RNS
Saga PLC

SAGA Plc - Capital Raise

RNS Number : 5959Y
SAGA PLC
10 September 2020
 

NOT FOR RELEASE, PUBLICATION, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD BREACH ANY APPLICABLE LAW OR REGULATION. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT IS NOT A PROSPECTUS OR PROSPECTUS EQUIVALENT BUT AN ADVERTISEMENT. INVESTORS SHOULD NOT SUBSCRIBE FOR, OR OTHERWISE PURCHASE, ACQUIRE, SELL OR DISPOSE OF, ANY OF THE SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF THE INFORMATION CONTAINED IN AND INCORPORATED BY REFERENCE INTO THE PROSPECTUS TO BE PUBLISHED BY THE COMPANY IN DUE COURSE.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

10 September 2020

Saga plc

Proposed £150 million Capital Raise

Strategic Investment by Sir Roger De Haan

Interim results and strategy update

 

 

Further to the announcement on 30 August 2020, Saga plc (the "Company"), the UK's specialist in products and services for life after 50, today announces its intention to raise approximately £150 million in equity capital (the "Capital Raising") in order to strengthen its balance sheet, improve liquidity and support the execution of its reinvigorated strategy under its strengthened management team.

Highlights

In its interim results released today, the Company notes the encouraging operational progress which has been made since the start of the year, and the resilience of the business through a time of unprecedented challenge and change. It has also highlighted the near-term cashflow impact and potential long-term impacts of COVID-19 on the business, and the priority therefore to strengthen the financial position of the Company.

The Board of Saga is today proposing to raise approximately £150 million of gross proceeds, by way of a firm placing and a placing and open offer. This is underpinned by a strategic investment of up to £100 million by Sir Roger De Haan, Saga's former Chief Executive Officer and the son of the founder of the business. Sir Roger De Haan will make his investment through:

a firm placing of 224.4 million new ordinary shares representing 20% of the  current issued share capital of the Company, to be issued at 27p per share (the "First Firm Placing Price"), a 98% premium to the 13.61 pence closing price of Saga shares on 28 August 2020 (the "First Firm Placing"), reflecting his belief in the underlying strength of the Saga brand and business and his confidence in the new strategy under the strengthened management team, which would contribute £60.6 million of the proposed Capital Raising;

a further firm placing, raising £14.9 million on the same pricing as will apply to Saga shareholders who participate in the open offer (the "Second Firm Placing" and, together with the First Firm Placing, the "Firm Placing"); and

participating as a conditional placee for shares representing £24.5 million in the placing and open offer (expected to raise total proceeds of approximately £74.5 million), subject to clawback by Saga shareholders in the open offer (the "Placing and Open Offer").

Following the Capital Raising, a share consolidation will take place pursuant to which every 15 Ordinary Shares of 1 pence nominal value will be consolidated into 1 Consolidated Share of 15 pence nominal value.

This move is designed to ensure that Saga is well positioned to strengthen the business in the short term, against the backdrop of the COVID-19 outbreak and the continued suspension of Saga's Travel businesses, and is positioned for longer-term recovery and growth:

-     Under its new executive leadership, Saga has made considerable operational progress this year, as demonstrated by the publication today of Interim Results for the six months ended 31 July 2020:

§ Underlying Profit Before Tax of £15.9 million, in line with our expectations.

§ Debt ratio (excluding Cruise) of 3.6x, well within the 4.75x covenant levels.

§ Both retail broking and underwriting businesses traded resiliently during the period:

·    Within retail broking, motor and home policies of 831,000 are 2.5% higher than the previous period, with retention 5.4% higher than last year at 80% and margins per policy in line with expectations

·    Underwriting profit of £28.0 million, including £27.0 million of reserve releases, ahead of expectations due to favourable experience on large bodily injury claims relating to prior accident years.

§ Travel business has remained on pause since the decision in mid-March to suspend operations due to COVID-19. The Group continues to expect Cruise to resume this year; Tour Operations business due to recommence from April 2021. A significant proportion of customers continue to show their loyalty, with over 65% of customers retaining their bookings with Cruise.

§ A robust response to COVID-19 with almost all colleagues effectively working from home with no business interruption and Travel businesses reset for operation in a COVID-19 world.

 

-     Saga today issues an update on strategy, Transforming Saga - Experience is Everything, centred on delivering great, differentiated products and services for our distinct customer segment

§ The Board believes that Saga has a fundamentally strong proposition, with a target audience that is the fastest growing and wealthiest consumer segment in the UK

§ The new management team has developed a clear and compelling strategy to create a refreshed, contemporary and confident brand position and to leverage the heritage of Saga with a data and digital-led approach to improve the customer experience

§ The Board is confident that this strategy will drive growth in revenues, profit and cash, return Saga to sustainable growth and restore significant shareholder value

§ The strategy will be focused on delivery under five key pillars:

-    

·    People and Culture Re-set - a step-change in delivery

·    Data, Digital and Brand Transformation - a bigger, bolder strategy

·    Optimising our Businesses - exceptional experiences for customers

·    Lower Cost Base - constant drive for efficiencies

·    Debt Reduction - further strengthening of balance sheet

 

-     The Board is encouraged by the progress made since the start of the year and by the resilience of the business through a time of unprecedented challenge and change. It  believes the current COVID-19 crisis has highlighted the strength of the Saga brand and its direct relationship with its customers and, based on the compelling strategy which the strengthened management team has already started to develop, remains confident in the longer-term prospects of Saga

 

-     Sir Roger De Haan believes in the underlying strength of the Saga brand, is encouraged by the changes that he has seen under the new management team and supports the strategic update issued today

 

-     In connection with his investment, it is intended Sir Roger De Haan will join the Board and become Non-Executive Chairman upon completion of the Capital Raising for an expected term of three years, subject to annual re-election by shareholders

 

-     The Directors intend to take-up their pro-rata entitlement in the open offer in full

 

-     The Capital Raising will enable the Company to significantly reduce short term debt, enabling full repayment of the £40 million current drawn portion of the revolving credit facility and reducing the amount outstanding under the term loan from £134 million to £70 million

 

-     Conditional on the successful completion of the Capital Raising, the Company has agreed with lending banks to extend the maturity of the £70 million term loan by a year to May 2023 and has also agreed certain covenant amendments that provide additional financial flexibility

Euan Sutherland, Saga Chief Executive Officer, said:

""Saga has made significant progress in the first half. Through this year our priorities have been serving our customers and keeping colleagues safe during a period of major disruption and further strengthening our financial position. While taking decisive action to react to the COVID-19 outbreak, we have also continued to make progress in our businesses. This is clearly shown in Insurance with the success of our three-year fixed-price product and our COVID-19 travel insurance product, and in Cruise by the imminent arrival of our second new ship, Spirit of Adventure. We are excited about the opportunities ahead, whilst mindful of the fact that we face into challenges with the continuation of the COVID-19 pandemic.

 

"We have conducted a comprehensive review of strategy and have developed a plan which we believe will strengthen our brand, improve our focus on our customers, deliver exceptional experiences for them, and return both our Insurance and Travel businesses to growth. The Capital Raising, supported by Sir Roger De Haan's cornerstone investment, will allow us to build on our actions to date by enhancing our resilience and financial strength.

"Saga is a distinctly British business, with a strong brand, loyal customers and great people and we are excited about the opportunities ahead. With our strengthened financial position and a refreshed strategy, we expect to be well positioned to unlock all the potential in Saga, returning the business to sustainable growth and creating significant long-term value for all our investors."

Sir Roger De Haan said:

"Saga is a special company and I am very optimistic about its future as a result of the strategy that is being outlined today.  Euan Sutherland and his new management team have shown that they really understand the business and they are already being successful.  Saga has always flourished when it has put its customers at the centre of everything it does and when it has offered good value products designed specifically for them and delivered with great service.  I am proud to be playing my part in ensuring that Saga is back on the right track."

Patrick O'Sullivan, Saga Chairman, said:

"The Board is confident in the future of the Company now that we have the right leadership team, with a clear and ambitious turnaround strategy.  That strategy is built on Saga's heritage of providing exceptional products and services to our distinct customer group. We have made good early progress against this plan, but there is much still to do. Against that backdrop, we welcome Sir Roger De Haan's investment and his return to the Board as Chairman. His understanding of our heritage, our sectors and our customers will be invaluable as Saga moves ahead. I will step down as Chairman following the EGM to approve the equity raise, confident that I am leaving the business in a strong position with a compelling strategy, a committed management team and a significantly enhanced financial position"

1.            Key Highlights of the proposed Capital Raising

 

Firm Placing and fully underwritten Placing and Open Offer to raise gross proceeds of approximately £150 million, comprising:

·    a First Firm Placing of 224.4 million New Shares to Sir Roger De Haan at a price of 27 pence per New Share, raising gross proceeds of £60.6 million and resulting in Sir Roger De Haan holding an interest of 20 per cent in the Company. The New Shares issued pursuant to the First Firm Placing will be subscribed for by Sir Roger De Haan and will not carry an entitlement to participate in the Open Offer;

·    a Second Firm Placing of New Shares to Sir Roger De Haan at a price per New Share to be determined following completion of the Bookbuild. The Second Firm Placing is designed to replicate the entitlement Sir Roger De Haan would have had to participate in the Open Offer if the New Shares issued pursuant to the First Firm Placing had Sir Roger De Haan been on the Register on the Record Date;

·      a Placing and Open Offer of New Shares at a price per New Share to be determined following completion of the Bookbuild (subject to a maximum issue price of 15 pence per New Share). The Second Firm Placing and the Placing and Open Offer are expected to raise gross proceeds of approximately £89.4 million in aggregate; and

·    a share consolidation, pursuant to which every 15 Ordinary Shares of 1 pence nominal value will be consolidated into 1 Consolidated Share of 15 pence nominal value (the "Consolidation"), which is expected to become effective on 12 October 2020.

 

·    Sir Roger De Haan has agreed to a lock-up of 12 months with respect to any shares acquired by him as part of the proposed Capital Raising, and the Company has agreed to a customary 180 day lock-up on the issue of further Ordinary Shares and other alterations of capital.

 

Capitalised terms not otherwise defined in this announcement shall have the meaning set out in Appendix 1 of this announcement.

 

2.            Conditional placing

It is expected that the New Shares that will be issued pursuant to the Placing and Open Offer will be conditionally placed with investors, including Sir Roger De Haan, following the completion of an accelerated bookbuild process (the "Bookbuild") by the Joint Bookrunners. The New Shares conditionally placed with investors ("Placees") will be subject to clawback to satisfy valid acceptances made by Qualifying Shareholders under the Open Offer. Sir Roger De Haan will have a priority allocation of conditional placing shares, as a result of which New Shares conditionally placed with investors other than Sir Roger De Haan will be clawed back on a pro rata basis first and only when these New Shares have been fully clawed back will the New Shares conditionally placed to Sir Roger De Haan be clawed back.

The Bookbuild will open with immediate effect following this announcement. The final issue price and the number of Firm Placing Shares to be placed to Sir Roger De Haan pursuant to the Second Firm Placing and the number of Open Offer Shares that are the subject of the conditional placing will be determined following the close of the Bookbuild.

The Bookbuild is expected to close on or around 5.00 p.m. on 10 September 2020, subject to acceleration. Timing of the closing of the Bookbuild and allocations are at the discretion of the Joint Bookrunners and the Company. The issue price and details of the results of the Second Firm Placing and the conditional placing will be announced as soon as practicable after the close of the Bookbuild. Certain conditional Placees who are existing Shareholders of the Company, at the absolute discretion of the Joint Bookrunners, may be offered the opportunity to off-set their Placing commitments against the Open Offer Shares validly taken up and paid for under the Open Offer.

The terms and conditions of the conditional placing are set out in Appendix 2 of this announcement. For the avoidance of doubt, if a person has signed and returned to the Joint Bookrunners (in a form satisfactory to them) a placing letter in respect of their participation in the Conditional Placing (the "Placing Letter") prior to the publication of the Placing Results Announcement, to the extent there is any conflict between the terms of such Placing Letter and these terms and conditions in this Appendix the terms of the Placing Letter shall prevail.

 

For further information, please contact:

Saga Plc

Investor Relations

 

Mark Watkins

 

Tel: +44 (0) 203 846 5113

 

 

 

Sponsor, Joint Global Coordinator and Joint Bookrunner to Saga

 

J.P. Morgan Cazenove

Edward Squire, James A. Kelly, Andrew Stockdale

Tel: +44 (0) 207 742 4000

Joint Global Coordinator and Joint Bookrunner to Saga

 

Numis

Charles Farquhar, Stephen Westgate, Jamie Loughborough

Tel: + 44 (0) 20 7260 1000

Joint Bookrunner to Saga

 

HSBC

Anthony Parsons, Richard Fagan, Graeme Lewis

Tel: +44 (0) 20 7991 8888

 

 

Financial Adviser to Sir Roger De Haan

 

Greenhill

David Wyles, Dean Rodrigues

Tel: +44 (0) 20 7198 7449

 

 

Media Enquiries

 

 

Headland Consultancy

Susanna Voyle, Henry Wallers, Sophie O'Donoghue

 

 Tel: +44 (0) 203 805 4822

The person responsible for making this Announcement on behalf of the Company is Mark Watkins, director of Investor Relations and Corporate Finance.

 

IMPORTANT NOTICE

This announcement has been issued by and is the sole responsibility of the Company. This announcement is not a prospectus or prospectus equivalent but an advertisement and investors should not subscribe for, or otherwise purchase, acquire, sell or dispose of any of the securities referred to in this announcement except on the basis of the information contained in the combined prospectus and circular to be published by the Company in connection with the Capital Raising (the "Prospectus") in due course. The information contained in this announcement is for background purposes only and does not purport to be full or complete. A copy of the Prospectus, when published, will be available on the Company's website, provided that the Prospectus will not, subject to certain exceptions, be available to certain Shareholders in certain restricted or excluded territories. The Prospectus will give further details of the Capital Raising.

This announcement is for information purposes only and is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities of the Company (the "Securities"), or the solicitation of any vote or approval in, the United States (including its territories and possessions, any state of the United States and the District of Columbia) (the "United States" or "US") or in any other jurisdiction, pursuant to this announcement or otherwise. Any offer, if made, will be made solely by certain offer documentation which will contain the full terms and conditions of any offer, including details of how it may be accepted. The distribution of this announcement in jurisdictions other than the UK and the availability of any offer to Shareholders of Saga who are not resident in the UK may be affected by the laws of relevant jurisdictions. Therefore, any persons who are subject to the laws of any jurisdiction other than the UK or Shareholders of Saga who are not resident in the UK will need to inform themselves about and observe any applicable requirements.

The Securities referred to herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws or with any securities regulatory authority of any state or other jurisdiction of the United States, and accordingly may not be offered, sold, pledged or transferred, directly or indirectly, in, into or within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any relevant state or jurisdiction of the United States. There will be no public offering of Securities in the United States and there is no intention to register any portion of any offering in the United States.

J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) ("JPM") is authorised by the Prudential Regulatory Authority (the "PRA") and regulated in the United Kingdom by the PRA and the FCA. Numis Securities Limited ("Numis") is authorised and regulated in the United Kingdom by the FCA. HSBC Bank plc ("HSBC", and together with JPM and Numis, the "Joint Bookrunners") is authorised by the PRA and regulated in the United Kingdom by the PRA and FCA. The Joint Bookrunners are acting exclusively for the Company and no one else in connection with the Capital Raising and the matters referred to herein and will not regard any other person (whether or not a recipient of this document) as a client in relation to the Capital Raising and will not be responsible to anyone other than the Company for providing the protections afforded to their clients or for providing advice in relation to the Capital Raising and the matters referred to herein.

Greenhill & Co. International LLP ("Greenhill"), which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for Sir Roger De Haan and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than Sir Roger De Haan for providing the protections afforded to its clients or affiliates, or for providing advice in relation to any matter or arrangement referred to herein.

None of the Joint Bookrunners, nor Greenhill, nor any of their respective affiliates (or any of their respective directors, officers, employees or advisers) accepts any responsibility or liability whatsoever for or makes any representation or warranty, express or implied, as to this announcement, including the truth, accuracy, fairness, sufficiency or completeness of the information or the opinions or beliefs contained in this announcement (or any part hereof). None of the information in this announcement has been independently verified or approved by the Joint Bookrunners, or Greenhill, or any of their respective affiliates. The Joint Bookrunners and each of their respective affiliates (and their respective directors, officers, employees or advisers) accordingly disclaim all and any liability, whether arising in tort, contract or in respect of any statements or other information contained in this announcement and no representation or warranty, express or implied, is made by either a Joint Bookrunner or any of their respective affiliates (or any of their respective directors, officers, employees or advisers) as to the accuracy, completeness or sufficiency of the information contained in this announcement. Save in the case of fraud, no responsibility or liability is accepted by the Joint Bookrunners or any of their respective affiliates (or any of their respective directors, officers, employees or advisers) for any errors, omissions or inaccuracies in such information or opinions or for any loss, cost or damage suffered or incurred howsoever arising, directly or indirectly, from any use of this announcement or its contents or otherwise in connection with this announcement. No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such announcements must not be relied on as having been authorised by the Company, the Joint Bookrunners or any of their respective affiliates. Subject to the Listing Rules, the Prospectus Regulation Rules, the Disclosure Guidance and Transparency Rules and MAR, the issue of this announcement and any subsequent announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Group since the date of this announcement or that the information contained in it is correct as at any subsequent date.

This announcement contains "forward-looking statements", which include statements other than statements of historical facts, including, without limitation, those regarding the Company's intentions, beliefs or current expectations concerning, among other things, its future financial condition and performance and results of operations; its strategy, plans, objectives, prospects, growth, goals and targets; future developments in the industry and markets in which the Company participates or is seeking to participate; and anticipated regulatory changes in the industry and markets in which the Company operates. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "aim", "anticipate", "believe", "continue", "could", "estimate", "expect", "forecast", "guidance", "intend", "may", "plan", "project", "should" or "will" or, in each case, their negative, or other variations or comparable terminology. By their nature, forward-looking statements are subject to known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. Such forward-looking statements are based on numerous assumptions, some of which are outside of the Company's influence and/or control, regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. Shareholders and potential investors are cautioned that forward-looking statements are not guarantees of future performance and that the Company's actual financial condition, results of operations, cash flows and distributions to Shareholders and the development of its financing strategies, and the development of the industry in which it operates, may differ materially from the impression created by the forward-looking statements contained in this announcement. In addition, even if the Company's financial condition, results of operations, cash flows and distributions to Shareholders and the development of their financing strategies, and the development of the industry in which they operate, are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. No statement in this announcement is intended to be a profit forecast.

 

This announcement does not constitute a recommendation concerning any Shareholder's or investor's options with respect to the Placing and Open Offer. The price of shares may go down as well as up and investors may not get back the full amount invested upon disposal of the shares. Past performance is no guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each investor or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

 

In connection with the Capital Raising, the Joint Bookrunners may release communications to the market as to the extent to which the book is "covered". A communication that a transaction is, or that the books are, "covered" refers to the position of the order book at that time. It is not an assurance that the books will remain covered, that the transaction will take place on any terms indicated or at all, or that if the transaction does take place, the securities will be fully distributed by the Joint Bookrunners.

 

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

 

Information to Distributors

 

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the MiFID II Product Governance Requirements), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the New Shares have been subject to a product approval process, which has determined that the New Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the New Shares may decline and investors could lose all or part of their investment; the New Shares offer no guaranteed income and no capital protection; and an investment in the New Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Capital Raise. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Bookrunners will only procure investors who meet the criteria of professional clients and eligible counterparties.

 

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the New Shares. Each distributor is responsible for undertaking its own Target Market Assessment in respect of the New Shares and determining appropriate distribution channels.

Expected Timetable of Principal Events

Record Date for entitlements under the Open Offer.............................

6.00 p.m. on 9 September 2020

 

Announcement of the Capital Raising and Saga Half-Year Results 2020.........................................................................................................

10 September 2020

 

Announcement of the results of the Firm Placing and the conditional placing pursuant to the Placing and Open Offer....................................

10 September 2020

 

Ex-Entitlement Date for the Open Offer.................................................

8.00 a.m. on 11 September 2020

 

Publication of the Prospectus (including the Notice of General Meeting, Form of Proxy and Application Form).....................................

11 September 2020

 

Open Offer Entitlements credited to stock accounts of Qualifying CREST Shareholders in CREST.................................................................

as soon as practicable after 8.00 a.m. on 15 September 2020

 

Recommended latest time for requesting withdrawal of Open Offer Entitlements from CREST........................................................................

4.30 p.m. on 24 September 2020

 

Latest time and date for depositing Open Offer Entitlements into CREST.......................................................................................................

3.00 p.m. on 25 September 2020

 

Latest time and date for splitting of Application Forms (to satisfy bona fide market claims only)................................................................

3.00 p.m. on 28 September 2020

 

Latest time and date for receipt of completed Pink Application Forms and payment in full under the Open Offer for the SSA..........................

11.00 a.m. on 28 September 2020

 

Latest time and date for receipt of Forms of Direction ………………….

10.30 a.m. on 29 September 2020

 

Latest time and date for receipt of Forms of Proxy...............................

10.30 a.m. on 30 September 2020

 

Latest time and date for receipt of completed White Application Forms and payment in full under the Open Offer or settlement of relevant CREST instruction (as appropriate)..........................................

11.00 a.m. on 30 September2020

 

Announcement of the results of the Placing and Open Offer................

 2 October 2020

 

General Meeting.....................................................................................

10.30 a.m. on 2 October 2020

 

Announcement of the results of the General Meeting..........................

2 October 2020

 

Admission and commencement of dealings in New Shares .................

 by 8.00 a.m. on 5 October 2020

 

New Shares credited to CREST accounts (uncertificated holders only).

as soon as possible after 8.00 a.m. on 5 October 2020

 

Consolidation Record Date......................................................................

6.00 p.m. on 9 October 2020

 

Effective time of the Consolidation........................................................

8.00 a.m. on 12 October 2020

 

Expected despatch of definitive share certificates (where applicable).

  On or around 23 October 2020

 



(1)                  The Proposed Capital Raising is subject to certain restrictions relating to Shareholders with registered addresses in any of the Excluded Territories

(2)                  Share certificates will be posted by prepaid first class post in respect of Shareholders on the Register.

(3)                  References to times in this timetable are to London time, unless otherwise stated.

(4)                  The times and dates set out in the expected timetable of principal events above and mentioned throughout this announcement  may be adjusted by Saga in consultation with the Joint Bookrunners, in which event details of the new times and dates will be notified to the FCA, the London Stock Exchange and, where appropriate, Qualifying Shareholders by way of a simultaneous RIS announcement.

 




PROPOSED CAPITAL RAISING

 

1.         Introduction

The Company has today announced a Capital Raising by way of the Firm Placing and the Placing and Open Offer to raise gross proceeds (before expenses) for Saga of approximately £150 million. The Capital Raising is intended to strengthen the Group's balance sheet and improve its liquidity position as it navigates a highly uncertain market backdrop. The Capital Raising is underpinned by a strategic investment by Sir Roger De Haan, who acted as Chief Executive and Chairman of the Group for 20 years, who will become a significant shareholder and non-executive Chairman following completion of the Capital Raising.

The Capital Raising is conditional upon, among other things, the passing of all the Resolutions by Shareholders at the General Meeting. The General Meeting will take place at 10.30 a.m. on 2 October 2020.

2.            Background to and reasons for the Capital Raising

2.1          Introduction to Saga

Sidney De Haan, Saga's founder, began operating low-cost holidays for retired people in 1951. Over the years, Saga expanded the type and range of its holidays and lowered its age qualification to 60, then to 50. In the 1980s, Saga started an insurance business, which now generates the majority of the Group's current earnings. Saga is recognised for its high-quality products and services, including cruises and holidays, insurance, personal finance and the Saga Magazine. For the year ended 31 January 2020, the Group's loss before tax was £300.9 million, mainly resulting from a £370 million impairment of goodwill relating to the Group's operating divisions, which included profit before tax of £0.8 million for its Travel business, profit before tax of £130.8 million for its Insurance business, and loss before tax of £49.5 million for its Other businesses and central costs segment. For the same period, the Group's underlying profit before tax was £109.9 million, of which £19.8 million was attributable to its Travel business and £130.8 million to its Insurance business. The Group's underlying loss before tax for its Other businesses and central costs segment was £40.7 million.

Saga has a long and proud heritage. The Directors believe its success is built on its brand and on its ability to market high-quality products directly to consumers. In recent years, Saga has experienced a number of challenges that have led to a reduction in customer numbers and profitability. These challenges include changing distribution patterns in insurance, the impact of regulations such as GDPR, a failure to differentiate in highly competitive markets, a weakening of core capabilities and a lack of successful delivery against strategic priorities.

To respond to these challenges, Saga has in recent years initiated a series of transformative measures. The first significant initiative was the transformation of the Cruise business. Saga reached a major milestone in July 2019 with the launch of Spirit of Discovery, the first of two new cruise ships. The second ship, Spirit of Adventure, is expected to be able to sail in late 2020.

In April 2019, the Group announced a reset of Saga's Insurance business, focused on re-establishing a direct-to-consumer strategy based on improving customer loyalty, rebuilding core capacities and launching differentiated products. The first major product launch was a three-year fixed price insurance policy, which the Group started selling for new and renewal customers in April 2019.

The Group made initial progress during 2019 and early 2020 against the priorities set out in the strategic reset in April 2019. The Insurance business stabilised, with Group results for the six months ended 31 July 2020 and for the year ended 31 January 2020 in line with expectations despite numerous industry challenges, including a tough pricing environment in Insurance and the collapse of Thomas Cook in Travel.

The Board has also taken actions to strengthen the management team, marked by the arrival of Euan Sutherland as Group Chief Executive Officer, James Quin as Group Chief Financial Officer, Cheryl Agius as Chief Executive Officer of Insurance, Nick Stace as Group Strategy Officer and Jane Storm as Chief People Officer. Saga's management team has undertaken a series of initiatives to simplify the Group, with plans in place to achieve a sustainable reduction in annual operating costs of £20 million. In addition, the disposals of Country Cousins and Patricia White's branded introductory care agency businesses and Bennetts generated £38 million of disposal proceeds.

As the COVID-19 pandemic began to spread to the United Kingdom in early 2020, the management team took a series of actions to protect its business, colleagues and customers:

·    The Group suspended operations in its Travel business in March 2020 and prioritised the repatriation of customers and colleagues before the mandatory lockdowns commenced.

·    The Group enabled full-time working from home with no material interruption to service levels.

·    Where requested, the Group refunded customers in the Travel business the balances paid on their cancelled departures.

·    Stress test modelling enabled the Group to prepare for the financial impact of COVID-19 by drawing £50 million under the Revolving Credit Facility and renegotiating the debt covenants under its Term Loan and Revolving Credit Facility.

·    The Group reduced expenses, particularly in the Travel business, to reduce the monthly "cash burn" cost.

·    The Group agreed with its lenders to a deferral of up to £32 million in principal payments under the Ship Facilities (assuming delivery of Spirit of Adventure on or before 30 September 2020).

In parallel, following the arrival of Euan Sutherland as Group Chief Executive Officer, Saga has undertaken a comprehensive strategic review of the business in order to build on the reset started in April 2019, and to ensure that the Group is well positioned to address the challenges of the last few years and take advantage of the opportunities that may emerge once the COVID-19 crisis has passed.

Saga's investment case

The Board believes that Saga has a fundamentally strong proposition, with a demographic that is growing and has a large proportion of the United Kingdom's wealth. The Group has a strategic plan to improve and modernise the business, which will take the original Saga DNA of exceptional customer service and put it in a digital and data driven context.

The Board believes that Saga will be further supported in the transformation of its businesses by the involvement of Sir Roger De Haan as an investor and non-executive Chairman. Sir Roger De Haan will bring a wealth of knowledge and experience to the Group, as well as a deep understanding of the Saga business and its customers, which the Board believes will be highly valuable to the Group as it seeks to deliver its updated strategy post the Capital Raising.

The proposed Capital Raising will significantly mitigate the cash cost of COVID-19 and together with other actions will accelerate the reduction in the Group's short-term debt. This will provide Saga with greater financial flexibility, supporting its execution of the Group's strategy and improving the Group's resilience against ongoing COVID-19 impacts.

2.2          Background to the raise and impact of COVID-19 on the Group

Impact of the COVID-19 pandemic on the Group

The Group has been able to successfully maintain operational capability during the COVID-19 pandemic, with excellent call answer rates across the Group's services and sales teams and with almost all colleagues working from home. However, all Cruise departures were suspended on 12 March 2020, and Tour Operations departures were suspended on 16 March 2020. The UK government currently continues to advise against cruise travel and has in recent weeks placed quarantine restrictions on individuals returning from countries experiencing an increase in COVID-19 cases. There remains a high degree of uncertainty as to when the Travel business operations will resume, but the Group currently expects to be able to resume its Cruise operations in late 2020, including a limited "safe sailing" cruise offering on the Group's fleet of mid-sized ships, and the Tour Operations in April 2021, subject to health and safety considerations and government advice. The Group has made preparations for the possibility that Cruise departures may resume towards the end of 2020 but subsequently be temporarily paused until May next year.

Following the Group's decision to suspend operations in its Travel business, the Group committed a working capital outflow of approximately £70 million to fund its Cruise and Tour Operations obligations for the six months ended 31 July 2020. This commitment has enabled the Travel business to return advance customer receipts to customers on request, continue to meet all supplier obligations, and fund ongoing cash and financing costs. The Group has also taken steps to reduce near-term marketing and other costs. These measures are expected to limit the ongoing "cash burn" cost for the Group's Cruise and Tour Operations businesses to between £6 million and £8 million per month in the second half of this financial year.

Whilst management believes the strength of the Saga offering and loyalty of its customers have been demonstrated, particularly in the Cruise business, which has experienced over 65% retention for cancelled cruises as at 31 July 2020, the longer term impact of the COVID-19 pandemic on the travel sector cannot be predicted at the current time.

In the Group's Retail Broking business, the home, motor and private medical insurance sub-segments have remained resilient during the COVID-19 pandemic. Motor and home insurance policies increased by 2.5% for the six months ended 31 July 2020, with margins broadly in line with plan assumptions. As expected, the Group has experienced a significant decrease in customer demand for travel insurance products as a result of restrictions on travel. In aggregate, COVID-19 has had an adverse impact on Retail Broking profits of £6.5 million for the six months ended 31 July 2020.

The Group's Insurance underwriting business has also been resilient, with profit before tax of £28 million for the six months ended 31 July 2020 (as compared to £21.3 million for the six months ended 31 July 2019), due to ongoing favourable claims experience relating to previous years. The Group's interim financial statements as at and for the six months ended 31 July 2020 do not reflect the recent decrease in the frequency of motor claims, which is due to a sharp reduction in miles driven by the Group's customers during the COVID-19 lockdown period. The Group decided not to recognise the benefit of this decrease because of uncertainty over the current pricing and claims outlook. As the impact of the COVID-19 pandemic on the Group's Insurance underwriting business becomes more certain, the Group intends to return a portion of this benefit to customers.

Reasons for the Capital Raising

The Group continues to monitor the impact of the COVID-19 pandemic on its business and has taken actions to reduce its costs, in particular in the Travel business. The Directors believe there is a risk of a slow recovery of the travel market over the short to medium term, as customer behaviours and the competitive landscape in the travel and insurance sectors may change as a result of the COVID-19 pandemic. The regulatory environment in which the Group operates may also change and there is a risk that the capital adequacy requirements for the Group's regulated insurance subsidiaries, and the cash collateral requirements for its regulated travel subsidiaries, may be increased. While the Group has significant available liquidity, these risks and uncertainties could have a significant adverse impact on the business over time, such that there is a risk that the Group will not comply with all of its financial covenants as at 31 July 2021 in the absence of the Capital Raising. This issue has been materially exacerbated by the Group's elevated level of leverage at the onset of the COVID-19 crisis.

In light of the above challenges, the proposed Capital Raising is intended to improve the Group's financial position and meaningfully reduce the uncertainty facing the Group with respect to its funding and balance sheet. The balance of the net proceeds will be used to strengthen the capital adequacy and cash requirements of the Group's Insurance business. For further information on the use of proceeds from the Capital Raising, see paragraph 3 below.

Based on the proposed Capital Raising, the Group has also been able to agree with its lending banks to extend the maturity of the remaining balance of the Term Loan to May 2023 and also to amend certain bank covenants. These amendments are contingent on the successful completion of the Capital Raising.

The Capital Raising is therefore expected to provide the Group with a significantly improved liquidity position to enable it to navigate a highly uncertain backdrop in relation to the COVID-19 pandemic.

2.3          The Group's Strengths

Despite the challenges facing the Group, the Board strongly believes that the Group retains a number of distinctive strengths, which position it well for future growth and achievement of attractive returns to Shareholders:

Leadership in a growing and highly attractive customer demographic

Older consumers, who are Saga's target customers, are the fastest growing and most affluent cohort in the United Kingdom. As the population of the United Kingdom ages, the number of over 65s is expected to grow from 12.4 million in 2019 to more than 18 million by 2050, with the proportion of the population aged over 65 increasing from 18.5% to 25.3% over the same period. The Directors believe that Saga's focus on these customers provides it with insight into the behavioural traits and sentiments of this growing target demographic, allowing it to develop and deliver differentiated products and services and position the business exceptionally well to take advantage of this highly attractive market opportunity.

Brand strength and customer trust with over 50s customers

In a highly competitive environment, the Directors believe Saga's brand remains a significant differentiator and driver of value. Saga's long track record and heritage as a consumer brand in the older market means that the Saga brand is both highly trusted and well-recognised within its target demographic, achieving over 88% recognition with UK over 50s.

Direct access to the customer base

Saga's heritage is operating as a direct-to-consumer business, primarily built around direct marketing and an extensive customer database. The Directors believe this is a key differentiator with travel competitors which traditionally have a higher reliance on travel agents and, in the case of insurance, on selling via price comparison websites. A direct-to-consumer approach makes it easier to build long-term customer relationships, with a focus on higher quality products as well as on value, and to cross-sell other products.

While this direct-to-consumer approach has been challenged by changing distribution patterns and by the implementation of GDPR, the majority of all Saga sales remain direct and the Group's marketing database remains a key source of value in generating new leads.

A strong Insurance business with 1.5 million customers

The Saga Insurance business is the largest part of the Group and its home and motor insurance products have remained resilient in light of the current challenges of the COVID-19 pandemic.

The Group has a high level of market share in its key demographic. The Directors believe the Group also has the critical capabilities needed to service this customer base and the data to be able to more accurately price risk for its customers.

A truly differentiated Cruise proposition

Following the delivery of Spirit of Discovery in June 2019 and with the upcoming delivery of Spirit of Adventure, Saga expects to be the only operator of new mid-sized cruise ships in the UK market. In addition, Saga's offering is tailored at every level to its over-50s demographic. Saga's boutique cruise offering includes all-adult cruising, all-inclusive offerings, individual cabin occupancy, single-seat dining, individual cabin air conditioning, a chauffeur pick-up service and all-balcony cabins, all designed with older customer experience in mind. The Directors believe this differentiated offering will position Saga well to compete within the UK cruise market upon resumption of Cruise activities.

A strengthened and highly experienced management team

The Board has taken a number of steps to strengthen the management team of the Group in recent years, with the arrival of Euan Sutherland as Group Chief Executive Officer, James Quin as Group Chief Financial Officer, Cheryl Agius as Chief Executive Officer of Insurance, Nick Stace as Group Strategy Officer and Jane Storm as Chief People Officer. Each brings a wealth of experience, with a mixture of both financial services expertise and brand/consumer experience. The Board believes that the Group now has the right team in place to execute its strategy.

2.4          The Group's Strategy

The strategic turnaround plan outlined by the new management team in 2020 is intended to build on Saga's heritage while responding fully to the challenges faced by the business today. At our core, we will remain the same - a unique British business focused on providing exceptional, differentiated products and services to our distinct customer group. At the same time, we will refresh our brand, invest in data and digital to improve the customer experience; we will optimise the insurance business and build greater capability and resilience in the Cruise business and re-set our Tours offer. We are confident that this approach will return Saga to growth and will underpin a successful next chapter in its history.  

Our target audience of the over 50s is the fastest growing and wealthiest consumer segment in the UK. In the first 55 years of its existence, Saga kept a focus on innovation, creating and delivering unique, high-quality products and services for older people in the United Kingdom. The Board considers that this was followed by almost 15 years during which this tight focus slipped and the Saga franchise was depleted, first under private equity ownership, when debt was increased dramatically and decision making became too focused on the short-term; then, during the period in public ownership, when the potential impact of some of the investment made was lost due to poor delivery.

The new management team have looked back to our heritage to address the problems we have identified and we have begun to resolve them with precision and pace. Our objective is to return the business to its core DNA, within a contemporary data and digital-led strategy, creating exceptional experiences every day for our customers. We are confident that this will drive growth in revenues, profit and cash over the long term and sustainable returns for our investors.

We have a new creative brand essence of "Experience is Everything" which talks to the life experience of our customers, the experience of Saga and the amazing customer experiences we aim to deliver for them. This is an important change for Saga; not only do we believe it will drive increased brand awareness, but we want it to act as an internal mantra for our people.

It is important to be realistic as we move forward, recognising four major challenges, in order to address them and ensure they do not recur:

·    Dilution of the original culture and lack of clear performance expectations

·    An inconsistent focus on the customer and the core drivers of shareholder value

·    Legacy of poorly made investment and then lack of delivery across the business

·    Excessive levels of debt

At the same time, we are very aware that we are heading into the next phase of delivery against the backdrop of the COVID-19 pandemic and the United Kingdom's worsening economic outlook. We are aware of the scale of the task ahead of us, but confident in our ability to deliver.

Recognising all this, the new management team has already begun delivering improvements and to create a platform for long term growth in revenue and profit. We have identified how to leverage the investment of recent years efficiently and what further investments need to be made. We are ensuring Saga is focused, first and foremost, on going back to its roots and using innovation to bring unique products to our customer base.

The golden thread running through everything we do will be a purpose-led approach to business. We recognise that older people do not define themselves by age, but by attitude, aspiration and an appetite for adventure. Saga is committed to delivering exceptional experiences for all customers every day, while being a driver of positive change in the markets in which we operate. We are aligning our people and our products around this purpose and through this approach and a return to great customer focus, we believe we will build longer, deeper relationships with this growing cohort of customers. This, in turn, will help to ensure Saga returns to being a high quality, growing and profitable business, one with a higher quality of earnings.

To deliver our plan we are focused on the following five priorities:

People and culture reset

The transformation required in people, leadership and culture will underpin the success of the strategic reset, so this is our first priority. The new management team has already acted decisively, resizing and reshaping the business in 2020, with headcount reduced by 36% (excluding ship crew) in the six months ended 31 July 2020 (including non-core disposals; 23% on a permanent like-for-like basis) and created a culture of accountability, with a new approach to organisation design, reducing grades and management layers from 17 to 5. The work we had done in this area enabled us to move quickly at the start of the COVID-19 pandemic and within a week of lockdown we had almost all 2,500 colleagues working effectively from home, with no material reduction in customer satisfaction levels. Our re-established commitment to fairness and colleague welfare saw the vast majority of Cruise crew repatriated to their home countries, alongside an investment in improved communications across the business to drive alignment and performance, as well as focusing on support for colleague mental health, diversity and inclusion. We are launching a new purpose, values and engagement programme this month, as we connect the customer brand transformation with the colleague brand to secure a strong foundation for growth in revenue and profit across the business.

Data, digital and brand transformation

The new management team are implementing a single Group-wide customer digital data platform. It builds on and optimises the investments made in the last five years, which failed to reduce complexity and give a single view of the customer across our businesses. We plan to efficiently re-purpose existing technology and develop big data solutions over the next two years. We will create an automated personalisation model which will allow customer interaction in real time and synchronisation across channels and businesses to drive customer multi-product holdings, loyalty and value. The digital transformation is also expected to drive value by improving insurance risk pricing by migrating insurance data into new platforms in 2020; using data to deliver more targeted marketing on digital platforms, beginning with insurance in 2020; and identifying cross-selling opportunities.

The transformation is also designed to drive awareness and consideration of a refreshed and contemporary Saga with a new integrated multi-year brand campaign planned to launch in 2021 alongside optimised direct sales driven marketing. We have a new creative brand essence of "Experience is Everything" which focuses on the experience of our customers, the experience of Saga and the amazing customer experiences we want to deliver for them. This change is aimed at not only driving increased brand awareness, but also acting as an internal mantra for our colleagues. Our target audience have already responded very positively to "Experience is Everything" as it is focused on the positives of age and celebrates experience whilst constantly addressing customers key concerns. There is already a brand advertising fund identified within the current plan to positively reset Saga. We are also planning a redesign of the website and enhanced digital features for customers, including content and rewards on web and mobile.

Optimising core businesses

The new management team are focused on making the core Saga businesses the best they can be for customers and colleagues, separately and together. We are clearly focused on this core aim and do not intend to invest in other businesses until we have delivered real improvements. This discipline will be important to drive maximum value creation and efficiency across the Group in the interests of Shareholders.

The Group's Insurance business has been operationally and financially resilient through the COVID-19 crisis, with good progress made in delivery of our objectives in the first six months of the 2020/2021 financial year. Saga-branded motor and home core policy numbers increased by 2.5% (the first growth in five years), and the Insurance business saw strong customer retention ahead of plan and margins in line with plan. Innovation has seen a change in the last year, resulting in positive customer reaction with the introduction of motor and home three-year fixed-price insurance, alongside COVID-19 inclusive travel insurance. We also believe there is more innovation to come from a refocused team. Our next stage of growth and transformation is underpinned by the group-wide focus on data, digital and our knowledge of our customers. We have a clear focus on what matters most for the next 12 months and beyond; transforming our pricing, upgrading our data infrastructure and simplifying the way our customers buy insurance through greater back-office efficiency, along with a complete systems migration and modernisation of direct marketing. Driven by our brand strategy, we are focussed on delivering exceptional propositions with exceptional experiences for our customers with a clear strategy for how we will perform well in the longer term. One of key aims is creating broader and deeper relationships with our customers and keeping our customers for longer, with a goal of attaining 80% customer retention in our Insurance business.

In the Cruise business, the number one priority is a safe return to service as soon as government restrictions on the cruise industry are lifted. We are working closely with the UK Government and all the relevant authorities to ensure provision of the best practice safety operating protocols for a COVID world. Our transformation of cruise means we operate some of the newest cruise ships on the seas. These are boutique cruise ships that are technologically advanced and able to offer our guests high levels of safety, with fresh air for all cabins, control of air-conditioning airflow in corridors and public spaces, all table-service restaurants, ionisation and ultra-violet filter capability which helps to further protect guests. Our ships are mid-size, enabling social distancing and realistic capacity management along with enhanced guest protection with testing ahead of boarding and medical staff and medical facilities on-board, as well as provision on-board for isolation and quarantine areas. Saga Cruise has always operated an end-to-end bubble for those travelling to and from our ships (excluding shore excursions), with a dedicated car service picking up guests from their homes and driving them to the ships and the same on return, and we only sail from UK ports. We will soon launch our second Spirit class ocean ship Spirit of Adventure and customer retention for those whose cruises have been cancelled because of COVID-19 has been strong, as are 2021 bookings. The new management team has confidence in the financial metrics established with Spirit of Discovery from August 2019 (load factors, per diems and profit per ship) being re-established, over time, as sailing resumes.

The new management team have taken the opportunity to begin the reset of the Tour Operations business during the COVID-19 lockdown. Having repatriated more than 3,000 customers in March 2020, we set about establishing a lower cost, smaller business and planning for a resumption of operations based on a higher-quality, differentiated product portfolio that is consistent with the Saga brand and re-introduced our Saga price promise to refund the difference for early bookers if we reduce our brochure prices. These will emphasise peace of mind, unique and aspirational holidays tailored for our customers and the delivery of exceptional experiences. The launch of the 2021 season is taking place in early autumn 2020, with a return to the DNA that created success for Saga Holidays for many years. Titan Travel has also improved its focus and reduced its cost base, while taking the same high-quality measures around COVID-19 safety and peace of mind for customers. Both Tour Operations businesses are planning for a resumption of operations from April 2021.

Lowering our operating costs

During 2020 and before COVID-19, the new management team was focused on delivering the optimum cost base for Saga. Having inherited a high cost, complex business, we have worked hard to reduce cost and complexity and have focused on this to great effect already. This focus on cost efficiency will remain as a central element for the business in the years ahead.

Reducing debt

The new management team acted quickly with decisive measures to strengthen the balance sheet and reduce debt. Focused in particular on the covenanted short-term debt, we have reduced operating costs, disposed of non-core assets, suspended the dividend and we are now proposing the Capital Raising. The Directors believe these measures will significantly strengthen the Saga balance sheet and provide a strong foundation for future success and growth.

In terms of financial targets, the Group aims to return to sustainable profitable growth from the 2019/2020 level for underlying profit before tax of £110 million, with a step change in the quality of earnings. This is underpinned by an ambition to grow home and motor insurance policy count by 3% per annum over the cycle, to grow Tour Operations revenues by 4% per annum from the reset level, both while sustaining or improving margins, as well as to achieve the goal of generating £40 million of EBITDA per Cruise ship per year in the longer term.

Management recognises that there will be an ongoing impact from COVID-19 and that the 2021/22 financial year will inevitably be a transitional one for the Group. Management also recognises that there is a need to increase investment in the brand, data and digital. This extra investment is not expected to exceed £10 million in each of the current and next financial years and should be self-funding from the 2022/23 financial year.

A key financial objective for the Group is to reduce total debt leverage to under 3.5x EBITDA. While the pace of recovery from COVID-19 will significantly influence the speed of debt reduction, the Group's modelling suggests that this should be achieved by the end of 2023 even in stress test scenarios. Given this priority the Group is not expecting to pay dividends in the next few years, but the Board will reassess its dividend policy once this leverage goal has been achieved. Beginning with the financial year ending 31 January 2023 and going forwards, the Company is targeting an 85% cash conversion ratio (as measured by available operating cash flow to Group trading EBITDA).

The new management team are confident the strategy for Saga is right and with the strengthened balance sheet through the Capital Raising, underpinned by Sir Roger De Haan, who will return to Saga as our Non-Executive Chairman, we are committed to delivering a strong future for the business.

2.5          Sir Roger De Haan's proposed role in the Company

It is proposed that immediately following completion of the Capital Raising, Sir Roger De Haan will assume the role of non-executive Chairman of the Board for an expected term of three years, subject to annual re-election by the Company's shareholders.  

As a sign of Sir Roger De Haan's commitment to Saga and confidence in its ability to deliver its strategy, Sir Roger De Haan has agreed to invest up to £100 million in the Capital Raising, which underpins the Group's ability to pursue this important fundraising. Roger de Haan will subscribe for 224,400,000 New Shares at a subscription price of 27 pence per New Share in the First Firm Placing and New Shares at a subscription price to be determined following completion of the Bookbuild (subject to a maximum issue price of 15 pence per New Share) in the Second Firm Placing on the same pricing as will apply to Shareholders who participate in the Open Offer, as a result of which Sir Roger de Haan will have a holding of at least 323,746,421 Ordinary Shares (representing 22.4 per cent. of the issued share capital) following completion of the Capital Raising. In addition Sir Roger de Haan will conditionally subscribe for up to 163,400,246 New Shares in the Placing and Open Offer, subject to clawback from shareholders participating in the Open Offer. As a result, depending on the final price of New Shares in the open offer and extent of clawback, Sir Roger de Haan's shareholding in the Company following completion of the Capital Raising will be between 16.7 per cent. and 25.1per cent.

In connection with his investment in the Company through the Capital Raising, Sir Roger De Haan has entered into the Relationship Agreement with the Company, conditional on Admission occurring. Sir Roger De Haan has also entered into a letter of appointment with the Company which sets out the terms of his appointment as non-executive Chairman. Sir Roger De Haan will join the Board's Nomination Committee with a single vote in his capacity as a Director. The Board has approved the Senior Independent Director becoming Chair of the Nomination Committee, conditional on Admission occurring.

For additional information on Sir Roger De Haan's participation in the Capital Raising, see paragraph 5 below.

The Directors have carefully considered the proposed role of Sir Roger De Haan as non-executive Chairman of the Company in the context of the role of the Chief Executive Officer and senior independent director and the proposed responsibilities of each. The role of the Senior Independent Director has been widened as it is recognised that Sir Roger De Haan will not be considered independent on appointment. Taking into account Sir Roger De Haan's history with the Saga brand and business, his proposed time commitment, and the terms of the Relationship Agreement and his letter of appointment, the Directors believe that the appointment of Sir Roger De Haan as non-executive Chairman is in the best interests of the Company.

3.    Use of proceeds

The Capital Raising is expected to raise gross proceeds (before expenses) of approximately £150 million in aggregate and net proceeds (after expenses) of approximately £140 million.

The Company has agreed to use £63.6 million of net proceeds to prepay part of the Term Loan, under which £140 million was outstanding as at 31 July 2020 (a prepayment of £6.4 million was subsequently made under the Term Loan on 14 August 2020 as required pursuant to the Credit Facility Agreement following the completion of the sale of Bennetts). The Company has agreed with its lenders to extend the term of the remaining balance of the Term Loan to May 2023.

The Company intends to use a further £40 million of the net proceeds to repay the amount drawn and outstanding under the Group's Revolving Credit Facility (after £10 million of the £50 million initially drawn was repaid in August 2020), with the balance of the net proceeds to be used to strengthen the capital adequacy and cash requirements of the Group's operating divisions.

 

4.    Financial position, current trading and prospects

For the six months ending 31 July 2020, the Group reported a loss before tax of £55.5 million and underlying profit before tax of £15.9 million, a decrease of 205.5% and 69.9% respectively in comparison to the prior period. This is in line with expectations and the stress test modelling undertaken at the onset of the COVID-19 crisis in March 2020 and reflects:

·    The suspension of the Travel business in March 2020 due to government advice against travel.

The significant impact of COVID-19 on the travel industry has led to an increase in travel industry betas and cost of debt levels such that market-participant views of discount rates have increased over the past six months, particularly in the cruise industry. While the Group is confident that the Travel business will recover over time, and believes that its Cruise operations are well placed for a post-COVID-19 world, given this position and uncertainty over the pace of the recovery, the Group has impaired in full the goodwill assets allocated to the Tour Operations and Cruise businesses totalling £59.8 million.

Notwithstanding the progress made this year and the strong current liquidity position of the Group, there is an increasing likelihood that the impact of COVID-19 on the travel industry will be more significant and result in a slower recovery than previously anticipated. This has led to the launch of the Capital Raising, with Sir Roger De Haan as a cornerstone investor, which is anticipated to raise £140 million of net proceeds.

The Group suspended dividend payments at the onset of the COVID-19 crisis. No interim dividend is proposed and the Board anticipates that it will not reconsider whether to pay dividends until the Group's leverage including Cruise is below 3.5x EBITDA. Taking into account the proceeds from the Capital Raising, the Board does not expect this target to be reached before 2023.

5.    Key terms of the Capital Raising

The Company proposes to raise gross proceeds of £150 million by way of the Capital Raising.

The Capital Raising is comprised of the following elements, each of which is inter-conditional with the others:

·    the First Firm Placing of 224,400,000 New Shares to Sir Roger De Haan at the First Firm Placing Price of 27 pence per New Share, representing a 68.4% premium to the Closing Price on 9 September 2020 (and a 98% premium to the 13.61 pence Closing Price on 28 August 2020). The New Shares issued pursuant to the First Firm Placing will be subscribed for by Sir Roger De Haan and will not carry an entitlement to participate in the Open Offer;

·    the Second Firm Placing of New Shares to Sir Roger De Haan at the Second Firm Placing Price to be determined following completion of the Bookbuild (subject to a maximum issue price of 15 pence per New Share). The New Shares issued pursuant to the Second Firm Placing will not carry an entitlement to participate in the Open Offer, but the Second Firm Placing replicates the entitlement Sir Roger De Haan would have had to participate in the Open Offer if the New Shares issued pursuant to the First Firm Placing had been on the Register on the Record Date;

·    the Placing and Open Offer of New Shares at a price to be determined following completion of the Bookbuild (subject to a maximum issue price of 15 pence per New Share) (the "Offer Price"); and

·    the Consolidation, following the Capital Raising, pursuant to which every 15 Ordinary Shares of 1 pence nominal value will be consolidated into 1 Consolidated Share of 15 pence nominal value.

The basis of the Open Offer will be announced following completion of the Bookbuild.

The Joint Bookrunners intend, pursuant to the Placing and Open Offer Agreement, to conditionally place the New Shares to be issued pursuant to the Placing and Open Offer with certain Shareholders, Sir Roger De Haan (in addition to his allocations under the Firm Placing) and institutional investors. The commitments of these Placees will be subject to clawback in respect of valid applications for Open Offer Shares by Qualifying Shareholders pursuant to the Open Offer. The Open Offer Shares conditionally placed with investors other than Sir Roger De Haan will be clawed back on a pro rata basis first (with Placees also being entitled to off-set Open Offer Shares for which they validly apply under the terms of the Open Offer against their allocation in the conditional placing) and only when these Open Offer Shares have been fully clawed back will the Open Offer Shares conditionally placed to Sir Roger De Haan be clawed back.

The First Firm Placing Price of 27 pence per New Share represents a premium of 98% to the Closing Price of 13.61 pence on 28 August 2020, being the Business Day prior to the announcement of the proposed Capital Raising.

The Capital Raising is conditional upon the following:

·    the Resolutions being passed by Shareholders at the General Meeting;

·    Admission becoming effective by not later than 8.00 a.m. on 5 October 2020 (or such later time or date as the Joint Global Coordinators and the Company may agree);

·    the Placing and Open Offer Agreement becoming unconditional; and

·    the Subscription Agreement becoming unconditional.

Accordingly, if any such conditions are not satisfied, or, if applicable waived, the Capital Raising will not proceed.

The necessary shareholder approvals for the Capital Raising will be sought at the General Meeting to be held at 10.30 a.m. on 2 October 2020, the full details of which will be set out in the Notice of General Meeting that will be contained in the Prospectus to be published by Saga in connection with the Capital Raising.

As of the date of this announcement, Sir Roger De Haan has been approved as a "controller" of the Company's FCA regulated subsidiaries for the purposes of FSMA, as "shareholder controller" of the Company's Jersey incorporated subsidiary, for the purposes of the Financial Services (Jersey) Law 1998 ("FSJL") and as "controller" of the Company's Gibraltar incorporated subsidiary, for the purposes of the Gibraltar Financial Services Act 2019.

The Placing and Open Offer is being fully underwritten by the Joint Bookrunners, subject to the conditions set out in the Placing and Open Offer Agreement. The Firm Placing is not underwritten by the Joint Bookrunners.

Applications will be made for the New Shares to be admitted to listing on the premium segment of the Official List and to trading on the London Stock Exchange's main market for listed securities. It is expected that Admission of the New Shares will become effective and dealings in the New Shares will commence at 8.00 a.m. on 5 October 2020 (whereupon an announcement will be made by the Company to a Regulatory Information Service).

The New Shares, when issued and fully paid, will rank pari passu in all respects with Existing Shares, including the right to receive dividends or distributions made, paid or declared after the date of issue of the New Shares.

Shareholders should note that the Open Offer is not a rights issue. Qualifying Shareholders should be aware that in the Open Offer, unlike in a rights issue, any Open Offer Shares not applied for will not be sold in the market on behalf of or placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer, but will be subscribed for under the Open Offer for the benefit of the Company.

Further information on the Capital Raising and the terms and conditions on which it is made, including the procedure for application and payment, will be set out in the Prospectus. The Company also intends to publish a shareholder guide to assist shareholders in understanding how they can participate in the Open Offer.

Consolidation

At the General Meeting, Shareholders will be asked to approve the Consolidation. Under the Consolidation every 15 Ordinary Shares of 1 pence nominal value will be consolidated into 1 Consolidated Share of 15 pence nominal value. The Consolidation is being undertaken because the current trading price of the Ordinary Shares is such that a small movement in the Company's share price could result in a large percentage movement and considerable volatility. Thus the purpose of the Consolidation is to try to establish a market price for the Company's shares that is more appropriate than the market price at present.

The effect of the Consolidation will be that Shareholders will, on implementation of the Consolidation, hold:

1 Consolidated Share of 15 pence nominal value for every 15 Ordinary Shares of 1 pence nominal value

The proportion of the issued ordinary share capital of the Company held by each Shareholder immediately following the Consolidation will, save for fractional entitlements, remain unchanged as a result of the Consolidation itself (although a Shareholder will experience dilution under the Capital Raising). In addition, apart from the change in nominal value, each Consolidated Share will carry the same rights as set out in the Articles of Association that apply to the Existing Shares (including in relation to voting, pre-emption rights, dividends and rights on a return of capital). The resolutions approved at the annual general meeting of the Company held on 22 June 2020 granting authority to the Directors to allot Ordinary Shares, including on a non pre-emptive basis, are not affected by the Consolidation since the aggregate nominal value of the total issued share capital will remain unchanged by the Consolidation.

Where the Consolidation results in any Shareholder being entitled to a fraction of a Consolidated Share, that fraction will not be allotted to such Shareholder and arrangements will be put in place for any such fractional entitlements arising from the Consolidation to be aggregated and sold in the market on behalf of the relevant Shareholders. Amounts of less than £5.00 will not be paid to such Shareholders and will instead be retained for the benefit of the Company. Having regard to the current share price of the Company, it is anticipated that no proceeds of fractional entitlements will be distributed. As a result of the Consolidation, Shareholders with fewer than 15 Ordinary Shares following completion of the Capital Raising will no longer hold Ordinary Shares in the Company.

For purely illustrative purposes, an example of the effect of the Consolidation is set out below:

Ordinary Shares (following completion of the Capital Raising)

Consolidated Shares