Saga is seeking to bolster its balance sheet despite reporting “very resilient’ customer demand for its cruises even with its two ships being laid up due to the Covid-19 crisis.
The over-50s specialist group reported total available cash of £51 million and an undrawn £100 million undrawn revolving credit facility (RCF) at the end of the year and is expected to report a pre-tax profit for 2020 despite Covid challenges.
The cash burn rate for second half of the year was towards the lower end of previous guidance of £6 million to £8 million a month, the company said in a trading update.
However, Saga revealed it was “taking actions to further enhance financial flexibility” given the backdrop of continued disruption to its travel business as it prepares for a return to service in May.
Stressing that the group has “significant liquidity and headroom to the current covenants in short term bank facilities,” Saga added: “We have commenced constructive discussions with lenders, who remain supportive.
“We are reviewing the covenants attached to our term loan and RCF, to increase flexibility ahead of the resumption of travel.
“As part of a package of measures available for the cruise industry, separate discussions are underway in relation to a further debt deferral and covenant waiver for the two ship facilities.
“This could allow for deferral of up to £45 million of principal payments due to be made from 1 April 2021 to 31 March 2022 and would be in addition to £32 million already deferred, due in the period from 1 April 2020 to 31 March 2021.
“These are early stage discussions and we will provide an update with our full year results.”
Saga added: “Customer demand has also been very resilient, with £140 million of total cruise bookings as at 23 January, representing 68% and 28% of the latest revenue targets for 2021/22 and 2022/23 respectively.
“These figures exclude £8 million of bookings that have been cancelled and customers have chosen to receive a voucher rather than re-book a specific cruise.
“As at 31 January 2020, total bookings were £127 million, representing 78% and 6% of the revenue targets at that date for 2020/21 and 2021/22.”
Saga’s travel business has remained suspended “and we have focused on customer retention, keeping costs under control and ensuring that both our businesses are ready for return to service”.
The group added: “Against this backdrop, we have maintained an agile approach and are ready to resume operations at the earliest possible opportunity.
“We are ready to restart both cruise and tours in May, although any changes to government travel guidance may impact those plans.
“In order to minimise the financial disruption during the period of travel suspension, significant savings have been achieved in both marketing and administrative costs which have reduced the cash burn rate.
“Customer retention across both businesses remains high; the average proportion of cruise guests who have re-booked rather than take a refund stands at an average of 69% through the travel suspension period, but rose to 86% more recently, showing the pent-up demand for cruise amongst our guests who will benefit from the first round of the vaccine roll out.”
The company repeated its requirement for passengers to be fully vaccinated at the time of travel in addition to previously agreed enhanced safety procedures. These include reduced cruise ship capacity to allow for appropriate social distancing, enhanced medical areas and air conditioning, multi-layer Covid-19 testing before departure, increased crew/guest ratios to deliver enhanced cleaning regimes and a quarantine and testing procedure for crew.
Looking forward, Saga said: “Our focus remains on the disciplined execution of our strategy that will strengthen our brand, improve our focus on customers and return our Insurance and travel businesses to sustainable growth.
“2021/22 will be a year of transition, against the backdrop of the continued Covid-19 pandemic, ahead of the full roll out of a vaccine programme and before the final recommendations of the insurance market study are made.
“In this uncertain backdrop the group’s near-time priorities continue to be to manage costs and preserve cash, both to support our return to full travel operations and further reduce debt.
“Despite the impact of the pandemic, we remain confident that we will unlock the potential of Saga, creating significant long-term value for all our investors.”
Group chief executive Euan Sutherland said: “We have made good progress in delivering our new strategy and have accelerated the pace of change at Saga, against the backdrop of the challenges that the Covid-19 pandemic has brought to our business.
“Insurance remains resilient, while within travel we are focusing on ensuring the safest possible environment for our guests when cruise and holidays resume, whilst appropriately controlling costs until that time.
“We are confident in our strategy, the strength of our brand and the loyalty and economic resilience of our customers.
“We know they are ready to travel in great numbers and live their lives to the full as the vaccine programme is rolled out.
“We are excited about the opportunities ahead as we focus on delivering more exceptional experiences for our customers.”