Shares in Saga fell 25 per cent on Wednesday after the insurance and travel group issued a profit warning for this year and next.
The company, which specialises in services for over-50s, said it had endured a “challenging trading environment” in home and travel insurance, while the collapse of Monarch Airlines had knocked profits in its tour operations business.
Saga also said profits would decline next year as it invested more money in building up its passenger and policy numbers.
Shares in the company fell to 136p, their lowest level since the company floated in 2014 at 185p.
Lance Batchelor, chief executive, said Saga’s insurance business, which generates the vast majority of group profits, was going through a rough patch. “In the fourth quarter we’ve seen a meaningful, significant step up in the competitive environment, with a number of competitors going after volume,” he said.
Andreas van Embden, analyst at Peel Hunt, said more insurers were now targeting Saga’s traditional customer base.
Saga said the completion of its shift from insurance underwriting to insurance broking would also dent profits. The move has been under way for several years, and has boosted profits because of the different accounting treatment applied to the two types of business.
Mr van Embden said he supported the shift in focus, despite the profit warning. “The affinity broker model they are building is the right one for them. You have seen these models work well in the US,” he said.
Saga pointed to the collapse of Monarch Airlines, which the company had used to take many of its customers to short-haul destinations, as the source of many of its challenges in travel.
Mr Batchelor said that, with Saga having to buy its flights elsewhere, other airlines had put up their prices, wiping £2m off profits.
Overall, the company said profits in the year to January would rise 1-2 per cent. Analysts had previously been expecting growth of more than twice that level.
Profits in 2018 are now forecast to fall by about 5 per cent. Earlier estimates were predicting growth of more than 7 per cent, according to FactSet.
The company is renewing efforts to attract new customers, mostly by cutting prices and its plans to “increase our annual customer acquisition spend by £10m”.
Saga said it would also cut costs, wiping £10m off its annual cost base of £250m, for a one-off charge of £4m.
Mr Batchelor said the money would mostly come from job cuts. “It will be 100 heads out of a total of 4,500 people, with a bias towards middle and senior management so we don’t damage the customer experience.”
He said the company’s dividend policy would not be affected by the profit warning and insisted Saga was in good shape for the long term. He added he expected a “double tailwind” in 2019-20, when new customers started to deliver profits and new ships boosted the travel business.
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