Discovery Limited · JSE:DSY
Discovery — Debt Investor Presentation (May 2022)
46 slides from Discovery's debt investor presentation, May 2022
Slide 1: DMTN Programme Roadshow, 17th & 20th May 2022
DISCOVERY LIMITED | DO PROGRAMME ROADSHOW 17% & 20% May 2022
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 – Covid 19; ESG; Discovery Bank & VHI 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 2021
Financial results overview | 6 months to 31 December 2021 Core new business1 Normalised operating profit Normalised headline Net cash flow2 earnings Operating cash flow to R10 475m to R4 872m to R2 876m Return on Embedded Earnings investment in Interest cover4 Bank & DMTN Debt5 Value3 new initiative
Slide 6: Resilient performance
Resilient performance +8% +6% R4.9bn R10.5bn ZARm Operating profit Core new business API Resilient financial performance, supported by continued operational efficiency and new Health 1 750 +5% 3 598 +29% business over the period Strong positive experience variances with robust capital and liquidity
Slide 7: Maintaining excellent growth
Maintaining excellent growth Core new business (Rm) Operating profit (Rm) 12,000 +6% 5,000 +8% 10,000 4,000 8,000 3,000 6,000 2,000 4,000 1,000 2,000 - - H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 2014 2015 2016 2017 2018 2019 2020 2021 2022 2014 2015 2016 2017 2018 2019 2020 2021 2022 7
Slide 8: Operating profit
New business Operating profit H1 2018 H1 2018 *100% PAH H1 2019 H1 2019 +5% H1 2020 H1 2020 +29% H1 2021 H1 2021 to R3 598m to R1 750m H1 2022 H1 2022 Excl new closed schemes H1 2018 H1 2018 H1 2019 H1 2019 +9% +1% H1 2020 H1 2020 H1 2021 to R1 267m to R1 934m H1 2021 H1 2022 H1 2022 H1 2018 H1 2018
Slide 9: Investing heavily offshore, strong operating profit in the strands
Investing heavily offshore, strong operating profit in the strands 71% Bank and Vitality Group Bank 20% Other SA 11% 51% UK 18% VG Operating profit (ZARm): Total Group: 6% 13% 21% 18% 17% 4% 8% 18% 18% 16% 17% 31% 33% 9% 8% 47% 41% 52% 42% 52% 6,000 4,000 1,200 250 +4% +5% 5,000 +2% 1,000 +8% -5% +3
Slide 10: Operating Model
Operating Model Growth Engine —__Smwretigews Cash Management TE Capital 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% Tax Profit <50% Cash per business Funding spent New Finance EMERGING business costs and Per Business dividends Cash Cover ~5 years < 50% Ne
Slide 12: Group Shareholder Cash Flow
Group Shareholder Cash Flow Cash from Operations Funding and investment decisions COVID FinRe R0.8bn Vitality Tax Health R0.8bn Cash generated from in-force VitalityLife business New business Discovery R7.3bn Health Gross COVID COVID Claims RI R4.1bn Claims Recoveries R3.4bn R1.9bn Discovery Life &
Slide 13: 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 than 50% of operating profit must be cash Operating cashflow should be enough to at least more than 50% of the total operating cash
Slide 14: 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 Group3 at the centre Liquid excess assets above minimum regulatory capital requirements FLR R millions SA Liquidity4 , R millions Dec 20 Dec 21 Cover Cover 29% 16 000 2
Slide 15: Debt overview
Debt overview 15
Slide 16: Debt Profile
Debt Profile 18,000 Commentary 16,000 14,000 12,000 R2.25bn Revolving Credit Facility available in order to 10,000 manage liquidity R' Millions 8,000 Stable debt profile over the 6,000 recent past 4,000 Increasing UK debt in order 2,000 to fund new business in VLL - FY2019 FY2020 FY2021 HY2022 Bank
Slide 17: Existing debt maturity profile
Existing debt maturity profile South African debt maturity profile UK debt maturity profile 5,000 140 4,500 120 4,000 100 3,500 3,000 80 £ Milions 2,500 60 2,000 1,500 40 1,000 20 500 - - FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2022 FY2023 FY2024 FY2025 FY2026 Other Funding DMTN • Bank lo
Slide 18: Existing bank debt covenants
Existing bank debt covenants Minimum Covenant 31-Dec-21 30-Jun-21 Requirement Group Debt to EBITDA ratio1 Less than 2.5X 1.94 2.31 Group financial Indebtedness to EV Less than 30% of Group EV 20.2% 22.6% Group EV Greater than R30 billion ZAR 82 920 ZAR 74 645 Discovery Life SCR Cover SCR Cover > 1.1
Slide 19: Key drivers of known funding requirements
Key drivers of known funding requirements 1-3 years 3-5 years ▪ Vitality Life new business funding • Refinance maturing South African and UK bank debt ▪ Bank regulatory capital & J-curve funding arrangements ▪ Refinance maturing South African and UK bank debt • New initiatives arrangements • Continu
Slide 20: 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 • 1 above the Sovereign (Ba2, stable) of South Africa Support
Slide 21: Discussion Points
Discussion Points 21
Slide 22: Discussion Points: COVID-19
Discussion Points: COVID-19 22
Slide 23: Most severe COVID-19 claims in period, but fourth wave less severe
Most severe COVID-19 claims in period, but fourth wave was less severe than previous waves Individual Life provisions D614G Beta Delta Omicron remain intact, expected to be sufficient for H2 22 claims R538m R1 871m R3 940m R115m Discovery Discovery Discovery Discovery 80% Life COVID Life COVID Life
Slide 24: Recurring pattern in the South African COVID-19 waves
Recurring pattern in the 4 South African COVID-19 waves to date 7-day moving average of new COVID-19 cases and hospital Discovery Health clients case fatality admissions rate reducing over time D614G Beta Delta Omicron 14 Day Average Case Fatality Rate: 1 April 2020-31 December 2021 3500 24000 162 2
Slide 25: Vaccination is important
Vaccination is important Lower Lower transmission Lower mortality risk hospitalisation risk risk Vaccine effectiveness was Every 20% increase in Vaccines remain highly Historic Life COVID-19 claims* retained through Omicron vaccination leads to 50% effective at reducing mortality by vaccination stat
Slide 26: SA population has strong and increasing levels of immunity
0% 20% 40% 60% 80% 100% 20200201 20200222 20200314 20200404 20200425 20200516 20200606 20200627 20200718 20200808 20200829 20200919 20201010 20201031 20201121 20201212 % 20210102 20210123 20210213 20210306 Immunity 20210327 20210417 20210508 20210529 it wanes due to reinfection risk* 20210619 202107
Slide 27: Encouraging COVID-19 trends, provisions remain intact
Encouraging COVID-19 trends, provisions remain intact to cover best estimate scenario Case fatality rates reduced Higher risk Discovery Individual Life provisions remain significantly population vaccinated intact, expected to be sufficient for H2 22 claims Life deaths Actual % vaccinated At least pa
Slide 28: Discussion Points: ESG Summary
Discussion Points: ESG Summary 28
Slide 29: Discovery's integrated sustainability framework
Discovery’s integrated sustainability framework The Integrated Sustainability framework provides alignment across the Group in our efforts to: • Scale purpose-led innovation through our business model and across the value chain • Support our intent to continue transforming the financial and insuranc
Slide 30: Scaling our social and environmental impact and links to SDGs
Scaling our social and environmental impact and links to SDGs WHY HOW WHAT OUR CORE PURPOSE SUPPORTS THE OVERARCHING GOALS DRIVING OUR TARGETS AND INITIATIVES THROUGH OUR BUSINESSES ACHIEVEMENT OF THE GLOBAL SDGs • Improve physical and mental wellness to drive the reduction of premature mortality fr
Slide 31: Ambition | Closing the ESG indices gap
Ambition | Closing the ESG indices gap Ambition to be at the highest ratings across these three agencies over 24-36 months Broadly considered as giving a good Most widely used by investor group offering broad coverage signal of strong sustainability LOCAL PEERS LARGEST 5 GLOBAL PEERS Negligible AAA
Slide 32: Discussion Points: Growth in Discovery Bank
Discussion Points: Growth in Discovery Bank 32
Slide 33: Key focus areas for the Bank
Key focus areas for the Bank Full service 1 bank at scale Transaction and Demand, tax-free, notice Multi-currency 24/7/365 Market-leading app & fixed-deposit accounts credit cards accounts availability functionality (24hr – 5 years) Savings Lending Shared-value 4.4% 8.5% 2 banking model 5 key financ
Slide 34: Discovery Bank's key performance metrics trending positively
Discovery Bank’s key performance metrics trending positively Total clients Total accounts Retail deposits Advances Operating result >400k >850k R9.5bn R4.2bn -R498m H1 H1 H1 H1 H1 FY18* FY19* FY20 FY21 FY22 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 FY21 FY21 FY21 FY21 F
Slide 35: Growth of 750+ high quality clients per day
Growth of 750+ high quality clients per day Average daily New business Channel mix Product mix new business composition ~750 average daily sales; highest Healthy distribution of “Discovery” Diversified channels – traction in ±50% Credit and Transaction new business levels across and “new-to-Discover
Slide 36: Market-leading NIR per client with strong engagement
Market-leading NIR per client with strong engagement Spend Engagement mix Gross NIR pcpm (DSY v market) 31% Growth in spend y-o-y 34% Primary and highly active clients 16% Higher than Big 4 average 20% +16% 34% 47% Primary and highly active Active Inactive DSY Bank 1 Bank 2 DSY Big 4 Bank 3 DSY Bank
Slide 37: Increasing market share of high-quality advances book
Increasing market share of high-quality advances book Credit card market Average advances Credit loss ratio Net interest Total NII share margin R4.2bn Indexed to Q2 FY21 ±20% Market share in >R100k 8% 110% pm income band 7% 20% 6% 16% 12% 5% 100% 8% 4% 4% 3% 0% 90% 2% 1% DSY market share 2021 DSY ma
Slide 38: Discussion Points: Vitality Health International
Discussion Points: Vitality Health International 38
Slide 39: Vitality Health International: Broadening our global impact
Vitality Health International Broadening our global impact Unique ecosystem Shared-value health insurance approach Vitality Health International USA HEALTH 39
Slide 40: Extending the behavioural platform through a health insurtech JV in Asia with AIA
Extending the behavioural platform through a health insurtech JV in Asia with AIA • Providing initial capital • Proprietary IP and native • Leading pan-Asian health strength of digital assets and businesses, with a captive programs base of ~50m clients across • 250 Discovery talent, 9 key geographie
Slide 41: Offering a full suite of services to healthcare businesses
Offering a full suite of services to healthcare businesses Capabilities CARE DELIVERY NETWORKS VIRTUAL CARE AND PROVIDER NETWORKS PRIMARY CARE HOSPITAL CRITICAL PRODUCT ARCHITECTURE CARE ILLNESS CLAIMS & DIGITAL HEALTH HEALTH INSURANCE TECHNOLOGY ADMINISTRATION ECOSYSTEM CLAIMS SEGMENTATION & VALUE-
Slide 42: Significant value to be unlocked in an enormous market
Significant value to be unlocked in an enormous market Amplify Health has already proven potential Potential to scale in rapidly-expanding digital through a POC healthcare space in Asia 2020 healthcare expenditure in markets where AIA operate Annual growth in Asia health expenditure (vs 5% in develo
Slide 43: DMTN Issuance
DMTN Issuance 43
Slide 44: 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 45: 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 46: DMTN Programme Roadshow, 17th & 20th May 2022
DISCOVERY LIMITED | DO PROGRAMME ROADSHOW 17% & 20% May 2022