using the insight that we've now got to improve that and make those businesses deliver faster. So that's the primary aim there. We are absolutely focused on debt reduction as well as PBT growth. And as James has said, we are very confident that we will deliver significant PBT this year. There are other markets that are adjacent to where we operate today that are interesting to look at. I know, and I'm very conscious of the fact that Saga has overpromised in some of those areas before. So as a team, we are cautious about getting into any wider market segments. Our main focus right now is to enable our existing businesses to grow as fast as they possibly can as we come out of the pandemic, the insight, the data and the brand investment are all geared at driving that.

Thank you, Euan. Peter C. asks, " Whether you could give a bit more detail around brand polarization that you referenced earlier in your slides?"

Yes. So I think that's -- I mean, it's a great point, actually. The reality is a couple of things. One is that Saga really serves customers from the age of 60, 65 and over, and we have really centered all of our work around a very significant market opportunity from around that age group. So while we advertise that it's from 50, the DNA and the history of the business has always been the from about retirement age, 60, 65 and onwards. Therefore, we get a larger degree of polarization, the younger you go, because in your 50s, actually, you don't need Saga. When you need Saga is really as you get into a slightly older age demographic, as Lisa has pointed out. Second point here is that for probably about the last 8 or 9 years, there was a lack of investment in the brand. Our customers' needs and wants to have moved on because that's like and we have not modernized the business to address those and to satisfy those needs. With the brand research and work that we did over the last couple of years have looked and we are very confident now that we understand what our customers want. Primarily, they don't want to identify and they don't identify being old. They identify much more positively about being experienced and that has resulted in a very positive response to the brand work that has gone out. That, in turn, is addressing some of the negative brand perceptions that we were suffering from over the last 7, 8, 9 years. We're starting to see the brand tracking move more positively. And actually, we're really pleased with the early results from the brand campaign, which is evidenced through both the brand tracking and also some short-term sales results in insurance and Cruise as well as a higher propensity for our customers to opt into our marketing consent program. So to give you some numbers around that, we contact off-line to through our call centers, about 60,000 customers every week. We're asking all of those customers in every contract, would you like us to send you more information about our wider range of products and services. 70% of those customers are opting in for that. So it's an important lead indicator that we are turning some of the negative brand connotations that was surrounding the Saga brand into a positive brand position.

Thanks, Euan. David C. asks, " You've spoken a lot about growth in the presentation. Does this mean we can expect a range of new initiatives to drive meaningful growth at a group level? If so, what would those new initiatives be and how would they be funded?"

So yes, we are confident of growth in all of our business units, and the center supports all of those business units. The biggest drivers of growth that I would pull out would be the work that we've done around our database. So I think as I mentioned on the run through, we have 6.5 million names that are marketable, 5.3 million households on our database at 6.5 million out of the 12.5 million total population of our target audience. We spent 2 years transferring and updating the database capability of a legacy system into a new cloud cube, which is now being interrogated by all of the business units, and we've hired a significant number of data scientists to be able to help us drive growth initiatives across all of our business units. There are then a series of, I guess, self-help initiatives that we're driving into growth. So for example, cross-sell, we talked about, we're having much greater success in driving cross-sell within insurance at the moment. So that has gone from a position last February, so, February 2021, where we were potentially cross-selling a couple of hundred customers in a month to well over 3,000 customers this February. So as we get into some of those self-help initiatives, we will be able to combine the database as well as the opportunities that we've got in front of us at customers that have got 1 product that could take 2 or more. There's been a series of other brand insights and drivers, which are really starting to drive growth in each of the plans, in addition to the investments that we've made, for example, in river cruise and adapting the holidays business to a digital low-cost growth engine.

Thanks, Euan. Stuart B asks, " If there was 1 particular aspect of progress that you are most pleased with or is currently underappreciated by the market, what would it be?"

Well, I think the general, everything is underappreciated by the market, if you look at where the share price is today, which is not where we want it to be. Clearly, I think there's a bit of a lag in the market, wanting to see proof that everything that we're talking about is coming through, and we have some short-term headwinds, which is, I guess, making all of that just rather cautious around the geopolitical situation and some of the early indications out of insurance markets that I think there's a lot of positivity around the group. It certainly feels like a very positive place to work when you go down to the offices. Now I would call out the Cruise business as being an exemplar of return to service. I think we are probably the most successful Cruise business post-pandemic in the world. 100% of our fleet is sailing, albeit it's only 2 ships. We've got industry-leading load factors and industry-leading per diem growth. And so we're very confident of the cruise proposition in ocean, and therefore, we're very confident in taking that into rivers too. I'd also point to the consistency of delivery in the insurance business. It wasn't too many years ago that, that business was in decline. We have stabilized that very effectively over the last 2 years. We have delivered on the balanced scorecard of policy growth, stabilized margin retention and direct business. We've invested a huge amount in the new team, and we're really confident of growth there going forward. And so I think there is a lot to celebrate there. I think the final bit that I would point to is around brand and content. The brand campaign is absolutely changing our customers' view of the Saga brand. We are getting a far greater level of interest and inquiry now than we've had probably in the last 10 years. And albeit those are lead indicators that haven't transformed all the way through to the sales line and the profit line yet, it's a good place to be with those lead indicators showing positive movements. So I guess I would point to those, but there's lots of other things too.

Thanks, Euan. Steven B asks, " Does the debt reduction plan improve potential investment in river-cruise vessels?"

It does, it's a net of that. River Cruise vessels are far cheaper than ocean cruise vessels. So -- and it's a lease arrangement that we have on rivers. So yes, the debt reduction plans are inclusive net of the investment that we'll meet within River Cruise.

While we're on with Cruise. We've had 2 questions around what we expect the EBITDA per ship to be both this year and moving forward, once from Ariel C, once from David C.

Yes, it's a much smaller proposition than ocean. So just to give you some capacity comparators there. We take just under 1,000 guests on board our ocean cruise ships. We take about 150 guests on our river cruise ships. So it's a much smaller per ship contributor there. The business is kind of $3 million to $5 million PBT expectation at the moment. Clearly, there's a nice growth trajectory if you increase the capacity from just over 2 ships to 6 and more. But it's of that sort of order of magnitude in terms of size. So hopefully, that kind of gives some guidance as to what that's worth.

Staying with Cruise that are moving to ocean, Paul S asks, " Are you exposed to higher fuel costs, have you hedged forward fuel cost?"

Yes. Very simply, as James said, we are hedged all the way through the 2022 year. We tend to normally try and hedge as we launch the new season itineraries. We are imminently going to do that. So the new 2023 itineraries will be out in the next 4 weeks. We are probably not going to hedge forward into 2023 yet, given where the oil price is today. We've got flexibility right through the end of the year to be able to pick the right time to do that, but we're not seeing any pressure this year.

Thank you. David H asks, " Current forecast in the market appear to be somewhere around 48p EPS for this coming year. Whilst you aren't being drawn on absolute levels of profitability, are you comfortable with what's out in the market? "

You mind take that?

Yes. So I think we -- I mean, it's probably -- I'll probably answer this question probably slightly the other way around, which is if -- if consensus forecast, particularly for our house brokers were materially out of line with expectations, then that would be a problem. So maybe that answers your question.

Thank you. We've got 2 final questions from Ariel C both of them. First once is, " Is your debt fixed, i.e., will you have a greater financial cost of interest rates and inflation rise?"

So no. Our debt is fixed.

Okay. The second question from Ariel C., [indiscernible], sorry. So you say the current share price market cap is undervalued. What do you believe to be the correct value?

Perhaps I should take that. Significantly higher than it is today. We have ambitious plans drawn out in great detail for all of our businesses stepping forward. I think we're naturally undervalued today due to the risk profile of the sectors that we're in short term. I'm not going to, I guess, give you a number other than it is multiples higher than where it is today. And as a management team, we're very confident that we'll get there alongside being highly frustrated with the short-term headwinds, that does not take us away from the important work of getting on with delivering and the team is focused on that every day.

Thanks, Euan. And final question then from Stuart B., "Would you have any comment on P&O's conduct with regard to their seafarers or could you speak to our own employee relations?"

I think it's appalling what P&O have done, we would never do that in this business; communication, transparency, openness is incredibly important to us. It's one of the reasons I think that our engagement across all colleagues has stepped forward by 20% during one of the most difficult trading periods that we've seen in the last 100 years. I talk to colleagues on the front line every single week. We've been doing that virtually, obviously, through the pandemic. We do a combination of face-to-face now and virtually to reach everybody. My team do the same with their teams as well. And we listen and we respond to what our colleagues are seeing, both in terms of how it feels to work here as a colleague and what our customers are telling them. And that really gives me the confidence that underpins the growth plans that we've got in the next few years. And it also, I think, is transferred through into how colleagues are feeling working here. Specifically on Cruise, we pay above market rates. We always have done for all of our crew. They are offshore contracts because these guys work offshore. There is a tax benefit in that for them, which is passed on. And we've got high levels of loyalty and engagement with our seafarers. On 1 ship, we have 3 generations of the same family, working on the same ship. We have some colleagues who have worked with us for 15, 20 years on Saga ships. Our guests on board know them by name, our crew know our guest by name. It's a very different proposition to us, and it's certainly absolutely not where we would run our business. So I was, I think, as a pull as everybody else to see the events unfolding over the last week or so.

That's fantastic. Emily, thank you so much for hosting the Q&A. Euan and James thanks indeed for covering every single question we've had through and also the pre-submitted questions. If there are any further questions that do come through, of course, the team will be able to review those and we publish responses where appropriate to do so on the Investor Meet platform. Euan, perhaps I could just ask you for a few closing comments before we redirect the attendees to give you some feedback, please.

Great. Well, thank you. I'll keep it brief. I mean, I guess the first thing is thank you for your continued support through this period. As we've talked about, the share price is not where we wanted to be, and we're confident that, that will move forward. We are confident of growth in both passenger numbers in revenue and in profitability. The team is incredibly focused on delivering that. We have a stabilized business that can now move forward into that period of growth despite some short-term geopolitical and other headwinds. So I look forward to catching up with you at the next update at the interims. And thank you very much for taking the time to spend with us this morning.

Thank you. Euan and James, thank you again for updating investors today. Can I please ask investors not to close this session, you should be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete and it's greatly valued by the company. On behalf of the management team of Saga plc, I'd like to thank you very much for attending today's session. That completes today's presentation. Thank you, and good morning to you.