Saga plc · LSE:SAGA
Saga — FY2017 Earnings Presentation
74 slides from Saga's earnings presentation, Jun 28, 2017
Slide 1: Results Presentation
Results Presentation Preliminary Results for the year ended 31 January 2017
Slide 2: Lance Batchelor, Chief Executive Officer
Lance Batchelor Chief Executive Officer Saga plc Preliminary Results for the year ended 31 January 2017 1
Slide 3: Today's Agenda
Today’s Agenda Lance Batchelor Overview CEO Jonathan Hill Financials CFO Lance Batchelor Capital markets presentation: CEO Evolution of the model to drive growth Matt Atkinson Project Connect Chief Marketing Officer Roger Ramsden Insurance Broking CEO, Insurance Broking Jeannette Linfoot Tour Operat
Slide 4: Saga investment case – key takeaways
Saga investment case – key takeaways 1. Differentiated model 2. Consistent earnings growth 3. Enhanced confidence in future delivery Saga plc Preliminary Results for the year ended 31 January 2017 3
Slide 5: How we're different – our model
How we’re different – our model 1. Focus on growing demographic 2. Strong customer relationships and loyalty 3. Multiple businesses with differentiated products Saga plc Preliminary Results for the year ended 31 January 2017 4
Slide 6: Consistent delivery of profit growth and deleveraging
Consistent delivery of profit growth and deleveraging 3.1x 2.6x 2.4x 2.3x 2.2x 1.9x £193.3m PBT* Net £184.8m debt to £176.2m EBITDA £176.2m £172.1m £163.8m *Reported PBT from continuing operations on a last 12 months basis, excluding IPO expenses in FY15 IPO Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Profit
Slide 7: Clear strategy = Confidence in consistent financial performance and progressive dividends
Clear strategy 1. Become increasingly customer centric 2. Grow earnings from core insurance and travel businesses 3. Maintain our efficient operating model 4. Invest for future growth = Confidence in consistent financial performance and progressive dividends Saga plc Preliminary Results for the year
Slide 8: Evolution of our model
Evolution of our model Driven by project connect Retain and deepen our customer relationships Increased persistency Better cross-sell Rewarding retention Improve new customer targeting More efficient acquisition spend Generate increased profits at lower risk, with less capital Higher quali
Slide 9: Consistent group results
Consistent group results vs. FY 2016 Retail insurance broking Retail insurance broking PBT +9% Travel Travel PBT +10% Underlying PBT(1) Underwriting = +5.6% Reserve Debt ratio 1.9x releases Finance FY dividend 8.5p +18% costs Profits (1) Profit before tax excluding derivatives and Od
Slide 10: Motor insurance
Motor insurance Growing profits from broking, de-risking underwriting 58% PBT growth in motor broking – increased marketing and operational efficiencies – panel benefit Strong broking – pricing optimisation performance – Full year of Bennetts Underwriting revenue decreased as expected – external
Slide 11: Home broking and other broking
Home broking and other broking Home broking Continued competitive environment in home insurance Home broking – Limited premium inflation model continues – Panel flexibility enabled stable policy volumes with limited profit reduction to provide Other broking flexibility Travel insurance – Differe
Slide 12: Robust travel performance
Robust travel performance On track to beat ambitious growth targets Strong growth in tour operating profitability with improved mix and business efficiencies Solid year in cruise as expected with planned maintenance Travel Trading Profit and EBITDA Travel EBITDA Travel Trading Profit £33.4m £3
Slide 13: Launch of Spirit of Discovery
Launch of Spirit of Discovery Saga plc Preliminary Results for the year ended 31 January 2017 12
Slide 14: Emerging businesses
Emerging businesses Saga is learning its way into three new categories, all of which have the capacity to contribute materially for us in the future: Saga Money Based on our customer insight we have expanded our product offering during year and will continue to explore new product offerings. Healt
Slide 15: The future – investments to support profit growth
The future – investments to support profit growth 1. Cruise ship 2. Modernised insurance platform 3. New claims platform 4. Customer insight tools Saga plc Preliminary Results for the year ended 31 January 2017 14
Slide 16: Jonathan Hill, Chief Financial Officer
Jonathan Hill Chief Financial Officer Saga plc Preliminary Results for the year ended 31 January 2017 15
Slide 17: Another consistent year of profit growth
Another consistent year of profit growth From continuing operations vs. FY 2016 Profit before Strong PBT growth despite Ogden tax £193.3m 9.7 % impact Profit before Continued high cash generation tax (excl. £187.4m 5.6 % enabled further deleveraging. Now derivatives and Ogden) within medium-
Slide 18: Strong group results
Strong group results Strong customer spend FY 2016 FY 2017 increase reflecting attractive propositions Customer spend(1) £1,128.5m £1,182.2m 4.7% Revenue decrease reflects impact of quota Revenue £963.2m £871.3m (9.5)% share Profit Lower finance costs before tax £176.2m £193.3m 9.7% from r
Slide 19: Increased profit from retail insurance and travel businesses
Increased profit from retail insurance and travel businesses Profit before tax FY 2016 FY 2017 PBT growth from retail broking Motor broking £28.6m £45.2m 58.0% +9.1% £138.0m Home broking £63.4m £61.2m (3.5)% £126.5m Other broking £34.5m £31.6m (8.4)% Underwriting £84.1m £77.1m (8.3)% Travel £13.5m £
Slide 20: Insurance – Focus on broking
Insurance – Focus on broking Other insurance Total retail FY2017 Motor broking Home broking broking broking Revenue £127.5m £89.8m £80.4m £297.7m PBT £45.2m £61.2m £31.6m £138.0m Profit per core policy £33.1 £48.8 £82.9 £46.0 Core policies 1,366k 1,254k 381k 3,001k FY2016 Revenue £89.5m £90.0m £82.4
Slide 21: Strong in-house motor underwriting performance
Strong in-house motor underwriting performance – Revenue decreased 10% due Reducing revenue and lower reserve releases FY 2016 FY 2017 FY 2016 FY 2017 to 3rd party underwriters on motor panel £248.2m £223.5m £84.1m £77.1m – Resulted in lower claims costs – Favourable small and large PI NEP Profit be
Slide 22: Quota share – reduces risk and volatility
Quota share – reduces risk and volatility 12m to Quota Share 12m to Underwriting P&L Growth Underlying Jan 2016 + Ogden Jan 2017 Revenue £248.2m (10.0%) £223.5m (£111.2m) £112.3m Profit before tax £84.1m (8.3%) £77.1m (£4.0m) £73.1m Reported COR 72.0% (0.6%) 71.4% Pure COR 99.4% 0.2% 99.6% Net cos
Slide 23: Insurance – focus on broking profitability
Insurance – focus on broking profitability - Panel and pricing optimisation - Marketing efficiencies - Operational efficiencies - Claims and Insurance platform - Reserve releases Saga plc Preliminary Results for the year ended 31 January 2017 22
Slide 24: Robust Solvency II position
Robust Solvency II position Solvency II coverage 170% £43.8m 143% £146.7m £102.9m 31 Jan 2016 31 Jan 2017 SCR SCR Solvency coverage Surplus Solvency IIII capital Solvency capital Solvency capital has reduced to £146.7m from £219.6m Reduction to appropriate level due to quota share and smaller un
Slide 25: Travel – continued demand
Travel – continued demand Tour Operating – 32% increase in PBT FY 2016 FY 2017 – Continued shift towards higher Revenue margin/value long-haul products £423.1m £432.0m 2.1% – Profit growth benefitted from Profit increased efficiency before £13.5m £14.9m 10.4% tax Cruise Number of – Customer reve
Slide 26: Cash Generation
Cash Generation Sustained cash generation £300m 100.0% 90.0% Available cash flow £250m 80.0% increased by 22.2% 70.0% £200m 60.0% Increase driven by: – capital release from AICL due £150m 50.0% to historically strong solvency 40.0% position £100m – initial impact of quota share 30.0% on solvency
Slide 27: Capital structure
Capital structure Target debt ratio achieved Net debt to Trading EBITDA Strong cash generation has driven 3.5 further deleveraging Ongoing ratio 3 Net debt of £464.8m Net debt to EBITDA (FY2016: £547.7m) 2.5 Now within medium 3.1 2 target range of 1.5- 2.6 2.0x 2.3 1.5 1.9 1.5 Moving towards
Slide 28: Financial outlook and guidance
Financial outlook and guidance Aiming to deliver consistent PBT growth and deleverage further Expectation of improved insurance broking earnings Travel expected to be strongly ahead – Current trading strong with current booked revenue for FY18 departure 8% ahead of prior year Lower finance cos
Slide 29: Capital markets presentation
Capital markets presentation
Slide 30: Lance Batchelor – Evolution of the model to drive growth
Lance Batchelor Chief Executive Officer Evolution of the model to drive growth Saga plc Preliminary Results for the year ended 31 January 2017 29
Slide 31: The evolution of the model
The evolution of the model Project Connect Improved outcomes New customer Deep insights propositions Segmentation based Smarter Acquisition on customer value Differentiated Increased retention customer propositions Increased cross-sell Saga plc Capital Markets event 2017 30
Slide 32: Matt Atkinson, Chief Marketing Officer
Matt Atkinson Chief Marketing Officer Saga plc Capital Markets event 2017 31
Slide 33: We built a new integrated picture of our customers…
Deep insights Segmentation Customer propositions We built a new integrated picture of our customers… High Affinity Other Number of customers Saga plc Capital Markets event 2017 32
Slide 34: The insight provides significant opportunity
Deep insights Segmentation Customer propositions The insight provides significant opportunity High affinity customers comprise 80% of customer value Index to average 40 30 High Affinity 20 10 0 -10 -20 Other # Products Retention Rate Avg Tenure HAC Other The high affinity customers have deep Ide
Slide 35: We have used this insight to build tailored profiles
Deep insights Segmentation Customer propositions We have used this insight to build tailored profiles Unlocking future value by curating customer journeys We know: What proposition will they will engage with How to acquire them effectively How to cross-sell the next best product How likely t
Slide 36: Unlocking future customer value
Deep insights Segmentation Customer propositions Unlocking future customer value Focus on rewarding, nurturing and acquiring our target customers Creating new activities: Reward Churn More effective acquisition spend on HACs incubation customers (483K) Nurturing the 511,000 incubation Nurture cu
Slide 37: We are creating a new proposition that will increase retention and product holding
Deep insights Segmentation Customer propositions We are creating a new proposition that will increase retention and product holding Say thank you to customers – reducing churn and protecting value Rewards them for loyalty in exciting ways Encourages them to choose to buy more products from the
Slide 38: The proposition is based on detailed understanding and input from customers
Deep insights Segmentation Customer propositions The proposition is based on detailed understanding and input from customers Making their Being Their time money go appreciated further Keeping their Trying new A sense of health things belonging Saga plc Capital Markets event 2017 37
Slide 39: Saga Possibilities will open an exciting new world of opportunities
Saga Possibilities will open an exciting new world of opportunities for our members
Slide 40: Saga Possibilities will give you access to..
Deep insights Segmentation Customer propositions The core membership benefits Saga Possibilities will give you access to.. Immersive and Knowledgeable Enhanced Everyday exciting expertise Saga products rewards experiences The more you have and the longer you have it, the better it gets Saga plc Capi
Slide 41: What does the future look like?
What does the future look like? Improved outcomes The ability to attract our target New customer customers to Saga propositions Increase engagement More efficient acquisition Smarter Acquisition Lower CPAs Retain more of our target customers Increased retention Reward loyalty with benefi
Slide 42: Roger Ramsden, CEO Insurance broking
Roger Ramsden CEO Insurance broking Saga plc Capital Markets event 2017 41
Slide 43: Smarter acquisition of high affinity customers
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Smarter acquisition of high affinity customers FY17 gross new business Change in customer value from FY14 to FY17 39% HACs +11ppts Non-HACs +6ppts 61% HACs Non-HACs The customer insight has allowed us to be more
Slide 44: Increased cross-sell
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Increased cross-sell Number of new Home and Motor cross-holding customers has grown over last 3 years New customers with both Home and Motor Home and Motor product holders 90 87 80% 1.40 85 1.22 85 70% 1.20 60%
Slide 45: Sales distribution mix
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Motor panel delivering better product propositions Motor panel enables targeting of wider customer segment 60% Offers more competitive pricing 3rd party panel underwriters Sales distribution mix 40% provide
Slide 46: Lower CPA driving increased margins
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Lower CPA driving increased margins Marketing cost per policy ("CPA") £36 £35 £34 £33 £32 £31 £30 £29 £28 £27 FY14 FY15 FY16 FY17 Marketing cost per new business policy reduced by 6.6% over 5 years Saga plc Capi
Slide 47: Jeannette Linfoot, MD Tour Operating Division
Jeannette Linfoot MD Tour Operating Division Saga plc Capital Markets event 2017 46
Slide 48: In-depth customer insight into changing customer needs
New customer propositions Smarter Acquisition Increased retention Increased cross-sell In-depth customer insight into changing customer needs Characteristics of HACs vs non-HACs Within our HACs, 85k are within Saga holidays, with an average spend per customer per holiday of Findings of in-depth cust
Slide 49: New differentiated product propositions
New customer propositions Smarter Acquisition Increased retention Increased cross-sell New differentiated product propositions If you're going to do it, do it properly, do it with Saga Go For It Stay & Explore Jaw-dropping adventure In-depth destination Bucket list experience Cultural experi
Slide 50: Marketing campaign and new proposition has driven brand reappraisal & interest
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Marketing campaign and new proposition has driven brand reappraisal & interest Makes me feel Saga are changing 11% 56% for the better “One hundred per cent improved on It's not the kind of advertising I'd my idea
Slide 51: Strong financial performance from customer led strategy
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Strong financial performance from customer led strategy % First time buyers Tour Operating PBT historic trend 29% 28% £11.5m 27% 28% 26% 25% £8.7m 24% 24% 25% 23% £5.6m 22% FY15 FY16 FY17 FY15 FY16 FY17 Marketing
Slide 52: Using customer insight to drive cross-sell between travel insurance and travel
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Using customer insight to drive cross-sell opportunities between travel insurance and travel 7k Currently leveraging cross-sell opportunities to Travel insurance & travel buyers drive First Time Buyers Buildin
Slide 53: Robin Shaw, CEO Saga Cruise
Robin Shaw CEO Saga Cruise Saga plc Capital Markets event 2017 52
Slide 54: Meaningful recognition and reward for our HAC cohorts
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Meaningful recognition and reward for our HAC cohorts is improving our marketing effectiveness 1. Existing “High Affinity” Cruise Customers Conversion levels increased three- Over £1million additional revenue gene
Slide 55: Recognition and reward for high affinity customer cohorts
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Meaningful recognition and reward for our high affinity customer cohorts is improving our marketing effectiveness 2. “High Affinity” Holiday (non Cruise) Customers 3. Saga Magazine Subscribers First Time Buyer acq
Slide 56: Customer insight developing a differentiated proposition for Saga Cruise
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Customer insight has been fundamental in developing a new highly differentiated proposition for Saga Cruise Customer insight told us about… Existing Proposition Customer needs and views Barriers to cruise • Excell
Slide 57: Our new Cruise proposition will reposition and reframe Saga Cruise
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Our new Cruise proposition will reposition and reframe Saga Cruise Overcoming Barriers and Perceptions Amplifying positives Through offering adventure & wow… Being thoughtful and personal… “On-board and ashore we
Slide 58: Our new ship is the ideal platform for future customer expectations
New customer propositions Smarter Acquisition Increased retention Increased cross-sell Our new ship is the ideal platform for future customer expectations Now: Saga Pearl II 449 passengers Future: Spirit of Discovery Functionality … Improved functionality • 8% balconies • Largest suite 50m² • 100% b
Slide 59: Ship construction
New customer propositions Smarter Acquisition Increased retention Increased cross-sell A strong strategy set to deliver increased value Action Delivering Outcome • Future-proofed ship design Design • High satisfaction and demand and unique cruise • Strong customer demand • Improved repeat rates prop
Slide 60: Lance Batchelor, Chief Executive Officer
Lance Batchelor Chief Executive Officer Saga plc Capital Markets event 2017 59
Slide 61: Summary
Summary Our achievements this year: Delivered third year of consistent results with underlying PBT +5.6% Project Connect is fully imbedded within the business, leading to: ‒ new propositions ‒ better retention ‒ increased cross-sell ‒ more effective acquisition Increased confidence to deliver su
Slide 62: Measuring our performance
Measuring our performance Group KPIs FY17 The future Underlying PBT growth 5.6% Consistent sustainable profit growth Insurance broking PBT £138.0m Targeting increased broked earnings Travel PBT £14.9m Increase by 4-5 times over five years Dividend per share 8.5p Payout of ratio of 50-70% Net debt to
Slide 63: Q&A
Q&A Saga plc Capital Markets event 2017 62
Slide 64: Biographies
Spe Biographies
Slide 65: Matt Atkinson, Chief Marketing Officer
Matt Atkinson, Chief Marketing Officer Matt joined Saga in September 2015 as Group Chief Marketing Officer, and sits on Saga’s Executive Committee. He is responsible for marketing and customer engagement across all of Saga’s communication and e-commerce activities. Before joining Saga, Matt held a n
Slide 66: Roger Ramsden
Roger Ramsden CEO, Insurance broking Prior to joining Saga in August 2008 as CEO of Saga insurance broking, Roger was Managing Director of the household insurance business of RBS Insurance and Strategy and Marketing Director for the RBS Insurance Group. Previously, he was Commercial Director at Prud
Slide 67: Jeannette Linfoot
Jeannette Linfoot Managing Director, Tour Operating Division Jeannette joined Saga as Managing Director of Saga's tour operating division in December 2015, and is responsible for Saga Holidays, Titan Travel, Destinology and the VIP transport division. Her role is focused on spearheading growth acros
Slide 68: Robin Shaw
Robin Shaw CEO, Saga Shipping Robin joined the Saga in March 2010 as CEO of its Cruise Division. As well as operating the existing Saga Sapphire and Pearl II cruise vessels, he is also responsible for the development of Saga’s new ship build programme. Robin’s previous experience was gained at Royal
Slide 69: Appendix
Appendix
Slide 70: Reserve releases
Reserve releases FY 2017 Total Group Reserve Releases by Accident Year (£m) Reserves have reduced by 15.2 £5m year-on-year 12.0 11.8 9.8 No deterioration in reserve margin 7.1 5.4 3.9 -2.3 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 and prior Saga plc Preliminary Results for
Slide 71: Saga Plc consolidated P&L
Saga Plc consolidated P&L £m 12m to % 12m to Jan 2017 Growth Jan 2016 Revenue £871.3m (9.5%) £963.2m Trading Profit £213.0m 0.9% £211.0m Non-trading items (incl. IPO expenses) (£1.9m) (£3.3m) Amortisation of acquired intangibles (£6.5m) (£6.3m) Net finance costs (£17.2m) (£24.0m) Profit before tax e
Slide 72: Insurance Underwriting P&L
Insurance Underwriting P&L 12m to Ogden Quota 12m to Underlying Growth Underwriting P&L Jan 2017 Impact Share Jan 2016 Revenue A £112.3m (£0.7m) (£110.5m) £223.5m (10.0%) £248.2m Claims costs B (£93.9m) - £102.0m (£195.9m) (11.2%) (£220.6m) Reserve releases C £59.9m (£3.1m) - £63.0m (7.4%) £68.0m Ot
Slide 73: Travel P&L
Travel P&L 12m to Jan 2017 12m to Jan 2016 Tour Cruising Total Growth Tour Cruising Total Travel Operating Travel Operating Revenue £350.1m £81.9m £432.0m 2.1% £336.9m £86.2m £423.1m Profit before tax excluding derivatives £11.5m £3.4m £14.9m 10.4% £8.7m £4.8m £13.5m Number of holidays passengers 19
Slide 74: Cash flow and liquidity
Cash flow and liquidity Available Cash Flow 12m to 12m to Growth Jan 2017 Jan 2016 Trading EBITDA £246.1m 3.1% £238.8m Less Trading EBITDA relating to restricted businesses (£109.9m) 14.7% (£95.8m) Intra-group dividends paid by restricted businesses £115.0m 94.9% £59.0m Working capital and non-cash