Good morning, everybody, and welcome to Saga's half year results presentation for the period ending July 31st, 2023. This morning, we'll cover the key business highlights and the financial summary for the six months. In addition, we will give you a short update on our work on data and lifetime value modeling, which is the key underpin for our strategy. As such, I'm joined by our Group CFO, James Quin, and our Chief Data Officer, Mike O'Donohue. I'll cover the highlights of the first half, James will run through the financials, and I will then update on the performance within our core businesses, and Mike will take you through the progress on data. Then we will open up to take your questions. We've also announced today that after almost five years, James is moving on from Saga to pursue a portfolio career.
I'd like to thank James for everything he's done for the business. He's been a brilliant CFO, a strong leader, and a fantastic colleague. Thank you, James, and I wish you well for the future. Moving on to the overview of the first half and to the headline outlook for the full year. Underlying PBT for the first half is broadly flat year-on-year when looked at with a consistent accounting treatment. As we look to the second half, we have confidence that we will deliver significant double-digit growth in revenue and underlying profits for the full year, and well ahead of market estimates. This is led by strong cruise growth, with PBT cash flow, load factors, per diems, and customer net promoter scores all significantly ahead of prior year.
River Cruise came back into profit in the first half, and Travel is on track to follow suit by full year as planned. In Travel, we're seeing increased demand and improved NPS scores, with significant innovation and improved quality driving higher average selling prices. Saga Money has also added new product innovation, launched this month and is set for exciting growth ahead. Our savings product has benefited from the interest rates hike, while our equity release business has slowed, but not to the extent of the wider market, increasing our market share. Media has also had a strong first half. In Insurance, Home, Travel, and PMI are still performing well, but motor performance has dampened earnings, along with many others in the market, resulting in a GBP 68 million write-down of goodwill to reflect future earnings projections.
I want to give you a quick update on the sale of AICL, our underwriter. As you know, we ran a process, and we were very close to agreeing a transaction. We have concluded that, for now at least, it is right to retain that asset. However, we will reevaluate our options as the landscape evolves, and there is the potential for generating greater value for, for shareholders. In the meantime, we will draw down on the unsecured loan provided by our chairman, which has been increased by GBP 35 million to GBP 85 million, reflecting his support and belief in the business going forward. To further increase the group's financial flexibility, we have and will continue to take actions on costs, which include lowering our central cost base by at least GBP 15 million per annum and the rephasing of some investments in our newer businesses.
This focus on cost is a further step in streamlining our business, making the center lean and empowering our business units. This lower cost will benefit H2 of this financial year, as well as ongoing into 2024 and 2025. Net debt has fallen to GBP 657 million, GBP 54 million lower than at January 2023, and we have GBP 180 million of available cash at half year. We are also reconfirming our commitments to repay the 2024 bond from available cash in May next year. As we look ahead to the full year, we are confident in delivery of the significant double-digit profit growth that we set out to achieve this year, which is also well above current consensus. In more detail on our core business units.
Ocean Cruise continues to go from strength to strength, with an 83% load factor for the first half of the year and a per diem of GBP 333, while River Cruise is in a similar position with a load factor of 83% and per diems of GBP 296, and has returned to profitability in the half. This business has also seen revenue grow by more than 40% and the guest numbers increased by 34% in the first half. Travel also continues to show strong growth, led by touring and a revitalized stays program. Revenue in the first half reached GBP 70 million, up from GBP 44 million last year, with passengers increasing to 26,000.
Innovation has won customer interest and bookings, demonstrated by the first private jet tour departing from Stansted a couple of weeks ago, alongside the launch of our Titan touring range of products in Australia. Saga Money, building on savings and equity release, has recently launched two new products, with two more to launch in the coming months, and is achieving sector-leading net promoter scores of 72. Finally, insurance broking remains a core part of the Saga Group, with 1.6 million policies and strong performance in Home, Travel, and PMI, offset by declines in motor, meaning that we have seen an overall 6% decline in policies in the half. Motor and home margins have been under pressure at GBP 56 per policy, while retention remains strong at 84%, one percentage point higher than the previous year.
We're taking action to mitigate the pressure on earnings by realizing a series of efficiencies across insurance, reducing overall operating expenses by GBP 5 million-GBP 10 million per year. I'll now hand over to James to cover the financial detail of the first half of the year. James?
Thank you, Euan, and good morning. As you mentioned, we announced this morning that I've decided to move on from Saga. I'd just like to take the opportunity to say it's been a pleasure working with you and the team, and over the last five years, and I've also appreciated all the interactions that I've had with our investors, with analysts, with our banks, some who are here today, and all the other stakeholders as well over that time. So thank you. I'm gonna spend a few minutes providing an overview of our results and on the outlook for the second half. Group revenues increased by 15% on the prior period due to growth in Travel and Cruise, with performance here now clearly back to normal after three COVID-impacted years.
Underlying profit before tax was largely unchanged under IFRS 4 and was around GBP 6.5 million lower under the new insurance accounting standard, IFRS 17. I'll come back to the precise factors leading to lower IFRS 17 profits, but this doesn't change how we view the economics of the business, and over the medium term, we would not expect IFRS 17 to make a material difference to our results. Although we reported an underlying profit, there are certain below-the-line items, of which the most significant is a further insurance goodwill write-off of GBP 68 million, which led to us reporting an overall loss of GBP 78 million in the first half. Cash flow, however, is a very clear bright spot, especially for Cruise and T ravel, where we generated a combined GBP 73 million in positive operating cash before interest costs and repayments of the ship debt.
While there are some one-off positives in first-half cash, this has enabled us to reduce net debt by GBP 54 million from the position at 31st of January , 2023, which is ahead of expectations. This illustrates an important point, which is, despite the challenges of recent years, the business continues to generate healthy, free cash flow. On the next slide, I set out underlying profit before tax by business unit. At the time of our full-year results in April, we indicated that we were expecting to see a much stronger performance from Cruise and Travel, but with pressures on the insurance business. This has very much been the story of the first half. The GBP 11.6 million loss from Cruise and Travel reversed in the first half of this year to a profit of GBP 11.8 million.
Insurance broking has, however, been under pressure from the effects of very sharp motor claims inflation, with panel pricing moving up more quickly than consumer pricing. These same inflation pressures are also evident in the results of insurance underwriting. Other businesses reported a small loss due to investment in new initiatives, and central costs reduced due to a combination of actions to reduce the property footprint and higher income on the Group's cash deposits. As Euan has mentioned, while underlying profit of GBP 8 million was below the level of the prior year, we expect the full-year outcome to show significantly higher earnings, with much higher profits in the second half. I'll return to the reasons for this shortly, starting with an update on Ocean Cruise. While the first half of last year was a difficult operating environment for the cruise business, we are now fully back in business.
Revenues increased by 37% due to a combination of higher per diems and a 17-point increase in the load factor. As I've mentioned before, the cruise business has a lot of inbuilt operating leverage, and small changes in load factor have a significant impact on profit and cash flows. This helped the business move from a GBP 7 million loss to a GBP 13 million profit. We're also well on track to exceed our target of GBP 80 million EBITDA before administration costs, with a full-year load factor of more than 85%, well above the threshold we set for this year of at least 80%. This points to a second-half load factor of more than 87%, relative to 83% in the first half, which is part of the seasonal effect in earnings I just referred to.
Bookings for next year are also in excellent shape, with revenues 23% ahead of the prior year comparative. On the next slide, I set out the results of River Cruise. Revenue for River Cruise increased by 42%, as this business also returned to normal trading conditions, supported by the significant enhancements we have made to the quality of the service on offer. Despite a step up in marketing costs and support to the business, rivers returned to profit in the first half. As with Ocean Cruise, the outlook for next year is positive, with booked revenues 40% ahead of the prior year comparative. There is a lot of untapped potential here, and we will continue to grow our small but modern fleet of high-quality river cruise vessels. On the next slide, I set out the results of the travel business.
Travel revenues increased by 58% and gross profit increased by 79%, but the travel business reported a small underlying loss in the first half after allowing for higher marketing costs and overhead expenses. This is in line with indications we provided in the June trading statement. We're very confident we will return to profit for the full year, with around 60% of revenue weighted to the second half. Across Rivers and Travel combined, we expect to at least achieve pre-pandemic levels of profitability and with significant potential to grow revenues and profits from current year levels. I will now turn to the insurance broking business, and I show the year-on-year movement in written profit before tax on the next slide. This has been an exceptionally challenging period for the insurance business, with written broking profit before tax reducing by 50% from the prior period.
While this is slightly below expectations, it is consistent with comments I made in April that we expected to see a material reduction in profit before tax for the broking business in the current year. The issues here are largely concentrated on the motor book, where we have seen a very significant level of inflation in the net rates charged by panel insurers. Well ahead of the price we can realistically pass on to the consumer in a competitive market. This is also accentuated by the fact that just over 40% of our motor book is on a fixed price deal, where the price is set for two further renewals. While we have been able to hold motor new business margins, inflation pressures have squeezed renewal margins, with the motor renewal contribution reducing by GBP 16 million compared to the first half of last year.
The three-year challenge is, however, a relatively short-term one, as well as a cohort of business that was priced pre the inflation spike that is particularly weighing on margins. Roughly a third of these policies will be repriced in 2024, and all of them will have been repriced by the end of 2025. The impact will, however, still become considerably less over this period, as policies priced post-inflation become a greater proportion of the book, so this issue will be addressed within two years. Clearly, when we started writing three-year policies, we were well aware of the inflation risks inherent in the policy. We put some protection against this downside in the form of an inflation stop-loss policy, and this provides a cushion of up to GBP 8 million for retail broking, with 50% of this risk retained by AICL.
We also continue to view three-year as a core product, given that it resonates very well with our customer base, but we are also building greater inflation contingency into pricing, given recent experience. Outside of motor, the profitability of the home book held up well, and although our average home and motor margin per policy of GBP 56 is slightly below the GBP 60 target, that is understandable in the context of current market pressures. PMI and Travel results were also positive, with written profit across these two products around GBP 2 million ahead of the prior period. Overall, therefore, it is important to separate out the challenge is in broking.
Most margins need to improve, but we remain positive on the outlook for our other broking products. I will now turn to the insurance underwriting business, starting with analysis of the impact of IFRS 17 on our first half results.
This is the first time we've reported under IFRS 17, and while it does not change how we think about the economics of the business, it does introduce greater complexity and volatility into our reporting. The slide breaks down the impact that IFRS 17 has had on the first half underlying and reported PBT, as well as for the restated prior period. In terms of underlying PBT, the adoption of IFRS 17 reduced the first half results by GBP 5.4 million. There are multiple technical factors behind this, but the most significant is the requirement to discount AICL's quota share reinsurance recovery, which had a roughly GBP 4 million negative impact in the current period, given the significant increase in that recovery in the first half. Under IFRS 4, the quota share recovery was booked on an undiscounted basis.
There are also several items that we've shown outside of underlying PBT, because these are volatile items, which over time will likely net out to zero. We'll be having a three-hour IFRS 17 masterclass session shortly after this for anyone who's interested. We expect some of the adverse movements in the first half to partially reverse over the rest of the year, and over the medium term, we would expect results under IFRS 17. The key influences on AICL's results were a significantly higher loss ratio in the first half of the current year, which led to the gross combined ratio increasing from 113% to 136%. From 136% booked for this year includes the benefit of discounting claims liabilities at a much higher rate than in the preceding period, which is due to increasing bond yields.
This was partially cushioned in the current period by the benefits of quota share and other reinsurance recoveries, compared to a net reinsurance cost in the prior period. On a net basis, the current year combined ratio for the first half was 125%, which is 8 points higher than in the first half of last year. The higher net current year combined ratio reduced earnings by around GBP 5 million. The other main factor reducing our, benefit in both years, as expected, we've had lower positive prior emergence in the current period, and this reduced earnings by GBP 10 million relative to the first half of, and changes relating to discount and future inflation assumptions on PPOs. These are the key moving parts of AICL's underlying PBT under IFRS 17.
In terms of future expectations, we expect to see a significant improvement in the current year results in the second half of this year, as rate increases become a more prominent component of insurance revenue. Once we see the full benefit of these rate increases, more detail on costs. Marketing costs, excluding the written to earned accounting adjustment, were GBP 4 million higher in the first half, all due to investment increase in Travel, which is only partially offset by lower insurance marketing costs due to reduction in new business sales. Admin costs increased by around GBP 10 million, in line with indications we provided this, particularly as we return to full service in Travel. Some relates to the impact of inflation on underlying costs. An element also relates to new investment in areas such as media and money.
We've continued to improve efficiency in relation to central costs, and the GBP 4.5 million reduction here, in part, relates to the rationalization of the property portfolio, and in particular, the closure of, given the Group's high cash balance. We've now launched a further initiative to reduce central costs and devolve, including a rephasing of some of the investments in business units. On the next slide, I set out the change in net debt over the course of last year. A broking results unexpected GBP 8 million reduction in AICL dividends. Cruise and Travel cash was, however, significantly up on the prior period, with operating cash generation of GBP 73 million in the first half, compared to around zero in the first half of last year. This is due to a much improved trading performance, plus also some one-off and seasonal impacts.
The main one-off factor is the move from full trust. This is a one-time effect, and we expect a small cash injection back into Travel in the second half. Benefited from a GBP 19 million increase in advanced customer receipts, which reverses the dip that we saw in the second half of last year. In aggregate, we reduced net debt by 50 trajectory on the next slide.
As you can see from this chart, we expect operating cash generation to enable a continued reduction in net debt in all our core planning scenarios, including in a prudent downside for the travel insurance businesses. This captures a more cautious outlook for insurance cash flows, balanced by reduced expenses relating to both the central cost initiatives, plus also plan efficiency initiatives within insurance broking. This also includes an assumed drawdown of the increased GBP 85 million facility with Roger De Haan.
While that does not, in itself, change net debt, we do include the interest in fees in the chart on the right. Reflecting some of the positive one-off effects in Travel and Cruise, we expect net debt at 31st of January 2024 to be slightly higher than the 31st of July 2023, but to be still materially lower than the beginning of the year. Overall expectations for net debt are largely unchanged from what we showed you in April. We currently have a very significant level of cash, and we now have further liquidity facilities of GBP 135 million, GBP 85 million from Roger De Haan and GBP 50 million from the AICL. This gives us a very high level of confidence that the GBP 150 million pound of bonds due next May will be repaid from cash.
Alongside our ongoing payments, 25, which puts the company in a very secure position. On my last slide, I set out a summary of our view on the outlook for the rest of this year. The case under both IFRS 4 and IFRS 17, accounting for the insurance business. We're very confident that Ocean and Cruise will achieve the GBP 40 million EBITDA target per ship. Underlying PBT than we achieved pre-pandemic. By improved central expenses. With the actions we are taking now, evident in reduced second half costs, ahead of a full run rate improvement of at least GBP 15 million in next year's results. While we expect to draw down on the RDH loan, our goal would be to keep the.
Firstly, taking Ocean Cruise. The performance, 12 percentage points higher than a year ago, with per diem at GBP 332, meaning we're well on track, as James has said, to exceed the GBP 40 million EBITDA per ship we committed to previously. Guest feedback is also consistently high, with NPS now at 82, and the mix of guests is healthy, with almost 40% first-time buyers. We are also well ahead of plan for 2024, 2025, with 49% load factor and per diems of GBP 359, 10% ahead year-on-year. For River Cruise, the position is equally positive, with the booked load factor at 85% and per diems of GBP 285, while the first-time buyer metric is strong at 55%. Guest satisfaction is rising fast, with an NPS of 57, and we've returned to profit.
Looking ahead to 2024, 2025, the load factor is tracking well at 30% and revenue is up 40%, with guest numbers up 31% on this year. Moving on to Travel, this is not a growth story, with touring leading the way and a resurgent stays business. For FY 2023, 2024, booked revenue of GBP 156 million so far is up 46%, with passenger numbers up 27% and still booking as our lates program has been a particular success post-pandemic. For FY 2024, 2025, the early signs look strong, too, with revenue already up 15% on this year and passenger numbers up, too. What is critical here is that the selling price and margins have been completely overhauled, delivering a more robust P&L for the Saga Travel Group.
Costs have been streamlined, with outsourcing and offshoring having been completed in the first half of this year. Our first private jet touring product departed a couple of weeks ago, and each tour is significant in margin terms, with a further three departures planned for 2024, 2025. The team have branched out into Australia with our touring offer and expanded our stays business with new winter 2024, 2025 product having been launched. We're confident this business will return to sustainable profit this year and is then set for more double-digit growth. Insurance broking continues to represent a significant proportion of our earnings in the Group, with a greater proportion coming from home, PMI, and Travel. Our new partnership with Bupa is significant and opens up digital health and wellbeing opportunities for our customers, as well as growth opportunities in our core product lines.
Motor and home retention remains high at 84%, but we've seen margins and policies fall in the first half. To offset this impact, the team have achieved efficiency savings, and as I outlined, we are committed to withdrawing from insurance underwriting when the market conditions support greater value creation. Finally, on Saga Money and savings, we have GBP 3.2 billion of assets under management, which is near the maximum under the current ring fence, but we are expecting that to increase in quarter one, 2024-2025. We've secured a new savings partner, Flagstone, and launched fixed-term savings products with them this month, with a planned total balance growth up to GBP 8 billion by 2027-2028. Equity release has seen a challenging market this half, and while we've increased our market share significantly, we expect to see continued pressure for the next 12 months in this market.
In other new product development, we've teamed up with Co-op to offer our customers a range of legal services, including wills, probates, and lasting power of attorney, all wrapped into a new website launching next month. Looking ahead, we have a healthy pipeline of new product development in Saga Money, with investment ISAs launching in October, later life mortgages launching in November, and more coming in 2024, including retirement planning, life insurance, and intergenerational lending. I'll now hand over to Mike to take you through our customer lifetime value plans. Mike?
Thanks, Euan. At the capital markets event in January, I shared our ambition and plans to create a data-driven approach to maximize lifetime value. Today, I want to update you on the progress and outline how we see this ramping up over the next 12-24 months. The size of the opportunity is well known to many of you. 26 million adults over 50 million in the U.K. Roughly half are retired and roughly half again are in the higher affluence bracket. So a core market for Saga of 6.6 retired affluent customers. 73% of this group are already known to us and on our database. They've got high participation in our categories and high consideration for products and services from Saga. They also regularly engage with us, reflected in the 17 million visitors to our website annually.
Average lifetime value of a loyal customer is GBP 584. As many of you also know, Saga has lacked the data and marketing capabilities to execute effectively against this opportunity. This is now rapidly changing. Over the last year, we have put in place the foundations to systematically reach more customers, grow their consideration for Saga, and convert buying signals into loyal customers. These capabilities and tools have proven effective for other consumer businesses, and so it's unsurprising that where we are now deploying them, we are seeing significant uplifts in the effectiveness of our marketing activities. Let me share a couple of examples. Using our lifetime value model to identify higher value prospects has improved a specific tranche of river cruise inquiries by 62% and resulted in historically low cost per quote in insurance.
We've seen a 47% increase in the booking rates from our recent travel newsletter campaigns through adopting more dynamic, multi-step campaigns. These aren't isolated results. We've run 20 trials since June, and we have seen positive uplifts from all of them versus the controls, ranging from 13%-153% improvements. All in all, we are extremely confident that there is considerable value to be unlocked here, and this will enable us, this will be enhanced as we replace the existing legacy approach to consent with a new group-wide approach. We're now working on scaling this into a systematic approach to data-driven marketing and customer value management. This means shifting from point activations to being capable of orchestrating marketing campaigns that are multi-step, multi-channel, intelligent and automated.
At the heart of this are five customer journeys focused on attracting new and ex customers, welcoming them into the fold, converting their intent into purchase, driving repeat and renewal, and encouraging consent. We've designed and started to build the first five of these, which will be live by the end of this financial year. We'll then roll these out these journeys to all BUs in a tailored way during the course of next financial year. By the end of next financial year, we'll have created a fully automated, data-driven marketing model. It'll enable us to fully use our first-party data to improve targeting, helping us to attract more customers. It'll enable us to better understand our customers' needs and preferences and match these preferences to our products and services.
It'll enable us to utilize content marketing to engage and drive consideration, openness to Saga products and services, harvest buying signals to cross-sell Saga products more effectively, and ensure that high-value customers know that they are valued and want to stay with us. As we move forward, we'll then focus more and more on using the insights and data we have to continuously improve the effectiveness of our marketing activity to become ever more relevant, personal, and maximize lifetime value. I'll now hand back to you, Euan. Thank you.
Thank you, Mike. So in conclusion, the first half of 2023-2024, we've seen strong progress from Cruise, Travel, Money, and Media, and we've continued to maximize the insurance performance in what has been a difficult market. At the same time, we've identified and actioned significant central cost efficiencies to make Saga leaner and to further empower our businesses. Good progress has also been made in lowering the level of net debt in the first half of the year. We're committed to both the withdrawal from insurance underwriting at the optimum time and to repaying the 2024 bonds, supported by available cash and the facility we have from Roger De Haan. And finally, we are absolutely committed to the significant profit growth this year, delivering significant double-digit increases for the Group year-over-year. With that, we'll move on to Q&A.
We'll take some questions from the room first and then move on to online, if anyone has any questions. I think we've got. Mike, coming to you now. Andreas.
Thank you. Good morning.
I think it's on. I think it's on, Andreas.
Yeah, can you hear me?
Yep, we can.
Good morning, Andreas from Peel Hunt. Just a few questions, only on the insurance business. What is holding you back from selling AICL right now? And what is the value for shareholders in retaining AICL in the next few years? Thanks.
So as we said in the presentation, we did secure a deal for AICL. We evaluated that as a board, and we believe that, you know, we can hold that asset for the time being and then potentially get more value for it as we reevaluate next year. So we did have a deal, but we've paused on that at the moment because we didn't want to be forced into making a transaction right now when we feel that we could generate more value. James, there's more that you wanted to.
Yeah, I think the. So I think we've obviously got to look at this in the round, because as well as the actual sale of AICL itself, we also have to consider the replacement of AICL on the panel. And so, I think the point for us is that you certainly don't want to be pushed into the latter on terms that you don't think are the right terms at arguably this point in the cycle. So I think that there are better deals out there that can be done at a later stage in the cycle around the panel replacement. Once you've got that, then the deal that we had on the table for the sale, I think is something that can be restarted very easily.
The party we were talking to on the sale itself, while they were, you know, a little frustrated that we didn't get the deal over the line, also indicated that they would be willing to have another discussion in six months' time as well.
Good morning, it's Rahim Karim from Investec. Three questions, if I may. The first was just with respect to the phasing of the cost savings that you've outlined in both insurance and at the central level. If you could give us a sense of, you know, how much we can expect in the second half and, you know, how much of that, I guess, combined 2025 is achieved in twenty, you know, fiscal 2025. The second was just with respect to the strong momentum in Cruise. Give us a sense of where you think that load factors could end up getting to. And then also, I guess, the upside to per diems as well, which seem very strong going into 2025.
The last question, if I may, just with respect to lifetime values, could you, you know, perhaps give us a sense of how far you could take the, you know, GBP 584? Where could that get to with the existing clients, and how do we measure that going forward in the financials? Is it lower costs, higher revenues, or a mix of both?
Great, thank you. Thank you for spreading the questions right across the panel. So that's good. So perhaps if I take Cruise first, and then Mike can do lifetime value, and perhaps James can take the phasing of both central cost and insurance efficiencies. Cruise, as I said, we're having a good year this year. We're having an even better year next year. Second half of this year, stronger than the first half of this year. There is still, while load factors are very high in quarter three right now, there is still opportunity in quarter four. Both in Travel and in Cruise, since the pandemic, we are seeing an increasing appetite for our customers to book late as well as planned bookings.
So that means that our older customers are much more comfortable booking something this week and going on holiday or going on a cruise next week or next month. So that's a very active top up that we've been seeing all the way through both the travel business and the cruise business. There's still opportunity in quarter four to boost load factors this year. There is still some capacity to go, even though the load factors are looking strong, slightly ahead of where the 86% is so far for year to date. And also, the pattern of booking in cruises tends to be Canary Islands. When you get to November, December, those are traditionally later booking cruises, just in the pattern of customer behavior. So there's upside potential. Not a lot, but there's upside potential in the load factor for this year.
A very good place that we've got to right now with 86% already booked. Looking forward, we believe that we can get over 90% load factors into the ship, so that obviously positively impacts the GBP 40 million EBITDA for each of the ship going forward, and that's mixed with upside on per diems. The team have been particularly successful through the last four years in monetizing great value add-ins for guests, so they feel like they get a great deal, while the per diems are also moving forward. Now, clearly, we offset inflation against that, but we have targets well beyond the GBP 359 pounds per diems that we are achieving in 2024, 2025. Matter of fact, we're achieving the GBP 359, GBP 360 pound per diems in quarter four this year already.
So we've got confidence in those data points going forward, and also the planned value creation per per diem for guests going, going, going forward. So, you know, we think there's upside in Ocean Cruise. You then add in the river cruise proposition, which is now mirroring ocean, delivering higher per diems, delivering better load factors. Much easier for us to invest in new leases for river cruise vessels, and there's lots of capacity for us to grow in different rivers as well. So hopefully that gives you some sense of where our confidence lies within Cruise. Mike, do you want to cover lifetime value in that question?
Sure. So there's considerable headroom to grow. If you look at what our average product holdings look like, it's about 1.13. So there's considerable headroom, and when we measure customers with multiple product holdings, their average lifetime value is significantly ahead of the GBP 584. So big, I think there's opportunity to grow in that regard. I think particularly as we get the cross-sell engine working really effectively. How would that show up? I think it'll show up in over the next year to 18 months in really giving, underpinning the existing, forecasts for the business. I think thereafter, I think we will start to get into being able to unlock more, more, more potential growth. And the other component is obviously in lower marketing costs for those business units as we go forward.
The database provides us, effectively, privileged access to this marketplace, and being able to utilize that more effectively, being able to use the data more effectively to drive down the marketing costs, particularly as we digitize our marketing.
Great, thanks. James, do you want to talk about the phasing of costs?
Yeah. So I mean, the goal would be 100% run rate from the start of next year. So all of the, you know, the GBP 50 million savings in the full year numbers for 2024, 2025. This year, there's obviously four months of the year left. You know, that would guide you towards a third. Third's probably a bit optimistic just because of the timing. So hopefully that gives you a steer.
Great, thank you. Nick?
Morning, Nick Johnson from Numis. A couple of questions, please. Firstly, on 3-Year Fixed. So you, you've highlighted a GBP 16.1 million drag in the first half, and I think you're saying that that, that drag should reduce going forward, but there is still more drag to come, if I, if I, if I've understood that correctly. Just wondering, so all, all else equal, given that drag is, is gonna be ongoing for a bit, does that mean there's gonna be further margin pressure on motor and home breaking next year?
And secondly, second question, the loan from the chair that, so you intend to draw that down. I'm a little bit surprised by that, given you've got GBP 30 million of sort of cash headroom over the GBP 150 million debt obligation. Just wondering how much of that loan you expect to draw down and for how long? Because obviously, the cost is material. Thanks.
James, you want to pick those?
Yeah. So just on the three years. So not all of the GBP 16 million reduction in renewal margins is a function of three-year. So moving up faster than the price to the consumer. It's just that the issue is more accentuated for three-year fixed, because obviously we can't put the price up to the consumer at all. So it's certainly not all the GBP 16 million. The other thing is that we had expected a decline this year because we had lower renewals last year, and lower renewals last year means lower new business last year means lower renewals this year. Sorry, lower new business last year means lower renewals this year. So there's a few different moving pieces, but the three-year fixed is a big component of it.
I think in terms of when we've looked at this, the challenge is focused on the business that was written, I think, between effectively sort of April 2021 through to January 2023. So this is the business that has got the sort of inbuilt challenge in it, because that was written at a time when inflation was much, much lower than it is today. And obviously, we've had to completely reset pricing within AICL, and the panel have done something similar. So that is the cohort, if you like, that is the challenge. Now, I think what I mentioned here is that of that, of the book of the pressured policies, you know, a significant portion will be repriced next year.
I.e., it will come to the end of its second renewal next year. All of it would have been repriced within effectively two years of now. So the challenge then will become a lower number. It'll be a lower number next year, and it'll be a much lower number the year after. I think all things being equal, there will be some impact next year, but it should be of a lower order of magnitude to what we have seen in the current year. Now, what I would say, though, is obviously this rather depends on what happens to inflation from here. So it's probably a little early to be providing too many indications of what would happen next year.
But I think you can probably also tell from the fact that, yeah, we have taken a further goodwill impairment, that obviously is slight, there is some, there is some pressure on insurance earnings relative to what we had previously anticipated, even if when we've done that, we've tended to err very much on the side of the prude. So I think it, it's a short-term issue. It will be a lesser issue next year, and it'll be a much lesser issue the year after. So hopefully that helps. In terms of, Roger's loan, I mean, I think it's pretty fair to say Roger doesn't want us to draw the loan unless we need it. And I think that, it is there as a backstop.
I think obviously we'll have to see where we get to at the start of next year, in terms of what the Group's liquidity looks like. I think, I think the assumption is that there will be some level of drawdown on it. Whether we need to draw down at all, I think we just probably need to wait and see. But it is there really expressly to provide us a very significant cushion in the event that we need it to repay the May 2024 bonds, and then we've got the revolving credit facility on top of that as well. So we do start with plenty of cash and plenty of cash, cash facilities. And it's, it's more about not the GBP 150 million we need for the bond. It's more making sure we've got enough working capital post the bond repayment.
So we've got some working capital needs in the business, and that's what the loan is there for, more so than to repay the bonds.
Thanks, Nick. Yeah, we're good.
It's Marcus Sherif from Jefferies. I just want to follow up on that cash point again, actually. So if we put all the sort of, inflows and outflows associated financing to one side, the GBP 181, what's the glide path of it from here? You talk about working cash needs of the business, but it seems to be a business that is increasingly turning cash positive. So just trying to understand where that drag starts coming from. I appreciate that you'd want to have a certain buffer post of the debt repayment to be working with, but if you just give a sense about how much cash.
Yeah. So if we look at the first half numbers, they are benefiting from those two one-off factors, well, whether they're one-off. The cash that we've extracted from travel business is a one-off. The increase in the advanced receipts is more of a seasonal effect than a one-off. But either way, what that does mean is that the cash we've got on balance sheet at the end of July is benefiting from those two factors. And certainly, I think while we will, we still expect the cruise and the travel business to be cash generative in the second half, it'll be a lot, lot less than the GBP 73 million that we saw in the first half.
The other side of things, we've still got an ongoing GBP 31 million repayment on the ship debt as well. So I think what we've guided towards here is that net debt at the end of the year will be a little bit higher than at the 31st of July. And if you think then that within the net net debt movements, we've got GBP 31 million repayment of the ship debt. Obviously, you can see that from that the cash would then be obviously at least GBP 31 million lower relative to the position that we've got right now.
A couple other things then. So, just to be clear, if you were to return to a sale of the insurer next year, cash proceeds, will they go straight back to repaying any of the De Haan drawdown that you had effected or?
Well, I mean, obviously, I think it obviously depends on timing and all the lots of other factors. But I think the priority clearly here is, in the first instance, repaying the 2024 bonds. We've then got these two facilities. I think in an ideal world, you wouldn't have drawn them either of them. So, I think that that would be the objective of the business, to get to a place where you've got one bond out there, which is the 250. And obviously, the plan would be that some or all of that would be refinanced when the time comes, based on, obviously, a business that is in a stronger financial position, with a high credit rating and lower net debt, and all of those other good things as well.
But I think, obviously, when we've put up those net debt charts, that doesn't include any actions like that. So if we were to return to a sale of AICL, that would obviously reduce, It would improve the net debt trajectory that was on the chart that I put up earlier.
Sorry, last couple of one for me. The inflation protection you mentioned, have you been using that already in the numbers?
There's a very small recovery in the first half results, which I think from memory, is about GBP 1.5 million. But, there's still more downside protection that we'll provide in the future, based on what we expect to happen with inflation.
Great. Final, last question. Is it too early to be thinking about how you expand the ocean cruise proposition beyond the sort of the cruise ships that you've got? Because I appreciate what you're saying about load factor upside, the DM upside, but it's clearly an offering that people want.
Yeah.
And buy.
I mean, it's a natural question. I think it's a question of timing. I think we've got, you know, let's get through the 2024 bond repayment, see where the insurance market settles, and hopefully, we start to see that, coming back more positively within motor. At that point, then, you know, we would love to be able to increase the ocean fleet, because it's a proposition that clearly works. The cruise team have mapped out where that extra capacity could go, and we're pretty confident in their customer forecast for that. But I think it's one of those step-by-step things. These things are incredibly expensive, about GBP 500 million each. So, I think adding any more debt at this point is not something that investors would want us to be thinking about.
However, there is clear opportunity when we do get to that point, that, that we, you know, we've got a winning proposition in cruise. We also have a winning proposition in a very capital-light travel business as well, which is going to add significant double-digit earnings growth, too. So I think, I guess for me, there are two or three businesses already in a very, nice growth, shape, and with insurance hopefully leveling off and then starting to grow again, then we can take a look at that. But I think it's probably a little bit early to be able to do that as much.
I think just to add to that, I mean, we have spent quite a lot of time looking at funding models for the cruise business, and we've got various very creative ways of how you might approach that. And we think there's actually quite a lot of enthusiasm for that from the various stakeholders we would need to bring with us along the way. But I think as you had mentioned, there's probably a time and a place for that one, too.
Yeah, it's a little bit early for that. Andreas, did you have a follow-up?
Just going back to the panel. But how much is the panel increasing rates on average, and how much is that exceeding what you can pass on to the consumer? And why are you struggling to do that on your annual policy? Because I assume that, you know, trying to get those margins down as quickly, improve those margins as quickly as possible, get the combined ratio down, I think that should be sort of somewhat of a priority. On the reinsurance panel, the quota share reinsurer, obviously, they're seeing these sort of losses coming through. When do you, when does that sort of reinsurance panel renew, and what is the situation there? And finally, can the insurance broker recover margins back to GBP 70 per policy in the next three years?
Is that part of your business planning, or are we stuck with sort of 60-ish for the next few years? Thank you.
James, you want to go?
Yeah. So I think on the panel pricing, so I mean, obviously, there's nothing stopping us from putting, you know, reflecting all of the panel pricing changes in the consumer pricing. The question here is obviously there's a trade-off you need to consider between volume and margin. So, obviously, basically, outside of three effects, obviously, we set the pricing in terms of the consumer pricing. But again, there is this balance to be struck. And what I think I was alluding to in my comments was that, you know, we live in a competitive marketplace, where the price set to the consumer has to reflect market conditions, and that price hasn't gone up as much as the net rate increases from the panel.
Now, we could just like, just choose to price to a higher level, but I think you would probably then see much lower volume. So, it's trying to find the effective efficient frontier between in pricing as to, to where you go between volume and margin. I think in terms of what price increases we've seen, I mean, they have been pretty hefty. I mean, we're talking north of 60% in terms of motor panel pricing. And there's not a lot of difference between the price increases of AICL and the price increases of other panel members. I'm talking motor only here. Home inflation pricing is in line with expectations and obviously nowhere near that number. In terms of the quota share contract, it runs to the end of January 2025.
And then there would be a new contract in place after that. Clearly, that would be subject to, you know, a discussion in next year as to what the terms of that would look like. So a bit early to anticipate that, but at the moment, we, you know, we're halfway through the contract that was put in place at the beginning of last year. Will we get back to GBP 70? I mean, I think there's an element of crystal ball gazing, I think, in that one.
I mean, I think, my honest answer there is I probably wouldn't be assuming that, based on, I think, the market environment, based on the fact that motor insurance is becoming even more of a commoditized product than it was anyway, based on lots of things, I think, that have happened in the regulatory environment. So I, I think we probably need to be able to reconfigure the business so that it can operate very successfully with a GBP 60 margin.
Great. Thanks, Nick, and then we'll move to.
Thanks.
Welcome.
Nick Johnson again from Numis. Couple of other questions, if that's okay. Firstly, on Ocean Cruise, you say 40%, were new customers, I think this year, or in the bookings at least. Do you expect repeat customers to grow over time? Or do you think you're gonna have to continue to find 40% new customers every year? That sounds like quite a sort of stiff run rate to keep up in terms of finding new customers. And then secondly, on motorhome policy sales, which are down 8% first half, can you just talk a bit about the strategy to stabilize or potentially grow policy sales in the future?
I guess what I'm really asking is, are market conditions starting to improve to the point where you can decrease the rate of decline or, perhaps stabilize policy numbers now? Thanks.
Yeah, and I think, you know, it's, I think we're starting to see some signs in the market of the pressure lessening. But it's probably a bit early to call it yet. But, I think we are seeing, you know, starting to see some signs of that, so that would give us more confidence in, motor going forward. James may want to comment on that in a second. Let me just do the 40% new. It was very important for us in the last few years, post-pandemic, with the two new larger ships, to concentrate on growing our database of loyal guests. What we tend to see is a very strong correlation in the data that says once, a new guest has taken a cruise, their repeat purchase propensity is very, very high, so well over 85%.
So therefore, it's very important for us to attract in the volume that we can sustain and grow both of those ships, at a, let's say, 90% load factor ongoing. So therefore, big push in the last couple of years to get first-time bookers to Saga. They tend not to be first-time cruisers. They tend, we are stealing share, which has been quite interesting. Actually, quite interesting looking at the data from where they've come from. We don't need to sustain a 40% because of that key retention rate, but because we do see some of our customers dropping off just in their stage of life, at that point, then we just need to keep filling the top of the pipeline. The really interesting bit below that is the number of direct customers versus indirect customers.
We didn't cover it here, but as we grew the size of the capacity of both of the ships, we went back out of being a direct model to about 15%-20% indirect through travel agents and others. We're now weaning ourselves back off that, so that we then control the entire customer journey from first-time inquiry through to repeat purchasing all the way through with Mike's lifetime data value. So we don't need to sustain it at that level. It is very good that we are at that level, because that means that we've got confidence in the projections of customer numbers going forward. So hopefully, that gives you some light on that. Anything else you want to add on the market and-
I don't think so. I mean, I think the, I mean, we are starting to see, I think, within underwriting, and it's probably a little early to call the turn, if you like, but I think we are starting to see that the price increases that we've put through are now set at a level consistent with where claims trends are. And it has been a while since that's been the case, because what's tended to be happening is that we've been putting through rate increases, but the claims trends have just been very, very, you know, the claims inflation pressures have continued to be to sort of outstrip us.
But I think we're starting to see now a point where claims trends are in line with the pricing assumptions, and that augurs well for a pretty significant improvement in pricing over the second half of this year. Now, one would hope at some point that we'll start to see consumer pricing in the market at a higher level, and then you might start to see some of the margins improving. And then combined with obviously lower pressures from the three-year fixed cohort that was priced pre-inflation, that's, I think, where you should start to see things improving.
Thanks, Nick. Shall we go to questions, if there are any, online? Emily, have you got any?
Sure. Thanks, Euan. First couple are from Donald Phillips, from Liont rust, who has two questions. Firstly, have you drawn down the GBP 85 million facility to date, and is that included in the GBP 180 million available cash?
Uh, no. The answer's no.
Okay, the second question is, do you have a leverage target you are thinking about that will get the 2026 bond refinanced at a coupon that is palatable? How high is your confidence you can get there by the end of 2024? Or is it likely the 2026 bond becomes a tight refinancing story in the same way as the 2024?
I think that.
Yep.
That feels like a slightly leading question, but anyway, I think, I mean, we obviously know what we need to get to for the leverage position to make the refinancing of the 2026 bond a relatively straightforward exercise. And I think in that sense, we've always said in the past that or we have said in the past, that leverage needs to be below 3.5 x. And in that sense, I think when we say below 3.5 x, you know, it needs to be below 3 in practice. So that is what we are aiming for. In terms of will we get there by the end of 2024, I think it's gonna be work in progress.
I mean, it's, I would certainly hope that we are seeing leverage coming down towards that number. I think in practice, it'll probably take a little bit longer to do that. In terms of when we would refinance, clearly, the bonds don't mature until July 2026, but I think in practical terms, you would probably look to approach that, you know, sometime in advance of that date. So that, that's the goal for the company, and it's obviously a very high priority, is to generate cash flows and improve earnings of the overall business, so that we get down to that 3x level, at the time that the refinancing is happening.
Thank you. Atif Ali from Ardent Financial also has two questions. Firstly, considering your experience in motor, do you now regret writing three-year fixed price policies?
I think, motor, I think. Yeah, yeah, we've had a couple of good.
I mean, I think that, Well, I mean, I think the simple answer is no, because if we actually look at the cohort of, even the cohorts of business that we're writing, which are causing a profit squeeze, actually, if you look at it over the life of those policies, the margins have been okay, and they've been profitable. So it, you know, we actually had a positive profit margin contribution during the COVID years. So I think you've probably got to look at it in the round, and while there is a pressure now, there was a positive a few years ago. So in the aggregate, I don't think it's necessarily the wrong product.
I think in terms of, obviously, looking back, I think we probably could have put more pricing protection in place at the point when inflation was starting to increase. Having said that, I, I think the other side to this is that it is, it, it's a product that resonates very well with our customer base, and it has helped retention. So I, I think it's a hard one to entirely disentangle, but, but there are, there's as many positives in it as there are challenges.
Thank you. The next question from Atif is: How many interested parties approached Saga for the underwriting business, and was it simply price which prevented a sale, or are there significant operational difficulties in splitting it out from the broader group?
So there's no operational difficulties in doing that. We didn't disclose how many parties that had approached us, but we were talking to a significant number. I guess that's all we can say within the process at the moment.
It wasn't. Yeah, so it wasn't the price for the sale of the underwriter that was the limiting factor. And it certainly wasn't operational.
No.
Considerations either, 'cause they're pretty simple.
Thank you. Both Nader Farhad from SC Lowy and Kirsten Macaulay from Blue Bay have asked similar questions around the minimum cash required on the balance sheet and how that links to operating expenses.
Okay.
So we would typically try and aim for a working capital balance of around GBP 50 million. There's some seasonality to that, so it's not necessarily every day of every year, but typically, you would probably look to hold that level of cash for working capital purposes. In terms of the expenses, I mean, I think, I mean, part of the reason for the expense action is obviously recognizing some of the pressures which are there on insurance earnings. Part of that is also continuation of a piece of work that started last year to essentially put more of the responsibility for sort of core business functions into the business units, as opposed to having them centrally. So it's a combination of the two.
Thank you. Sam Rafique at Cross Ocean asks: How do you plan to address the 2026 bond maturity with the Roger De Haan facility maturing in December 2025?
I think it's a bit far to go ahead with that at the moment. I think we're in a very secure place in the next 18 months. We've got lots of options open to us. And we'll, you know, we intend to refinance the 2026 bond as we've always done.
Thank you. There are no further questions from online.
Great. Unless there's any other questions from the floor, we'll draw the presentation to a close. Thank you very much for joining online. Thank you very much for attending in person. Thank you.