Discovery Limited · JSE:DSY
Discovery — Debt Investor Presentation (October 2017)
44 slides from Discovery's debt investor presentation, Oct 24, 2017
Slide 1: Discovery Limited DMTN Roadshow
DISCOVERY LIMITED | DMTN ROADSHOW 23 & 24 October 2017 DEON VILJOEN (GROUP CFO) AND ANDREW RAYNER (GROUP CRO)
Slide 2: Team introduction
Team introduction 01 Deon Viljoen: Group Chief Financial Officer 02 Andrew Rayner: Group Chief Risk Officer 03 Fareed Chothia: Group Corporate Finance 04 Michael Curtis: Group Head Quants and Actuarial 05 Jackie Symons: Group Head Investor Relations 2
Slide 3: Overview
Overview Discovery is a global integrated financial services organisation that uses our pioneering Shared-Value Insurance model across businesses. Our growth has largely been organic. Funding to date has been sourced from relationship banks and Prudential in the UK The Group’s debt is managed wi
Slide 4: Agenda
01 Introduction and strategic focus 02 Governance and risk management 03 Financial performance 04 Debt overview and DMTN issuance 4
Slide 5: Introduction and strategic focus
Introduction and strategic focus
Slide 6: Our Ambition and Core Purpose
Our Ambition Be the best insurer in the world and a force for social good with powerful group assets and brilliant businesses resulting in a profound impact Our Core Purpose Make people healthier and enhance and protect their lives 6
Slide 7: Evolution of the group
Evolution of the group June 2016 AIA Vitality is launched in Thailand and Malaysia March 1992 September 2007 August 2010 July 2016 Discovery Limited Discovery and Prudential PLC Discovery acquires Generali Vitality launches Vitality in Germany established launch PruProtect Standard Life October 1997
Slide 8: Group operational structure
Group operational structure DISCOVERY PING VITALITY PRIMARY MARKETS AN GROUP HEALTH Core purpose Footprint 16 countries Make people healthier and enhance c10m clients and protect their lives Adding ~150k every month Discovery Health is administrator to Discovery Health Medical Scheme & 18 closed m
Slide 9: Operating model
Operating model Why & How Growth Methodology Capital Philosophy Core purpose Make people healthier and enhance and protect their lives Vitality Shared-Value Insurance Model Target group profit Separation of Solvency Capital, growth of known initiatives and buffer for CPI + 10% unplanned events 9
Slide 10: The Vitality Shared-Value model
The Vitality Shared-Value model WHY HOW WHAT Make people Health insurance healthier and Life insurance enhance and Long-term savings protect their lives Short-term insurance Intent to enter banking 10
Slide 11: Consequence of the Vitality Shared-Value Insurance Model
Consequence of the Vitality Shared-Value Insurance Model Competitive advantage Initial selection Selective lapsation Behaviour change Bent lapse and claims experience Healthier society 11
Slide 12: Organic growth engine: CPI + 10%
Organic growth engine Profit growth of ESTABLISHED CPI + 5% ~3 years Targeted group Investment Profit growth of profit growth of of 10% of profit EMERGING CPI + 30% CPI + 10% ~5 years Growth in investment of NEW CPI + 10% Mathematical derivation CPI + 10% = X(CPI+5%) + Y(CPI + 30%) + Z (CPI + 10%) X
Slide 13: Capital management philosophy
Capital management philosophy Three pillars of capital Targeted capital measures Solvency Allocated Capital Capital Return on capital Dedicated capital and reserves Dedicated risk free + 10% capital for 5 Year Capital Plan Projection planned initiatives Additional Individual business ORSA Solvency 1
Slide 14: Deconstructing our Ambition
Deconstructing our Ambition BRILLIANT BUSINESSES PROFOUND IMPACT 1 Insurgent 1 CPI + 10% profit growth 2 Significant 2 Risk free + 10% return on capital engagement 3 10m Vitality members 3 Superior dynamics actuarial 4 Meeting complex consumer needs 5 Exceptional service FOUNDATION 1 Global platform
Slide 15: Governance and risk management
Governance and risk management
Slide 16: Governance structure
Governance structure Capital Allocation Committee UK operations have an independent Board and governance structure The Discovery Bank governance structure is separately defined in line with SARB guidelines 16
Slide 17: Leadership team
Leadership team Group Executive Executive Directors Non-executive Directors 17
Slide 18: Group risk management framework
Group risk management framework Risk Appetite and Strategy ERM Framework and Risk Policies Risk Management Process Assess Enterprise wide Identify Manage Modelling and projection capability Stress testing and scenario analysis Own Risk and Solvency Assessment Report Monitor Risk Governance B
Slide 19: Management of Financial Risks
Management of Financial Risks 01 02 03 Leverage Funding Liquidity Debt is a key part of the funding 5-year financial projections Non-insurance entities - Detailed strategy maintained 12-month cashflow forecast – Known funding requirements maintained to manage liquidity Manage FLR within Boar
Slide 20: Management of Financial Risks
Management of Financial Risks 04 05 06 Capital allocation Interest rates Asset liability matching Group produces cash on existing Policyholder assets subject to business and re-invests into new interest rate risk (discounted Asset-liability management policy business (new insurance policies or
Slide 21: Challenges and Opportunities
Challenges and Opportunities UK’s exit from EU impacts our UK Macro-economic pressure business Economic International Slow pace of economic growth Uncertainty Markets Low interest rates Negative impact on consumers Currency fluctuations SA political uncertainty driving Political econom
Slide 22: Financial performance
Discovery Financial performance
Slide 23: Financial results overview: Year ended June 2017
Financial results overview | Year ended 30 June 2017 Core new business Normalised operating profit Normalised headline Dividend declaration earnings +16% +10% +8% +11% to R 16 993m to R 7 048m to R 4 656m to 98cpsm (+6% FY) 5 year CAGR: 15.2%1 5 year CAGR: 15.5% 5 year CAGR: 13.7% 5 year CAGR: 10.6%
Slide 24: Core new business
Core new business +16% Rm 12 months to 30 Jun 2017 12 months to 30 Jun 2016 % change to R 16 993m +11% total new business incl. DH take-on of new closed schemes and gross revenue for the Vitality Group of R18 250m 16,993 6 1091 5 1871 +18% 2 175 1 866 +17% Established 14,602 13,064 2 496 2 413 +3% 1
Slide 25: Strong operating profit growth
Strong operating profit growth +10% Rm 12 months to 30 Jun 2017 12 months to 30 Jun 2016 % change to R 7 048m 2 505 2 265 +11% 7,048 3 588 3 271 +10% Established 6,407 744 665 +12% 5,789 1401 121 +16% 4,962 16.42 8.72 +89% 28.12 31.62 -11% 4,030 (21) (151) +86% Emerging (116) (189) +39% (33) (99) +6
Slide 26: Strong SA Health profit and cash generation
Strong SA Health profit and cash generation Profit after tax (Rm) +9% Cash Generation to R 1 826m 1,826 Strong cash generation in SA Health supports debt 1,672 servicing requirements 1,474 1,341 1,220 Profit for the year reasonable proxy for cash generation Continued strong growth in profit an
Slide 27: Performance against the organic growth methodology
Performance against the organic growth methodology Target Performance In constant currency terms CPI* +6% CPI* +55% 8% of earnings Group profit growth of CPI + 10% CPI* +7% * Weighted average CPI rate of 4.8% based on CPI rates in markets 27
Slide 28: Performance against the capital management philosophy
Performance against the capital management philosophy Three pillars of capital Target Performance Solvency Allocated Capital Capital Return on capital Return on 5 Year Capital Plan Projection Dedicated capital risk free + Individual business ORSA assessment including new Solvency 1 in 200 year event
Slide 29: Debt overview and DMTN issuance
Debt overview and DMTN issuance
Slide 30: Group Funding Plan
Group Funding Plan FLR* projection Group debt projection 5-year financial projections maintained Funding strategy 26.7% includes debt subject to FLR cap of 28% Debt levels remain well within risk appetite and existing debt covenants Interest cover in FY2017 is 13.1x and remains FY2017 FY2018
Slide 31: Key Drivers of Funding Requirements
Key Drivers of Funding Requirements 1-2 years 2-3 years 3-5 years Vitality Life new business Transfer of Vitality Life business Refinance maturing South African from Prudential balance sheet to and UK bank debt arrangements General corporate purposes Vitality Life Limited (Part VII) Refina
Slide 32: Vitality Life Funding Requirements
Vitality Life Funding Requirements Vitality Life new business funding required Vitality Life Part VII funding Strengthen VLL Balance Sheet Liability to PAC Refinanced Part VII Funding Required 0 0 0 FY2018 FY2019 FY2020 FY2021 FY2022 Funding Required Funding Use New business funding required Par
Slide 33: Existing Bank Debt Repayment Profile
Existing Bank Debt Repayment Profile South African debt refinance profile UK debt refinance profile 70 3,500 3,000 60 2,500 50 R millions £ millions 2,000 40 1,500 30 1,000 20 500 10 - - FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 Other Funding DMTN Funding
Slide 34: DMTN programme will broaden funding base
DMTN programme will broaden funding base for the Group’s debt requirements Group debt projection overlaying DMTN* FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 Other Funding DMTN Funding * The mix between bank and DMTN funding may vary depending on market conditions at the time 34
Slide 35: Debt Programme Objectives
Debt Programme Objectives Broaden funding base Optimise cost of funding Ensure funding capacity for Group over 5-year time horizon – New funding requirements – Refinance of existing debt arrangements 35
Slide 36: Existing Bank Debt Covenants
Existing Bank Debt Covenants Covenant Minimum Requirement As at 30 June 2017 As at 30 June 2016 Group Debt to EBITDA ratio Less than 2.5X 1.74 1.76 Group financial Less than 30% of Group EV 21% 21% Indebtedness to Embedded Value Group Embedded Value Greater than R30 billion ZAR 57.3 billion ZAR 53.1
Slide 37: Group structure: Key operations
Group structure: Key operations Guarantors SA Ops Bank International Discovery Limited (JSE Listed) UK Issuer South Africa Guarantors Discovery Discovery Pref Discovery Discovery Discovery Discovery Discovery Connect Discovery Finance Purple Holding Health Vitality Life Insure Distribution Co Europe
Slide 38: Discovery Credit rating
Discovery Credit rating Credit strengths Moody’s Insurance Financial Strength Rating (IFSR) 1. Very strong franchise in South Africa and a growing global footprint • Baa2 • 1 above the Sovereign (Baa3) 2. Strong profitability and significant non-insurance fee income from SA Health Moody’s long-term
Slide 39: Key Features of the DMTN Programme
Key Features of the DMTN Programme ISSUER Discovery Limited SIZE (NOMINAL AMOUNT) R10 billion GUARANTORS Discovery Health and Discovery Vitality (as per current SA Bank Loans) LISTING The Interest Rate Market of the JSE Limited Notes to be issued under the Programme may comprise: • Senior notes (the
Slide 40: Indicative Issuance Terms
Indicative Issuance Terms ISSUER Discovery Limited GUARANTORS Discovery Health and Discovery Vitality (as per current SA Bank Loans) LISTING Interest Rate Market of the JSE Limited ISSUER RATING Aa3.ZA RANKING Senior INDICATIVE SIZE R1.25bn to R1.75bn • 5-year; TENOR • or a combination of 5-year and
Slide 41: Notes
Notes @ Discovery Al
Slide 42: Notes
Notes @ Discovery 42
Slide 43: Notes
Notes @ Discovery 43
Slide 44: Discovery Limited DMTN Roadshow
DISCOVERY LIMITED | DMTN ROADSHOW
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