(qlmbusinessnews.com via news.sky.com– Thur, 4th April 2019) London, Uk – –
The company has warned of ‘increasing challenges' and slashed its dividend as it forecast another tough year ahead.
By John-Paul Ford Rojas, business reporter
Shares in over-50s travel and insurance specialist Saga have plunged after it slumped to a full-year loss of £135m and blamed a fall in holiday bookings on Brexit uncertainty.
Saga said it was facing “increasing challenges”, especially in the competitive car and home insurance markets and that it was launching a “fundamental change” to its strategy.
The stock was down by 37% in early trading after it also slashed its dividend and warned on profits for the current financial year.
Chief executive Lance Batchelor 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.”
Saga reported a 5% fall in underlying profits to £180m for the year to the end of January but a £310m accounting charge relating to the value of its insurance business pushed it into the red.
It added that factors including a squeeze on margins in its insurance business – where it has become increasingly reliant on price comparison websites – and investment in new products meant it now expected an even bigger fall in underlying profits for the current year to £105m-£120m.
Saga said tour bookings for the 2019/20 financial year were down amid “recent market weaknesses particularly in short haul holidays”.
It said: “Brexit uncertainty has been a significant contributor to this shortfall.”
Booked revenues were 7.6% down in the 12 weeks to 23 March.
It comes days after airline easyJet warned that “unanswered questions surrounding Brexit” were holding back holiday bookings.
Mr Batchelor said Saga had grown successful through offering products “specifically designed for our demographic, that were competitively priced and built great brand loyalty” but that it had since then been “focused overly on the short term”.
At the same time, customers have increasingly been able to buy cheap rival products online.
“The end result has been a steady decline in the number of customers over a period in which our demographic has grown,” Mr Batchelor added.
He said Saga was now moving away from competing to offer the lowest price on insurance to trying to offer a “differentiated” product with unique features.
Mr Batchelor also wants to shake up its tour operations business in a way that sees it become a better “niche provider” – not necessarily growing sales volumes, but boosting profit margins.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the changes being made by Mr Batchelor “might all be too little too late”.
“While the speed of deterioration has taken the market, and us, by surprise, there have been worries for some time that the Saga brand was losing its appeal at the lower end of its ‘over 50s' customer base,” he said.
“Without brand loyalty, Saga is just another insurer.”
