Discovery Limited · JSE:DSY
Discovery — Non-Deal Roadshow (March 2019)
44 slides from Discovery's roadshow presentation, Mar 14, 2019
Slide 1: Discovery Limited Domestic Medium Term Note Programme Non-Deal Roadshow
Discovery Limited Domestic Medium Note Programme “Non-Deal” Roadshow 11-14 MARCH 2019 1
Slide 2: Team introduction
Team introduction 01 Deon Viljoen: Group Chief Financial Officer 02 Fareed Chothia: Group Corporate Finance 03 Michael Curtis: Group Risk and Actuarial 04 Jackie Symons: Group Investor Relations 2
Slide 3: Overview
Overview Discovery is a shared value global integrated financial services group whose purpose and ambition are achieved through a pioneering business model that incentivises people to be healthier, and enhances and protects their lives. Our growth has largely been organic. • Discovery Limited regist
Slide 4: Agenda
1 Financial performance 2 Strategic focus 3 Debt overview Appendix 4 Governance and risk management & ESG 4
Slide 5: Financial performance
+0% R11 391m R5 288m Financial performance
Slide 6: Financial results overview | 6 months to 31 December 2018
Financial results overview | 6 months to 31 December 2018 In FY2019 Discovery planned to increase investment into new strategic initiatives, creating an expected reduction in Group earnings. Key highlights for this interim reporting period: • 21% of Group earnings spent on 5 key new businesses (most
Slide 7: Financial results overview | 6 months to December 2018
Financial results overview | 6 months to 31 December 2018 Core new business Normalised operating profit Normalised headline Dividend declaration earnings to R9 049m to R3 799m to R2 376m to 101cps Return on Embedded Investment in new Interest cover2 Bank Borrowings Value (annualised) initiatives Oth
Slide 8: Core new business annualised premium income
Core new business annualised premium income 6 months 6 months % Rm2 to 31 Dec to 31 Dec 2018 2017 change to R9 049m +16% to R9 508m incl. DH take-on of new closed 3 420 3 324 +3% schemes and gross revenue for Vitality Group +16% 1 212 1 121 +8% Relative growth by industry Established 1 387 1 220 +14
Slide 9: Normalised operating profit
Normalised operating profit 6 months 6 months Established have grown strongly % (9% CAGR since 2015) Rm to 31 Dec to 31 Dec to R3 799m 2018 2017 change 1 464 1 332 +10% H1 H1 H1 H1 H1 +18% 1 500 1 721 -13% 2015 2016 2017 2018 2019 -4% Established +14% 455 419 +9% CPI- Emerging now cover their own fi
Slide 10: Net cash flow
Net cash flow Cash Cash generated Funding used Established and Emerging Net cash flow1 Debt Tax, dividends and Rm finance costs Equity Raise R1.8bn 1 141 New business 3 579 R4.2bn Cash generated from 228 in-force business R9.6bn New businesses -208 R3.7bn 20 Net cash flow1 -58 R2.3bn -160 1Movement
Slide 11: Operating to net cash flow
Operating to net cash flow Cash from Operations Funding and investment decisions Finance costs & dividends Funding Business development Tax R2.4bn R1.3bn R0.6bn R0.5bn SAM one-off New businesses Cash generated R3.5bn R3.7bn from in-force business New business (Excl. One-offs) R4.2bn Business develop
Slide 12: Group's positive cash generating businesses growing
Group’s positive cash generating businesses growing Net operating cash flow (Rm) Relative increase in cash contributing business (%) 100% 80% 6 months 60% 40% 20% 0% -20% -40% -60% FY2016 FY2017 FY2018 HY2019 FY2016 FY2017 FY2018 HY2019 Positive Operating Cashflow Negative Operating Cashflow 12
Slide 13: Capital management
Capital management FLR decreasing Sufficient cash buffer 28% 26.7% 26.5% 25.8% Cash buffer: R1bn – R2bn 30-Jun-17 31-Dec-17 30-Jun-18 31-Dec-18 31-Dec-17 30-Jun-18 31-Dec-18 13
Slide 14: Strategic focus
2 Strategic focus
Slide 15: Countries and operating profit growth
1994 2000 2013 2018 Countries Countries Countries Operating profit Operating profit Operating profit (CY18) 15
Slide 16: Make people healthier and enhance and protect their lives
Make people healthier Life insurance and enhance and protect their lives Health insurance Short-term insurance Long-term savings Banking 16
Slide 17: Operating, capital and cash model
Operating model Group profit growth of CPI + 10% Capital model Cash model risk free + 10% FLR Cash buffer < 28% R1-2bn Return on capital 17
Slide 18: Deliberate strategy to grow organically
Deliberate strategy to grow organically Operating profit in 2018 terms Consequences 50 9 out of 10 successful organically grown businesses Operating Profit (in 2018 Rm) -50 5-year average breakeven -150 1. Initial strain on earnings 2. Increase in financing costs -250 3. Depletes Embedded Value Dest
Slide 19: Organic Growth Engine has been a successful mechanism for growth
Organic Growth Engine has been a successful mechanism for growth 4000 New Emerging Established 3500 3000 2500 Operating Profit ( Rm) 2000 1500 1000 500 0 -500 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Years since Inception 19
Slide 20: Doubling of investment into new initiatives
Doubling of investment into new initiatives of earnings, excluding Card profits Discovery Discovery VitalityInvest Vitality1 Umbrella and after allowing for finance costs Business Bank Funds 21% Insurance 18% 14% 12% 11% 11% 10% Total capital injected to 31 December 2018: R2.625bn £33.5m R552m R92m
Slide 21: Ambition 2023
Ambition 2023 Perfect composite model, #1 in every industry, and laboratory for shared 1 value in financial services. A successful entry into banking 2 The best insurer in the UK, making use of a composite shared-value model Vitality is the world’s largest and most 3 sophisticated behavioural platfo
Slide 22: Debt overview
3 anni Debt overview
Slide 23: Existing debt maturity profile
Existing debt maturity profile South African debt maturity profile UK debt maturity profile 60 3,000 50 2,500 40 2,000 £ Millions R Millions 1,500 30 1,000 20 500 10 - - FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2019 FY2020 FY2021 FY2022 FY2023 Other Funding DMTN • Syndicated
Slide 24: Operating model is robust under the base plan
Operating model is robust under the base plan % Invested in New Group earnings growth1 Financial leverage ratio2 Total debt Businesses 4 year operating profit CAGR 25% 22% Target = 28% 14% Increase due to UK Part VII 20% 12% 18% 15% Target = 10% 10% 5% - Established Add Emerging Add New 1 After allo
Slide 25: Operating model is robust when maintaining 10% investment into new businesses
Operating model is robust when maintaining 10% investment into new businesses % Invested in New Group earnings growth1 Financial leverage ratio2 Total debt Businesses 4 year operating profit CAGR 25% 14% Target = 28% 19% Increase due to UK Part VII 20% 12% 21.4% 15% Target = 10% 10% 5% - Established
Slide 26: Key drivers of known funding requirements
Key drivers of known funding requirements 1-2 years 2-3 years 3-5 years • Transfer of VitalityLife business • Refinance maturing South African • Refinance maturing South African from Prudential balance sheet to and UK bank debt arrangements and UK bank debt arrangements VitalityLife Limited (Part VI
Slide 27: DMTN programme provides funding base for the Group's debt requirements
DMTN programme provides funding base for the Group’s debt requirements Group debt projection overlaying DMTN* FY2018 HY2019 FY2019 FY2020 FY2021 FY2022 FY2023 Other DMTN * The mix between bank and DMTN funding may vary depending on market conditions at the time 27
Slide 28: Debt programme objectives remain unchanged
Debt programme objectives remain unchanged 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 28
Slide 29: Existing bank debt covenants
Existing bank debt covenants Minimum Covenant1 31-Dec-18 30-Jun-18 Requirement Group Debt to EBITDA ratio Less than 2.5X 1.57 1.53 Group financial Indebtedness to EV Less than 30% of Group EV 15.0% 15.0% Group EV Greater than R30 billion ZAR 68,025 ZAR 65,624 From 1 July 2018: Discovery Life SCR Cov
Slide 30: 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 Supported by diverse business mix
Slide 31: Key features of the DMTN programme
Key features of the DMTN programme ISSUER Discovery Limited SIZE (NOMINAL AMOUNT) R10 billion of which 4 issuances made totalling R2.2 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 32: DMTN issuances to date
DMTN issuances to date Stock code DSY01 DSY02 DSY03 DSY04 Nominal Value (Rm) 500 800 200 700 Tenor (years) 5 7 7 8 Date Issued 21-Nov-17 21-Nov-17 21-Nov-17 29-Aug-18 Maturity Date 21-Nov-22 21-Nov-24 21-Nov-24 29-Aug-26 Type of Notes Floating Rate Floating Rate Fixed Rate Floating Rate Pricing Benc
Slide 33: Appendix: Governance, risk management and ESG
Appendix 4 Governance, risk management and ESG 33
Slide 34: Governance structure
Governance structure SA Management Board Committees* 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 34
Slide 35: Our leadership
Our leadership Discovery Executive Directors and Group Executive Discovery Non-executive Directors Chairperson of the Board ADRIAN GORE HYLTON KALLNER NEVILLE DEON VILJOEN HERMAN BOSMAN DR BRIAN BRINK SONJA DE BRUYN RICHARD FARBER FAITH KHANYILE Founder and Executive Director KOOPOWITZ Financial Dir
Slide 36: 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 37: 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 38: 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 39: Our environment, risk and opportunities
Our environment, risk and opportunities AMBITIOUS BUSINESS ENTERING THE BANKING ECONOMIC ENVIRONMENT GROWTH MARKET IN SA SA: Our economy experienced another year The launch of Discovery Bank is on track and of low growth. Global and national factors We have identified various future our offering wel
Slide 40: Group structure: key operations
Group structure: key operations Guarantors SA Ops Bank International Discovery Limited (JSE Listed) UK Issuer South Africa Guarantors Discovery Bank Discovery Connect Discovery Finance Discovery Discovery Holdings Ltd Discovery Discovery Discovery Health Vitality Life Insure Distribution Co Europe C
Slide 41: ESG acts as a powerful force for social good
Environmental, social and governance (ESG) acts as a powerful force for social good Four strategic areas Healthy and Healthy and Healthy and Healthy and inclusive responsible products productive prosperous organisation and services workforces communities Using behavioural economics Promotion and imp
Slide 42: ESG acts as a powerful force for social good
Environmental, social and governance (ESG) acts as a powerful force for social good Reporting guidelines Accreditations 3rd Party Reviewers and Raters Partnerships 42
Slide 43: Notes
Notes 43
Slide 44: Discovery Limited Domestic Medium Note Programme Non-Deal Roadshow
Discovery Limited Domestic Medium Note Programme (DMTN) “Non-Deal” Roadshow 11-14 MARCH 2019 44