Saga (LSE:SAGA) — Interim Results for the six months ended 31 July 2021

0:01 Good morning, ladies and gentlemen, and welcome to the SAGA PLC investor presentation for the interim results for the six months ended 07/31/2021. We do apologize for the slight delay in starting this morning. Throughout this presentation, investors will be in listen only mode. Question was encouraged and could be submitted anytime via the Q and A tab situated on the right hand corner of your screen. To click Q and A, scroll to the bottom, type your question and press send. Company may not be in a position to answer every question received during the meeting itself. The company review questions submitted today and publish responses where it's appropriate to do so. These

0:32 will be available via your investment company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. We'd now like to submit the following poll, and I'd to hand you over to Ewan Sullivan, CEO of SAGA PLC. Good morning. Thank you, and good morning, everybody. Thank you for joining the call. We're very pleased to be presenting to you this morning and also very keen to give access to both James and I regularly to as many investors as possible. So I'm very happy to be to be giving you the update and to also take and answer your questions. We're going to run through a a presentation deck of about twelve, fifteen slides, which we hope will give you the shape of our performance principally in the first half of this year, take a little bit of a look towards the second half of the year, and a perspective on the future. So I'll open up as as per the overview. I'll hand over to James, our CFO, who will give you the more detailed financial performance, and then I'll come back and summarize just on some of the more strategic issues that we're working through for the future of the organization before, as we said, opening up for questions.

1:54 Thank you, Emily. Let's move on to the next slide. So I guess just to open up and set the scene for where the business has been. It has been for every organization a pretty testing time over the last eighteen months to two years or so. As SAGA went into the COVID nineteen crisis, we were, in fact, dealing with a repositioning and a strengthening challenge for our business anyway. So we had a mantra all the way through the pandemic, which was to emerge stronger from the COVID nineteen pandemic than we went in. I think the key takeaway from this presentation and the performance in the first half of twenty twenty one is that there is lots of indications that we are achieving that objective.

2:43 We have got good delivery against all of our five key priorities that we set out to the market last September with the equity capital raise, and I'll run through progress on those. Our our overall key results are in line with expectations. We have a good performance through quite a competitive insurance market in the first half with with strong performance across the balanced scorecard or KPIs that we set out two years ago. And absolutely critically, we have had a successful resumption of our cruise and holidays business as we emerge through the end of the first half of our financial year.

3:28 We have a long term focus on what we call data, digital, and brand. Those are essential building blocks to provide the future growth for the business. And there is a lot of the key deliverables landing in the second half of this year in front of customers. So we're very pleased at the progress behind the scenes for those major enablers for our future. With that, we have also continued exceptional support for colleagues and tried to support our local communities too through this difficult time, and there's good evidence of that from the first half in particular and in the our ESG plans going forward. We're continuing to strengthen our team, and Steve Kingshot will join us as the CEO of our insurance business on the November 8, and we're further strengthening the insurance pricing team with a key appointment announced on Wednesday too.

4:25 All of that was underpinned by a strengthening of our financial position as we were able to pay down our short term covenant debt in the first half, and we have issued a further £250,000,000 bond. So we have a very strong liquidity position, a a far improved cash position, and that's that is feeling like a much better place to be as we look forward into what continues to be a a fairly uncertain COVID position, but we hope one that is generally on an improving trend. Thank you, Emily. So this slide is is intended to pick up the headlines in the first half around our major insurance products and our major travel products. So just giving you the headlines of progress in the first half in particular.

5:17 If I take insurance first on the left hand side, there is a lot of very positive headlines to report. So our policy growth continued, albeit smaller growth than we had exited the end of last year, but still a positive performance. That's on the back of a very competitive motor market that we saw especially in the first quarter. And if you remember the context to that is we had seven years of negative performance in policies previous to last year. So continued stabilization in the top line policy growth. Underpinning that, retention is strong, again, at 80.6% across home and motor products, and that is up from just under 80% in the first half of last year. Our margin has also grown up to £76 per policy, and that's up from £71 in the previous period in the first half of last year. We've maintained our direct share of business flat at 58%, introduced SABER to the motor panel, and our flagship three year fixed price product has continued to show growth and now accounts for 45% of policies sold in the first half. In our underwriter, we have returned to policies in fourth and growth for the first time since 2012.

6:43 So quite a milestone for the business as we turn the corner in the underwriter and the broker and getting back into growth. And our cooperation ratio is also very positive mainly because the because of lower claims frequency in the period due to the pandemic. So all in all, as you look across the insurance business, it's a pretty robust and positive performance in the first half. We'll come on and talk a little bit about the second half in a second. If I turn to travel then, we have had a strong resumption of cruise. We started up the Spirit of Discovery five weeks before the end of the first half at the end of June, and our newest ship, Spirit of Adventure, came into service in the last week of the half. So for most of the half, we've had the ships tied up under government rules and regulations, but a very strong start. We were limited in the load factor, the number of people that we have onboard the ships for all of the five weeks of the first half.

7:51 We were capped at 50% of our potential capacity. We had significantly more demand than that, so we have had to work with guests to move them into future cruises. If you look at some of the key numbers under that, we turned positive in the cash operating in the cash flow for cruise in the period as we attracted the cash for bookings in. And the overall retained bookings across cruise and tour operations have been strong, and we understand that they are market leading at 74% for cruise and almost 40% for tour operations. We've managed our costs during the pandemic incredibly carefully with what we call burning costs or the costs of having the ships mainly tied up and not earning revenue under the expectation at about 5,900,000 per month. And up to the end of the half, we had carried just over 3,000 cruise passengers as of last week where over 7,000 passengers safely carried, and we're now into international waters and cruising with full capacity.

9:07 So a pretty good first half, really, for our operating businesses. If I turn to the wider progress across the other three strategic pillars on this slide, we're making good progress across all three. So the people and culture step change really underpins everything that we do. This is about the hearts and minds of the colleagues who work in SAGA. Our colleague engagement, we've measured three times now in the last year, and it's improved every single time with a very high participation rate of 93%. I'm getting really to the kind of upper median scores of 7.5. We have supported colleagues with extra investments in their well-being and supporting them through the period of the pandemic where all of us were working successfully from home.

10:01 We have had challenges in the summer months in recruiting backup, in particular, in our call centers. So if any of you are customers as well and have tried to call through to our call centers, my apologies that the call wait times have been longer than we would have wanted to. We have been subject to the national labor shortage which has emerged post the pandemic. And rather than just putting bums on seats, we have been very careful to put the best people we possibly can to serve our customers. That has led to longer call wait times than we would have liked, but we're largely coming out of the back end of that and able to move forward. On data, digital, and brand transformation, lots of good progress. I'll talk about what's landing in the second half next, but these are incredibly important programs which bring us up to speed with what all of our customers expect of us in a new digital world.

11:00 And lastly, driving simplicity and efficiency is core to us to have a lean and efficient business. There are significant improvements being landed in the first half and the second half underpinning the strong set of results that we've got. And underpinning everything, really, is our focus on reducing the level of debt. That has come down significantly with the leverage ratio now at 2.4 times excluding cruise, which has come down from the position last reported at the end of January. And as I've said, we have issued a new bond, repaid £70,000,000 term loan, and tendered a 100,000,000 of the existing bonds. So we're in a very strong cash position. So looking ahead to the second half and giving you a little bit of an insight on what's coming in the second half of twenty twenty one. It's a busy time for SAGA.

11:54 There is a lot happening for customers, and probably the biggest list of innovation that the company has seen in probably the last ten years. We're relaunching and strengthening our SAGA three year fixed motor and home plus product. So that's greater levels of cover and reassurance for all of our customers as we come into the FCA market study, which kicks in from January. All of our

12:24 b u websites are relaunching, starting with the travel websites. You will have seen some of those change if you've been on our websites in the last couple of weeks. That increases the capability, puts video content on there, means it's faster for you to access the products that you want to see and gives us greater functionality. Our load factors in cruise and our per diems in the cruise business are also stepping forward as we emerge out of the pandemic. So we're already 70% sold for our two ships in the second half. And as you look forward into the first half of twenty twenty two, that load factor moves up again to an 80% already sold figure for that period. So we're very confident in the outcome there.

13:14 There's a new easy access cash ISA for

13:17 existing savings customers launching in partnership with Goldman Sachs in the second half alongside a new SAGA lifetime mortgage equity release product as well, which has some market leading features in terms of customer cooling off period and a fast access to cash. All of our brand, all of our business changes its brand identity and brings it up to date in November, and we go back on TV and start to confidently advertise all of our products for the first time in about two or three years with a TV advertising campaign. And that along with the launch of our first owned riverboat, Spirit of the of the Rhine, which has set sail yesterday with good load factors on it too. So there is a lot happening in front of customers as we come into the second half of twenty twenty one, and we're confidently pushing the boundaries and and growing the organization.

14:18 I'm gonna hand over to James to talk you through a few slides of the detailed numbers, and then I'll come back and summarize with a future view of this platform. Thanks, James. Thank you, Eun. So I'll just give you a quick overview of some of the key highlights from the first half results starting with this slide here, which summarizes some of the key metrics. Revenue was down in the first half of this year compared to the first half of last year.

14:47 And that's mainly because in the first half of last year, we were trading in travel through all of February and most of March as well. And that obviously meant that year on year, we did have lower revenues in the travel business than than it was the case in the preceding year. In terms of the underlying result for the first half, so the underlying result was a loss of £3,000,000. That compares to a £15,900,000 profit in the preceding year.

15:18 The difference between the two is always due with cruise, and that's not because we are managing the cruise business any less effectively. It's because of a number of reasons. One of which is the fact that we were trading in cruise for about seven weeks in the preceding year compared to the fact that in this year, we only had five weeks of spirit discovery and one week of the spirit adventure. Also because when we did start, we only were able to trade with a capped load factor on the cruise ships of 50%. It's all because also because of all of the cost that we incurred in getting the crew vaccinated and getting the crew rehired and brought back and on the ships and restarting the ships more generally. So you can't just restart a cruise ship in with one week's notice. So there's a lot of training and practicing rehearsals that we would need to do in advance of the restart. But then the

16:14 last point here is that we did have two ships for all of the first six months, whereas in the preceding year, we only had one ship for some of the time. And we also have the financing costs of Spirit Adventure included in the first half of this year. So it's it's it's a it's a long list of reasons, but the actual results for the first half were very much consistent. In fact, they were probably very slightly better than we had been planning for. In terms of the reported result, we did have a reported profit for the first half. We made a small gain on the sale of a property, which is the difference really between the underlying results and the reported profit. A much better result than the preceding year. The preceding year, we had quite a high level of restructuring costs, and we also wrote down the goodwill relating to the travel business in full.

17:06 And that was the reason that we made a £55,500,000 loss in the preceding first half period. The number I'm probably the most pleased with in all of our results is the next one, which is the cash flow line. So last year, we had an available cash outflow of £23,000,000. Naturally, we had a lot of money we needed to pump into the travel business to sustain it through that first period of lockdown. Also because we had, essentially, a higher working capital outflow in that preceding period. I we were giving customers their money back on holidays or cruises which they had booked. In the current year, we had the opposite.

17:53 So we actually have, in the cruise business, a £25,000,000 increase in cruise advance receipts. That's part of that £42,000,000. And on the other part of the travel business, which is the tours business,

18:06 we operate that now on a fully ring fenced basis. So, essentially, customer money coming in or going out, conversely, actually has almost no impact on our results. The money that we provide to the tours business now is essentially only to fund operating expenses. So either way, a significant improvement in operating cash year on year. And what that has helped us to do is to further reduce our net debt. Our net debt decreased by about 20,000,000 in the first half. And when you take it together with the capital raise last year, our adjusted net debt excluding Cruise is significantly lower. So on to the next slide.

18:52 This shows a breakdown of the results by division. I think what it shows is that insurance result was pretty much flat year on year. And the travel business did have a an increased loss, but that was due to all of the factors I just talked about in relation to cruise. And our central costs were pretty much flat compared to the first half of last year.

19:18 On to the next slide. This shows breakdown of our the movements in net debt between the first first of February this year, so the start of the year, and the July 31. So taking all the results of the insurance business and essentially net of our central costs, those operations contributed a net £52,000,000 of positive cash inflow. We then put £20,000,000 into the tours business to help fund the operating expenses of that business during this period of suspension. That's That's the business which really didn't trade very much, if indeed, at all in the first half period.

20:04 For Cruise, we had a £9,700,000 cash inflow. That cash inflow is heavily influenced by the £25,000,000 increase in advance receipts. So that more than offset the trading cost that we had for the cruise business during that period when we were still in suspension. We then have £23,000,000 of debt service costs. Essentially, those are the moving pieces between the opening net debt and the closing net debt with the closing £20,000,000 lower than where we started. One thing you may have seen during the towards the end of the first half is that we announced actions further actions we were taking to strengthen our financial position. This involved issuing a new five year bond at five and a half percent.

20:54 So it's a 250,000,000 fixed rate. It's unsecured bond. And we used essentially about a £170,000,000 of that to repay debt. So £17,000,000 of our banking loans, which are all of the remaining banking loans, a £100,000,000 of the existing twenty twenty four bond. What that means is that we have now no bank debt in issue. And the good thing about that is that that gives us a lot more security and a lot more flexibility. So the bonds have far more flexible terms attached to them and no, what are called, maintenance covenants, input included, which again allows us to plan ahead given the the remaining uncertainties from COVID in a very secure position. It also means we have a substantial amount of cash on the balance sheet that will help us to absorb whatever bumps in the road may lie ahead.

21:48 So when we look at the position at July 31, we have a £175,000,000 of cash. The ST and H business, which is our tours business, is fully ring fenced. So there's £26,000,000 of cash there supporting £21,000,000 of advanced receipts. We don't owe there are no debt maturities until May 2024. And in fact, no payments also to our cruise ship facilities until next June. So all in all, that gives us a strengthened financial position, and again, gives us that confidence to ride out whatever bumps in the road may lie ahead.

22:24 Thanks, James. I'll just spend just a couple of last minutes just going through a bit of a longer term view. And and and on this page, we try and capture our long term growth plan on one page. Clearly, our business is all about creating a great country to grow old in, and we're very clear on our purpose, which is creating and driving exceptional experiences every day whilst being a driver of positive change in our markets and communities, and some

22:55 good evidence of that already in the first half and into the second half plans. We exist to uniquely fulfill the needs of our older customers, and that's by aligning all of our colleagues and our businesses together behind our purpose. At the heart of our business is exceptional insight. We're building that to greater levels now where we understand our customers better than anybody else in the marketplace and almost better than they understand themselves. And that manifests itself through in everything that we do for customers and all through every colleague being simple, personal, and special. We

23:33 created the five pillars of our strategy last year, and we're delivering against those. The people and culture step change, data digital brand transformation well underway, and optimizing our current businesses while we drive simplicity and efficiency and drive our debt down too, and we're well progressed as we've updated in the first half on all of those. That's driven by a clear and shared set of values across our business precision pace, empathy, curiosity, and collaboration, and that's owned by every colleague. And as a result of all of that, we believe that this will deliver consistent growth and growth in three things, customer numbers, revenue, and profitability as we turn the corner out of the pandemic and into long term growth.

24:21 So just leaving you, I guess, with a summary slide before we go to questions. We have even more confidence in the future of SAGA now, so strong progress against each of the priorities we set out last year. We are a team and a business that does what it says it's going to do. The brand relaunch that was planned last year and aimed for this autumn is taking place, and that would be on our screens and throughout marketing mix and in all products from November. The pipeline of future travel bookings is looking strong. It's looking stronger as we come through the second half of this year and very strong for 2223. And even that is mindful of the fact that, you know, as we exit the pandemic, it's not all plain sailing, and there there may well be some uncertainties ahead.

25:13 Our focus remains on driving down the level of debt in the business and executing the plans, and we're very much set to do that. That then provides us with the platform for more exciting future growth for the organization. So I'll pause at that point, and we can move across to Q and As. Fantastic. You and James, thank you very much indeed for the presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. Just while the team take a few moments to review those investor questions submitted already, I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard on the Investor Meet company platform.

26:02 I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order the company can better understand your views and expectations. You and James, perhaps before we move on to the questions received during the meeting, we did have one pre submitted question. If I may, I'll read that out. It reads as follows. What's the expected profitability per ship once the cruises are fully up and running? I believe I've seen $40,000,000 EBITDA per ship in previous presentation. Is that still accurate? And how much is that reduced by the imposed reduced capacity restrictions due to COVID? That's a great question. Perhaps I'll kick off with that. So in the in this half's presentation, we were very careful to reiterate our confidence in the 40,000,000 EBITDA per ship number.

26:52 As we come through the second half of this year, we will not be at that number because we're slightly lower on our load factors at just above 70% than the than than that business case just as we ramp up. And we're also keeping some of the COVID safe protocols onboard the ship as we emerge from the pandemic. That felt like it was the most sensible thing to do to protect guests and crew safety. So slightly higher cost as we come through second half of this year, slightly lower load factor. As you project into 2022 and 2023 seasons, we are seeing load factor and per diem ahead of that business case. Clearly, we'll make a call at the right time to reduce some of the additional safety costs as we come through the months January, February, March next year. But overall, we have reconfirmed our commitment for that level of profitability from each ship.

27:55 You're fantastic. Thank you very much indeed. And as you said, investors have submitted a number of questions during the presentation today. And, Emily, if I may hand back to you to respond to those where it's appropriate to do so, if I may just ask you to read out the question and say who it's from, that'll be fantastic. Thank you.

28:10 Fantastic, Paul. Thank you. This is probably a question for yourself, James, from David Sea. We've already covered the second part of it, so I'll just read out the first part, which is you stated that the cruise business is currently incurring additional COVID related costs. How much of those costs are on an annualized basis?

28:32 So we said that the higher cost in the second half would be about £6,000,000, which is over and above, if you like, the sort of plan cost level. It would probably be fair to say that on an annualized basis, you would double that. Having said that, we do also think that some of those costs are a one off function of where we are in terms of COVID. So a significant portion of those costs are directly related to, for example, the COVID protocols that we have in place. So those COVID protocols involve a very extensive testing of both the passengers and the crew. It would also include things like running the car service in a different way to how we would have done it pre COVID. So pre COVID, we would have tended to put groups together who lived in the same area in terms of transporting them from home to the ships.

29:29 But now each

29:31 each sort of individual booking essentially is managed individually, means that we run extra costs in terms of transporting people to and from the ships. So those aren't things that we would anticipate would go on forever. So I think that you probably wouldn't wanna extrapolate those into the future. Now will all of those go from the February 1? It's obviously a bit hard to predict that right now. It is possible they may go on. But having said that, certainly in terms of testing, in terms of the other things that we are doing that directly encourage the cost, you you wouldn't you wouldn't extrapolate those out, certainly, at the same pace that we're incurring that. Fantastic. Thank you, James. Sticking with cruise, what are the main components of monthly cash burn in the cruise business? Ask Gav. So the so in in the full investor appendix, that's the slides that we put out on Wednesday. So we do the direct derivation of our monthly burn cost.

30:35 It is for both pieces of the travel bitters. So looking at the first half of the year, the cash burn cost was £35,600,000. And that is measured as essentially the cash cost of cruise and then the earnings before interest interest tax and depreciation for the tours business. That that's the way we did it last year, we carried that forward into this year. So on the 35.6, 14.8 relates to the tours business, 20,800,000 relates to cruise business. That does, I should stress, exclude the working capital movements for the cruise business or certainly the change in advance receipts.

31:22 So if you actually look at the the actual cash outflow for the for the first half, it was only £10,000,000. Burn burn cost, I think, is a helpful thing to look at when the ships are not trading and when tours is not trading. But I think once we get into a place where the cruise business is operating as it is, then actually we we we will we won't have burn cost going forward because we will be generating cash rather than burning it. So it's probably the last time we're gonna be talking about burn cost. Brilliant. Thank you. Question from David c, still on cruise. Have you been adding sailings to your cruise itinerary to respond to the high demand? So then That's alright. Go ahead. You go ahead. Sorry, James. Just sorry. I was gonna jump. So we the main aim was to get back to the itinerary plan that we had already planned because clearly lots of guests have already booked those. So the the least amount of disruption is better for us. During the summer, we had to switch from actually some international sailings while the government retained their international sailing ban to a higher number of shorter cruises around The UK. Those proved to be incredibly successful for us.

32:38 They all they principally introduced a new set of customers and guests into our cruise operation. So the level of first time buyers was incredibly high. So that will be something that we will introduce into future years itineraries. We do tend to be quite well planned, so we publish itineraries that are eighteen months ahead. So the simplicity of the cruise business is to fill those to maximize the returns for each of the ships. So we are we are capped at the the fact that that both ships sail every single day, but we've optimized the mix as we've come through quite uncharted waters due to government restrictions in the summer. Brilliant. Thank you, Ewan.

33:26 Moving over to the tour operations business, they could see us how material can Spirit of the Rhine weather units be. Look. It's a lot less material than an ocean cruise liner. It's a much smaller operation for us. So but it's an interesting option for us, I think, for a couple of reasons. It puts our brand in our control into that segment of the market, which is very interesting for our customers. There is a natural crossover between the experience that you would expect to get on the ocean ship and then come on to the river ship, so there's an opportunity to cross sell and to add to the revenues. The key thing there is to get that operation up and running. We've got Spirit of the Danube going live next March, and then to look to grow the number of river cruise ships that we have.

34:23 It's a it's a very interesting segment for us, and it's the first time that we've actually put our hardware down. But relative to ocean cruise, it's it's a much smaller contribution. Fantastic. Thank you. David c also asked whether tour ups can get back to its £350,000,000 revenue rate pre COVID. James, you wanna pick that one up? So I I think the so the answer there is we won't go about the $3.50 for for a couple of reasons. One is, I think, because we sold this knowledge. So that was about 50,000,000 of that Of that revenue has gone. That was, however, pretty low margin. So the desk knowledge margin I mean, the gross margin was only about 10%.

35:14 So it shouldn't have much impact on well, no impact on the bottom line because this money was doesn't make any money even before COVID. The in in relation to can we get back to 300,000,000? I mean, I think it's probably fair to say, I don't think it's gonna happen overnight because that business was already facing some headwinds even before COVID. So I think even if COVID hadn't happened, we probably would be looking at revenues probably around about $250,000,000 last year. And I think that one of the points that we are looking at here is that not all aspects of that business haven't necessarily lived up to the standards that we would want it to. So I think there's an element here of us taking the business back a bit in order to really focus on the areas that we really add value from a customer perspective.

36:06 So what you will probably see in the future is a somewhat smaller business, but one that is essentially offering much more differentiated propositions to customers and therefore, which should be able to generate a higher gross margin than the gross margin that we've generated in the past. And clearly one that is also getting back to making a profit again. Brilliant. Thank you, James. Paul s asked whether he could confirm his understanding that customer cash is held in trust for the tours business, but not held in trust for the cruise business. Yep. I can I can confirm that is the case? There there is a reason for that, and that is mainly because in the tours business, we are essentially an intermediary between the customer and sometimes the travel agent and the hotel or the airline. And I think that in sense, keeping that cash ring fenced is a good idea and something that we would wholly support. And to be honest, that is the the direction of travel that the entire industry is going to go in.

37:17 There's not much ambiguity on that. So we think that that actually is quite a it's a it's a helpful place for us to be because there is still plenty of tool companies out there that use customer cash to fund their operations. And those companies, I think, are gonna have a a tougher time of it in the next few years because that isn't something that is sustainable. On the crew side of things, it is a different situation. We own the hardware. We obviously paid a lot of money for the hardware. And therefore, therefore, because we control all in all aspects of that proposition, we're more comfortable or or we are comfortable very comfortable with the idea that, you know, cut the customer cash is our is our cash. Fantastic. Thank you, James. Moving over to insurance then. David c asks, what proportion of your other broken revenues come from selling travel insurance?

38:09 So in the first half, not very much because we sell very, very few travel insurance policies in the first half. So most of those revenues relate either to the PMI business or they relate to the the sort of claims handling function that we have, which is also included in that line, although the claims handling revenues weren't huge either. So most of it, to to to be honest in the first half, was relating to the PMI business. Fantastic. Thank you, James. And just a follow-up to that question, how connected to the cruise and tour operations businesses are those policies? Not very. So the travel insurance policies are essentially the sort of the independent travel insurance that that we would sell to customers.

38:57 It's not the travel insurance that's included as part of the proposition for for cruise or or for tour ups either. Fantastic. Thank you. Another one from David c on insurance. Gross margin for policy and insurance broker has been in decline for several years. What is the reason for that, and how long term declining trend can be broken going forwards? I I can take that one as well. So the I mean, that that number has been in decline for reasons that we set out at the beginning of 2019, which is when essentially we, you know, we did have to reset expectations for that business.

39:44 There are essentially a variety of reasons for that. One is that the you know, we had to take some actions in terms of pricing for customers who were long tenured, so we reduced prices there. That was one thing that we started doing in the middle of twenty nineteen. The other feature, to be honest, is is a bit more of a structural one, and that is because if you look historically, the company was very successful in selling via direct mail. Direct mail has a very low cost of acquisition. So the cost of acquisition for direct mail is is a is a very low number. And so if you looked at the overall cost of acquisition for the broking business in the aggregate, it was very low.

40:31 What you have seen in in the last few years, there's a whole variety of reasons for this, is that that cost of acquisition has has grown quite substantially. Whether it's to do with selling via price comparison websites, whether it's due to the competitive nature of trying to sell online, so via paying for pay per click and things like that. The cost of the of acquiring a customer is is probably double what it was four or five years ago. So that has had a pretty significant impact on our margins. We did say when we had that reset in 2019 that we expected the margins to stabilize, and we said they would stabilize the sort of 70 I think they're better actually 67 to 70, I think, is where we said they would stabilize. They're a little bit higher than that.

41:21 There are a few reasons for that mainly due to the fact that we have sold Bennett's, for example. So I would say that the margins that we had in the first half were very consistent with what we were expecting to see when we did that reset back in 2019. Looking into next year, those margins may edge down a bit. That's because of the change in regulatory environment, which will flatten out new business and renewal pricing. That, however, will be in a long term a good thing because it certainly is helpful if you're trying to sell a proposition based on on quality, which is clearly what we are trying to do, and it should also reduce customer churn so it'll improve retention.

42:09 That, while it won't necessarily have a big impact, next year should start to be a positive feature from sort of the second half of next year onwards. Fantastic. Thank you, James. Does the 88.4% combined ratio include the effect of reserve releases, and what is the combined ratio if they are excluded? Asks user f. Yeah. So for for another one for me, I think. So the so the the 88.4% does indeed exclude reserve releases. It is somewhat influenced, obviously, by the fact that we had lower claims frequency during the period of lockdown, particularly in February and March. So there was probably about an eight point benefit to the combined ratio from that. So if you were to add that back, you'll be sort of 96.4.

43:03 What we did say a few years ago is that we were aiming for around about the sort of 97% combined ratio on an ongoing basis. But you're right that we still had the benefits in the first half of the fact that we are pretty prudently reserved, and that played out in terms of 18,000,000 of reserve releases. So that was sort of over and above the 88%. So the 88%, just to be clear, doesn't include the reserve releases. Brilliant. Thank you, James. Still on insurance, Raj p has asked, how do you see Steve Kingshot adding value to the insurance business? Perhaps I might take that one. So Steve is a vast experienced insurance professional, having worked for some of the largest insurers across the country.

43:55 He's got experience across broking and underwriting and has also worked most recently for Tesco underwriting. So he's worked in a kind of mixed activity business. So he's perfectly placed to come into the SAGA exec team also lead the next stage of growth for SAGA insurance. So we're all looking forward to him joining in about six weeks time. Fantastic. Thank you, Ewan. David c asks, as you start to generate cash, in what order should we expect your various debt instruments to be repaid? That's one for you, James. Yep. So, I mean, the first I mean, so the well, there is there's no need for us to repay any of our bond debts anytime soon. We don't have any bank debt. So there's there's sort of no immediate priority to use that cash for that.

44:49 So what we probably would use to do is to reduce the cruise debt, and that would be, I guess, in two senses. So one is when we emerge from or by the by the sort of next April, we'll have about £85,000,000 of cash on the cruise debt that would have ordinarily have been to have been paid, but essentially, we have deferred during the period of the the COVID crisis. So I guess priority number one is probably to repay that. We then have about £45,000,000 each year, which we would repay in terms of the ongoing capital repayments for the cruise business. The the question after that, I think, is is there an ability to repay some other debt? Now at the moment, we've got no debt due for maturity until 2024.

45:44 And in fact, if we look to repay that ordinarily before February 2024, we we have various penalties that we would have to pay, which essentially mean that we'd have to pay all of the interest until maturity, which obviously wouldn't be a particularly good idea. Question then is is, you know, is there a potential for our bondholders to look to tender their bonds at an earlier stage? That obviously is entirely up to them, but it's it'd be something that's worth thinking about, but probably not one for for this year or indeed even next year where the priority really at the moment is is holding an additional cash balance just to give us that extra buffer against the who knows what in terms of what happens next week, clearly.

46:31 Yeah. Thank you, James. We'll move on to the proper strategic questions that we've had. Duncan h asked, where do markets like pensions and retirement homes or villages sit with SAGA's plans? So I guess if we start to look forward, then we have a platform and and a proposition now within SAGA that we can start to think about where we could add value to our older customers' lives beyond the businesses we're in now. We haven't done a lot of thinking in that space yet because we've been stabilizing the businesses that we've got today and putting them into growth. I'm not sure that the businesses mentioned in that question would be particularly high up our list as we'd be looking for higher growth low capital businesses to invest in, and there's plenty of those to support the lives of the 60 in The UK.

47:30 But it's a little bit early for us to comment on any further business interest beyond optimizing the the businesses that we're in now. Thank you, Ewan. Gareth r asks, the over seventies market insurance is poorly covered. Might this be a higher margin opportunity for you, or is your sweet spot the sixty to sixty nine year olds? Well, no. Our sweet spot is actually in that so the 65, the average age of a home and motor insurance customer with SAGA today is 72. So we're right in that sweet spot of the kind of seventies if you look at where we trade, clearly, trade from 50 all the way up to beyond 90, but the average is already in the in the kind of mid seventies. I agree with you.

48:21 I think there is a big opportunity for us to trade well there, and the three year fixed product in motor and home is particularly trading well with that age group as it provides reassurance, peace of mind for a relatively low interest category. So we're, I think, making some good progress there. Thank you, Ewan. David c asks, is the new branding launch going to come with improved loyalty offerings for customers? How many products per customer do you currently achieve, and where are you aiming to take this to? Gosh. A number of elements in that. The the first aim of the new branding launch is to increase consideration of the 17,000,000 people that are 65 to reconsider SAGA if they're not currently a customer of us.

49:10 Within the product development and then with the product interactions and a focus on cross sell, which will come through 2022, we'll start to see the multiproduct holding or the number of products held by each customer hopefully grow. We're around 1.1 in the number of customers who have more than in the in the in the total kind of customer product holdings on average. So it's relatively low at the moment. Clearly, we have very loyal customers that can have five or six products with us, but on average, it's still an opportunity at 1.1. Fantastic. Thank you, Ewan. Final few questions then, if we may.

49:56 David h says, your share price appears to be quite out of kilter with the progress in the business. He asked why you think that is when a lot of other troubled related companies have rerated more aggressively. Gosh. It's one of those questions that is very difficult for us to ask because we believe, like you, that the share price is undervaluing the company as it is today. Hopefully, we see progress in the share price as more shareholders understand the progress that we're making. It's incredibly important to us to demonstrate to shareholders that we're committed to long term growth and delivery. If I was to if I was to offer a guess, I think there'd be a number of full starts at SAGA in the past. Potentially, previous teams overpromising and not delivering everything.

50:47 That's very much live in our minds. So that's our focus on doing what we said we were going to do. So, hopefully, the confidence will return for shareholders to invest in larger levels as we as we go forward. But we certainly think that the company is undervalued as it is today. Thank you, Ewan. Steven m asks, will Roger Dahan take the company private? There's no intention for Roger to do that. He is a massive supporter of the strategy that we are delivering today. Indeed, that's why he engaged with us as a management team. So he's completely aligned with the plan that we are delivering. He's realistic in terms of the time it takes to turn a business like this around, but we're all impatient for the results to come through. So there's no indication or need at the moment for Roger to take it private. He is just committed to serving our customers as we are in the best way that we can.

51:53 Thank you, Ewen. The final question that we have is from Richard d who asks, can shareholders receive discounts on travel or insurance products? That's an interesting point. Actually, we have this half extended a new benefit to shareholders and that if you're not a subscriber to the magazine, then you can do so. Actually, we sent emails and letters out in the last couple of days and have been inundated with shareholders wanting to take part in that. That is giving us an insight into shareholder appetite to become larger customers as well. So while we don't have a plan at the moment for that to be the case, it's certainly something given the reaction that we've had this week that we will look at.

52:43 That's absolutely fantastic. Thank you so much indeed, Emily, for hosting the questions there. You and James, thank you again. You you covered off every single question you received from investors. So thank you for your time, and thank you to all the attendees who submitted them. You know, perhaps just before we redirect the attendees to give you some feedback, if I may ask you just for a a sort of closing snapshot, please? Great. Thank you. Well, I guess, four four very quick statements to leave you with in four different time frames. Firstly, this is a strong performance in the first half of the year in line with expectations through a pretty difficult trading period with COVID and a very competitive insurance market. So we're pleased with progress there. Looking ahead, second point to further progress in half two, there's a lot happening. And while it may not be a straight line because of COVID, we're very confident and we're very secure in our financial position.

53:38 Third point is that if you look further ahead into 2223, the outlook is positive both in terms of the travel bookings and demand that we've got for our propositions and also in the outlook for insurance. And at that point, we're really getting to the point where some of the questions were coming in. So what next? And the business being stronger and stabilized allows us to think what next into more sustainable and interesting growth. So it's an exciting time to be part of SAGA today, and thank you for joining the call. It's absolutely fantastic. You and James, thank you so much for updating investors today. Could I please ask investors not to close the session as you'll be automatically redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations?

54:25 This will only take a few minutes and be greatly valued by the company. On behalf of the management team of SAGA PLC, thank you for attending today's session. Good morning. Thank you. Thank you.