Q2 2026 Saga PLC Earnings Call
Speaker #1: Morning, everybody. And welcome to Sauga's results for the 6 months ended 31st of July, 2026. A quick look at the agenda for this morning: I'm going to give you a short overview of the fantastic half that we've put in, and the progress we've been making.
Speaker #1: Before Mark then takes you through the financial performance in more detail, I'll then return to give you some more color on our individual businesses and the great progress we've been making across the group.
Speaker #1: So, look, we've put in another very strong half-year performance. And it's a performance built on a really clear strategy. We've created a simple resilient and customer-focused platform for growth.
Speaker #1: Our newly combined travel business is continuing to grow strongly. And you'll hear about the ongoing transformation we're delivering in our insurance business that is now also delivering consistent growth.
Speaker #1: Revenues and profits are growing strongly across the group. And in light of that performance, we've updated guidance for the full year and we now expect profits to end with a full year being between 65 million and 70 million pounds profit.
Speaker #1: Compared to 44 million pounds last year, that's an increase of over 50%. I'm really pleased to report that our leverage is also continuing to fall rapidly.
Speaker #1: Ending the half at 2.7 times compared to 3.7 times only in January. So with another strong year being delivered this year, we're now even more confident with regards to our medium-term targets, and therefore today I've announced that we expect to hit those medium-term targets earlier than the originally planned date, January 2030, and we'll talk more about that later.
Speaker #1: But let's now go into some of the drivers behind that strong performance. It's a performance consistent with our plans or with obvious acceleration. You can see all of our businesses are performing well.
Speaker #1: Particularly Ocean Cruise, which is particularly important given that is our largest profit driver in the group. But we're also focusing on product and proposition.
Speaker #1: We've launched a destinations in travel. We're taking holidays in China, and we've launched a range of UK hotel stays this year, including Christmas breaks later in the year.
Speaker #1: We're also focusing on wider brand building and engagement activities, and a little bit later you'll hear about the fantastic new podcast we launched earlier this year, and the great traffic that's driving to our websites.
Speaker #1: We've launched the NatWest Partnership this year, and that's started really well. We've already taken over 2 billion pounds worth of savings this year, and introduced 50,000 new savers to Sauga.
Speaker #1: So a really strong start and driving new customers into Sauga. Our simplification work hasn't stopped either. And we've announced a new technology partnership, SEC, that moves us to a modern IT group platform that is agile, efficient, and lower risk, creating a solid foundations for our operating environment as we move forward.
Speaker #1: So we're not just delivering a strong trading performance, but we're also building powerful foundations upon which to build future growth. And Mark will now take you through the financial performance in more detail.
Speaker #2: Thanks, Mike. And good morning, everybody. It's a pleasure to be here today to present such a strong set of results. As usual, I'll spend the next few minutes covering the detail of the financials before summarizing the outlook for the remainder of the year.
Speaker #2: Sauga delivered an exceptionally strong first half performance, driven by growth across all our core businesses. Underlying revenue increased 14% to 366 million. Reflecting growing and resilient customer demand in travel.
Speaker #2: And growth in both margins and policies in insurance. Trading EBITDA increased 35% to 90.9 million pounds, predominantly driven by growing per diems in Ocean Cruise and strong trading in insurance broking.
Speaker #2: This translated into underlying profit before tax of 46.6 million pounds, an increase of 98% when compared with the prior period. In statutory terms, profit before tax from continuing operations also improved significantly.
Speaker #2: Increasing from 3.7 million pounds to 28 million pounds, driven by lower exceptional costs as we move through the Aegis partnership implementation. You'll see we have moved to underlying available operating value.
Speaker #2: This excludes the upfront proceeds and working capital adjustments associated with the affinity partnership, and dividends paid by our insurance underwriting business before it left the group.
Speaker #2: The group continues to have a highly cash-generative business model with underlying available operating cash flow increasing 27% to 101 million pounds, this reflects growth in travel and insurance alongside reduced capital expenditure.
Speaker #2: We're also making great progress in deleveraging. Net debt reducing to 429.1 million pounds at the 31st of July 2026, 86 million pounds lower than at the same time a year ago, and 70.4 million pounds lower than the year-end.
Speaker #2: As a result, our leverage ratio improved 4.3 times to 2.7 times. I'll now focus on the underlying profit contribution from each of our business units.
Speaker #2: Our travel businesses continue to generate strong customer demand, delivering 60.3 million pounds of underlying PBT in the first half, a 45% increase on the prior year.
Speaker #2: Insurance also performed well in the first half with underlying PBT increasing 75% to 3.9 million pounds, this reflects higher home margins and lower operating costs following the move to a simpler operating model.
Speaker #2: Other businesses and central costs increased 34%, with a higher proportion of costs now remaining centrally following our insurance underwriting business leaving the group, and the ongoing transition to the new insurance model.
Speaker #2: Net finance costs remained broadly unchanged year on year at 20.6 million pounds, and as a result, underlying profit before tax increased 98% to 46.6 million pounds.
Speaker #2: I'll now take you through each of our core businesses in more detail, starting with Ocean Cruise. Ocean Cruise had another excellent start to the year, with underlying PBT increasing 38% as customer demand continues to grow.
Speaker #2: Underlying revenue grew 14% to 149.5 million pounds, driven by a 13% growth in per diems to 440 pounds, from 391 pounds. As a reminder, the increase in per diems was largely driven by less discounting, given the high demands we are seeing, and our unique price promise.
Speaker #2: Under which, the earlier you book, the less you pay, which encourages our customers to book early. Load factors remained strong at 92%, although this was 2 percentage points lower than the prior period due to a different mix of itineraries year on year.
Speaker #2: Marketing costs were broadly flat year on year, while operating expenses increased as we continued to invest in the proposition to support future growth. Finance costs reduced 13%, reflecting the continued repayment of the cruise debt facilities.
Speaker #2: Now looking ahead to the full year, the booked load factor is 91%, broadly in line with the same point last year, while the momentum in per diems remains strong with 11% growth.
Speaker #2: Forward bookings into 2027-2028 are strong, with the booked load factor and per diem both ahead of the prior year, by 3 percentage points and 11% respectfully.
Speaker #2: Now turning to River Cruise, in the first half of the year, River Cruise revenue increased 33% to 34.9 million pounds, this was driven by higher per diems and a 32% increase in capacity following the addition of Spirit of the Gazelle to the fleet in July 2025.
Speaker #2: Including the increase in capacity, the load factor remained strong at 92%, broadly in line with the prior year, the per diem increased 3% to 376 pounds, demonstrating continued strength of customer demand.
Speaker #2: As you'll know, across Europe, there are low-water river levels. This has not impacted our first half, and I will come back to this later when I cover the outlook.
Speaker #2: Marketing and administration expenses were broadly in line with the prior year, even with the significant growth in capacity and earnings, and as a result, underlying profit before tax increased 54% to 6 million pounds.
Speaker #2: Looking ahead to the full year, although the booked load factor is behind last year, this reflects the additional capacity following the Spirit of the Gazelle joining in July last year, and the disruption from lower river water levels in Europe, which we continue to manage.
Speaker #2: The booked per diems is 2% ahead at 357 pounds. Bookings for next year are strong and include the incremental capacity from our fourth purpose-built ship, the Spirit of the Lorelei, the booked load factor is behind the same point last year, but the per diem is 2% ahead.
Speaker #2: In our holidays business, revenue grew 9% to 97.7 million pounds, with passenger numbers increasing 6% to 29,400. The business saw limited impact from the conflict in the Middle East during the first half, with very few itineraries operating in the region.
Speaker #2: Marketing and administration expenses were broadly in line with the prior year, despite the growth in earnings. As a result, trading EBITDA increased 111% to 7.6 million pounds, while underlying profit before tax more than doubled to 6.6 million pounds.
Speaker #2: Looking ahead to the full year, bookings remain resilient, despite the ongoing disruption in the Middle East. Revenue and passenger numbers are broadly in line with the same point last year.
Speaker #2: Looking ahead to 2027-2028, bookings are currently behind the prior year, but this primarily is due to the later launch of the season. Turning now to insurance broking, where underlying profit before tax increased to 15.9 million pounds, from 9.1 in the prior period, and exceeded our expectations.
Speaker #2: The year-on-year improvement was primarily driven by strong margins in home insurance, together with lower operating costs as the benefits of the new business model begin to emerge.
Speaker #2: It's worth noting that the 10.5 million pounds contingent consideration from Aegeus had limited impact on the first half as the income will be received sorry, recognized over the future years of the partnership.
Speaker #2: The graph on the top right highlights the key drivers of the growth. The motor contribution before overheads increased 0.6 million pounds, with higher new business margins and growth in renewal policies partially offsetting lower new business policy sales.
Speaker #2: Home insurance was the largest contributor to profit growth, with the increase of 5.7 million pounds driven primarily by higher renewal margins. Private medical insurance was 2.5 million pounds lower than the prior year due to a prior year profit commission recognized in the prior periods.
Speaker #2: And travel insurance reduced by 0.8 million pounds as a result of increased investment in targeted marketing, which resulted in policy growth of 51%. Interest income was 1.4 million pounds higher than the prior year, just reflecting the return on the upfront consideration from the Aegeus partnership.
Speaker #2: Operating expenses have begun to reduce following the move to the new operating model, with the full benefit expected next year. And finally, alongside strong growth in profits, total policies enforce grew 5%, with continued growth from 3 out of our four product lines.
Speaker #2: Now moving to debt. Debt reduction continues to be a strategic priority for SAGA, and we are reducing it at pace. It was only 2.5 years ago that we had a leverage ratio of 5.4 times, and net debt of 637 million pounds.
Speaker #2: Today, net debt is 421 million pounds, a reduction of over 200 million pounds. And our leverage ratio has halved to 2.7 times. Looking at the first half, underlying available cash flow increased 27 million 27% to 101 million pounds, driven by stronger cash generation from travel and insurance, alongside reduced capital expenditure.
Speaker #2: Debt service costs increased reflecting a full six months of the new corporate facilities, and restructuring costs increased primarily due to the transition to the Aegeus partnership, alongside other project and property costs.
Speaker #2: So let's now turn to the full year outlook. The strong start to the year means our full year guidance has increased. We now expect group underlying profit before tax to be between 65 and 70 million pounds, compared with a consensus of 60.4.
Speaker #2: Net debt and leverage are expected to remain broadly flat, reflecting some one-off cash items and the seasonality of working capital. In ocean cruise, we expect the trend seen in the first half to continue, with the full year growth expected to be similar to that delivered in the first half.
Speaker #2: In river cruise, we expect full year underlying profit to be lower than last year, due to the impact of low river water levels and the usual seasonality within this business.
Speaker #2: In holidays, we expect earnings and passengers to be in line with last year, the second half includes our peak trading period, for which bookings earlier this year were impacted, as the Middle East conflict began.
Speaker #2: As a reminder, we're fully hedged against foreign exchange and commodity exposure through to December 2027, providing a good degree of visibility and certainty over our cost base.
Speaker #2: In insurance broking, underlying profit before tax is expected to be higher, than last year, albeit the second half to be broadly in line with last year, as a result of the first half benefiting from higher three-year fixed price margins and continued investment in motor and home pricing in the lead-up to the renewal policies going live with Aegeus.
Speaker #2: In other businesses and central costs, we expect the second half to be broadly similar to the first. Before I hand back to Mike, it's important to put the performance in the context of our medium-term targets.
Speaker #2: We laid these out at the start of last year, which were to achieve 100 million pounds of underlying profits by January 2030, with leverage of less than 2 times.
Speaker #2: This year will now be the second year of us consistently outperforming our expectations, and therefore, as I look forwards, and whilst mindful of the current geopolitical environments, we now expect to achieve our targets of before January 2030.
Speaker #2: We will, of course, provide a further update at our full year results early next year. And with that, I'll hand back to Mike.
Speaker #1: Thanks, Mark. It really has been a very strong first half performance. So let's now get into the drivers behind that performance. I wanted to start with a reminder that we have a very clear strategy.
Speaker #1: SAGA is a business built on our understanding of older people and the trust they have in our brand. Our strategic vision and our strategic principles are the foundations of that.
Speaker #1: Customer focus. Customers are at the heart of everything that we do. Our customers are different. And so we in turn are different to meet their differing needs and expectations.
Speaker #1: To do that, we have to understand our customers. We're an insight-driven business. With 75 years of experience and insight into this customer group, and we use that to drive every component of our business.
Speaker #1: Quality and value remains at the heart of everything that we do. And we have an unrivaled marketing reach into this demographic, but it's not just about that reach through our publishing business and our 9 million strong customer database.
Speaker #1: It's also about the experience that we have in knowing how to communicate and resonate with this different customer base. Critically, though, those principles long-enduring as they are, need actions and plans, and that's where our strategic priorities come in.
Speaker #1: And in a moment, I'll take you through how we're delivering on those strategic priorities, but before I do that, let's just talk about customer.
Speaker #1: SAGA really is uniquely positioned to serve this attractive and growing demographic. Over the next 20 years, over 50% of the UK population will fall into our target demographic.
Speaker #1: And fastest growing amongst them will be the over 65 age group, projected to grow by over 30%. SAGA customers are also more affluent, by 2040, 63% of every pound spent in the UK will be spent by people over 50.
Speaker #1: And they're also living longer. But not just living longer, they feel younger. And they're living more active retirements. The average SAGA customer feels 14 years younger than their chronological age.
Speaker #1: Gym memberships are rising. People over 75 are now still really active. And they're looking to enjoy their extended retirements. And travel is the thing they enjoy doing most.
Speaker #1: For SAGA customers, travel isn't a discretionary item. It's something they prioritize. They spend three times more than their younger generations but they have different needs and expectations.
Speaker #1: And better deliver on those than SAGA, having served this market for 75 years. So there's huge potential. And SAGA is a better place than many.
Speaker #1: But having a clear strategy is critical. And strategic priorities that turn those principles into actions and plans is the driver of our success. So let's now talk about those strategic priorities.
Speaker #1: There's nothing really new on this page. But I wanted to demonstrate how everything that we do is driven by our strategic priorities. We are maximizing the growth of our core businesses.
Speaker #1: We're driving new products and business lines you'll hear about pet insurance later, NatWest was a new product we launched earlier in the year. We're growing our customer base.
Speaker #1: You'll hear from our publishing business that's doing a great job of deepening the engagement we have with existing and new customers. And we're simplifying our operations and reducing our debt.
Speaker #1: So let's now talk about what's happening in our businesses. Starting with ocean cruise. The largest profit driver in the group and performing really well.
Speaker #1: We've been steadily increasing load factors over the past few years. And we expect to maintain that strong performance. As we go forward. With strong forward booking visibility, into next year, we can already see 55% load factors into next year upon last year, and 68% repeat rates with confident in the strong continue performance in load factors.
Speaker #1: And that will translate and is translating into continued per diem momentum. With more demand, people are booking earlier. And that means we're having to discount less to acquire customers onto our ships.
Speaker #1: So it's a more customer-friendly way of driving per diem growth than pure headline price increases. We're also operating in a market that is seeing general price inflation.
Speaker #1: So our relative value continues to compel well with our cruising peers. At SAGA, we're also continually investing in proposition, improving the quality of onboard experiences the number and quality of excursions premium drinks onboard and the quality of the food and drink experience.
Speaker #1: Some of you have been onboard the ship recently and will have experienced firsthand what a brilliant experience it is. Hopefully, you can understand why our customers love this proposition so much, and keep coming back for more.
Speaker #1: So we're confident that we will maintain the strong load factor performance, and see that continue to drive per diem per diem momentum for all the reasons that I've talked about.
Speaker #1: We're similarly confident about the outlook for our river cruise business. River cruise is a real opportunity for us. A newer smaller part of our group, but with lots of potential.
Speaker #1: There are two key drivers of growth in this business. Load factors now into the 80%, and continuing to grow, which will catch up towards the 90% that are more mature ocean cruise business now achieves.
Speaker #1: So we expect to see load factors continue to grow, but we're also adding additional capacity to service the clear demand that we see in this business.
Speaker #1: Last year, we launched our third Spirit class vessel, the Spirit of the Mazelle. We launched that in July. I was on that ship in August, and it was already full.
Speaker #1: Speaking to the strong demand for that product. Next year, we'll launch the Spirit of the Lorelei. The fourth of our Spirit class vessels. We've also given a lot of attention to the onboard experience and the quality of excursions.
Speaker #1: And you can see the combined impact of all of that in our customer satisfaction scores, and the turnaround in our TMPS that has gone from 15 only a few years ago up to 75 now.
Speaker #1: A really impressive turnaround, driven by our focus on customer. River levels have obviously disrupted this year, but variable water levels are a normal part of operating river cruises.
Speaker #1: And flexibility is key. I've been really pleased with how we've managed the disruption this year, continuing to sail throughout the summer. Our modern ships also cope well with differing water levels.
Speaker #1: And with variable with they draft in they draft better in lower water levels, but they also have technology that lowers bridge decks to cope with higher water levels.
Speaker #1: Whether it's more or less water, our ships are designed to cope well with those variable levels. Looking ahead then, this remains an attractive market for us, one that is clear demand from our customers for, and a market that's generally growing.
Speaker #1: And one that we see an opportunity in. And finally, in travel, let's have the qualities. And by holidays, I mean our touring holidays and our hotel stays.
Speaker #1: This is SAGA's heartland. And actually, it's how most people like to travel. In particular, older people. And we understand how older people like to travel.
Speaker #1: We've got huge experience in this, and we're using that experience to build our holiday experiences and propositions around the differing needs that we see for older people.
Speaker #1: They have more time available to them, and so tend to opt for longer duration holidays. And they typically travel outside of peak season. September and October are our busy period, unlike July and August for the mass market.
Speaker #1: They like to travel independently, but with the addition but appreciate the additional comfort and assurance that SAGA provides particularly when something goes wrong. We've been extending our list of destinations and particularly our range of special interest holidays indulging the passions and interests that we see older people like to enjoy.
Speaker #1: We've launched a series of UK breaks. And we see UK holidays as a particularly powerful addition to our no-fly holiday offers. But service is key.
Speaker #1: Seamless booking journeys show for driven car service, and a SAGA host resident at every hotel to help our customers enjoy their holiday to the most.
Speaker #1: These are the things that make us different. And you can see the difference in our customer satisfaction scores. Only a few years ago, our TMPS was 34.
Speaker #1: We're now up to 59. So again, a huge turnaround in customer satisfaction driven by our focus on our customers and how they like to travel.
Speaker #1: So our new line travel businesses are all performing really well and are well positioned. With ocean cruise, the standout performer. Now let's turn to insurance.
Speaker #1: You'll be well aware of the transformation that we're delivering in insurance. With our Aegeus partnership, we now no longer take any underwriting risk across the group.
Speaker #1: All of our insurance products are now delivered through partners. But it's not just a lower risk model. It's a model that significantly reduces the operational complexity in our insurance business.
Speaker #1: And actually, in our broader group. Our partnership strategy, brilliantly combines world-class insurance scale infrastructure and expertise with SAGA's five years of understanding and expertise in how to design and deliver products for older people.
Speaker #1: And we've seen an immediate benefit to the performance of our insurance business. After years of time, policy numbers are now growing again. Travel and PMI theoretically untouched by the home and motor Aegeus partnership have actually benefited from the greater focus that we're able to give those businesses.
Speaker #1: Now freed from the complexity of managing day-to-day complexity of scale home and motor insurance. And you'll see the massive turnaround in performance that we're delivering across PMI and travel.
Speaker #1: So it's having a halo effect across the whole of insurance and more broadly across the group. It's also giving us headroom to consider new products.
Speaker #1: And you'll see pet example is a great example of a new product that will be delivering now we've got the headroom to think about how we can help our customers in areas that we don't currently today.
Speaker #1: We'll launch that product later in the year. A less obvious transformation has also been taking place in our publishing business. I've tried to capture the multitude of ways that we engage with our customers through our various publishing channels.
Speaker #1: Most of which didn't exist even three years ago when we were fundamentally a print magazine operation. Importantly, this is all about building engagement, brand engagement, and driving traffic into our businesses.
Speaker #1: But look, a PowerPoint slide is half to get hard to get excited about. So let me show you a video clip that I think brings this to life better than I can.
Speaker #1: I think maybe we'll have our publishing team do our city presentations going forward might live and things up a bit. But seriously, what an amazing job the publishing team have been doing.
Speaker #1: And I think that does a great job of bringing that to life. But let's be clear, this isn't just a fantastic publishing business. It's a powerful brand and engagement tool.
Speaker #1: And it's growing. Last year, we drove 17 million visits to our website. That was up 39% year on year. But we're also focused on converting that traffic into onward traffic into our business units.
Speaker #1: And we drove 1.9 million visits onto our business websites and that was up 77% year on year. Our award-winning magazine and you've got copies in the room with you.
Speaker #1: Some of you in the demographic, others not so much. But that's now got a readership of 390,000 people. It's a really powerful tool for us and a shop window for our business.
Speaker #1: 2.8 million customers now regularly engage with all of our publishing content. It's a key source of insight. And it's a particularly powerful tool when it comes to the increased importance that our wider publishing business has for AI visibility.
Speaker #1: It extends our reach well beyond traditional direct channels. Through mainstream and social media pickup. And on the right-hand side, you can see the latest example of the work the team have been doing with our fantastic new podcast, Lorraine Kelly is our new podcast host.
Speaker #1: A fantastic launch now reaching over 15 million views since we started in January. So before I wrap up on the next slide, I just wanted to pause on our medium-term targets again.
Speaker #1: The targets we laid out in April last year. We said we were confident of achieving 100 million pound profit and two times leverage by January 2030.
Speaker #1: Since then, we've been consistently outperforming that trajectory. And we expect to continue to outperform. As we approach two years in of our five-year turnaround plan, we're now confident that we will achieve those targets earlier than the originally intended date of January 2030.
Speaker #1: And we'll update you more about that in the full year. And so to conclude, we've had a really strong half across all of our businesses.
Speaker #1: Our strategic transformation is progressing well. We're increasing our full-year guidance. We expect to hit our medium-term targets early. And so all round, it's a very strong performance and one all of myself should be extremely proud of.
Speaker #1: We'll now move to questions starting with people in the room before we take any online.
Speaker #2: Good morning. It's Hilaire from Singer Capital Markets. Congratulations on an excellent set of numbers. And a very useful presentation. I've got a few questions.
Speaker #2: I'll kick off with River Cruise. Given what's happened this year and what's happening to climate change, how are you thinking about contingency plans or how things may play out going forward if sort of lower ever levels is likely to be more normal going forward?
Speaker #2: I'll add to that is are you thinking about diversifying your River Cruise itinerary beyond Europe at this moment?
Speaker #1: Yeah, look, all really good points. Firstly, I've been really pleased with the way we've handled the disruption this year. So we've managed to sail throughout the summer.
Speaker #1: We've got modern ships that cope, as I said, with varying water levels very well actually. But we're also very adept in managing the year-on-year changes in itineraries that are required around river levels.
Speaker #1: So our modern ships draft in lower water levels and cope with higher water levels very well. We manage the itineraries very flexibly. We've been doing that this year.
Speaker #1: And as we go forward, you're absolutely right. That we will look at new rivers. Importantly, we're not just on the Rhine and the Danube this year.
Speaker #1: That's where the disruption has been. We've actually seen customers switching across to the Douro and joining cruises on the Douro this year that are not interrupted.
Speaker #1: So diversification into new rivers is something that's on the horizon. But actually, river volatility is nothing new. And it's something that we manage very well.
Speaker #1: And have managed through this year.
Speaker #2: Thank you. Just moving on to holidays. Notwithstanding the ebbs and flows of this year, it's a fantastic business. You made a lot of progress over the last two years or so.
Speaker #2: It's niche. There's a degree of fragmentation in that end of the market. How should we be thinking about growth, particularly from a consolidation and an M&A point of view?
Speaker #2: Is that something that's something you would consider?
Speaker #1: Yeah, it's not a major part of our thinking. Look, my view on holidays is we've only just got started. So. It takes a while to turn around a proposition in the way that we're doing.
Speaker #1: Targeting it for our customer demographics. So having consolidated our travel business under one leadership, Nigel's in the room today, we're now starting to accentuate the saga differences through special interest holidays and the differences you'd expect on a saga holiday.
Speaker #1: Therefore, this year is the first year where those changes actually will be experienced by customers because the changes we made last year will be delivered this year.
Speaker #1: So now we're in the process of building that out into next year. So you should expect organic growth through our holidays business. What's really important, if you think about cruising, cruising is a really important business for us and ocean cruise is the lion's share of our travel profits.
Speaker #1: So it does provide an important underpin. But actually, in terms of passenger numbers, most people choose to go on holiday not on a cruise or the type of holidays we offer in our holidays.
Speaker #1: So there is a huge opportunity for us to grow from the 60,000 very small base that we take on holiday in way. In the future, and we'll do that by curating our experiences to resonate with older people.
Speaker #1: And we're seeing, as you've seen, customer satisfaction the changes we're making are resonating and that's what we're build on in future years, special interest is a great example how that really does play to our strengths in terms of understanding older people and delivering a very different experience for our customers.
Speaker #2: Just two quick ones for Mark. Slide 11. Mark, I noticed PMI and travel are good sort of momentum in terms of new memberships. So in terms of new policies, I noticed there's still us making.
Speaker #2: How should we be thinking about that going forward?
Speaker #1: So I don't think they are loss-making. That's the variance versus the prior periods. So both the products make a positive contribution to the business.
Speaker #2: And why variance?
Speaker #1: So I think I covered PMI. So PMI is there was a two and a half million pound profit share in the prior period. So excluding that, it would be flat.
Speaker #1: And travel is a reflection of the fact that we're investing in that product. And you can see that investment paying back through the policy growth of 51%.
Speaker #2: Okay. One final one.
Speaker #1: Sorry, I'll just on that. If you strip out the commission share in PMI, I think an important point is although they are broadly flat year on year, you'll see the policy numbers are growing because we've been investing in future growth there as well.
Speaker #1: That's an important point.
Speaker #2: Okay, thanks. Just one final one from me. We've been through a period of quite a bit of restructuring costs, both our P&L and the cash flow level.
Speaker #2: Are we nearing the end of the exceptionals?
Speaker #1: Yeah, so look, the exceptionals are primarily related to the Aegean market implementation. So we have done a lot of the heavy lifting this year.
Speaker #1: The renewals book is sort of due to go live towards the end of this financial year. And then there'll be a 12-month across to Aegeus.
Speaker #1: I would expect exceptionals to be present next year, as we continue that project and the migration. But they should be lower. And therefore, they then should step down the year after as we move into a more steady state.
Speaker #2: Okay. Morning. Jack Cummings here.
Speaker #3: First question is on the guidance bridge. When you're thinking about that kind of 65 to 70 million level, what are the building blocks that get you to the bottom end?
Speaker #3: And what are the building blocks that get you to the top end? Is it low water levels? Is it the least impact? Or how should we think about the bottom and the top end of the range?
Speaker #1: I'll kick off and Mark, you can tell me if you want to add anything in terms of numbers. But I think it's a pretty straightforward story.
Speaker #1: If you look at the very strong first half performance, and then you look at the second half, to the extent there is any impact to the Middle East in holidays, it will land in September, October, for us.
Speaker #1: And therefore, that's going to be a second half impact. And our river cruise business, again, to the extent there's disruption, that will typically impact the second half rather than the first half.
Speaker #1: That combined with some phasing differences in insurance will mean that overall, if you take that first half performance, and significant growth year on year, and then expect the second half to trade more in line with last year, allowing for those phasing differences, then you'll get to the bottom end of that range.
Speaker #1: That's roughly how to look at it. Is there anything you want to add to that, Mark?
Speaker #3: No, other probably to ocean underpins the number. So I think the performance of ocean gives us confidence certainly at the bottom end of the range.
Speaker #3: And then as Michael said, there's various factors around that sort of H1 splits. But sort of I think it's the ocean underpin that gives us confidence.
Speaker #3: Okay, perfect. My second question is on the mid-term outlook slide. You were saying you're outperforming in pretty much all of the different divisions with the exception of river cruise and holidays.
Speaker #3: If we had an experience the lower levels of water in the Middle East impact, would those two divisions have been outperforming your expectations compared to where we were 12 months ago?
Speaker #1: Yeah, look, you'll see that we've said that we're on track in holidays and river. In a year where there's been unprecedented water level issues in river and a Middle East war.
Speaker #1: So to be on track despite that means we're doing pretty well. And therefore, absent that, we would have been ahead.
Speaker #3: Perfect. My final question is just on leverage. Obviously, a huge amount of leveraging over the past 12 to 18 months. 2.7 times. So kind of within touching distance of that two times that you've talked to in the midterm.
Speaker #3: When you're thinking about capital allocation here and the best use of cash, how do you weigh up the differences between investing in the asset-like businesses, the river cruise, the holidays business, potentially a new ocean cruise ship, or shareholder returns in the form of buyback?
Speaker #1: Yeah, it's a pretty simple equation right now. We said we'd laid out those targets to get to two times leverage and 100 million pound profit.
Speaker #1: And that is what's driving our decisions right now. So as we get closer towards that two times, then the question will open up as to you haven't asked it explicitly yet, but when will we switch on dividends and when's a third ship going to arrive?
Speaker #1: My answer to that right now is that it's too early to start talking about those things right now. We're focused on getting to that two times and that 100 million target.
Speaker #1: As we get closer, then we can start to talk about capital allocation in terms of a third ship. Look, there's a significant timeframe associated with any third ship.
Speaker #1: If and when we get to that decision further down the line. So you should look at a third ship as not touching any of our numbers within the timeframes we're talking about because the cash flows and the time of any ship would beyond the timeframe of these plans anyway.
Speaker #3: Thank you.
Speaker #1: Thanks for your patience, Tim.
Speaker #2: No worries. And Tim from Deutsch and you, a couple of questions on ocean cruise, please. One number that stands out, we haven't really talked about, is the 8% decrease in operating costs.
Speaker #2: This has been obviously been a big positive. You talk about what's driven that and outlook for 2027, 2028 financial year. And then obviously 11% per diem growth in the forward year is great, presuming that tells us a lot about your views of pricing power.
Speaker #2: Be interested in those points.
Speaker #1: Perhaps I'll take per diem so that Mark you can talk about operating costs in a second. Look, I touched on it in the presentation.
Speaker #1: But before I go to per diems, I think it's probably worth just looking forward into next year to just give some confidence in terms of the outlook actually, because we've got 55% load factors going into next year now.
Speaker #1: And very strong per diem growth going into next year. So as the largest profit driver in the group, I think that's a really solid starting point before we then talk about other businesses.
Speaker #1: The drivers of that, you'll be well aware of the load factor performance that we've been driving. And that's very relevant when it then comes to the per diem drivers because I see there being three components to per diem growth.
Speaker #1: Firstly, the level of load factor and frankly, the excess demand that now starts to emerge creates a very strong supply and demand dynamic. Customers are booking earlier and therefore we have to discount less to acquire the next customer.
Speaker #1: Therefore, that's a natural providing natural lift to per diems. It's also in an environment where our competitors are raising their prices so value is holding up really well.
Speaker #1: We're also improving continually the quality of the experience on board and the excursions onshore. And that's adding more value and supports the general momentum we're seeing in per diem.
Speaker #1: So it's a more customer-friendly way of driving per diem growth. And the end product for me is in the customer satisfaction levels, which remain really high.
Speaker #1: And you can see demand into next year remaining strong as a result of that.
Speaker #3: Tim, just on the operating expenses, which are you looking at? Are you talking about the ship operating costs or the I'm not sure where I see an 8% reduction?
Speaker #2: Sorry, just the margin increase more than the margin was up more than I thought.
Speaker #1: Yeah, so look, I talked to the margins. So I think what we've got is a strong pricing dynamic where we are clearly we've got load factors and per diems, sort of growing driving revenue.
Speaker #1: And the cost of operating the ship is sort of largely fixed. We continue to invest in the proposition. And so not all of the incremental revenue will drop to the bottom line as the team invest in that proposition and make sure that we maintain the high level of repeat rates and the high level of NPS that we have on board the ships.
Speaker #1: I'm sure Nigel can talk about what the sort of proposition changes are that he's sort of investing in. But that's the step up in the cost base, but we would see the revenue step up to be higher than that step up in the cost base.
Speaker #1: And therefore, the margin should improve.
Speaker #2: And just one last one, if I may. The insurance business is not an area where I think many of us in the room are experts.
Speaker #2: And so the margin outlook for that would be really interesting. Just it's a bit harder to model. So any thoughts?
Speaker #1: Yeah, look, I think the we're deliberately not guiding on the competitive parts of insurance for two reasons. One is actually with a very different model being adopted we're now changing our revenues and our cost base by virtue of that partnership.
Speaker #1: So if we'll be guiding to the profit outlook as opposed to the costs and revenues and margin guidance. But in that respect, what you should be paying attention to is the improvements in policy numbers.
Speaker #1: Because for me, the business model shows that it's working when you look at the strengths coming through in our policy numbers, not just in the partnership itself, we're seeing policy growth, but we're also seeing profit performance being driven through the partnership.
Speaker #1: But we're also seeing a huge benefit through the wider insurance business with growth in travel insurance and PMI, and it's easy to think that separate, but actually that business is directly benefiting from the management being able to now focus on customer across all of our products.
Speaker #1: And drive growth across the business rather than spending 90% of their time grappling with complexity of what is necessarily a complex insurance business. So it's absolutely fantastic to spend time all day, every day now thinking about customer.
Speaker #1: And you can see that in insurance performance. So I'd focus on profit rather than the individual component parts. Mark, do you want to give any clearer guidance on the profit trajectory?
Speaker #3: originally signed the agreement, we said in the first full year of the partnership, it was going to make 14 and a half million pounds or at least 14 and a half million pounds, which was the profit the business made the year before we signed.
Speaker #3: So you can see from the numbers, we are out achieving that guidance based on the trading in the business today. So I think the start point has changed.
Speaker #3: The growth trajectory is still the same, but we've clearly got a higher starting point. But Mike is right. The simplicity of that business model will come through in the simplicity of the P&L as well.
Speaker #3: So our revenue will change from a highly volatile number to one that is driven as commission, i.e., a percentage of premiums that customers pay.
Speaker #3: And there will be a lot of cost base associated with that as well. So operating model sort of plays through into a less volatile, simpler P&L as well.
Speaker #2: Thank you, both.
Speaker #1: Any other questions in the room? Where's Emily? Do we have questions online? Perfect. Well, look, just to wrap up, really pleased with the performance we put in the first half of this year.
Speaker #1: I wouldn't underestimate the drivers of that and the importance of the strategic turnaround we're delivering that's unpinning that performance. And gives us great confidence as we go into the rest of this year and beyond.
Speaker #1: So thanks for listening. Cheerio.
