Saga plc (SAGA) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Saga's results for the 6 months ended 31st of July of 2026. Quick look at the agenda for this morning. I'm going to give you a short overview of the fantastic half that we've put in and the progress we've been making. Before Mark then takes you through the financial performance in more detail, I'll then return to give you some more color on our individual businesses and the great progress we've been making across the group. So we've put in another very strong half year performance. and it's a performance built on a really clear strategy. We've created a simple, resilient and customer-focused platform for growth. Our newly combined travel business is continuing to grow strongly. And you'll hear about the ongoing transformation we're delivering in our insurance business that is now also delivering consistent growth. Revenues and profits are growing strongly across the group. And in light of that performance, we've updated guidance for the full year, and we now expect profits to end with the full year being between GBP 65 million and GBP 70 million profit compared to GBP 54 million last year. That's an increase of over 50%. We I'm really pleased to report that our leverage is also continuing to fall rapidly, ending the half at 2.7x compared to 3.7x only in January. So with another strong year being delivered here, we're now even more confident with regards to our medium-term targets, and therefore, today have announced that we expect to hit those medium-term targets earlier than the originally planned date of January 2030, and we'll talk more about that later. But let's go into some of the drivers behind that strong performance. It's a performance consistent with our plans, albeit with obvious acceleration. You can see all of our businesses are performing well, particularly Ocean Crews, which is particularly important given that is our largest profit driver in the group. But we're also focusing on product and proposition. We've launched new destinations in Travel. We're taking holidays in China, and we've launched a range of U.K. hotel stays the year, including Christmas breaks later in the year. We're also focusing on wider brand building and engagement activities, and a little bit later, you'll hear about the fantastic new podcast we launched earlier this year and great traffic that's driving to our websites. We've launched the NatWest partnership this year and that started really well. We've already taken over GBP 2 billion worth of savings this year and introduced 50,000 new savers to Saga. So a really strong start and drive new customers into Saga. Our simplification work hasn't stopped either. And we've announced a new technology partnership with ST that moves to a modern IT group platform. This agile, efficient and lower risk, creating a solid foundations for our operating environment as we move forward. So we're not just delivering a strong trading performance, but we're also building powerful foundations upon which to build future growth. And Mark will now take you through the financial performance in more detail.

Thanks, mike, and good morning, everybody. It's a pleasure to be here today to present such a strong set of results. As usual, I'll spend the next few minutes in the detail of the financials before summarizing the outlook for the remainder of the year. Saga delivered an exceptionally strong first half performance, driven by growth across all our core businesses. Underlying revenue increased 14% to GBP 366 million, reflecting growing and resilient customer demand in travel and growth in both margins and policies in insurance. Trading EBITDA increased 35% to GBP 90.9 million, predominantly driven by growing per diems in Ocean Cruise and strong trading in insurance broking. This translated into underlying profit before tax of GBP 46.6 million, an increase of 98% when compared with prior period. In statutory terms, profit before tax from continuing operations also improved significantly, increasing from GBP 3.7 million to GBP 28 million, driven by lower exceptional costs as we move through the [Ageas] partnership implementation. You will see we have moved to underlying available operating cash flow. This excludes the upfront proceeds and working capital adjustments associated with finite partnership and dividends paid by our insurance underwriting business before it left the group. The group continues to have a highly cash-generative business model with underlying available operating cash flow increasing 27% to GBP 101 million. This reflects growth in Travel and Insurance alongside reduced capital signature. We're also making great progress in deleveraging with net debt reducing to GBP 429.1 million at the 31st of July 26, GBP 86 million lower same time a year ago and GBP 70.4 million lower than the year-end. As a result, our leverage ratio improved from 0.3x to 2.7x. I'll now focus on the underlying profit contribution from each of our business units. Our Travel businesses continue to generate strong customer demand, delivering GBP 60.3 million of underlying PBT in the first half, a 45% increase on the prior year. Insurance also performed well in the first half with underlying PBT increasing 75% to GBP 15.9 million. This reflects higher home margins and lower operating costs following the move to a simpler operating model. Other businesses and central costs increased 34% and with a high proportion of costs now remaining centrally following our insurance underwriting business leaving the group and the ongoing transition to the new insurance model. Net finance costs remained broadly unchanged year-on-year at GBP 20.6 million. And as a result, underlying profit before tax increased 98% to GBP 46.6 million. I'll now take you through each of our core businesses in more detail, starting with Ocean Cruise. Ocean Cruise had another excellent start to the year with underlying PBT increasing 38% as customer demand continues to grow. Underlying revenue grew 14% to GBP 149.5 million driven by a 13% growth in per diems to GBP 440 from GBP 391. As a reminder, the increase in per diems was largely driven by less discounting given the high demand we are seeing and our unique price promise, under which the earlier you book, the less you pay, which encourages our customers to book early. Load factors remain strong at 92% and although this is 2 percentage points lower than the prior period due to a different mix of itineraries year-on-year. Marketing expenses were broadly flat year-on-year, while operating expenses increased as we continue to invest in the proposition to support future growth. Finance costs reduced to 13%, reflecting the continued repayment of the Cruise debt facilities. Now looking ahead to the full year. The booked load factor is 91%, broadly in line with the same point last year, while momentum in per diems remains strong with 11% growth. Forward bookings into '27/ '28 are strong with the booked load factor and per diem both ahead of the prior year by 3 percentage points and 11%, respectively. Now turning to River Cruise. In the first half of the year, River Cruise revenue increased 53% to GBP 34.9 million. This was driven by higher per diems and a 32% increase in capacity following the addition of Spirit of the Moselle to the fleet in July 2025. Including the increase in capacity, the load factor remains strong at 92%, broadly in line with the prior year. The per diem increased 3% to GBP 376, demonstrating the continued strength of customer demand. As you'll know, across Europe, there are low water river levels. This has not impacted our first half, and I will come back to this later when I cover the outlook. Marketing and administration expenses were broadly in line with the prior year, even with the significant growth in capacity and earnings. And as a result, underlying profit before tax increased 54% to GBP 6 million. Looking ahead to the full year, although the book load factors behind last year, this reflects the additional capacity following The Spirit of the Moselle joining in July last year and the disruption from lower river water levels in Europe which we continue to manage. The booked per diems is 2% ahead at GBP 357. Bookings for next year are strong and include the incremental capacity from our fourth purpose-built ship, The Spirit of the Lorelei. The booked load factor is behind the same point last year, but the per diem is 2% ahead. In our Holidays business, revenue grew 9% to GBP 97.7 million, with passenger numbers increasing 6% to 29,400. The business saw limited impact from the conflict in the Middle East during the first half with very few itineraries operating in the region. Marketing and administration expenses were broadly in line with the prior year despite the growth in earnings. As a result, trading EBITDA increased 111% to GBP 7.6 million, while underlying profit before tax more than doubled to GBP 6.6 million. Looking ahead to the full year, bookings remain resilient despite the ongoing disruption in the Middle East. Both revenue and passenger numbers are broadly in line with the same point last year. Looking ahead to 2028, bookings are currently behind the per year, but this primarily is due to the later launch of the season. Turning now to Insurance broking, where underlying profit before tax increased to GBP 15.9 million from GBP 9.1 million in the prior period and exceeded our expectations. The year-on-year improvement was primarily driven by strong margins in Esurance, together with lower operating costs as the benefits of the new business model begin to emerge. It's worth noting that the GBP 10.5 million contingent consideration from Ageas had a limited impact on the first half as the income will be received -- sorry, recognized over the future years of the partnership. The graph on the right highlights the key drivers of the growth. The motor contribution before overheads increased GBP 0.6 million with higher new business margins and growth in renewal policies partially offsetting lower new business policy sales. Home Insurance was the largest contributor to profit growth with the increase of GBP 5.7 million, driven primarily by higher renewal margins. Private Medical Insurance was GBP 2.5 million lower than the prior year due to a prior year profit commission recognized in the prior periods, and travel insurance reduced by GBP 0.6 million as a result of increased investment in targeted marketing, which resulted in policy growth of 51%. Interest income was GBP 1.4 million higher than the prior year, reflecting the return on the upfront consideration from the Ageas partnership. Operating expenses have begun to reduce following the move to the new operating model with the full benefit expected next year. And finally, alongside strong growth in profits, total policies in force grew 5% with continued growth from 3 out of our 4 product lines. Now moving to debt. Debt reduction continues to be a strategic priority for Saga, and we are reducing it at pace. It was only 2.5 years ago that we had a leverage ratio of 5.4x and net debt of GBP 637 million. Today, net debt is GBP 421 million, reduction of over GBP 200 million, and our leverage ratio has halved to 2.7x. Looking at the first half, underlying available cash flow increased to 27 million -- 27% to GBP 101 million, driven by stronger cash generation from travel and insurance alongside reduced capital expenditure. Debt service costs increased, reflecting a full 6 months of the new corporate facilities and restructuring costs increased primarily due to the transition to the Ageas partnership alongside other projects and property costs. So lets now turn to the full year outlook. The strong start to the year means our full year guidance has increased. We now expect group underlying profit before tax to be between GBP 65 million and GBP 70 million compared with a consensus of GBP 60.4 million. Net debt and leverage are expected to remain broadly flat, reflecting some one-off cash items and the seasonality of working capital. In Ocean Cruise, we expect the trends seen in the first half to continue with the full year growth expected to be similar to that delivered in the first half. In River Cruise, we expect full year underlying profit to be lower than last year due to the impact low water levels and the usual seasonality within this business. In Holidays, we expect earnings and passengers to be in line with last year. The second half includes our peak trading period for which bookings earlier this year were impacted as the Middle East conflict began. As a reminder, we're fully hedged against foreign exchange and commodity exposure through to December 2027, providing a good degree of visibility and certainty over our cost base. In Insurance Broking, underlying profit before tax is expected to be higher than last year, albeit the second half to be broadly in line with last year as a result of the first half benefiting from higher 3-year fixed price margins and continued investment in Motor and home pricing in the lead up to the renewal policies going live with Ageas. In other businesses and central costs, we expect the second half to be broadly similar to the first. Before I hand back to Mike, it's important to put the performance in the context of our medium-term targets. We laid these out at the start of last year, which were to achieve GBP 100 million of underlying profits by January 2030 with leverage of less than 2 times. This year will now be the second year of us consistently outperforming our expectations. And therefore, as I look forward and whilst mindful of the current geopolitical environment, we now expect to achieve our targets before January 2030. We will, of course, provide a further update at our full year results early next year. And with that, I'll hand back to Mike.

Thanks, Mark. It really has been a very strong first half performance. So let's now get into the drivers behind that performance. I wanted to start with a reminder that we have a very clear strategy. Saga is a business built on our understanding of older people and the trust they have in our brand. Our strategic vision and our strategic principles are the foundations of that customer focus. Customers are at the heart of everything that we do. Our customers are different. And so we, in turn, are different to meet their differing needs and expectations. To do that, we have to understand our customers. We're an insight-driven business with 75 years of experience and insight into this customer group, and we use that to drive every component of our business. Quality and value remains at the heart of everything that we do. And we have an unrivaled marketing reach into this demographic, but it's not just about that reach through our publishing business and our 9 million strong customer database, it's also about the experience that we have in knowing how to communicate and resonate with this different customer base. Critically, though, those principles long enduring as they are need actions and plans, and that's where our strategic priorities come in. And in a moment, I'll take you through how we're delivering on those strategic priorities. Before I do that, let's just talk about customer. Saga really is uniquely positioned to serve this attractive and growing demographic. Over the next 20 years, over 50% of the U.K. population will fall into our target demographic. And fastest growing amongst them will be the over 65 age group projected to grow by over 30%. Saga customers are also more affluent. By 2040, 63% of every pound spent in the U.K. will be spent by people over 50, and they're also living longer. But not just living longer, they feel younger and they're living more active retirements. Average Saga customer feels 14 years younger than their chronological age. Gym memberships are rising. People over 75 are now still really active and they're looking to enjoy their extended retirements. And travel is the thing they enjoy doing most. For Saga customers, travel isn't discretionary item, it's something they prioritize. They spend 3x more than their younger generations, but they have different needs and expectations and hope to deliver on those than Saga having served this market for 75 years. So there's huge potential. And Saga is better placed than many, but having a clear strategy is critical. And strategic priorities that turn out those principles into actions and plans is the driver of our success. So let's now talk about those strategic priorities. There's nothing really new on this page but I wanted to demonstrate how everything that we do is driven by our strategic priorities. We are maximizing the growth of our core businesses. We're driving new products and business lines. You'll hear about pet insurance later and that West was a new product we launched earlier in the year. We simplified -- we're growing our customer base. You'll hear from our publishing business that's doing a great job of deepening the engagement we have with existing and new customers. And we're simplifying our operations and reducing our debt. So let's now talk about what's happening in our business. Starting with Ocean Cruise, the largest profit driver in the group and performing really well. We've been steadily increasing load factors over the past few years, and we expect to maintain that strong performance as we go forward. With strong forward booking visibility into next year, we can already see 55% load factors into next year up on last year and 68% repeat rate, we're confident in the strong continued performance in load factors. And that will translate and is translating into continued per diem momentum. With more demand, people are booking earlier and that means we're having to discount less to acquire customers onto our ships. So it's a more customer-friendly way of driving per diem growth than pure headline price increases. We're also operating in a market that is seeing general price inflation. So our relative value continues to compare well with our cruising peers. At Saga, though, we're also continually investing in proposition, improving the quality of onboard experiences, the number and quality of excursions, premium drinks on board and the quality of the food and drink experience. Some of you have been on board this year recently and will have experienced firsthand what a brilliant experience it is. So how you can understand why our customers love this proposition so much and keep coming back for more. So we're confident that we will maintain the strong load factor performance and see that continue to drive per diem momentum for all the reasons that I've talked about. We're similarly confident about the outlook for our River Cruise business. River Cruise is a real opportunity for us, a newer, smaller part of our group, but with lots of potential. There are 2 key drivers of growth in this business. Load Factor is now into the 80% and continuing to grow, which will catch up towards the 90% that were our more mature Ocean Cruise business now achieves. So we expect to see load factors continuing to grow. But we're also adding additional capacity to service the clear demand that we see in this business. Last year, we launched our third Spirit Class vessel, The Spirit of the Moselle. We launched that in July. I was on that ship in August, and it was already full speaking to the strong demand for that product. Next year, we'll launch The Spirit of the Lorelei, the fourth of our Spirit class vessels. We've also given a lot of attention to the onboard experience and the quality of the excursions. And you can see the combined impact of all of that in our customer satisfaction scores, and the turnaround in our TMPS has gone from 15 only a few years ago, up to 75 now, a really impressive turnaround, driven by our focus on customer. River levels have obviously disrupted the year. But variable water levels are a normal part of operating river cruises and flexibility is key. I've been really pleased with how we've managed the disruption this year, continuing to sail throughout the summer. [indiscernible] ships also cope well with differing water levels. And with variable with the draft better in lower water levels, but they also have technology that lowers bridge decks to cope with higher water levels. So whether it's more or less water, our ships are designed to cope well with those variable levels. Looking ahead then, this remains an attractive market for us, one there is clear demand from our customers. a market that's generally growing and one that we see an opportunity. And finally, in Travel, let's have a look at Holidays. And by holidays, I mean our touring holidays and our hotel stays. This is Saga's Heartland. And actually, it's how most people like to travel, in particular, older people and understand how old people like to travel. We've got huge experience in this, and we're using that experience to build our holiday experiences and propositions around the differing needs that we see for older people. They have more time available to them and so tend to opt for longer-duration holidays. And they typically travel outside of peak season. September and October are our busy period unlike July and August for the mass market. They like to travel independently, but with the addition -- but appreciate the additional comfort and assurance that Saga provides, particularly when something goes wrong. We've been extending our list of destinations and particularly our range of special interest holidays, indulging the passions and interests that we see older people like to enjoy. We've launched a series of U.K. Breaks -- and we see U.K. Holidays as a particularly powerful addition to our No-fly holiday offers. But service is key. -- seamless booking journeys show for driven car service and a Saga host resident to every hotel to help our customers enjoy their holidays to the most. These are the things that make us different. And you can see the difference in our customer satisfaction ores. Only a few years ago, our TMPS was 34%. We're now up to 59%. So again, a huge turnaround in customer satisfaction driven by our focus on our customers and how they like to travel. So our newly combined travel businesses are all performing really well and are well positioned with Ocean Crews, the standout performer. Now let's turn to insurance. You'll be well aware of the transformation that we're delivering insurance. With our Ageas partnership, we now no longer take any underwriting risk across the group. All of our insurance products are now delivered through partners. But it's not just a lower risk model. It's a model that significantly reduces the operational complexity in our insurance business and actually in our broader group. Our partnership strategy brilliantly combines world-class insurance scale, infrastructure and expertise with Saga's 75 years of understanding and expertise in how to design and deliver products to older people. And we've seen an immediate benefit to the performance of our insurance business. After years of decline, policy numbers are now growing again. Travel and PMI theoretically untouched by the Home and Motor Ageas partnership have actually benefited from the greater focus that we're able to give those businesses now freed from the complexity of managing day-to-day complexity of scale, home and motor insurance. And you'll see the massive turnaround in performance we're delivering across PMI and travel. So it's having a halo effect across the whole of insurance and more broadly across the group. It's also giving us headroom to consider new products. And you'll see pet example is a great example of a new product that we'll be delivering. Now we've got the headroom to think about how we can help our customer in areas that we don't currently today. We'll launch that product later in the year. A less obvious transformation has also been taking place in our publishing buses. I've tried to capture a multitude of ways that we engage with our customers through our various publishing channels, most of which didn't exist even 3 years ago when we were fundamentally a print magazine operation. Importantly, this is all about building engagement, brand engagement and driving traffic into our businesses. But look, the PowerPoint slide is hard to get excited about. So let me show you a video clip that I think brings this to life better than I can. [Presentation]

I think maybe we'll have our publishing team do our city presentations going forward, might liven things up a bit. But seriously, what an amazing job the publishing team have been doing. And I think that does a great job of bringing that to life. But let's be clear, this isn't just a fantastic publishing business. It's a powerful brand and engagement tool, and it's growing. Last year, we drove 17 million visits to our website, that was up 39% year-on-year. But we're also focused on converting that traffic into onward traffic into our business units, and we drove 1.9 million visits onto our business websites, and that was up 77% year-on-year. Our award-winning magazine, and you've got copies in the room with you, some of you in the demographic, others not so much. But that's now got a readership of 390,000 people. It's a really powerful tool for us and a shop window for our business. 2.8 million customers now regularly engage with all of our publishing content. It's a key source of insight. And it's a particularly powerful tool when it comes with the increased importance that our wider publishing business has for AI visibility. It extends our reach well beyond traditional direct than through mainstream and social media pickup. And on the right-hand side, you can see the latest example of what the team have been doing with our fantastic new podcast, Lorraine Kelly as our new podcast host a fantastic launch, now reaching over 15 million views since we started in January. So before I wrap up on the next slide, I just want to pause on our medium-term targets again. The targets we laid out in April last year. We said we were confident of achieving GBP 100 million profit and 2x leverage by January 2030. Since then, we've been consistently outperforming that trajectory, and we expect to continue to outperform. As we approach 2 years in of our 5-year turnaround plan, we are confident that we will achieve those targets earlier than the originally intended date of January 2030. And we'll update you more about that in the full year. And so to conclude, we've had a really strong half across all of our businesses. Our strategic transformation is progressing well. We're increasing our full year guidance. We expect to hit our medium-term targets early. And so all around, it's a very strong performance. And while all of my Saga college should be extremely proud of. We'll now move to questions starting with people in the room before we take any online.

It's Sahill from Singer Capital Markets. Congratulations on an excellent set of numbers and a very useful presentation. I've got a few questions. I'll kick off with River Cruise. Given what's happened this year and what's happening to climate change, how are you thinking about contingency plans or how things may play out going forward if sort of lower river levels is likely to be more normal going forward? In light to that is, are you thinking about diversifying your River Cruise itinerary beyond Europe at this moment in time?

Yes. All really good points. Firstly, I've been really the way we've handled the disruption this year. So we've managed to sale throughout the summer. We've got modern ships that cope, as I said, with varying water levels very well actually. But we're also very adept in managing the year-on-year changes in itineraries that are required around river levels. But our modern ships draft in lower water levels and cope with higher water levels very well. We managed the itineraries very flexibly. We've been doing that this year. And as we go forward, you're absolutely right that we will look at new rivers. Importantly, we're not just on the Rhine and the Danube this year, that's where the disruption has been we've actually seen customers switching across to the Douro and enjoying cruises on the Douro this year that are not interrupted. So diversification into new rivers is something that's on the horizon. Actually river volatility is nothing new, and it's something that we manage very well and have managed through this year.

Just moving on to Holidays. Notwithstanding the ebbs and lows of this year. It's a fantastic business. You made a lot of progress over the last 2 years or so. It's niche, there's a degree of fragmentation in the market. How should we be thinking about growth, particularly from a consolidation and an M&A point of view? Is that something that -- something you would consider?

Yes. It's not a major part of our thinking. Look, my view on holidays is we just got started. So it takes a while to turn around a proposition in the way that we're doing, targeting it for our customer demographics. So having consolidated our travel business under 1 leadership, Nigel is in the room today. We're now starting to accentuate the Saga differences through our special interest holidays and the difference you should expect when you go on a Saga holiday. Therefore, this year is the first year where those changes actually will be experienced by customers because the changes we made last year will be delivered this year. So now we're in the process of building that out into next year. So you should expect organic growth coming through our holiday business. What's really important, if you think about cruising, cruising is a really important business for us and Ocean Cruise is the lion's share of our travel profits. So it does provide an important underpin. But actually, in terms of passenger numbers, most people choose to go on holiday, not on a cruise, but the type of holiday we offer in our holidays business. So there is a huge opportunity for us to grow from the 60,000 very small base that we take on a holiday in that way in the future. And we'll do that by curating our experiences to resonate with the people. We're seeing, as you've seen in our customer satisfaction. The changes we're making are resonating and therefore we build in future years especially the interest is a great example that really does play to our strengths in terms of understanding older people and delivering a very different experience for our customers.

Just 2 quick ones for Mark. Slide 11. Mark, I noticed PMI and Travel at good sort of momentum in terms of new memberships -- So in terms of new policies. I noticed there's still loss making. How should we be thinking about that going forward?

So I don't think they are loss-making. That's the varies versus the prior period but both the products make a positive contribution.

And by the variance?

So I think I covered PMI. So PMI is there was a GBP 2.5 million profit share in the prior period. So excluding that, it would be flat and travel is a reflection of the fact that we're investing in that product and you can see that investment paying back through the policy growth of 51%.

Okay. And just 1 final one.

Sahill, just on that, if you strip out the commission share in PMI, I think an important point is, although they are broadly flat year-on-year, you'll see the policy numbers are growing because we've been investing in future growth there as well. That's an important point.

Okay. And just 1 final 1 from -- we've been through a period of quite a bit of restructuring costs, both our P&L and the cash flow level. Are we nearing the end of the exceptionals?

Yes. So look, the exceptionals are primarily related to the Ageas partnership implementation. So we have done a lot of the heavy lifting this year. The renewables book is due to go live towards the end of this financial year. And then there will be a 12-month transition as those policies sort of migrate across 2 years. So I would expect exceptional to present next year as we continue that project and the migration, but they should be lower, and therefore, they then should step down the year after as we move into a more steady state.

Jack Cumming, Berenberg. First question is on the guidance bridge. When you're thinking about that GBP 65 million to GBP 70 million level, what are the building blocks that get you to the bottom end and what the building blocks that get you to the top end? is it low water levels? Is it the Middle East impact? Or how should we think about the bottom and the top end of the range?

I'll kick off and Mark, you can tell me if you want to add anything in terms of numbers, but I think it's a pretty straightforward story. If you look at the very strong first half performance and then you look at the second half, to the extent there is any impact to the Middle East in holidays, it will land in September and October for us, and therefore, that's going to be a second half impact. And our river cruise business, again, to the extent there's disruption that will typically impact the second half rather than the first half. That, combined with some phasing differences in insurance will mean that overall, if you take that first half performance and significant growth year-on-year, and then expect the second half to trade more in line with last year, allowing for those phasing differences then you'll get to the bottom end of that range. That's roughly how to look at it it. Is there anything you would like to add, Mark?