Saga plc · LSE:SAGA
Saga — H1 2016 Earnings Presentation
46 slides from Saga's earnings presentation, September 2015
Slide 1: Interim results for the 6 months ended 31 July 2015
Interim results for the 6 months ended 31 July 2015
Slide 2: Introduction
Introduction Lance Batchelor Chief Executive Officer
Slide 3: Strong H1 Results
Strong H1 Results Solid start to the year with growth in Trading EBITDA from the core Financial Services and Travel businesses of 5.2% Partially offset by full half year of plc costs Sustained cash generation leading to further deleveraging On track to meet market growth expectations for the
Slide 4: Our strategy
Our strategy Building on our competitive advantage amongst the UK’s over 50s: Unlocking the growth potential in our core businesses Investing for future growth Maintaining our capital efficient model 1 Expanding our insurance footprint 2 Growing our Travel business 3 Expanding our personal fin
Slide 5: What we have achieved so far
What we have achieved so far Expanding our insurance footprint: Increased core Motor policy numbers Maintained Combined Operating Ratio Launched panel in Motor Completed acquisition of Bennetts Growing our Travel business: Increased EBITDA with strong forward trading Decision made to ref
Slide 6: Cruising: a solid base for investment
Cruising: a solid base for investment Continued high demand for the Saga Cruise product Ongoing focus on improving the customer experience: • 98% of customers rate their experience as excellent or good • Saga Sapphire and Saga Pearl II achieved best ever overall customer feedback scores Remain
Slide 7: Cruising: new capacity
Cruising: new capacity Decision taken to update shipping capacity Rigorous selection process led to appointment of the Meyer Werft shipyard New ship to be delivered in mid 2019 Option for a second ship to be delivered in 2021 Compelling strategic and financial case Transformational for t
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Slide 12: Motor: a deep dive
Motor: a deep dive Saga’s competitive advantages in the motor insurance market: Low cost of acquisition due to our brand and database covering 11 million of the UK’s over 50s Differentiated retailer, Saga Services, with the flexibility to act as underwriter or broker Experienced in-house under
Slide 13: Motor: growth in the core book
Motor: growth in the core book Trading EBITDA increased 2.6% Increase in core policy numbers Experience supports market view of premium increases from Q2 2015 No marked increases in claims frequency or personal injury claims costs Core Motor Policies* 1,200k 1,153k 1,114k 1,112k 1,089k 1,077
Slide 14: Motor: growth beyond the core book
Motor: growth beyond the core book Motor Panel: Recently launched with two underwriters in place: • Expectation of three more by January 2016 • Two or three more by 31 July 2016 The Panel completes access to third party underwriting risk across all major product areas Complementary to AICL, al
Slide 15: Financial Services: solid progress in Home and Other
Financial Services: solid progress in Home and Other Home: Trading EBITDA increased 16.2% Shows continued pricing advantage from Panel given ongoing competitive environment Falling market premiums in the first half of the year leading to reduced churn in the market and a fall in policy numbers
Slide 16: Travel: continued momentum in H1 2015
Travel: continued momentum in H1 2015 Continued Trading EBITDA growth Driven by clear strategy and contribution from Destinology Ongoing development of the cruise business with excellent customer satisfaction, improved daily rates and load factors 16
Slide 17: Financials
Financials Jonathan Hill Chief Financial Officer
Slide 18: Robust financial performance
Robust financial performance Group P&L* 6m to Growth 6m to Revenue growth of 8.7%, Jul 2015 Jul 2014 contributed to by Revenue £478.3m 8.7% £440.1m Destinology acquisition Trading EBITDA £130.6m 0.8% £129.6m Trading EBITDA growth of Depreciation / loss on disposal (£10.0m) (£9.3m) 5.2% in core Finan
Slide 19: Maiden interim dividend
Maiden interim dividend First Interim dividend Underpinned by confidence in achieving full year profit expectations and ongoing sustainable profit growth Retaining guidance of a payout ratio of approximately 40%-60% of Group net income, excluding exceptional items IPO prospectus stated Inter
Slide 20: EBITDA growth across core businesses
EBITDA growth across core businesses 6m to 6m to Trading EBITDA Jul 2015 Growth Jul 2014 Motor Insurance £68.3m 2.6% £66.6m Home Insurance £33.7m 16.2% £29.0m Other Financial Services £17.6m (6.9%) £18.9m £119.6m 4.5% £114.5m Travel £16.9m 11.2% £15.2m Healthcare Services £0.6m £1.1m Media and Centr
Slide 21: Motor Insurance: solid performance
Motor Insurance: solid performance Motor Insurance 6m to Jul 2015 6m to Jul 2014 Core Ancilla Broking / Total Growth Core Ancillary Broking / Total UW ry Other Motor UW Other Motor Revenue £118.3m £17.3m £21.6m £157.2m (1.8%) £123.6m £17.8m £18.6m £160.0m £12.8 Trading EBITDA £50.0m m £5.5m £68.3m 2
Slide 22: Motor Underwriting: marginal improvement in COR
Motor Underwriting: marginal improvement in COR Motor Core 6m to 6m to Underwriting P&L Jul 2015 Growth Jul 2014 COR of 68% Claims frequency and Net earned premium A £113.8m (4.9%) £119.7m Instalment income £1.9m 5.6% £1.8m severity broadly stable, Other income £2.6m 23.8% £2.1m contrary to wide
Slide 23: Reserve releases: favourable claims development
Reserve releases: favourable claims development H1 2015 Total Group Reserve Releases by Accident Year £14 £13.4m Millions £12 £10 £9.1m £8.1m £8 £6 £5.5m £5.2m £4 £2 £0.2m £0 2009/10 & before 2010/11 2011/12 2012/13 2013/14 2014/15 Reserve releases by year Strong releases from three accident years
Slide 24: Home Insurance: efficiency of the panel
Home Insurance: efficiency of the panel Home Insurance 6m to Jul 2015 6m to 31 Jul 2014 Ancillary Core Total Growth Ancillary Core Total UW Broking / Home UW Broking / Home Coinsured Coinsured Revenue £9.0m £41.6m £50.6m 15.8% £8.0m £35.7m £43.7m Trading EBITDA £5.8m £27.9m £33.7m 16.2% £5.3m £23.7m
Slide 25: Other Financial Services: solid performance
Other Financial Services: solid performance 6m to Jul 2015 6m to Jul 2014 Other Financial Services Core Core Total Core Core Total Growth UW Broking / Other UW Broking / Other Other Financial Other Financial Services Services Revenue £19.7m £30.6m £50.3m 2.7% £20.4m £28.6m £49.0m Trading EBITDA £1.8
Slide 26: Travel: continued momentum
Travel: continued momentum Travel 6m to Growth 6m to Jul 2015 Jul 2014 Revenue: Holidays £166.9m 25.3% £133.2m Cruising £42.8m (1.2%) £43.3m £209.7m 18.8% £176.5m Gross profit: Holidays £35.6m 22.3% £29.1m Cruising £7.8m (9.3%) £8.6m £43.4m 15.1% £37.7m Gross profit % 20.7% (0.7%) 21.4% Trading EBIT
Slide 27: Travel: positive current trading
Travel: positive current trading CY for PY for As at xx September Growth 2015/16 2014/15 departure departure Holiday Revenue booked (£m) 2.5% Cruise load factor (%) 84.3% (1.1%) 85.4% CY for PY for 2016/17 2015/16 departure departure Holiday Revenue booked (£m) 3.7% Cruise load factor (%) 57.2% (1.0
Slide 28: Media & Central Costs: impact of PLC costs
Media & Central Costs: impact of PLC costs Media & Central Costs 6m to 6m to Jul 15 Growth Jul 14 Revenue £8.2m (6.8%) £8.8m Trading EBITDA (£6.5m) (£1.2m) Operating loss (£10.0m) (£4.5m) Increased loss driven by £4.2m of costs resulting from the normalisation of the Group’s plc costs: • H1 2014 h
Slide 29: High levels of cash generation
High levels of cash generation 6m to 6m to Available operating cash flow Growth Jul 15 Jul 14 Trading EBITDA £130.6m 0.8% £129.6m Less Trading EBITDA relating to restricted businesses (£60.3m) (42.6%) (£42.3m) Intra-group dividends paid by restricted businesses £59.0m 122.6% £26.5m Working capital a
Slide 30: Strong balance sheet with decreasing Net Debt
Strong balance sheet with decreasing Net Debt As at Jul 2015 As at Jul 2014 As at Jan 2015 Goodwill and intangibles £1,534.6m £1,678.2m £1,506.2m Property, plant and equipment £128.9m £132.1m £133.2m Financial assets £603.9m £623.6m £659.6m Restricted cash £105.7m £109.2m £85.2m Other assets £324.6m
Slide 31: Intended Future Capital Structure
Intended Future Capital Structure Desire to reduce leverage further to have conservative balance sheet Intention to reduce Debt ratio to between 1.5x and 2.0x: • Subject to delivery of profit growth • Consistent with current payout ratio Move towards lower end of range before any ship purchase
Slide 32: Solvency Capital: well capitalised
Solvency Capital: well capitalised 6m to 6m to Solvency capital Jul 2015 Jul 2014 Solo statutory solvency capital Total invested equity £156.0m £156.7m Regulatory adjustments (£20.0m) (£17.0m) Total regulatory capital resource £136.0m £139.7m European Insurance Directive Requirement (Solvency I) Req
Slide 33: Cruise ship economics
Cruise ship economics Business case primarily based on margin improvement: • Increased efficiency of new operating capacity • Fuel and repairs / maintenance • Conservative approach to load factors and daily rates Ungeared IRR in mid-teens: • Greater than cost of capital 33
Slide 34: Conclusion
Conclusion Expect growth in core businesses in H2 and a more consistent level of plc costs in 6 months to 31 January 2016 against same period in prior year: • confident of delivering expected increase in EBITDA Incremental year on year amortisation of acquired intangibles of c. £4m Marginally
Slide 35: Outlook
Outlook Lance Batchelor Chief Executive Officer
Slide 36: Financial Services: focus for the second half
Financial Services: focus for the second half Motor: Monitor claims experience closely Retain prudent approach to underwriting in our core area of expertise Continue to add insurers to Panel and maximise efficiency Home: Drive pricing advantage from Panel to compete for market share Other fi
Slide 37: Travel: focus for the second half
Travel: focus for the second half Maintain momentum in the Travel business: Continue to develop distribution channels Ongoing focus on the customer’s digital journey and digital marketing Continued launch of new products, destinations and itineraries Continue to develop our cruise business:
Slide 38: Second half priorities
Second half priorities Build on launch of motor panel Finalise ship contract Launch Saga Investment Services Focus on optimising use of database Complete sale of Allied Remain confident in delivery of 5% EBITDA Growth target in FY 2016 7% minus normalisation of PLC costs (Based on Current
Slide 39: Q&A
Q&A
Slide 40: Appendix
Appendix
Slide 41: Finance Charge
Finance Charge 6m to 6m to Jul 2015 Jul 2014 Interest costs on debt and borrowing £10.2m £9.8m Amortisation of debt issue costs £2.5m £0.2m Finance charge associated with pension schemes £0.6m £0.3m Finance charge associated with deferred consideration of Destinology £0.8m n/a Total Finance charge £
Slide 42: Growth demographic, unique database & great brand: An attractive place to operate
Growth demographic, unique database & great brand: An attractive place to operate More than 22m people over 50 in the UK. Expected to grow a further 28% by 2033 35% of the population 40% of the population 75% 1993 2003 2013 2023 2033 2013-2033 Growth Homeowners crease c.7m in 29.1m 26.7m 18.1m 20.0m
Slide 43: Saga's unique database
Growth demographic, unique database & great brand: Saga’s unique database Contactable Database 96% Brand recognition 12,000,000 10,000,000 11.0m 8,000,000 6,000,000 4,000,000 Contactable names 2,000,000 A powerful and efficient 0 Jan 2004 July 2004 Jan 2005 July 2005 Jan 2006 July 2006 Jan 2007 Ju
Slide 44: Strong Business Model: Where our earnings come from
Strong Business Model: Where our earnings come from Source of EBITDA* in 12m to 31 Jan 2015 Broked & Other 24% Manufactured 76% *Manufactured represents AICL Underwriting + Cruising Broked and Other represents Saga Services + Personal Finance + ClaimFast + DC + Saga Holidays + Titan + Healthcare + M
Slide 45: Strong Business Model: Group Structure
Strong Business Model: Group Structure Saga Insurance Saga Travel Personal Finance Saga Healthcare Saga Saga Saga Saga Credit Patricia Allied Savings Broking Underwriting Holidays Cruises Cards White’s Healthcare Equity Share Country Private Titan Destinology Release Trading Cousins Pay 45
Slide 46: Strong Business Model: What Saga does
Strong Business Model: What Saga does Third party Suppliers Product Customers Insights Design In-house - Motor u/w - Shipping 46