Discovery Limited · JSE:DSY
Discovery — Non-Deal Roadshow (March 2021)
40 slides from Discovery's roadshow presentation, March 2021
Slide 1: Discovery Limited Domestic Medium Term Programme Non-Deal Roadshow
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Slide 2: Team introduction
Team introduction Group Chief Financial Officer Group Chief Risk Officer Group Corporate Finance Group Risk and Actuarial Group Investor Relations 2
Slide 3: Business Model and Financial Performance, Operating Model, Debt Overview
Business Model and Financial Performance Operating Model Debt Overview Discussion Points DMTN Issuance 3
Slide 4: Business Model and Financial Performance
Business Model and Financial Performance 4
Slide 5: Financial results overview | 6 months to 31 December 2020
Financial results overview | 6 months to 31 December 2020 Core new business1 Normalised operating profit Normalised headline Net cash flow2 earnings to R2 284m Operating cash flow to R9 916m to R4 507m Return on Embedded Earnings investment in Interest cover3 Bank & DMTN Debt4 Value2 new initiatives
Slide 6: SA Composite and UK Composite operating profit and new business
Operating profit New business R4.5bn R10.9bn Rm Continued operational excellence with significant support to 1 670 +6% 3 167 1 -5% members and society Excellent operating performance and positive variances delivering 1 922 +3% 1 162 -6% growth on an optimised capital base SA Composite High-quality e
Slide 7: Operating profit: established, emerging and new businesses
Operating profit R4.5bn Strong growth from Emerging and slowing Rm investment in New 1 670 +6% 500 +81% 1 922 +3% ESTABLISHED BUSINESSES +50% 250 +71% 471 -3% 0 Health insurance 613 +24% -250 Life insurance 327 +206% H1 2017 H1 2018 H1 2019 H1 2020 H1 2021 Established 5 003 +10% 107 +43% 1,200 +81%
Slide 8: New business: established, emerging and new businesses
New business R10.9bn Emerging and New contributed to strong Rm total new business API 3 167 1 -5% 4,000 1 162 -6% +24% ESTABLISHED BUSINESSES 3,000 +20% 1 316 -3% +55% 2,000 +30% 32% Health insurance 638 +4% 1,000 5 yr CAGR - Life insurance 561 -13% H1 2017 H1 2018 H1 2019 H1 2020 H1 2021 Establishe
Slide 9: New businesses continue to see considerable traction
New businesses continue to see considerable traction % in New decreasing Bank VitalityInvest Umbrella Funds DBI Vitality1 26% 22% New business New business APE New business 15% 5% 7% R6.1bn +95% +123% ZAR +247% +77% New market Retail deposits to £151.2m to R592m to R124m H1 H1 H1 H1 H1 launches over
Slide 10: Operating Model
Operating Model 10
Slide 11: Group operating model
Group operating model Group profit growth Growth Engine Cash Management Cash Cash ESTABLISHED Cash generated used Conversion Normalised ~5 years Operating > 50% <50% Tax Cash Profit per Funding spent business New Finance EMERGING business costs and Per Business dividends Cash Cover ~5 years < 50% Ne
Slide 12: Cash management supports the growth methodology
Cash management supports the growth methodology Cash Cash generated Funding used Cash generated from in-force R0.9bn Tax and finance Reinsurers costs Net cash generated from Debt R1.5bn in-force business Cash used net of funding New business R5.8bn R3.9bn New businesses Net cash flow R0.9bn Net cash
Slide 13: History of net cash flow emergence
History of net cash flow emergence H1 2019 H1 2020 H1 2021 Cash Funding Cash Cash Funding Cash Cash Funding Cash generated used generated used generated used Reinsurers Debt Equity R1.9bn R4.1bn Reinsurers R1.9bn Reinsurers R3 478m Debt Debt R1.7bn Once off SAM release R3.7bn R4.3bn R3.9bn R1.2bn R0
Slide 14: Operating to net cash flow
Operating to net cash flow Cash from Operations Funding and investment decisions Tax R1.0bn Cash generated from in-force business New business (Excl. One-offs) R3.9bn Finance costs R7.3bn Funding R0.5bn COVID claims R0.9bn New businesses R0.6bn R0.9bn Business development Operating cash flow R0.9bn
Slide 15: Group's positive cash generating businesses is growing
Group’s positive cash generating businesses is growing Net operating cash flow (Rm)1 Relative increase in cash contributing business 10 000 8 000 8 000 6 000 6 000 R Millions 4 000 4 000 2 000 2 000 0 0 FY2017 FY2018 FY2019 FY2020 HY2021 (2 000) (4 000) FY2017 FY2018 FY2019 FY2020 HY2021 Positive Op
Slide 16: Improving cash generation
Improving cash generation Diversification of cash flow improving Cash conversion above target Cash cover on target Cash from any one business should not contribute more More than 50% of operating profit must be cash Operating cashflow should be enough to at least cover than 50% of the total operatin
Slide 17: Group is well capitalised and highly liquid
Group is well capitalised and highly liquid Highly liquid across Sufficient liquidity Strongly capitalised FLR is within target the Group2 at the centre Liquid excess assets above regulatory capital requirements FLR R millions SA Liquidity3 , R millions Dec 19 Dec 20 Rm Cover Cover 29% 28% 14,000 2,
Slide 18: Debt overview
Debt overview 18
Slide 19: Existing debt maturity profile
Existing debt maturity profile South African debt maturity profile UK debt maturity profile 5,000 140 4,500 120 4,000 3,500 100 3,000 R Millions £ Milions 80 2,500 60 2,000 1,500 40 1,000 20 500 - - FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2021 FY2022 FY2023 FY2024 FY2025 Other Funding DMT
Slide 20: Existing bank debt covenants
Existing bank debt covenants Covenant Minimum Requirement 31-Dec-20 30-Jun-20 Group Debt to EBITDA ratio1 Less than 2.5X 1.94 1.96 Group financial Indebtedness to EV Less than 30% of Group EV 22.9% 22.5% Group EV Greater than R30 billion ZAR 72,467 ZAR 70,834 Discovery Life SCR Cover SCR Cover > 1.1
Slide 21: Key drivers of known funding requirements
Key drivers of known funding requirements 1-3 years 3-5 years • Transfer of Vitality Life business from Prudential balance sheet to • Refinance maturing South African and UK bank debt Vitality Life Limited (Part VII) arrangements • Vitality Life new business funding • New initiatives • Bank regulato
Slide 22: Discovery's credit rating
Discovery’s credit rating Credit strengths Moody’s Insurance Financial Strength Rating (IFSR) 1. Very strong franchise in South Africa and a growing global footprint • Ba1 2. A meaningful, and growing, portion of profits generated outside of • 1 above the Sovereign (Ba2, negative) South Africa Suppo
Slide 23: Discussion Points
Discussion Points 23
Slide 24: Discussion Points: COVID-19
Discussion Points: COVID-19 24
Slide 25: Discovery data to date
Discovery data to date Deaths across 70,000 20,000 DH, DL and VL 18,000 60,000 16,000 Tests 50,000 conducted 14,000 12,000 40,000 Confirmed New cases New cases 10,000 positive cases 30,000 8,000 Members 20,000 6,000 admitted 4,000 10,000 2,000 Staff deaths - - 22-Nov-20 10-Nov-19 15-Mar-20 26-Apr-20
Slide 26: The likelihood of a third wave
The likelihood of a third wave Projected deaths vs Incremental deaths under the medium scenario Total second wave deaths expected Scenarios assume IFR = 0.39% and 1/3 reinfection Feb-Jun Jul-Dec deaths 2,000 1,800 1,600 Second wave run-off 0.2x 0x 16.6k 1,400 1,200 1,000 Super spreader at 800 600 Ea
Slide 27: COVID-19 provisions back to R3.4bn in December 2020
COVID-19 provisions back to R3.4bn in December 2020 Life insurance Health insurance £69.8m R2 160m £64.9m Invest R1 953m Invest 1 023 lapses 956 claims 30-Jun-20 Claims and lapse Net new and new 31-Dec-20 30-Jun-20 Net movement New business Additional 31-Dec-20 unwind business COVID-19 in claims and
Slide 28: Discussion Points: Currency & Interest Rate Volatility
Discussion Points: Currency & Interest Rate Volatility 28
Slide 29: Currency and interest rates volatile over the period
Currency and interest rates volatile over the period Rapid strengthening of the rand Sustained elevated long-term interest rates in SA in USD average in GBP average vs Dec 19 vs Dec 19 Spot vs Average real rates: 20-year point 26 6% 24 5% 22 4% 20 vs Jun 20 3% 18 closing GBP 2% 16 14 1% vs Jun 20 0%
Slide 30: Reported profit for period affected by currency and interest rates
Reported profit for period affected by currency and interest rates 6 months 6 months Rm ended ended % Recon Dec 20 vs Dec 19 growth Dec 2020 Dec 2019 Normalised profit from operations before economic 4,507 3,792 19% Currency Interest assumptions adjustments +19% -10% Interest -1% Economic assumption
Slide 31: Discussion Points: Growth in Discovery Bank
Discussion Points: Growth in Discovery Bank 31
Slide 32: Discovery Bank clients, accounts, retail deposits and advances
Clients Accounts Retail deposits Advances Post-BIN Post-BIN Post-BIN Post-BIN migration migration migration migration 300k J A S O N D J F MAM J J A S O N D J F S ON D J FMAM J J A S ON D J F J A S OND J FMAM J J A S OND J F J A S OND J FMAM J J A S OND J F 2019 2020 2021 2019 2020 2021 2019 2020 20
Slide 33: Deposits have grown strongly, in line with the retail deposits-led strategy
Deposits have grown strongly, in line with the strategy to build a retail deposits-led bank Retail deposits Deposits are sticky and diverse International comparison Retail deposits tenure Discovery Bank deposit growth is best in class 44% after 14 months of operation 97% growth > 3 months post-migra
Slide 34: Advances remained flat reflecting decrease in consumer spending
Advances remained flat reflecting the decrease in consumer spending and prudent lending approach Advances Credit quality Market share 800 of clients have their largest credit card balances with Discovery Bank 700 Post-BIN Discovery Bank balance rank migration 600 500 Exceptionally low 60% risk 400 L
Slide 35: Value drivers are trending in the right direction and the Bank is well-positioned
Value drivers are trending in the right direction and the Bank is well- positioned for growth Value drivers Strategic focus areas Expanding distribution Large and highly productive channels and leads sources tied adviser base Thought leadership and brand awareness Client growth Pre-scoring Vitality
Slide 36: DMTN Issuance
DMTN Issuance 36
Slide 37: Key features of the DMTN programme
Key features of the DMTN programme ISSUER Discovery Limited SIZE (NOMINAL AMOUNT) R10 billion of which 8 issuances made totalling R7.8 billion GUARANTORS Discovery Health and Discovery Vitality (as per current SA Bank Loans) LISTING The Interest Rate Market of the JSE Limited Notes that can be issue
Slide 38: DMTN issuances to date
DMTN issuances to date DSY10U1 & Stock code DSY01 DSY02 DSY03 DSY04 DSY05 DSY12U1 DSY11U1 Nominal Value (Rm) 500 2,000 200 1,000 500 2,500 1,100 Tenor (years) 5 7 7 8 3 5 3 Date Issued 21-Nov-17 21-Nov-17 21-Nov-17 29-Aug-18 28-July-20 21-Feb-20 10-Mar-20 Maturity Date 21-Nov-22 21-Nov-24 21-Nov-24
Slide 39: Disclaimer
Disclaimer Strictly private and confidential This presentation has been prepared by Discovery Limited (“Discovery”). The information contained in this presentation is confidential and intended solely for the intended recipient. This presentation may contain information proprietary to Discovery and a
Slide 40: March 2021
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