Specialist insurer Saga is optimistic it will get back on track.
Announcing its preliminary results for the full year ended January 31 – its fourth set as a public company – Saga admitted having faced challenging times in recent months.
“This is in contrast to the four years since IPO, in which we have achieved a great deal,” noted group chief executive Lance Batchelor in a statement accompanying the results, which showed a 1.4% increase in underlying profit from £187.4 million in 2017 to this year’s £190.1 million.
“We came to market with a target to grow profits every year and reduce the £700 million of inherited bank debt,” said Batchelor. “We set out a strategy that replaced riskier and more capital-intensive underwriting earnings with earnings from broking and travel. As part of this we needed to grow profits in the broking business, especially via the motor panel; grow profits in the travel business; and deliver growth in emerging businesses.
“We have made good progress in achieving these objectives while also upgrading most of our IT platforms. However, while we have achieved excellent growth in earnings in our travel business, we have not delivered the expected profit uplift in broking.”
Saga’s travel business posted strong profit growth of 36.9%, while earned retail broking profit fell 5.7%. The insurer cited lower written to earned benefit, with 4.3% written profit growth in retail broking – an 8.8% drop in home partially offsetting the 37.3% rise in motor.
“In recent years, we achieved profit growth from a static customer base,” explained the CEO. “In December 2017 we announced our decision to increase our targeted spend by £10 million a year to allow us to focus on growing our customer numbers. While it will have an impact on profitability in 2018/19, I am confident that this investment will lead to a larger customer base and a return to sustainable profit growth.”
Batchelor added that, on top of the firm’s targeted investment and platform enhancements, Saga’s new membership scheme also helps. He said signs suggest the initiatives are working, with a 14% increase in the volume of new business in retail broking in two months.
“…Having seen some initial momentum in new business, the early signs are promising,” said Batchelor, expressing his confidence that the right investment to drive the business forward has been put in place.
In a note, British investment bank Numis concurred: “The statement highlights that the company is becoming more efficient and starting to see the benefits of investment in retail broking and travel, which, combined with the arrival of the new ships in 2019 and 2020, gives confidence in returning the business to sustainable profit growth.”
According to Numis, full-year results are in line with the revised guidance issued by Saga in December. “The statement highlights the strong cash generation business, allowing it to support both capital generation and strong dividends,” it added.
Meanwhile outgoing chair Andrew Goodsell said Saga built strong platforms and systems in 2017 that will help the company interact differently and more efficiently with members. Goodsell, who is retiring from the board on April 30, has been with Saga for 26 years.