As champagne crashed over the bow of Saga’s new Spirit of Discovery cruise ship in 2019, Saga’s management team, flanked by the then-Duchess of Cornwall, were in high spirits.
The group toasted a landmark moment for the insurance-to-travel specialist. The ship was one of two built to order for Saga and was meant to usher in better times for the business, which has offered package holidays and insurance to millions of over-50s for decades.
Yet just a year later, the ship was left stuck in port by the Covid pandemic. Sky-high inflation and the cost of living crisis in the years that followed have compounded Saga’s headaches and have left the debt-ladened group sailing under a cloud.
Saga is struggling with debts of £657m that dwarf its market value, which stands at a little over £160m.
Soaring interest rates have left it scrambling to reduce that borrowing pile rather than refinance at much higher rates.
Investment bank Lazard has been drafted in to help fix Saga’s finances and bankers have revived plans to sell Saga’s insurance underwriting business to raise cash.
Euan Sutherland will leave Saga in January - REUTERS/Luke MacGregor
Euan Sutherland, who replaced Lance Batchelor as Saga’s chief executive shortly after the Spirit of Discovery’s launch, this week said a new face was needed for the next phase of Saga’s development as he announced plans to stand down.
His departure and the state of Saga’s finances have prompted questions about the company’s future: Can new management get the company back on course? Or will it fall into the hands of a rival or back to private equity as its fortunes drift?
Saga has long been an iconic British brand. Founded in 1951 by London-born Sidney De Haan as the Old People’s Travel Bureau, the company started life as a package holiday operator sending retirees abroad just as the post Second World War holiday market boomed.
After the success of its cruises, the group moved into publishing with Saga Magazine and then financial products like insurance in the 1980s.
Longer life expectancies and falling birth rates mean Britain is getting older. It should be a golden period for a business that caters for wealthy pensioners looking to entertain themselves.
Yet shares in Saga are down more than 90pc in the last five years amid concerns about its financial health.
Baroness Ros Altmann, former Saga director-general, believes the brand had struggled to keep pace with the changing image of its customers in recent decades.
“Saga would still be the only recognised name if someone said: which company is aimed at older people?,” says Altmann, who was at the company between 2012 and 2014.
“But actually the people in the age range 50 to 70, unless they are looking for a particular type of cruise holiday, they would be unlikely to consider that Saga represents them or speaks to them directly.”
Baby boomers are living longer and healthier lives than previous generations, something that Saga’s marketing has failed to recognise, Altmann argues.
“Saga Magazine was always so full of mobility aids and wheelchairs and baths and showers — people in their 60s and 70s don’t want to be associated with that stuff.”
Altmann says insurance has been the primary driver of the company’s growth in recent years, rather than the “fun bits” such as the cruises — but the debt pile had crimped the company’s growth.
“What you need to do is invest a lot of money for a longer term payback and if you have massive debts, you have to service all the time. That’s very hard.”
Former Saga director general Baroness Ros Altmann says insurance has been the company’s main growth driver in recent years - Graham Turner / Guardian
The company is now also grappling with the rising cost of insurance claims as inflation soars. The share price slide continues, with the stock down 17pc so far this year.
The root cause of its ills is debt. While enjoying a sedate image, Saga was once the plaything of private equity barons and Wall Street bankers who bundled up the company with the AA in the pre-financial crisis debt binge.
When it was spun back to the stock market in 2014, it garnered a whopping £2bn valuation but debt left it vulnerable to the winds of change.
Sutherland is being replaced by his key lieutenant, chief financial officer Mike Hazell, as Saga’s new chief executive. Development boss Mark Watkins has been promoted to finance chief.
A City analyst who follows the company says: “The next step for the new CEO and new CFO is to figure out how to restore the debt position to a more acceptable level.”
The collapse in Saga’s valuation may prompt speculation that it could be the target of a possible takeover bid as foreign buyers swoop on unloved British assets.
Yet the sky high debts makes this unlikely: any buyer would also be on the hook to repay all that borrowing.
“There is no natural trade buyer for this business,” says the analyst. “Anybody who takes over this business will be taking over the debt as well. The poison pill is the financial structure of the company.”
The presence of chairman Roger De Haan, the son of the company’s founder who owns a quarter of the business, would also complicate any deal.
Saga's cruise ship Spirit of Discovery was forced to remain in port shortly after its launch due to the onset of the pandemic - Horacio Villalobos Corbis/Corbis via Getty Images
For now the ability to repay debt seems certain. A bond due for repayment next May is expected to be repaid. De Haan has also lent the company £85m to help ease the strain, increasing the financial flexibility.
However, the long term viability of a business with such a large debt versus such a small valuation remains a question. Saga’s new management and Lazard must find a solution to redress the balance.
The potential sale of the insurance underwriting business may foreshadow a breakup. However, De Haan will likely be loath to unpick the empire his father created.
In the meantime, the Spirit of Discovery is back on the water and cruise bookings are healthy. The champagne is on ice but Saga’s new management will be hoping it is flowing soon once again.
