4th Apr 2019 07:35
LONDON (Alliance News) - Saga PLC on Thursday waned on falling earnings in financial 2020 due to a strategy aimed at returning the FTSE 250 company to growth after swinging to an annual loss on a big impairment.
In response to the loss, Saga cut its total dividend by 56% to 4.0 pence per share from 9.0p paid to shareholders in the comparative period a year ago.
For the financial year ended January 31, the over-50s insurance and travel services firm posted a GBP134.6 million pretax loss compared to a pretax profit of GBP180.9 million a year ago.
On an adjusted basis, pretax profit fell 5.4% year-on-year to GBP180.3 million from GBP190.6 million.
The swing to loss at the pretax line was mainly due to an asset impairment amounting to GBP315.9 million, which the company did not incur last year. The impairment relates to Saga re-assessing the carrying value of goodwill in its Insurance operations.
Not helping, revenue declined 2.2% to GBP841.5 million from GBP860.2 million, while the firm's expenses remained broadly in line with the prior year.
Looking ahead, Saga said it is planning a "fundamental shift in strategy" in order to address the long-term challenges facing the business.
This shift will include the company refocusing on its "heritage as a direct-to-consumer brand", providing differentiated products and services that customers cannot get elsewhere.
A new approach to the Insurance business, focused on growing direct channels with the launch of a three-year fixed-price proposition, also forms part of Saga's growth strategy, it said.
The changes to be implemented however, will hurt Saga's adjusted pretax profit in financial 2020, with the company guiding for underlying pretax profit to fall in the range of GBP105 million to GBP120 million, significantly reduced compared to this year's GBP180 million.
"Over recent years Saga has faced increasing challenges from the commoditisation of the markets in which we operate, especially in Insurance. This has had an impact on both customer numbers and profitability," Chief Executive Officer Lance Batchelor said.
"Although underlying profit before tax for financial 2019 is in line with our expectations, the long-term challenges we face and the results demonstrate that Saga cannot grow without a clearly differentiated offering to its customers."
The company added: "While the decisions to reduce our dividend and impair Insurance goodwill are disappointing, the board believes that these actions are essential to address our challenges, allow for the product investments needed and enable the group to return to sustainable growth."
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