Interim results for the six months ended 31 July

11 October 2024

Saga plc

Interim results for the six months ended 31 July 2024

Strong underlying profit growth, alongside significant deleveraging

Continued momentum across Cruise and Travel, while market conditions impacted Insurance

Saga plc (Saga or the Group), the UK's specialist in products and services for people over 50, announces its interim results for the six-month period ended 31 July 2024.

1 Refer to the Alternative Performance Measures Glossary for definition and explanation

Mike Hazell, Saga's Group Chief Executive Officer, said:

"Saga made significant progress in the first half of the financial year, with Ocean and River Cruise delivering exceptional growth, while we continued to position the Group for long-term success through the exploration of potential partnership opportunities.

"The Group delivered an Underlying Profit Before Tax² that increased more than threefold when compared with the same six months in the prior year and we reduced Net Debt² by £42.8m over the same period. In line with our debt reduction plans, we also repaid our £150.0m senior unsecured bond in May.

"Ocean and River Cruise had an excellent start to the year, with load factors and per diems, across both businesses, well ahead of the same period last year. Travel also continued to grow, delivering a small Underlying Profit Before Tax² compared with an Underlying Loss Before Tax² in the first half of the prior year.

"In Insurance, our Underwriting business returned to profit, however, market conditions for Broking remained challenging, particularly for home. While this continues to have a material impact on profitability, and resulted in an impairment of goodwill, we have been taking action to stabilise the business in the short-term and position it for long-term sustainable policy growth.

"As you may have seen from our separate announcement this morning, we are in exclusive negotiations with Ageas for a 20-year affinity partnership for our motor and home Insurance Broking operations and the sale of our Insurance Underwriting business. Our strong brand and 40 years' experience in providing motor and home insurance, combined with Ageas's extensive knowledge of the insurance needs of people over 50 and experience in operating successful affinity partnerships, offers the potential to create a winning partnership and, for us, a capital-light route to growth.

"We continued to make good progress with growing customer engagement, in part through enhancements to our websites, which increased the number of visits in the year to date by more than 20%. At the same time, we took steps to increase the number of customers that we have consent to contact about our range of products and services.

"The future for Saga is exciting, as we deliver our clear strategy, underpinned by the strength of our brand, our people and our data, and move towards a more capital-light model, reducing debt and delivering long-term sustainable value for our stakeholders."

² Refer to the Alternative Performance Measures Glossary for definition and explanation

Operational and financial highlights

·      Underlying Revenue²1F3 increased 11%, driven by continued strong momentum in our Cruise and Travel businesses and an improved Insurance Underwriting performance, but affected by ongoing challenges in Insurance Broking.

·      Trading EBITDA³ was £67.4m, an increase of 27% when compared with the same period last year.

·      Underlying Profit Before Tax³ of £27.2m increased more than threefold when compared with the £8.0m reported in the prior period.

·      The challenging conditions in Insurance Broking resulted in an impairment of the goodwill allocated to that business of £138.3m. This, together with other small, one-off exceptional items resulted in the Group reporting a loss before tax of £104.0m. This compares with a loss before tax of £77.8m in the prior period, which included a £68.1m impairment of Insurance Broking goodwill.

·      Available Operating Cash Flow³ was £54.4m, 37% behind the prior period. The year-on-year reduction was driven primarily by the one-off beneficial changes in the prior year to our customer deposit arrangements for River Cruise and Travel, where we moved from a 100% trust to a 70% ring-fenced escrow arrangement, alongside lower Insurance Broking Trading EBITDA³ and Underwriting dividends.

·      The Group remains on track to deliver a full year Underlying Profit Before Tax³ that is broadly consistent with the prior year.

³ Refer to the Alternative Performance Measures Glossary for definition and explanation

Divisional performance

Cruise - Customer demand continues to grow, supporting increased load factors

Ocean Cruise

·      Ocean Cruise reported an Underlying Profit Before Tax⁴ of £28.0m, more than double the £12.9m in the prior period.

·      Revenue was £121.5m, 17% higher than the same period the year before. We achieved a 90% load factor, which was 7ppts higher than the same period last year, and a per diem of £362, which was 9% higher.

·      As a result, Ocean Cruise Trading EBITDA (Excluding Overheads)⁴, was £55.8m, or £27.9m per ship, trending well in excess of our £40.0m per ship annualised target.

River Cruise

·      River Cruise reported an Underlying Profit Before Tax⁴ of £2.9m, 93% higher than the same period last year.

·      Revenue was £26.4m, 13% and £3.0m ahead of the prior period, reflecting a load factor of 86% and a per diem of £340, which were 3ppts and 15% ahead respectively.

Travel - Material revenue growth drives return to first half profit

·      Our Travel business, for which profitability is typically lower in the first half as a result of seasonality, had a strong start to the year, reporting an Underlying Profit Before Tax⁴ of £0.3m, compared with an Underlying Loss Before Tax⁴ of £2.6m for the prior period.

·      On a like-for-like basis, excluding the discontinued Titan third-party river cruises in the prior year, revenue grew 29% and passengers grew 13%. On a reported basis, revenue of £78.9m grew 13%, while the 24.5k passengers was 5% lower than the prior period.

Insurance - Profitability in line with guidance

Insurance Broking

·      Insurance Broking earned Underlying Profit Before Tax⁴ was £12.2m. This was lower than the £23.8m in the same period in the prior year, but in line with guidance as we invested in pricing to improve our competitive position.

·      Conditions continue to be challenging. While inflationary pressures lessened in motor, conditions in home remained further behind in the cycle, placing continued pressure on that product. These factors, when combined, dampened the effect of the pricing action we took.

·      The number of policies sold across all product lines, in the first half of the year, was 0.7m, 13% lower than the prior period. While some of this was expected, given the lower policy numbers coming into the year, it was exacerbated by the competitive environment. We had 1.4m policies in force at 31 July 2024, 13% behind the same point last year.

·      For the first half of the year, for motor and home specifically:

o  motor policy sales were 12% behind the prior period, with 6% growth in new business being offset by fewer renewals, following price increases introduced in the second half of last year;

o  home policy sales were 14% behind the prior period as a result of fewer renewals, compounded by reduced competitiveness following the introduction of price increases necessary to mitigate continued net rate inflation;

o  the £58 margin per policy was slightly ahead of the same period last year; and

o  customer retention was 76%, 8ppts lower due to increased competition in the market.

·      The Underlying Profit Before Tax4 from our other broking products was £7.0m lower than the prior period, reflecting market-wide net rate inflation in private medical insurance, alongside particularly competitive market conditions in travel insurance.

·      These factors, and their anticipated impact on future cash flows when compared with previous projections, resulted in Insurance Broking goodwill being impaired by £138.3m. At 31 July 2024, £206.4m of Insurance Broking goodwill remained on the statement of financial position.

Insurance Underwriting

·      Insurance Underwriting reported an Underlying Profit Before Tax⁴ of £1.9m. This compares with an Underlying Loss Before Tax⁴ of £3.6m for the same period in the prior year.

·      Pricing action taken to mitigate lower, but ongoing, motor claims inflation, currently expected to be around 10% for the full year, continued to flow through to the result, with average earned premiums 39% higher than the prior period.

·      The net current year combined operating ratio (COR) was 102%, 23ppts lower than the same period in the prior year and 15ppts lower than the year ended 31 January 2024.

⁴ Refer to the Alternative Performance Measures Glossary for definition and explanation

Wider strategic progress

·      Money reported an Underlying Profit Before Tax⁵ of £0.4m, broadly consistent with the prior period.

·      Following enhancements to our customer-facing websites, we saw increased traffic, with the number of visits in the year to date 21% higher than in the prior period. The number of unique visitors was 10% higher.

·      Our 9.5m strong customer database remains a key focus for us, as the scale of our first party data provides unparalleled reach and insight into our target market. In addition, the 3.8m consented customers on our database at 31 July 2024, which was 16% higher than the same point in the prior year, gives us a unique ability to engage directly with this group.

·      To broaden our customer reach, the Saga Magazine, which was previously only available via subscription, is now available to purchase in selected stores.

·      We are now distributing our new weekly digital newsletters to a combined total of 1.4m unique readers per week. 1.0m readers receive our Travel newsletter, 0.8m our Money newsletter and 0.7m the Magazine newsletter. This form of engagement continues to be popular amongst our customers, with an industry- leading open rate, across all three newsletters, of 38% when combined.

·      We continue to build our brand values into our colleague experience and, following actions taken, colleague engagement, according to our most recent survey, increased to 7.6 out of 10, from 6.6 in December 2023.

⁵ Refer to the Alternative Performance Measures Glossary for definition and explanation

Financial position

The Group continues its focus on debt reduction and made good progress in the year to date. In May 2024, we repaid the £150.0m bond through a combination of Available Cash⁶3F resources and a drawdown of £75.0m on the loan facility provided by Roger De Haan.

At 31 July 2024, Net Debt⁶ was £614.6m, £42.8m lower than 31 July 2023 and £22.6m lower than 31 January 2024. The total leverage ratio improved to 4.6x, compared with 7.0x at 31 July 2023.

We recently concluded discussions with our Revolving Credit Facility (RCF) lenders to extend the facility and provide the Group with greater financial flexibility. As a result, the facility was amended to reflect a new maturity date, extended from 31 May 2025 to 31 March 2026; alongside changes to its leverage test, which used to exclude Ocean Cruise, but will now be conducted on a total Group basis. These discussions also resulted in a reduction in its covenant, from 6.25x to 6.0x, through to maturity. For context, this is comparable with our leverage ratio of 4.6x at the half year end.

The Group held Available Cash⁶ of £86.3m, in addition to the undrawn £50.0m RCF and remaining undrawn £10.0m of the loan facility provided by Roger De Haan.

⁶ Refer to the Alternative Performance Measures Glossary for definition and explanation

Strategy and outlook

The continued momentum in the year to date in Cruise and Travel, alongside a strong pipeline of future bookings, is expected to drive further growth across those businesses for the full year.

The current Ocean Cruise load factor for 2024/25 continues to be strong, at 90%⁷, with a per diem of £359⁷. These compare with a load factor of 87%⁷ and per diem of £331⁷ at the same time last year. As a result, Ocean Cruise Trading EBITDA (Excluding Overheads)⁸ is expected to materially exceed our £40.0m per ship annualised target.

The current River Cruise booked load factor of 88%⁷ and per diem of £327⁷ are also trending well and ahead of the same point last year by 3ppts and 15% respectively.

In Travel, growth continues, with current booked revenue for the full year of £162.2m⁷ and 54.4k⁷ passengers, which compares with £140.3m⁷ and 50.3k⁷ in the prior year.

Insurance Broking remained challenging, particularly towards the end of the first half, with inflationary pressures in home, alongside increased competition in motor. These factors resulted in fewer policy sales in the first six months of the year, a trend that is expected to continue for the second half of the year.

Pricing increases in our Insurance Underwriting business, reflecting the impact of ongoing claims inflation, are expected to continue to benefit the financial result, improving both Underlying Profit Before Tax⁸ and the reported net COR for the full year.

In Money, we continue to develop the business for medium-term growth and introduced a range of new products in the second half of last year, which will take time to generate a material contribution to earnings. We expect Underlying Profit Before Tax⁸ in the second half of the year to be broadly consistent with the first.

While Insurance continues to navigate challenging market dynamics, the strong start to the year in Cruise and Travel means that the Group remains on track to deliver a full year Underlying Profit Before Tax⁸ broadly in line with the prior year.

Available Cash⁸, at 31 January 2025 is expected to be lower than at 31 July 2024, driven by continued repayments on our two Ocean Cruise ship loan facilities, together with lower Trading EBITDA⁸ from Insurance Broking and the expected unwinding of some of the working capital timing differences in the first half. As a result, Net Debt⁸ is expected to be slightly higher at 31 January 2025 when compared with 31 July 2024.

Looking beyond the full year, while there is no certainty that the proposed transaction with Ageas will occur, Ageas has the scale, infrastructure and expertise to support a powerful partnership with Saga as we take action to return the Insurance Broking business to policy growth. This potential partnership, alongside continued growth in our Cruise, Travel and Money businesses, would leave us well positioned to continue to broaden the range of products and services we offer our customers, while enhancing long-term value for our stakeholders through continued growth and deleveraging.

⁷ Current year bookings reflect the position at 6 October 2024, while the prior year refers to the position at 8 October 2023

⁸ Refer to the Alternative Performance Measures Glossary for definition and explanation

END

Management will hold a presentation for analysts and investors at 9.30am today. The webcast can be accessed by registering at www.investis-live.com/saga-group/66d06a7726e9bc12006c53e3/nfgmk and a copy of the presentation slides is available at www.corporate.saga.co.uk/investors/results-reports-presentations/.

A separate live presentation for retail investors will be held via the Investor Meet Company platform on 14 October 2024 at 9.30am. The presentation is open to all existing and potential investors. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9.00am on 11 October 2024, or at any time during the live presentation. Investors can sign up to Investor Meet Company for free and follow Saga plc via www.investormeetcompany.com/saga-plc/register-investor. Investors who already follow Saga plc on the Investor Meet Company platform will automatically be invited.

For further information, please contact:

Notes to editors

Saga is a specialist in the provision of products and services for people over 50. The Saga brand is one of the most recognised and trusted in the UK. Saga is known for its high level of customer service and its high-quality, award-winning products and services including cruises and holidays, insurance, personal finance and publishing. www.saga.co.uk

Chairman's Statement

Saga made significant progress during the first six months of the financial year with the performance of our Cruise and Travel businesses being a particular highlight. Net Debt¹5F reduced significantly when compared with the same point last year and debt reduction continues to be a key strategic priority for us. Alongside this, we more recently executed amendments to the Group's financing facilities to provide us greater flexibility in the short to medium-term.

We continue to generate exceptionally high customer demand for our ocean and river cruises and expect occupancy levels and revenue to remain strong for the full year. This strong performance and outlook is reinforced by our customer satisfaction surveys, which show that customers are enjoying our ocean and river cruises more and more. Travel growth also continued, with revenue significantly ahead of the same six-month period in the prior year.

The action we took in Insurance Broking, that I spoke about in April, involved us investing in pricing to win more business, however, the competitive market dampened its effectiveness. Alongside this, the home insurance market was challenged by increasing claims inflation and this ultimately impacted the number of policies we sold. However, our Insurance Underwriting business ended the half year period in a much stronger position, following a return to profit.

Our Money team has been hard at work, embedding the new products launched last year that broaden the range of services we offer. Publishing, meanwhile, continues to engage readers with popular weekly newsletters and our award-winning Saga Magazine which is celebrating 40 years of publication this month. Alongside this, we made strong progress with our data strategy, increasing not only our website visitors but also the number of people who have given their consent to be sent more information about our products and services. Our new Magazine website is already achieving visitor numbers in excess of those seen on our previous exceptional.com site.

Of course, none of this would be possible without Saga's excellent people and I am pleased that colleague engagement has recently increased following the actions we took to invest in career growth and to build greater awareness of the Group's strategy. These improvements place us in the best possible position to serve our customers, who remain at the heart of everything we do.

Beyond the work we are already doing, the potential partnership with Ageas represents an exciting opportunity to transform a key area of our Insurance Broking business and fits perfectly with our strategy. Ageas has the right structure and expertise, alongside a deep understanding of motor and home insurance products for people over 50. It would allow us to capitalise on the strengths of both our companies and leave us well-positioned to increase the number of our motor and home insurance customers. Alongside the potential partnership, Ageas would also acquire our Insurance Underwriting business.

Our key priorities in the second half of the year are to continue to grow our core businesses, conclude the discussions with Ageas and further reduce our debt. I look forward to the future as we continue to leverage opportunities to grow our businesses, position Saga for sustainable growth and enhance value for our stakeholders.

Sir Roger De Haan

Non-Executive Chairman

10 October 2024

¹ Refer to the Alternative Performance Measures Glossary for definition and explanation

Group Chief Executive Officer's Strategic Review

Delivering on our ambition

I joined Saga at the end of last year, excited by the opportunity to develop a previously capital-constrained business, with a fantastic brand and loyal customer base into the largest and most-trusted brand for older people in the UK. I am pleased to report that we are making good progress towards this ambition, having continued to grow our successful Cruise and Travel businesses, navigated challenging conditions in Insurance and broadened the reach of our Money business. We achieved all this while continuing to reduce our debt and progressing our partnership ambitions, most notably through our now exclusive negotiations with Ageas for a 20-year affinity partnership and the acquisition of our Insurance Underwriting business.

Continued growth across Cruise and Travel, but challenging Insurance conditions

Customer demand for our Cruise and Travel products remained high in the first six months of the year, with both businesses delivering growth. While Insurance Underwriting performed well, Insurance Broking remained under pressure from cyclical challenges, particularly market-wide inflationary pressure in home and increased pricing competition. Our Money business traded in line with expectations, following the launch of our range of new products last year, and we continued to increase Group-wide customer engagement through our website, consent initiatives, newsletters and the Saga Magazine.

Threefold increase in Underlying Profit Before Tax¹

I am very pleased to report that, for the six months ended 31 July 2024, Saga delivered a strong financial performance. Underlying Revenue¹6F of £393.3m reflected 11% growth when compared with the prior period and revenue, on a statutory basis, of £404.8m, was 13% higher.

The Group reported a threefold increase in Underlying Profit Before Tax¹, which was £27.2m for the first half of the current year, compared with £8.0m in the first half of the prior year. This represents continued momentum in Cruise and Travel and improved performance in Insurance Underwriting, partially offset by ongoing challenges in Insurance Broking. On a statutory basis, the loss before tax was £104.0m, reflecting an Insurance Broking goodwill impairment of £138.3m, alongside other small, one-off exceptional items. This compares with a loss before tax of £77.8m for the same period last year, which included a £68.1m impairment to Insurance Broking goodwill.

Alongside underlying earnings growth, we continued to make progress with debt reduction, one of our key strategic priorities. At 31 July 2024, Net Debt¹ was £614.6m, 7% or £42.8m lower than the same time last year, and 4% or £22.6m lower than at 31 January 2024. The Group also held Available Cash¹ of £86.3m, in addition to the undrawn £50.0m Revolving Credit Facility (RCF) and the remaining undrawn £10.0m of the loan facility provided by Roger De Haan.

¹ Refer to the Alternative Performance Measures Glossary for definition and explanation

Our strategy

Our ambition is to become the largest and most-trusted brand for older people in the UK. We aim to achieve this through the delivery of our growth plan, which is focused on the following three priorities:

1.     Maximising our core businesses

2.     Reducing debt through capital-light growth

3.     Growing our customer base and deepening our customer relationships

An update on our progress, during the first six months of the year, in each of these areas is set out below.

1. Maximising our core businesses

We plan to drive our core businesses of Cruise, Travel, Insurance and Money, through business-led growth strategies, supported by our extensive data and Publishing marketing platform.

Cruise

Ocean Cruise had an exceptionally strong start to the year and, for the six months ended 31 July 2024, reported an Underlying Profit Before Tax² of £28.0m, more than double the £12.9m for the same period in the prior year.

Customer demand remained high, with a load factor (being the proportion of our total capacity that was filled) of 90% and per diem (being the average price charged per customer per day) of £362, reflecting a 7ppt and 9% increase on the 83% and £333 in the prior period. This, in turn, drove 17% growth in revenue, from £103.8m in the prior period, to £121.5m in the current period. In addition, Ocean Cruise Trading EBITDA (Excluding Overheads)² increased 39%, to £55.8m, and is on track to once again exceed our annualised target of £40.0m per ship.

We continually enhance our Ocean Cruise proposition to ensure that customers receive the best possible experience and, in the year to date, we extended the reach of our VIP chauffeur service from 250 to 300 miles, making our unique boutique cruising experience a more comfortable one to more customers. Furthermore, this will increase again in 2025, with the service being made available nationwide.

At 6 October 2024, Ocean Cruise bookings for the full year were very strong, with a load factor of 90%, which compares with 87% at the same time in the prior year. At the same date, the per diem of £359 was also 8% higher.

River Cruise had a positive start to the year, reporting an Underlying Profit Before Tax² of £2.9m for the first six months, compared with £1.5m for the same period in 2023/24. Customer demand continued to be strong, as reflected in the load factor, which increased 3ppts to 86%, with the per diem of £340, 15% higher than the £296 reported in the prior period.

Bookings for the full year, at 6 October 2024, continued to be strong, with a load factor of 88%, 3ppts ahead of the 85% at the same time last year. The per diem, at the same date, was also significantly ahead of the prior year, at £327, reflecting 15% growth when compared with the £285 at the same time in the year before.

Turning to next year, we look forward to the arrival of our new River Cruise ship, Spirit of the Moselle, in July 2025, allowing us to offer even more choice to our customers.

Travel

Travel had a very good start to the year and, supported by growing customer demand, reported an Underlying Profit Before Tax²7F of £0.3m which compares with an Underlying Loss Before Tax² of £2.6m in the prior period.

On a like-for-like basis, excluding the revenue and passengers from our discontinued Titan third-party river cruise offering in the prior year, passenger volumes grew 13% and revenue grew 29%, reflecting increased customer demand across our escorted touring and holiday stays products. The reported revenue of £78.9m grew 13%, on a passenger base of 24.5k, which compares with 25.7k in the prior period.

For the full year, booked revenue at 6 October 2024 was £162.2m, reflecting growth of 16% when compared with the £140.3m at the same time last year, from a higher volume of passengers, which increased 8%, to 54.4k, from 50.3k.

Insurance

For the first six months of the year, Insurance Broking reported an earned Underlying Profit Before Tax2 of £12.2m. In line with our previous guidance, this was lower than the £23.8m in the same six-month period in the year before.

As we set out in April, we took action in this half to re-position the business, investing in pricing to enhance our competitive position in order to slow, and in the medium-term, ultimately reverse the decline in policy volumes. The market environment, however, continues to be challenging and while the ongoing inflationary pressures lessened in motor, conditions in home remained further behind in the cycle, placing pressure on that product.

As a result of these conditions, the effectiveness of our pricing action was dampened and policy sales in the first six months of the year across all products, of 0.7m, were 13% lower than the 0.8m in the prior period. While some of this was expected, given the lower number of policies available for renewal following the decline in the prior year, this was exacerbated by the difficult market conditions. These market conditions impacted our combined motor and home customer retention, which was 76% over the period, 8ppts lower than the 84% in the prior period. At 31 July 2024, therefore, the total number of policies in force across all products was 1.4m, 13% lower than at the same point last year. The margin per policy was slightly ahead of the prior period, at £58, compared with £56.

In motor specifically, while our pricing actions showed early encouraging results, market-wide pricing also subsequently reduced, dampening our competitive position and hampering the effectiveness of our actions. As a result, the 0.3m motor policies sold in the first six months of the year were 12% lower than in the same period in the prior year. Within this, we saw an improvement in new business generation, with volumes increasing 6%, however, this was offset by fewer renewals, driven by the absolute number of policies coming into the year, and lower customer retention following the price increases applied last year.

Similarly, for the six months ending 31 July 2024, the number of home insurance policies sold was 0.3m, which was 14% lower than the prior period, arising from fewer renewals, compounded by reduced competitiveness following necessary price increases to mitigate the effect of continued market-wide net rate inflation.

The contribution from our other broking products was also lower in the first six months of the year, reflective of market-wide net rate inflation in private medical insurance and increasingly aggressive market conditions in travel insurance, where additional discounts and increased marketing activity from our competitors is constraining our ability to generate new business.

The Insurance Broking trends observed towards the end of the first half of the year, ultimately resulting in fewer policy sales, are expected to continue for the second half of the year. The anticipated impact of these on future cash flow generation resulted in an impairment to the goodwill allocated to the Insurance Broking business of £138.3m. At 31 July 2024, £206.4m of Insurance Broking goodwill remained on the statement of financial position.

We are focused on continually improving the customer experience and, to do so, have recently launched an additional contact centre in South Africa to complement our UK operations. This move will allow us to efficiently scale our contact centre capacity, as necessary, to better meet customer demand and reduce call wait times.

Significant progress was made during the first half in Insurance Underwriting, as we reported an Underlying Profit Before Tax² of £1.9m which compares with an Underlying Loss Before Tax²8F2 of £3.6m in the prior period. This reflects the benefit from the pricing action taken to mitigate the impact of claims inflation which, in turn, drove a 39% increase in average earned premiums in the year to date.

Reflecting a similar trend, the net current year combined operating ratio (COR) continued to reduce and, for the first six months of the year, was 102%, 23ppts lower when compared with 125% at the same time last year. Looking ahead to the full year, we expect the positive trajectory in both Underlying Profit Before Tax² and the net COR to continue.

Money

For the first half of the year, Money reported an Underlying Profit Before Tax² of £0.4m, broadly consistent with the £0.2m in the prior period. While it is still early days, following the launch of our suite of new products in the second half of last year, these are encouragingly trading in line with our expectations.

We are focused on building greater awareness of the products and advice available to support the financial health of our customers through our popular weekly newsletters, which are currently distributed to 800k readers, and free webinars covering topics from estate planning and wills to the housing market.

² Refer to the Alternative Performance Measures Glossary for definition and explanation

2. Reducing debt through capital-light growth

We aim to deliver capital-light growth across our businesses while reducing debt and, in the first six months of the year, made good progress. At 31 July 2024, Net Debt³ was £614.6m, £42.8m lower than 31 July 2023, and £22.6m lower than at 31 January 2024. While this includes Available Cash³ of £86.3m, the Group also has access to additional liquidity through the undrawn £50.0m RCF and remaining undrawn £10.0m of the loan facility provided by Roger De Haan.

The significant growth in Trading EBITDA³ driven by Cruise and Travel, and the continued reduction in Net Debt³, resulted in the total leverage ratio, at 31 July 2024, reducing to 4.6x, compared with 7.0x in the preceding year.

Significantly, in May 2024, we repaid our £150.0m bond through a combination of Available Cash³ resources and a £75.0m drawdown on the loan facility provided by Roger De Haan. Following this repayment, the capital structure comprised the £250.0m bond maturing in July 2026; the £85.0m loan facility provided by Roger De Haan maturing in April 2026; the combined £375.9m Ocean Cruise ship facilities maturing in June 2031 and September 2032; and the undrawn £50.0m RCF.

To provide the Group with further financial flexibility, we recently concluded discussions with our RCF lenders. As part of this, we agreed an extension to the facility's maturity date, from 31 May 2025 to 31 March 2026; a revised definition for the leverage test, which used to exclude Ocean Cruise but will now be calculated at a Group level; and an associated reduction to the covenant, from 6.25x to 6.0x, until maturity.

³ Refer to the Alternative Performance Measures Glossary for definition and explanation

3. Growing our customer base and deepening our customer relationships

Helped by the analysis of our data, we continue to work towards increasing the number of customers we serve and increasing the frequency and quality of the interactions we have with them.

Often, our customers' first interaction with Saga is through our website and, following significant enhancements made to our Money, Cruise, Travel and Insurance sites, we saw an increase in this type of engagement. In the year to date, the number of visits to our website increased 21% and the number of unique visitors increased by 10%. Supporting this, our new Magazine website is doing exceptionally well and already achieving visitor numbers in excess of those seen on our previous exceptional.com site.

Our 9.5m strong customer database continues to be a key focus for us, as the scale of our first party data provides unparalleled reach and insight into people over 50 in the UK. Within this and at 31 July 2024, we had consent from 3.8m individuals who were willing to hear more about Saga's products and services. This was 16% higher than at the same point in the prior year, giving us the unique capability to engage directly with this group.

Our Publishing business continues to expand its audience, with our weekly newsletters now reaching 1.4m unique readers. They have an industry-leading combined open rate of 38% and we send 1.0m Travel newsletters, 0.8m Money newsletters and 0.7m Magazine newsletters every week. Alongside this, our popular, award-winning magazine, which is celebrating 40 years of publication, has recently been launched in selected stores across the UK.

Recognising that our colleagues are integral to our success, we undertake regular engagement surveys to improve our understanding of how they are feeling and what is important to them. At the time of our latest survey, engagement had increased to 7.6 out of 10, from 6.6 in December 2023. This resulted from an improved focus on investing in our colleagues and their career growth, alongside providing greater visibility and clarity on the Group's strategy.

A strong platform

I would like to acknowledge that the significant progress in the first six months of the year would not have been possible without the continued dedication and hard work of my colleagues, who strive to deliver exceptional experiences for our customers every day. I thank them all for their efforts and for making Saga such a wonderful place to work. I also want to thank our customers, suppliers and investors for their continued support on our journey to become the largest and most-trusted brand for older people in the UK.

The progress made in the year to date represents a significant step forward in our ambitions as we delivered a threefold increase in Underlying Profit Before Tax⁴9F, supported by continued high demand for our Cruise and Travel offerings. This, alongside the potential partnership with Ageas, positions the business for sustainable capital-light growth, with a platform to deliver a material step-change in debt reduction and unlock significant value for shareholders.

Mike Hazell

Group Chief Executive Officer

10 October 2024

⁴ Refer to the Alternative Performance Measures Glossary for definition and explanation

Group Chief Financial Officer's Review

The Group reported an Underlying Profit Before Tax¹10F of £27.2m, compared to £8.0m in the prior period. This reflected a strong performance from our Cruise and Travel businesses, with the challenges in the Insurance market continuing to impact our Insurance Broking business.

Cruise and Travel have seen strong demand in the period, with both passenger numbers and average prices increasing. Ocean Cruise had a particularly strong half, reporting an Underlying Profit Before Tax¹ of £28.0m (H1 2023: £12.9m). River Cruise also saw strong demand and reported Underlying Profit Before Tax¹ of £2.9m (H1 2023: £1.5m), despite the challenges from the adverse weather seen across Europe. Travel performed well in the first half with Underlying profit before Tax¹ of £0.3m (H1 2023: loss of £2.6m), driven by a focus on higher value touring products.

The Group's Insurance Broking business continues to be challenged by high net rate inflation, particularly in home, and a highly competitive marketplace. The Insurance Broking business reported an earned Underlying Profit Before Tax¹ of £12.2m (H1 2023: £23.8m), reflecting the impact of the actions taken to increase competitiveness and stabilise policy volumes. Due to the challenging market back drop, these actions had less of an impact and the number of policies in force was down 13.2% to 1,386k.

Despite the challenges in Insurance Broking, our Underwriting business traded well and reported Underlying Profit Before Tax¹ of £1.9m (H1 2023: loss £3.6m), reflecting the ongoing earn through of the pricing action taken in prior years and positive development on prior year claims.

The Group reported a loss before tax of £104.0m (H1 2023: loss of £77.8m), that reflects an impairment of Insurance Broking goodwill of £138.3m and net positive exceptional items of £7.1m. The impairment of goodwill was driven by a lower view of cash flows from Insurance Broking, compared with our previous growth projections, reflecting the high claims cost inflation impacts to profitability and policy volumes in the future. The exceptional items primarily relate to onerous contract provisions on three-year fixed-price policies under International Financial Reporting Standard (IFRS) 17.

Reducing debt continues to be a priority for the Group and Net Debt¹, at 31 July 2024, was £614.6m, £22.6m lower than the year end, reflecting Ocean Cruise ship debt repayments. During the period, the £150.0m 2024 bond was repaid from a combination of Available Cash¹ and drawing £75.0m on the loan facility provided by Roger De Haan, resulting in Available Cash¹ reducing to £86.3m by the half year end (31 January 2024: £180.7m).

Available Operating Cash Flow¹ reduced to £54.4m (H1 2023: £85.9m), driven by lower cash generation from the unrestricted businesses, and River and Travel businesses, offset by an increase from Ocean Cruise. The reduction in the River and Travel businesses was driven by a one-off benefit in the prior period, after moving from 100% to 70% coverage under the Civil Aviation Authority (CAA) escrow arrangement.

We recently concluded discussions with our Revolving Credit Facility (RCF) lenders to provide the Group with greater financial flexibility. As a result, the following amendments were agreed, in addition to other smaller changes:

·      Extension to the maturity date, from 31 May 2025 to 31 March 2026.

·      Leverage test to now be conducted on a Group basis, so including the Net Debt¹ and Trading EBITDA¹ in relation to Ocean Cruise.

·      Reduction in the leverage ratio covenant, from 6.25x to 6.0x, until maturity.

The second half of the year is expected to be another strong period for customer demand in Cruise and Travel, supported by the strong forward booked positions in these businesses. The impact of home net rate inflation seen towards the end of the first half is expected to continue to have a significant impact on the Insurance Broking business, with margins and policy volumes under pressure.

As you may have seen, we announced that we are in exclusive negotiations with Ageas for a 20-year affinity partnership for motor and home insurance. If these negotiations are successful, the ambition would be for the partnership to go live by the end of 2025 and, therefore, have no impact on the current year. As a result, we continue to expect Underlying Profit Before Tax¹ for 2024/25 to be broadly consistent with that of 2023/24.

¹ Refer to the Alternative Performance Measures Glossary for definition and explanation

Operating performance

Group income statement

The Group's business model is based on providing high-quality and differentiated products to its target demographic, predominantly focused on cruise, travel and insurance. The Cruise and Travel businesses comprise Ocean Cruise, River Cruise and Travel. The Insurance business operates mainly as a broker, sourcing underwriting capacity from selected third-party insurance companies, and, for motor and home, also from the Group's in-house underwriter. Other Businesses include Saga Money, Saga Publishing and CustomerKNECT, a mailing and printing business.

Underlying Revenue²

Underlying Revenue² increased by 10.7% to £393.3m (H1 2023: £355.3m) mainly due to increased load factors and per diems across our Cruise businesses, alongside a 18.7% increase in average revenue per passenger in our Travel business.

Underlying Profit/(Loss) Before Tax²

The Group generated an Underlying Profit Before Tax² of £27.2m in the first half of the current year, compared with £8.0m in the first half of the prior year. This is primarily due to a:

·      £19.4m increase in Cruise and Travel, moving to an Underlying Profit Before Tax² of £31.2m (H1 2023: £11.8m), with £15.1m driven by Ocean Cruise;

·      a return to an Underlying Profit Before Tax² in Insurance Underwriting of £1.9m (H1 2023: Underlying Loss Before Tax² of £3.6m); and

·      £7.3m improvement in Other Businesses and Central Costs following the cost reduction programme actioned in the second half of the prior year.

These were partially offset by an £11.6m reduction in Insurance Broking profitability due to difficult trading conditions, particularly within home.

Net finance costs³ in the period were £12.9m (H1 2023: £11.5m), which exclude finance costs that are included within the Cruise and Travel businesses of £8.2m (H1 2023: £9.7m) and Insurance Underwriting business of £1.9m (H1 2023: £6.5m).

Loss before tax

The loss before tax for the period, of £104.0m, includes a £138.3m impairment to Insurance Broking goodwill and a net positive of other exceptional items of £7.1m, consisting of:

·      onerous contract provisions net positive of £9.7m on three-year fixed-price policies and on insurance contracts under IFRS 17;

·      fair value gains on debt securities of £2.7m;

·      a £0.3m positive change in discount rate on non-periodical payment order (PPO) insurance liabilities;

·      foreign exchange gains on River Cruise ship leases of £0.5m;

·      restructuring costs of £4.2m;

·      costs associated with the unsecured loan facility provided by Roger De Haan of £1.2m;

·      fair value losses of £0.6m on derivatives; and

·      a negative IFRS 16 adjustment of £0.1m on River Cruise ships.

The loss before tax in the prior period, of £77.8m, includes a £68.1m impairment to Insurance goodwill and a net negative of other exceptional items of £17.7m, comprising:

·      restructuring costs of £5.9m;

·      onerous contract provision net cost of £9.2m on three-year fixed-price policies and on insurance contracts under IFRS 17;

·      fair value losses on debt securities of £4.8m;

·      a £3.1m positive change in discount rate on non-PPO insurance liabilities;

·      arrangement fee on the unsecured loan facility provided by Roger De Haan of £1.0m;

·      a £0.1m acquisition cost on the purchase of The Big Window Consulting Limited;

·      fair value losses of £0.9m on derivatives;

·      foreign exchange gains on River Cruise ship leases of £0.6m; and

·      a positive IFRS 16 adjustment of £0.5m on River Cruise ships.

Tax

The Group's tax expense for the period was £2.1m (H1 2023: £6.8m credit), representing a tax effective rate of 6.1% (H1 2023: 70.1%), excluding the Insurance Broking goodwill impairment charge. In both the current and prior periods, the difference between the Group's tax effective rate and the standard rate of corporation tax was mainly due to the Group's Ocean Cruise business being in the tonnage tax regime.

There was also an adjustment in the current period for the over-provision of prior year tax of £0.3m credit (H1 2023: £1.2m credit). Excluding the impact of the Ocean Cruise business being in the tonnage tax regime, the Insurance goodwill impairment and adjustments to prior year tax, the tax effective rate for the current period is 35.8% (H1 2023: 25.6%).

Earnings/(loss) per share

The Group's Underlying Basic Earnings Per Share²13F was 17.9p (H1 2023: 1.7p). The Group's reported basic loss per share was 75.9p (H1 2023: loss of 50.9p).

² Refer to the Alternative Performance Measures Glossary for definition and explanation

3 Net finance costs exclude Cruise, Travel and Insurance Underwriting finance costs and net fair value losses on derivatives

Cruise and Travel

Ocean Cruise

The Ocean Cruise business owns two ocean cruise ships, Spirit of Discovery and Spirit of Adventure.

In the first half of the current year, the business achieved a load factor of 90% (H1 2023: 83%) and a per diem of £362 (H1 2023: £333). These two factors, when combined, equated to revenue growth of 17.1% and resulted in a 117.1% increase in profitability, from an Underlying Profit Before Tax⁴ of £12.9m in the first half of the prior year, to an Underlying Profit Before Tax⁴ of £28.0m in the first half of the current year.

River Cruise

The River Cruise business has 10-year charters in place for two boutique purpose-built river cruise ships, Spirit of the Rhine and Spirit of the Danube, alongside two other shorter-term charters.

In the first half of the current year, the business achieved a load factor of 86% (H1 2023: 83%) and a per diem of £340 (H1 2023: £296). This resulted in revenue growth of 12.8% and a 93.3% increase in profitability to an Underlying Profit Before Tax⁴ of £2.9m (H1 2023: £1.5m).

Travel

The Travel business, which includes both the Saga Holidays and Titan brands, generated higher revenue per passenger in the first half of the current year, increasing by 18.7% from £2,712 to £3,220, but saw slightly reduced volumes when compared with the first half of the prior year, with passenger numbers decreasing from 25.7k to 24.5k.

This led to revenue growth of 13.2% and a return to profitability, from an Underlying Loss Before Tax⁴ of £2.6m in the first half of the prior year, to an Underlying Profit Before Tax⁴ of £0.3m in the first half of the current year.

On a comparable basis and, therefore, excluding the discontinued Titan third-party river cruise product, which is included in the prior year numbers, revenue grew 28.5% on a passenger base that grew 13.3%.

Forward Cruise and Travel sales

The Ocean Cruise load factor for 2024/25 is ahead of the same point last year for 2023/24 by 3ppts, driven by an improved load factor in the first quarter when compared with the prior year. The per diem for 2024/25 is 8.5% higher than the same point last year, reflecting strong customer demand.

The Ocean Cruise load factor for 2025/26 is in line with the same point in the prior year, despite the season going on sale one week later, with the per diem 7.5% ahead.

The River Cruise load factor and per diem for 2024/25 are also ahead of the same point last year, by 3ppts and 14.7% respectively, reflecting increased customer demand.

Looking ahead to 2025/26, the River Cruise booked load factor is in line with the prior year position, with the per diem 7.4% ahead.

Travel bookings for 2024/25 are ahead of the same point last year by 15.6% and 8.2% for revenue and passengers respectively. The increased revenue is due, in part, to higher passenger numbers, but also higher average selling prices, as a result of enhanced revenue management processes. The increase in passenger numbers is largely due to increased uptake of short-haul travel within our Titan brand and the introduction of new products, alongside Titan tours now being sold to customers in Australia.

Travel bookings for 2025/26 reflect a revenue position that is 5.9% ahead of the same point in the prior year, with passengers 3.8% ahead, following the launch of Titan tours in Australia.

⁴ Refer to the Alternative Performance Measures Glossary for definition and explanation

Insurance

Insurance Broking

The Insurance Broking business provides tailored insurance products and services, principally motor, home, private medical and travel insurance. Its role is to price the policies and source the lowest risk price, whether through the panel of motor and home underwriters or through solus arrangements for private medical and travel insurance. The Group's in-house insurer, Acromas Insurance Company Limited (AICL), sits on the motor and home panels and competes for that business with other panel members on equal terms. AICL offers its underwriting capacity on the home panel through a coinsurance deal with a third party, so the Group takes no underwriting risk for that product. Even if underwritten by a third party, the product is presented as a Saga product and the Group manages the customer relationship.

Insurance Broking written Underlying Profit Before Tax⁵, which excludes the impact of the written to earned adjustment deferring the revenue on policies underwritten over the term of the policy, decreased to £11.6m, from £18.2m in the prior period.

A key metric for the Insurance Broking business is Written Gross Profit After Marketing Expenses⁵, before deducting overheads. This reduced from £62.3m in the first half of the prior year to £53.7m in the first half of the current year, mainly due to lower renewal volumes and margins on home, lower renewal margins on private medical insurance (PMI) and lower new business volumes and margins on travel. This was partially offset by an improvement in motor margins as net rate inflation has slowed. Written Gross Profits After Marketing Expenses⁵ fell by £6.0m in home and £4.4m in other broking, partially offset by an increase in motor of £1.8m.

For motor and home insurance, in terms of the total Written Gross Profit After Marketing Expenses⁵, the new business proportion reduced by £0.4m and the renewal proportion by £3.8m.

The reduction in profitability of the home business is attributable to significant inflationary pressure in the net rates charged by panel underwriters, which have increased at a faster pace than the price that can be charged to consumers in a competitive marketplace. This has been accentuated by the fact that a significant number of home policies are on three-year fixed-price deals, which fix the customer price for two renewals. Lower new business volumes in the prior year have also led to a 14% reduction in the level of renewal volumes in the first half of the current year.

The three-year fixed-price product remains significant, with 180k policies sold in the period, compared with 319k policies in the prior year. This represented 29% of total motor and home policies (H1 2023: 45%), with 28% of direct new business customers taking the product (H1 2023: 30%). These policies remain highly attractive to our customer base and, while current profitability has been impacted by high industry inflation, this is a short-term challenge, as all policies will have been repriced by the middle of 2025.

The challenging home environment has been broadly offset by an improvement to the motor environment which has led to the average gross margin per policy for motor and home combined, calculated as Written Gross Profit After Marketing Expenses⁵17F divided by the number of policies sold, increasing to £57.6 in the first half of the current period, compared with £56.1 in the prior period.

In addition, customer retention reduced from 84% to 76%, overall motor and home policies in force decreased 13% when compared with 31 July 2023 and direct new business sales reduced by 3ppts to 43% as the Group rebalanced volumes towards price-comparison website distribution channels.

Written profit and gross margin per policy for motor and home are stated after allowing for deferral of part of the revenues from three-year fixed-price policies, which is then recognised in profit or loss when the option to renew those policies at a predetermined fixed price is exercised or lapses, recognising the inflation risk inherent in these products. At 31 July 2024, £11.6m (H1 2023: £11.1m) of income had been deferred in relation to three-year fixed-price policies, £5.2m (H1 2023: £4.5m) of which related to income written in the period to 31 July 2024.

Motor broking

Gross Written Premiums⁵ increased 2.9% due to a 17.5% increase in average premiums, partially offset by a 12.5% reduction in core policies sold. Gross Written Premiums⁵, from business underwritten by AICL, increased 1.3% to £88.0m (H1 2023: £86.9m), due to a 13.7% increase in average premiums, offset by a 11.0% decrease in core policies sold.

Written Gross Profit After Marketing Expenses⁵ was £17.4m (H1 2023: £15.6m), contributing £51.6 per policy (H1 2023: £40.5 per policy). The increase in renewal margins and a 6.4% increase in new business policies sold was partially offset by lower new business margins and a 16.6% reduction in renewal policies sold.

Home broking

Gross Written Premiums⁵ increased 3.6% due to a 19.9% increase in average premiums, partially offset by a 13.6% reduction in core policies sold.

Written Gross Profit After Marketing Expenses⁵ was £18.1m (H1 2023: £24.1m), equating to £64.9 per policy (H1 2023: £74.6 per policy). The reduction in written gross profits, and margin per policy, was mainly due to the adverse impact of net rate inflation on home renewal profitability.

Other broking

Other broking primarily comprises PMI and travel insurance.

Gross Written Premiums⁵ reduced 7.9% as a result of both lower average premiums and a reduction to policy sales to 74k (H1 2023: 86k) in travel insurance. For PMI, policy sales were broadly stable at 16k (H1 2023: 17k).

As a result, Written Gross Profit After Marketing Expenses⁵ relating to travel insurance products decreased by £1.4m.

While sales of PMI were broadly stable, there were net rate inflation pressures in the first half of the year, reducing renewal margins and leading to Written Gross Profit After Marketing Expenses⁵ decreasing by £2.6m.

⁵ Refer to the Alternative Performance Measures Glossary for definition and explanation

⁶ Third-party underwriter's share of the motor panel for policies

 Insurance Underwriting

The Group's in-house underwriter, AICL, underwrites over 60% of the motor business sold by Insurance Broking, alongside a smaller proportion of business on other panels. Alongside this, AICL underwrites a portion of Saga's home panel, although all home underwriting risk is passed to third-party insurance and reinsurance providers. AICL also has excess of loss and funds-withheld quota share reinsurance arrangements in place, relating to its motor underwriting line of business, which transfer a significant proportion of motor insurance risk to third-party reinsurers.

In line with the wider market, AICL experienced a prolonged period of elevated claims inflation across 2022 and 2023, with the significant price rises applied over that period having now materially earned through to insurance revenue.

Gross insurance Underlying Revenue⁷, in the first half of the year, increased 29.9% to £102.0m (H1 2023: £78.5m), reflecting a 38.8% increase in average earned premiums. This was partially offset by a 6.4% reduction in the number of earned policies underwritten by AICL, particularly those underwritten for Saga as opposed to other panels.

The pricing and other management action taken during 2022 and 2023 resulted in significant improvement in the gross insurance service result year on year, with a 44.2ppt reduction in the current year gross COR to 92.2% (H1 2023: 136.4%). After allowing for reinsurance arrangements, this increased slightly to 101.7% (H1 2023: 124.7%). This result was in line with expectations, recognising the fact that the gross current period motor surplus generated during the first half of the current year is shared with reinsurance partners.

Motor claims severity inflation during the first half of the current year reduced to 11%, in line with pricing expectations, with the full year expected to reduce further.

Positive changes to liabilities for incurred prior year claims reduced from £16.0m in the first half of the prior year to £0.8m in the first half of the current year. Both years benefited from favourable large claims movements (net of excess of loss reinsurance), albeit more so in the prior year. The net impact of our quota share reinsurance arrangements switched from a net benefit in the prior year to a net cost in the current year, with 80% of the favourable development in the most recent accident years ceded to quota share reinsurance partners.

The net finance expense of £1.9m reduced from £6.5m in the prior period. The expense was higher in the prior period as there was an increase in the yield curve which increased indexation of reinsurance deductibles and, therefore, net incurred claims.

⁷ Refer to the Alternative Performance Measures Glossary for definition and explanation

Other Businesses and Central Costs

The Group's Other Businesses include Saga Money, Saga Publishing and CustomerKNECT.

Underlying Profit Before Tax⁸ for Other Businesses, when combined, increased by £2.8m, from a £2.2m Underlying Loss Before Tax⁸ in the first half of the prior year to an Underlying Profit Before Tax⁸ of £0.6m in the first half of the current year. This was largely due to the decision made, in the second half of last year, to exit our smaller, loss-making activities of Saga Exceptional and Saga Insight. Underlying Revenue⁸ in Saga Money reduced £0.9m due to market-wide equity release challenges arising from the inflationary environment.

Central operating expenses reduced to £11.1m (H1 2023: £15.1m). Gross administration costs, before Group recharges, decreased by £2.6m in the period, as a result of a cost-reduction programme enacted in the second half of the prior year. Net costs decreased by a further £1.4m due to higher Group recharges to the business units.

Net finance costs in the period were £12.9m (H1 2023: £11.5m), which exclude finance costs that are included within the Cruise and Travel businesses of £8.2m (H1 2023: £9.7m) and Insurance Underwriting business of £1.9m (H1 2023: £6.5m). The increase was predominantly driven by the drawdown on the loan facility provided by Roger De Haan to support repayment of the £150.0m bond in May 2024 and the higher interest rate attached to that facility.

⁸ Refer to the Alternative Performance Measures Glossary for definition and explanation

Cash flow and liquidity

Available Operating Cash Flow⁹20F

Available Operating Cash Flow⁹ is made up of the cash flows from unrestricted businesses and the dividends paid by restricted companies, less any cash injections to those businesses. Unrestricted businesses include Insurance Broking (excluding specific ring-fenced funds to satisfy Financial Conduct Authority (FCA) regulatory requirements), Other Businesses and Central Costs, and the Group's Ocean Cruise business. Restricted businesses include AICL, River Cruise and Travel.

As a result of a reduction in cash generation from unrestricted businesses, particularly in Insurance Broking and cash repayments from the River Cruise and Travel businesses, partially offset by improved cash generation from the Ocean Cruise business, Available Operating Cash Flow⁹ reduced from £85.9m in the first half of the prior year to £54.4m in the first half of the current year.

Excluding cash repayments from the Cruise and Travel businesses, Available Operating Cash Flow⁹ was an outflow of £1.2m compared with an inflow of £12.9m in the prior period. Trading EBITDA^9,10 from unrestricted businesses reduced by £4.3m, mainly as a result of lower margins and policies in the Insurance Broking segment, particularly in home and other, partially offset by the impact of cost savings enacted in Central Costs during the second half of the prior year. Changes in working capital were a £6.1m outflow in the current period, compared with a £0.7m outflow in the prior period, mainly due to a reduction in net premiums payable to our panel of underwriters on motor following price reductions in the period as claims inflation slowed. No dividends were received from AICL, as expected, a reduction of £7.0m when compared with the prior year.

For River Cruise and Travel, the Group was repaid £1.5m in the first half of the year. This is a reduction of £24.5m when compared with the £26.0m repayment in the first half of the prior year. The reduction is due to the businesses, in the first half of the prior year, in agreement with the CAA, moving from a fully ring-fenced trust arrangement, where the businesses could not access 100% of customer cash until they returned from their river cruise or holiday, to a ring-fenced escrow arrangement where only 70% of customer cash is restricted until they return. This resulted in a one-off cash benefit in the first half of the prior year. At 31 July 2024, the ring-fenced businesses held cash of £72.3m, of which £56.6m was held in escrow. The Group must hold a minimum of £8.1m of cash outside of escrow within the ring-fenced businesses, as agreed with the CAA.

The Ocean Cruise business reported an Available Operating Cash Flow⁹ of £54.1m (H1 2023: £47.0m), with an increase in advance customer receipts of £7.2m (H1 2023: £18.7m) and net trading income of £47.7m (H1 2023: £31.4m), partially offset by capital expenditure of £0.8m (H1 2023: £3.1m). Net of interest costs of £7.0m (H1 2023: £8.1m), the Ocean Cruise business reported a net cash inflow, before capital repayments on the ship debt, of £47.1m for the first half of 2024/25 compared with £38.9m in the first half of prior year.

Other cash flow movements

Interest and financing costs reduced in the current period due to lower interest costs on the ship debt loans as a result of the gross ship debt reducing as capital repayments are made.

The Group continued to make the agreed payments to the defined benefit pension fund as part of the deficit recovery plan of £5.8m (H1 2023: £5.8m). These are included within other payments.

In the current period, the Group repaid in full its £150.0m corporate bond at maturity, drew down £75.0m of the available £85.0m loan facility provided by Roger De Haan and continued to make capital repayments against its ship debt facilities, with one payment of £15.3m (H1 2023: £15.3m) on Spirit of Discovery's debt facility and one payment of £15.8m (H1 2023: £15.8m) on Spirit of Adventure's debt facility.

⁹ Refer to the Alternative Performance Measures Glossary for definition and explanation

1⁰ Trading EBITDA includes the line-item impact of IFRS 16 with the corresponding impact to net finance costs included in net cash flows used in financing activities

Reconciliation between operating and reported metrics

Available Operating Cash Flow¹¹22F1 reconciles to net cash flows from operating activities as follows:

Underlying Revenue¹¹ reconciles to the statutory measure of revenue as follows:

Trading EBITDA¹¹ reconciles to Underlying Profit Before Tax¹¹ as follows:

Adjusted Trading EBITDA¹¹24F1 is used in the Group's leverage calculation for the RCF covenant and is calculated as follows:

Ocean Cruise Trading EBITDA^11,12 reconciles to Ocean Cruise Trading EBITDA (Excluding Overheads)¹¹ as follows:

¹¹ Refer to the Alternative Performance Measures Glossary for definition and explanation

1² Ocean Cruise Trading EBITDA includes Ocean Cruise overheads

Statement of financial position

Goodwill

On 1 January 2022, new pricing rules arising from the implementation of recommendations included in the FCA's General Insurance Pricing Practices market study came into effect. As a result, and against the background of a highly competitive motor insurance market, the Group saw a fall in policy volumes in the period to 31 July 2023 and year to 31 January 2024. At 31 July 2024, high claims cost inflation in a competitive market continued to have an adverse impact on the expected future profitability of the Insurance business. Management, therefore, considered it necessary to perform impairment assessments of goodwill attaching to the Insurance Broking business at each of these dates. Forecast cash flows were modelled and, as a result, management took the decision to impair Insurance goodwill by £138.3m at 31 July 2024, following total impairments recognised in the year to 31 January 2024 of £104.9m. Consistent with the approach taken in previous years, this impairment is not included within Underlying Profit Before Tax¹³26F.

¹³ Refer to the Alternative Performance Measures Glossary for definition and explanation

Carrying value of Ocean Cruise ships

At 31 July 2024, the carrying value of the Group's Ocean Cruise ships was £576.9m (31 January 2024: £586.7m). Trading performance in the current year has been very positive, and, with strong bookings for 2025/26, the Directors concluded that there were no indicators of impairment at 31 July 2024.

Investment portfolio

The majority of the Group's financial assets are held by its Insurance Underwriting entity and represent premium income received and invested to settle claims and meet regulatory capital requirements.

The amount held in invested funds increased by £5.7m to £257.6m (31 January 2024: £251.9m). At 31 July 2024, 100% of the financial assets held by the Group were invested with counterparties with a risk rating of BBB or above, consistent with the prior year end, reflecting the relatively stable credit risk rating of the Group's investment holdings.

Insurance reserves

Analysis of insurance contract liabilities at 31 July 2024 and 31 January 2024 is as follows:

The Group's total insurance contract liabilities, net of reinsurance assets, decreased by £3.5m in the period to 31 July 2024 from the previous year end, primarily due to a £8.8m reduction in net remaining coverage claims reserves. This was partially offset by a £5.3m increase in net incurred claims reserves. The reduction in net remaining coverage claims reserves reflect favourable experience on large bodily injury claims relating to prior accident years.

Financing

At 31 July 2024, the Group's Net Debt¹⁴27F was £614.6m, £22.6m lower than at the beginning of the financial year. The Group's total leverage ratio was 4.6x as at 31 July 2024 (31 January 2024: 5.4x).

Net Debt¹⁴ is analysed as follows:

Adjusted Net Debt¹⁴ is used in the Group's leverage calculation and reconciles to Net Debt¹⁴ as follows:

Excluding the impact of debt and earnings relating to the Ocean Cruise ships, the Group's leverage ratio applicable to the RCF, at 31 July 2024, was 5.4x (31 January 2024: 5.4x), within the 6.25x covenant. At 31 July 2024, the RCF remained undrawn.

During the first half of the year, the Group repaid in full its £150.0m corporate bond at maturity and drew down £75.0m of the available £85.0m loan facility provided by Roger De Haan. The Group also made repayments on its Ocean Cruise ship debt facilities in March 2024 for Spirit of Adventure and in June 2024 for Spirit of Discovery, of £15.8m and £15.3m respectively.

To support the transition to our new Insurance operating model, we recently concluded discussions with our RCF lenders to provide the Group with greater financial flexibility. As a result, the following amendments were agreed, in addition to other smaller changes:

·      Extension to the maturity date from 31 May 2025 to 31 March 2026.

·      Leverage test to now be conducted on a Group basis, so including the Net Debt¹⁴ and Trading EBITDA¹⁴ in relation to Ocean Cruise.

·      Reduction in the leverage ratio covenant from 6.25x to 6.0x until maturity.

In addition, a series of amendments were made to the loan facility provided by Roger De Haan. These included an extension to the facility maturity, from 31 December 2025 to 30 April 2026, a reduction to the notice period required for drawdown of the loan, to 10 business days, and an increase in the maximum number of permitted utilisations, to 10.

¹⁴ Refer to the Alternative Performance Measures Glossary for definition and explanation

15 Maturity date represents the date that the principal must be repaid, other than the Ocean Cruise ship loans, which are repaid in instalments over the next eight years

16 Refer to Note 13 of the financial statements for information as to how this reconciles to a statutory measure of cash

Pensions

The Group's defined benefit pension scheme liability, as measured on an International Accounting Standard 19R basis, decreased by £1.4m to a £46.5m liability as at 31 July 2024 (31 January 2024: £47.9m).

The movements observed in the scheme's assets and obligations were impacted by macroeconomic factors during the period where, at a global level, there have been rising inflation and cost of living pressures, as well as shifts in long-term market yields. The present value of defined benefit obligations increased by £4.5m to £256.9m, primarily due to higher-than-expected inflation experience and an increase in future expectations for inflation. The fair value of scheme assets increased by £5.9m to £210.4m. The increase in asset values was largely driven by the recovery plan payment, alongside marginally lower returns on assets from the fall in interest rates in the period.

Net assets

Since 31 January 2024, total assets decreased by £177.3m and total liabilities decreased by £70.2m, resulting in an overall decrease in net assets of £107.1m.

The reduction in total assets is primarily due to:

·      a decrease in goodwill of £138.3m, following an impairment to Insurance Broking goodwill in the period;

·      a decrease in cash and short-term deposits of £79.4m, mainly as a result of the repayment of the £150.0m corporate bond at maturity, partially offset by the £75.0m drawdown of the available £85.0m loan facility provided by Roger De Haan;

·      an increase in trade and other receivables of £16.7m; and

·      an increase in trust accounts of £18.7m due to seasonality in the River Cruise and Travel businesses.

The decrease in total liabilities largely reflects:

·      a decrease of £100.5m in financial liabilities, which is mainly due to a reduction of £104.9m in bond and bank loans, as a result of the repayment of the £150.0m corporate bonds and £31.1m of capital repayments on Spirit of Discovery and Spirit of Adventure facilities, partially offset by the £75.0m drawdown of the available £85.0m loan facility provided by Roger De Haan; and

·      an increase of £30.9m in contract liabilities due to seasonality in the Cruise and Travel businesses.

Going concern

The Directors have performed an assessment of going concern to determine the adequacy of the Group's financial resources over a period of 16 months from the date of signing these financial statements; a period selected to include consideration of the final covenant test date, at 31 January 2026, of the Group's £50.0m RCF.

This assessment is centred on a base case overlaid with risk-adjusted financial projections which incorporate scenario analysis and stress tests on expected business performance.

The Group's base case modelling assumes continued strong performance in the Cruise division on the back of high load factors and per diems. Travel is also expected to achieve continued growth in profits. The Insurance business, however, continues to experience challenge from high inflation in the net rates charged by partners on our underwriting panel, which puts pressure on Broking margins in a competitive consumer marketplace.

The Group's severe but plausible stressed scenario incorporates lower load factors for Ocean Cruise, lower levels of demand in River Cruise, and slower growth in the Travel business. Downside risks modelled for the Insurance business reflect the possibility that planned actions to limit inflation of underwriting net rates do not deliver the expected benefits.

As a result of actions undertaken by management to reduce the administrative overhead and central cost base last year, both scenarios include an assumption that the ensuant levels of savings are maintained throughout the assessment period.

Following the repayment of the £150.0m senior bonds in May of this year, the Group now operates with a lower level of Available Cash¹⁷30F. This has reduced the Group's ability to withstand possible events that are beyond those contemplated in the severe but plausible stressed scenario modelled. Notwithstanding this, the Group expects to meet scheduled Ocean Cruise debt principal repayments as they fall due over the next 16 months, and to also meet the financial covenants relating to its secured Cruise debt.

In addition, in both the base case and the stressed scenario, the £50.0m RCF is forecast to remain available for the Group to access throughout the assessment period, ensuring the Group has sufficient resources to continue in operation for at least the next 16 months.

Noting that it is not possible to accurately predict all possible future risks to the Group's trading, based on this analysis and the scenarios modelled, the Directors concluded that the Group will have sufficient funds to continue to meet its liabilities as they fall due for a period of at least 16 months from the date of approval of the condensed consolidated interim financial statements. They have, therefore, deemed it appropriate to prepare the financial statements for 31 July 2024 on a going concern basis.

¹⁷ Refer to the Alternative Performance Measures Glossary for definition and explanation

Dividends and financial priorities for 2024/25

Dividends

Given the Group's priority of reducing Net Debt¹⁸31F, the Board of Directors does not recommend payment of an interim dividend for the 2024/25 financial year, nor would this currently be permissible under financing arrangements and while the ship debt facility deferred amounts are outstanding.

Financial priorities for 2024/25

The Group's financial priorities for the current financial year are to reduce Net Debt¹⁸ via capital-light growth, conclude the discussions with Ageas that could support this objective, continue the growth trajectory of the River Cruise and Travel businesses, and balance the protection and, ultimately, growth of policy sales with the delivery of sustainable profitability within Insurance.

Mark Watkins

Group Chief Financial Officer

10 October 2024

¹⁸ Refer to the Alternative Performance Measures Glossary for definition and explanation

Principal risks and uncertainties

The Group is subject to a number of risks and uncertainties as part of its activities. The Board regularly considers these and seeks to ensure that appropriate processes are in place to manage, monitor and mitigate these risks. The Board included full details of the risk and uncertainties pertinent to the Group on pages 46 to 49 of its Annual Report and Accounts for the year ended 31 January 2024, available at www.corporate.saga.co.uk/investors/results-reports-presentations/.

Since the publication of the latest Annual Report and Accounts, the Board reviewed the list of principal risks and uncertainties (PRUs) and the outlooks for each. By exception, the following changes were made:

PRUs for which the outlook has worsened

PRUs for which the outlook has improved

Condensed consolidated income statement

for the period ended 31 July 2024