# Saga plc Challenges from commoditisation impact profitability - Link: https://www.directorstalkinterviews.com/saga-plc-challenges-from-commoditisation-impact-profitability/412771285 - Published: 2019-04-04T07:28:41+01:00 - Author: Charlotte Edwards **Saga plc** (LON:SAGA), the UK’s specialist in products and services for life after 50, announces its preliminary results for the twelve months ended 31 January 2019. > **Lance Batchelor, Group Chief Executive Officer, said:** > “Over recent years Saga has faced increasing challenges from the commoditisation > of the markets in which we operate, especially in Insurance. This has had an impact > on both customer numbers and profitability. Although Underlying Profit Before > Tax for the 2018/19 financial year is in line with our expectations, the long- > term challenges we face and the results demonstrate that Saga cannot grow without > a clearly differentiated offering to its customers. > In response, today we are launching a fundamental change to the Group’s strategy > to return the whole business to its heritage as an organisation that offers differentiated > products and services. This will give our customers and members a compelling reason > to come to us and stay with us. > As a first step, we are announcing the launch of a new approach to Insurance. > This focuses on direct channels and products that offer attractive innovative > features, moving the conversation from price to value. Our new three-year fixed > price insurance offering is a powerful indication of our change in approach. > As a result of lower margins in Insurance, a change in approach to renewal pricing, > lower reserve releases and investment in new products, Underlying Profit Before > Tax for the 2019/20 financial year is expected to be between £105m-120m. Therefore, > we have taken the difficult decision to reduce our final dividend and write down > goodwill. The fundamental changes we are making are essential to address the long- > term challenges facing our business. They will support future growth in customers > and profits, and generate attractive cash flows for Saga.” **Financial highlights** | 31 January 2019 | 31 January 2018 (restated) | Change | | Underlying Profit Before Tax^(1) | £180.3m | £190.6m | (5.4%) | | (Loss)/Profit before tax from continuing operations | (£134.6m) | £180.9m | (174.4%) | | Underlying Earnings Per Share^(1) | 13.1p | 13.8p | (5.1%) | | Basic earnings per share from continuing operations | (14.5p) | 13.1p | (210.7%) | | Proposed full year dividend | 4.0p | 9.0p | (55.6%) | | Available operating cash flow^(1) | £180.6m | £175.5m | 2.9% | | Net debt^(2) | £391.3m | £432.0m | 9.4% | | Debt ratio (net debt to Trading EBITDA) | 1.7x | 1.7x | – | 1 Alternative performance measure – refer to the glossary on pages 55-56 for definition and explanation 2 Bank debt and borrowings, excluding any overdrafts held by restricted trading subsidiaries, net of available cash **Performance in 2018** · Underlying Profit Before Tax down 5.4% at £180.3m reflecting strong reserve releases but disappointing Retail Broking result – Retail Broking down 19.1% at £105.8m – Underwriting up 9.3% at £86.7m, supported by underlying reserve releases of £78m – Travel up 2.4% at £21.1m, with strong forward bookings in Cruise – Emerging businesses and central costs (excluding finance costs) improved by 21.5% to (£21.6m) · Loss before tax of (£134.6m) after Goodwill impairment of £310m · Available operating cash flow £180.6m · Net debt reduced to £391.3m with net debt to trading EBITDA at 1.7x · Proposed full year dividend reduced to 4.0p with expected future payout of approximately 50% **Strategic Change** · Fundamental shift in strategy to address long term challenges · Saga to refocus on its heritage as a direct to consumer brand with membership at its core, providing differentiated products and services that customers can’t get elsewhere · Launch of new Insurance approach focused on growing direct channels, with the launch of a 3 year fixed price proposition, and with a new approach to renewal pricing · Accelerating transformation of Tour Operations · Continue the Cruise transformation · Investment behind new products and membership to build on early signs of traction · 2019/20 Underlying profit before tax expected to be £105-£120m due to a reduction in reserve releases, as well as a decline in Broking gross margins (less marketing costs) from £80 to between £71-£74 per policy · Action on dividend and amendments to banking facilities provide robust balance sheet to support strategic change Share on: