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Saga shares fall after profit warning

Saga Plc shares fell by more than 20% after it lowered its profit forecast.

The company said it expects group underlying pretax profit to grow by just 1% to 2% for the year ending Jan. 31, 2018, driven by more challenging trading in insurance broking and the collapse of Monarch Airlines, which impacted its tour operations business and caused a one-off cost of approximately £2 million.

The written profit of its retail broking business for the full year is expected to be ahead year over year. However, the strong performance in motor was partially offset by a challenging trading environment in home and travel insurance. As a result, profit for its retail broking business is expected to be marginally lower than the previous year due to a lower written to earned benefit.

Following a review of its operating structure, Saga said it expects about £10 million of annualized savings next year. It expects to book a one-off cost of roughly £4 million relating to the changes, excluding from its underlying pretax profit. The company also plans to increase its annual customer acquisition spend by £10 million next year.

The company said it expects an increase in profit from its broking and travel businesses next year, including the approximately £10 million of annualized savings. However, a lower level of written to earned benefit, a decline in reserve releases, and its additional £10 million investment into customer acquisition are expected to push underlying pretax profit down by 5% next year compared to the current one.

The company stressed that it remains on track to achieve its goal of increasing pretax profit at its travel segment by four to five times by the year ended Jan. 31, 2022.

Dividend for the current year is expected to be in line with expectation.

"We are confident that the actions taken will ultimately see a better quality of earnings and profit growth across the business, supporting our progressive dividend policy for the benefit of our shareholders," CEO Lance Batchelor said.