A reassessment of the value of the insurance business has led to a £310m goodwill writedown, and as a result Saga reported a £134.6m loss in 2018. However, underlying profit before tax fell too, down 5.4% to £180.3m, and is expected to deteriorate further in 2019/20 to between £105m-120m.
The full year dividend has been cut by more than half to 4p.
Alongside results Saga has announced a 'fundamental shift in strategy' to address the long term challenges facing the business.
The shares fell 39% in early trading.
Despite falling 19%, insurance broking still accounted for 59% of Saga's profits in 2018. Add in the underwriting business, and insurance accounts for virtually all of Saga's profits.
The group's struggled to hold on to customers as increased price transparency and ease of switching has made general insurance an increasingly commoditised sector. Recent attempts to restore policy numbers have seen Saga turn to price comparison websites to pick up business, denting margins on the new business it is able to win.
CEO Lance Batchelor has decided enough is enough. Going forwards Saga will focus on its direct to consumer business, encouraging drivers to come direct for insurance. That's easier said than done though.
We've worried for some time that Saga's brand didn't have the same resonance with the younger end of it 'over 50s' customer base. Without brand loyalty Saga is just another insurer, and there's little reason to pay a premium for a generic product. New product innovation and a marketing surge may help to some degree - but they're also going to hit profits next year.
That's led to the decision to slash the dividend, despite debt continuing to fall. It's painful for investors, but Saga urgently needs to address the falling customer numbers, especially as its business model is increasingly built on selling additional services to its insurance customer base.
Saga's non-insurance products are actually performing relatively well - securing niche positions in their respective markets and with healthy levels of demand. Saga's 1.1m strong membership programme is lending a helping hand. Unfortunately it's all a side show if the insurance continues to struggle.
Only time will tell if the groups attempts to revamp its insurance offering are enough to attract premium customers back.
Full Year Results
A poor performance from the Retail Insurance Broking business accounted for the entirety of the underlying profit fall this year - with all other divisions showing positive growth.
Underlying broking profits fell 19.1% in 2018 to £105.8m. That reflects efforts by the group to stabilise policy numbers, after several years of decline, with a larger share of customers coming from lower-margin price comparison sites. Meanwhile the lower number of in-force polices reduced renewal volumes.
To address the challenges faced in the division Saga plans to refocus on its direct-to-consumer offering, offering differentiated products and services. As part of this Saga has launched a three year, fixed-price product and expects to increase marketing spend.
Saga's Underwriting business saw underlying profits rise 9.3% to £86.7m. That reflects another year of sizeable reserve releases, as claims remained low, particularly in personal injuries.
Underlying profits in the Travel business rose 2.4% to £21.2m. That reflects a good results in the Cruise business, as maintenance days fell compared to last year, and slight increase in Tour Operations as increased marketing spend largely offset higher revenues.
The emerging businesses category, which includes Personal Finance, Healthcare Services and Media, saw profits rise 288% to £3.1m. That follows the non-recurrence of a £2.2m impairment from the scrapping of Saga Investment Services last year.
Going forwards Saga intends to pay out 50% of earnings as a dividend.
Net debt fell by £40.7m in the year to £391.3m, or 1.7 times EBITDA (earnings before interest, tax, depreciation and amortisation).
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