Saga looks to steady ship as Covid-19 halts travel business
By Abigail Townsend
Date: Thursday 02 Apr 2020
(Sharecast News) - Saga has moved to strengthen its balance sheet after the Covid-19 pandemic halted its cruise and tour operations, including the suspension of its dividend.
The company, which specialises in insurance and travel for the over 50s, said it had made a precautionary ?50m drawn down on its revolving credit facility, cut operating costs - including making stuff redundant - and agreed amendments to banking covenants. It has also suspended its dividend for the 2019-20 financial year.
Euan Sutherland, chief executive, said: "Saga Insurance remains largely unaffected by Covid-19. However, along with all other travel business, our travel business has been significantly impacted."
Before lockdown measures were introduced on 23 March, government had already advised over 70s against all but essential travel. In response, Saga suspended cruising services on 12 March until May and tour operations for six weeks from 16 March.
In a worst-case scenario, Saga said the cruise and tour operations businesses could be suspended until September and August respectively. Should that be the case, full-year revenues in the travel arm would be reduced by around 65%, while underlying pre-tax profits would fall between 15% and 20%.
But it insisted it was well positioned despite that, pointing to available cash resources of ?92m, the insurance businesses continuing to perform well and be cash generative, and repayments on the group's term loan not falling due until 31 January 2021.
"Even with a full suspension of travel of six months, and with a slow recovery in demand into the 2021/22 year, the group is expected to remain in a strong position," it added.
Saga also updated investors on trading for the 12 months to 31 January. It said that underlying pre-tax profit was expected to be ?110m, in line with its target range of between ?105m and ?120m.
During the year, it sold 370,000 three-year fixed policies, with 57% of new business volumes written on a direct basis. Saga branded policies were down 3%, however, which it said was down to discipline in new business pricing. Gross margins were ?74 per policy.
In its travel business, Saga launched the Spirit of Discovery cruise ship during the year and said its financial performance in the first six months of operation "was consistent with a full-year objective of ?40m earnings before interest tax, deductibles and amortisation".
As at 31 January, forward cruise bookings for 2020/21 were ahead of expectations at 80% of the full-year target.
Sutherland said: "Against the backdrop of Covid-19, the outlook is uncertain, but we remain confidence that the Saga brand, and our insurance and travel business, have a successful future ahead."
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