Saga : Trading Update

6 December 2017

Saga plc

Trading update

Saga plc ('Saga' or 'the Group'), the UK's specialist in products and services for life after 50, announces a trading update for the period from 1 August 2017 to 5 December 2017 ('the period').

Trading update

The Group's growth in Underlying PBT is expected to be between 1% and 2% for the year ended 31 January 2018. This has been impacted by more challenging trading in insurance broking during the period and the Monarch Airlines administration, which has affected our Tour Operations business.

For the full year, the written profit of our Retail Broking business is expected to be ahead year on year, with a strong performance in motor partially offset by a challenging trading environment in home and travel insurance. Earned profit for Retail Broking is expected to be marginally lower than the prior year due to a lower written to earned benefit.

Our in-house underwriter has continued to have an excellent experience in small and large personal injury claims and we now expect reserve releases to be at a similar level to the previous year.

Our Travel segment continues to trade well and is expected to be strongly ahead of the prior year. However, the Tour Operations business has been impacted by the collapse of Monarch Airlines with an approximate one-off cost of £2 million.

During the period, we have completed a review of our operating structure which will realise approximately £10 million of annualised savings next year. We expect to incur a one-off cost of circa £4 million relating to these changes, excluded from Underlying PBT.

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Profit before tax excluding fair value gains and losses on derivatives, debt write-off and restructuring costs.

Investing for growth

Since IPO, we have been investing in our capabilities. Our new claims platform is now live and our broking platform is in the final stages of testing. The renewal of our shipping fleet is underway. We have launched our motor panel and our membership program, Possibilities. We have improved our ability to attract, retain and grow our High Affinity Customers ('HACs'). With greater customer insight and a stronger business platform, now is the right time for us to make targeted marketing investments to grow the business.

As a result we intend to increase our annual customer acquisition spend by £10 million starting next year.

Guidance

We expect an increase in the profitability of our Broking and Travel businesses next year, including the approximately £10 million of annualised savings from the actions we have taken in the current year. Offsetting this will be a lower level of written to earned benefit and a decline in reserve releases, as discussed below. These headwinds and our decision to invest an additional £10 million into customer acquisition is expected to result in Underlying PBT for next year being approximately 5% lower than the current year.

We expect the current year dividend to be in line with our expectations, and we remain fully committed to our stated dividend policy.

Retail Broker - written to earned adjustment

Our transition towards a capital light broker model has involved the introduction of the motor panel and the transfer of broked add-ons to third parties from our in-house provider. These changes and the introduction of an arrangement fee in 2015 have resulted in a benefit from recognising these revenues on a written basis. The benefit in the year ended 31 January 2017 was £19.9 million, and this is expected to decline by £10 million in the current year, and then not recur.

Underwriting - reserve releases

Whilst the in-year profitability of our underwriter continues to perform as expected, the level of reserve releases related to historical claim years is expected to decline by between £10 million and £15 million next year.

Business growth

With the additional investment in customer acquisition, we expect numbers of Retail Broking policies and holiday passengers to return to growth.

We continue to be on track to achieve our goal of increasing the profit before tax of our travel segment by 4-5 times by the year ended 31 January 2022.

Notice of results

Saga will announce its preliminary results for the year ending 31 January 2018 on 12 April 2018.

Lance Batchelor, CEO, said:

'Against a backdrop of some challenging trading conditions in our final quarter, we continue to develop the business for the long term. With greater customer insight and a stronger business platform, now is the right time for Saga to invest in growing the customer base and the business.

We are confident that the actions taken will ultimately see a better quality of earnings and profit growth across the business, supporting our progressive dividend policy for the benefit of our shareholders.'

END

There will be a call at 8.30am today for analysts and investors. To register for the call please contact MHP Communications on [phone] or 8742, or by email on [e-mail]

Saga plc

Mark Watkins, Director of Investor Relations Tel: [phone]

Email: [e-mail]

MHP

Tim Rowntree/Simon Hockridge/Reg Hoare Tel: [phone]

Email: [e-mail]

Notes to editors

Saga is a specialist in the provision of products and services for life after 50. The Saga brand is one of the most recognised and trusted brands in the UK and is known for its high level of customer service and its high quality, award winning products and services including cruises and holidays, insurance, personal finance and publishing. saga.co.uk