28th Jan 2020 09:51
(Alliance News) - Saga PLC on Tuesday said underlying profit is expected to align with prior guidance, although its Insurance and Travel businesses have experienced "challenging markets".
Shares in Saga, which has its headquarters in Kent, were up 7.9% at 45.04 pence in London in morning trading in London.
Saga provides holidays and insurance to the over 50s and, back in April, reported a poor set of results for its year ended January 2019 - a GBP134.6 million pretax loss compared with pretax profit of GBP180.9 million in financial 2018.
At that time, the firm warned that its performance for its year ending Friday this week was likely to suffer as it took steps to alter its strategy. As such, Saga guided for underlying financial 2020 pretax profit to be between GBP105 million to GBP120 million, down from GBP180.3 million in financial 2019. This guidance has now been affirmed.
According to Saga, its Insurance Broking business has demonstrated "clear signs of progress", with around 57% of customers coming to Saga on a direct basis versus 50% the year before and customer retention 2 percentage points ahead of the prior year at 75%.
However, Saga brand home and motor insurance policies are forecast to drop 3% from the prior year due to "a highly competitive market and a disciplined approach to new business", with margins likely to be near the top end of its GBP71 to GBP74 range due to "lower new business strain".
Insurance Underwriting reserves in aggregate are in line with Saga's expectations, although higher inflation on third-party damage and theft costs has meant overall inflation was around 7%, up from long-term expectations of 5%.
"This trend is not expected to have a significant impact on the current year but will have a modest adverse impact on future year margins if retail pricing conditions remain competitive," said Saga.
Within its Travel unit, Tour Operations revenue is likely to drop 5% year-on-year, in line with Saga's first half. In addition, travel firm Thomas Cook's collapse into administration resulted in around GBP4 million in one-off costs for Saga, to be taken below underlying pretax profit.
Cruise forward bookings for financial 2021 are at 76% of annual target levels, and the company is on track for its expectation of GBP40 million of earnings before interest, tax, depreciation and amortisation per new ship. Its new Spirit of Discovery ship, for instance, has done well in its first six months and is set to achieve Ebitda of over GBP20 million in the next six months.
Under the new strategy, Saga said its Insurance business has reached a more stable position than the year before, while the Cruise business is "fully on track".
In December, Saga picked former Superdry PLC boss Euan Sutherland as its new chief executive. Sutherland joined January 6 and replaces Lance Batchelor, who is to leave at the end of the week.
Sutherland said: "I'm delighted to have joined Saga and to be working with a strong executive team. Although Saga continues to face challenging markets in Insurance and Travel, we have a clear focus on improving performance and cost efficiencies within the group, while strengthening our financial position and reducing debt."
By Anna Farley; [email protected]
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