Slide 1: Domestic Medium Term Note Programme Roadshow: Refinancing of 2024 Maturities
Discovery Limited Domestic Medium Term Note Programme Roadshow Refinancing of 2024 Maturities Cape Town – 22 nd & 23 rd April 2024 Johannesburg – 24 th April 2024
Slide 2: Team introduction
Team introduction 01 Deon Viljoen: Group Chief Financial Officer 02 Andrew Rayner: Group Chief Actuary 03 Fareed Chothia: Chief Financial Officer - South Africa 04 Peter Bolink: Head of Group Actuarial 2
Slide 3: Overview Operating Model Business Model and Financial Performance
1 Overview 2 Operating Model 3 Business Model and Financial Performance 4 Debt Overview 5 DMTN Issuance 6 Questions 3
Slide 4: Overview
1 Overview Als
Slide 5: Purpose of debt raise
Purpose of debt raise Economic and timing Notes Maturing in 2024 considerations Proposed debt raise Pre- and post-election Locally uncertainty & rate cycle Q1 sentiment DMTN Debt Global election cycle Q2 Raise SA Elections Internationally uncertainty & inflationary pressures 30 June 2024 Q3 DSY Clos
Slide 6: Navigating a complex backdrop
Navigating a complex backdrop Slowing inflation globally High interest rates Market outlook Inflation rate by market1 Central bank policy rates2 South Africa • NHI bill has noble aims but creates uncertainty 12% 9% • Election permutations create uncertainty • Widespread power cuts have lessened 8% •
Slide 7: Operating Model
2 Operating Model Capital Model
Slide 8: Group Operating Model
Group Operating Model Growth Engine Cash Management SA Composite Cash Cash Per generated used Business Cash Normalised Operating < 50% Tax Cover UK Composite Profit <50% per Cash 1.5x CPI + 10% business Funding spent New Finance business costs and SH Cash conv. dividends Dividends Vitality Global 5x
Slide 9: Business Model and Financial Performance
3 Business Model and Financial Performance 9
Slide 10: Financial results overview | 6 months to December 2023
Financial results overview | 6 months to 31 December 2023 Core new business1 Normalised operating profit Normalised headline Net cash flow2 earnings (R390m) Accrual Basis +28% +13% 11% (R91m) to R14 197m to R5 622m to R3 320m Operating cash flow R2 962m Return on Embedded Earnings investment in Inte
Slide 11: Strong operating performance
Strong operating performance R5 622m R14 197m R2 942m +13% +28% +15% Non-insurance ZARm Operating profit New business2 income Health 1 874 +7% 6 835 +52% 592 +3% New business boosted by successful take-on of Sasolmed Life – Individual 2 128 +12% 1 444 +7% Strong earnings and improving new business m
Slide 12: Significant operating profit and new business growth over time
Significant operating profit and new business growth over time Operating profit New business IFRS 4 IFRS 17 6,000 16,000 5,000 +13% 14,000 +28% Operating profit New business 12,000 4,000 Rapid growth in IFRS 4 earnings 10,000 +11% historically, New business 3,000 relatively flat on 8,000 excluding t
Slide 13: IFRS 17 performance H1 FY23 to H1 FY24
IFRS 17 performance H1 FY23 to H1 FY24 Actual Actual R million H1 2024 H1 2023 % Normalised profit from operations 5 622 4 973 +13% Forex losses/gains -40 28 1 DP finance lease impact -59 -73 Finance charges excl. 1DP finance lease -881 -778 Investment income and fair value gains on financial instru
Slide 14: Group Shareholder Cash Flow
Group Shareholder Cash Flow Reducing spend on new initiatives and disciplined capital management Cash Generation (Rm) New Business Spend (Rm) New Initiatives (Rm) 18,000 FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 16,000 - - -1,000 -500 14,000 -2,000 12,000 -1,000 -3,000 10,000 -1,500 -4,000 8
Slide 15: Group Shareholder Cash Flow
Group Shareholder Cash Flow Shareholder cash generated HY24 used to pay dividends Spend on new initiatives has been steadily reducing and cash generation from in- force has returned to pre- COVID levels which has allowed Discovery to reinstate shareholder dividends 1 Accrual basis aligns in-period s
Slide 16: Group well capitalised with robust cash generation
Group well capitalised with robust cash generation Strongly Highly liquid across Sufficient centre Strong cash FLR within target capitalised the Group liquidity conversion FLR Liquid assets across the Centre liquidity4, Rm Group cash conversion5 Group3, Rm Dec 22 Dec 23 COVID and 30% Cover Cover 20,
Slide 17: Strong growth in Group Embedded Value
Strong growth in Group Embedded Value 12.1% Annualised RoEV R105 251m R103 480m R98 176m Opening EV Value of new Unwind of risk Non-economic Operational EV Economic Forex New Initiatives Other IFRS 17 Closing EV business discount rate experience experience Transition variances and variances and Impa
Slide 18: Discovery grows businesses organically
Discovery grows businesses organically Organic growth Focused on streamlining model New initiatives Growth platforms expected to drive material growth Investment in New % core operating profit 25% ESTABLISHED ESTABLISHED CPI+5% BUSINESSES 20% 15% GROWTH PLATFORMS EMERGING GROWTH CPI+30% 10% PLATFORM
Slide 19: Debt Overview
4 Debt Overview Wii
Slide 20: Debt Profile
Debt Profile R Million 16 764 16 361 16 226 15 456 16 030 3 122 3 682 3 621 3 498 3 764 11 034 26% 4 463 4 156 1 612 24% 6 426 4 599 22% 3 607 20% 22% 20% 7 222 8 879 8 449 7 359 7 859 6 253 2 200 FY19 FY20 FY21 FY22 FY23 H1FY24 DMTN SA Bank UK Bank % FLR From FY22, FLR is calculated on an IFRS 17 b
Slide 21: Debt maturity profile – Financial Year
Debt maturity profile – Financial Year R Million 5 279 4 752 2 524 3 621 2 505 1 495 1 632 1 811 228 2 228 1 658 1 495 1 404 694 FY2025 FY2026 FY2027 FY2028 FY2029 SA Bank DMTN Listed DMTN Unlisted UK Bank *£154m UK Debt maturing December 2025, with options to extend **DMTN Unlisted debt refers to s
Slide 22: Bank debt covenants
Bank debt covenants Minimum Covenant 31-Dec-23 30-Jun-23 Requirement Group Debt to EBITDA ratio Less than 2.5X 1.4 1.4 Group financial Indebtedness to EV Less than 30% of Group EV 16.7% 17.6% Group EV Greater than R30 billion ZAR 103 480 ZAR 98 176 Discovery Life SCR Cover SCR Cover > 1.1 1.8x 1.9x
Slide 23: Discovery's credit rating
Discovery’s credit rating Credit strengths Moody’s Insurance Financial Strength Rating (IFSR) 1. Very strong franchise in South Africa that the group is leveraging across multiple business lines, and increasingly, globally through the Vitality franchise • Ba1 • 1 above the Sovereign (Ba2, stable) 2.
Slide 24: DMTN Issuance
5 DMTN Issuance 24
Slide 25: Key features of the DMTN programme
Key features of the DMTN programme ISSUER Discovery Limited SIZE (NOMINAL AMOUNT) R10 billion with R8.4 billion in issue 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 issued under the Programme
Slide 26: DMTN issuances to date
DMTN issuances to date Total of R8.4 billion in issue by a Bank which are structured as flexible short-term notes DSY10U Stock code DSY01 DSY02 DSY03 DSY04 DSY05 & DSY12U DSY06 DSY07 DSY28U DSY11U Nominal Value (Rm) 500 2,000 200 1,000 500 2,500* 1,100 792 226 1,650* Tenor (years) 5 7 7 8 3 5 3 5 7
Slide 27: Key issuance terms
Key issuance terms Indicative Issuance Terms Issuer Discovery Limited, guaranteed by Discovery Health and Discovery Vitality Issuer rating Moody’s long term national: A1.za DMTN Programme size R10 billion – will be upsized to accommodate the prefinancing of notes maturing Volume Up to R1.5bn Instrum
Slide 28: Key dates
Key dates Issuance process Dates Roadshow meetings 22 – 24 April Termsheet (without Price Guidance) distributed to the market [Fri, 26 April] Investor credit process [25 April – 9 May] Termsheet (with Price Guidance) distributed to the market [Fri, 3 May] Auction date [Fri, 10 May] Settlement (T+3)
Slide 29: Questions
6 Questions 29
Slide 30: Appendices
Appendices 30
Slide 31: NHI: Status quo is unsustainable – universal healthcare is crucial
NHI Status quo is unsustainable – universal healthcare is crucial Additional funding required p.a, as indicated by the R200bn National Department of Health for narrowed benefit package Discovery’s position: NHI is not workable without private 31% increase in personal income tax or; sector collaborat
Slide 32: Recap of IFRS key messages
Recap of IFRS 17 key messages Value unchanged but reallocated Group is approaching cross-over Strong IFRS 4 profit growth 1 No change in underlying value nor underlying economics Annual profit IFRS 4 IFRS 17 • No direct change to cash flows, 6,000 underlying risk and reward of IFRS 17 Discovery Life
Slide 33: Reconciliation of comparative period from IFRS 4 to IFRS 17
Reconciliation of comparative period from IFRS 4 to IFRS 17 Difference between IFRS 4 and IFRS 17 is H1 2023 restated from IFRS 4 to IFRS 17 volatile in the short-term H1 2023 earnings IFRS 4 vs IFRS 17 for H2 and FY 2023 Rm IFRS 4 IFRS 17 % H2 2023 FY 2023 H1 2023 benefited from lapse gains recogni
Slide 34: Domestic Medium Term Note Programme Roadshow: Refinancing of 2024 Maturities
Discovery Limited Domestic Medium Term Note Programme Roadshow Refinancing of 2024 Maturities Cape Town – 22 nd & 23 rd April 2024 Johannesburg – 24 th April 2024