Outsurance Group Limited · JSE:OUT
Outsurance — RMI — FY2015 Earnings Presentation
57 slides from Outsurance's earnings presentation, September 2015
Slide 1: Reflections on 2015 results
RMI Reflections on 2015 results September 2015
Slide 2: RMI is an investment holding company
RMI is an investment holding company with an investment team of experienced, alternative thinking, financial services specialists who actively partner smart and industry-changing people by being a shareholder of influence 1
Slide 3: Focus areas – in a nutshell
Focus areas – in a nutshell… • Form a view of the future financial service landscape • Enhance existing portfolio by actively engaging in strategic dialogue with management • Invest in and build traditional financial services assets • Enable and invest in next generation financial services businesse
Slide 4: Table of contents
Table of contents Overview 4 Review of 2014-15 10 Investment positioning 14 Existing portfolio 18 New investments › Traditional 26 › Next generation 37 3
Slide 5: Overview
Reflections on 2015 results Overview
Slide 6: Highlights
Highlights • Increase in market value of portfolio • Growth in new business volumes • Cash generation • Leadership stability • Brand positioning • Investment activity 5
Slide 7: Strategic, active manager of R63bn financial services portfolio
RMI Strategic, active manager of R63bn financial services portfolio % Holding | Market cap R63bn, $5bn 25% Market cap R85bn 25% Market cap R43bn 83% Implied value R38bn 76% Implied value R0.5bn c. 95% 25.1% 100% Data as at 30 June 2015 6
Slide 8: Relative contribution analysis
Relative contribution analysis Discovery | 32% Discovery | 32% MMI | 18% MMI | 30% MARKET VALUE (R63bn) EARNINGS (R3 160m) OUTsurance | 49% OUTsurance | 36% RMBSI | 1% RMBSI | 2% Discovery | 15% Life | 49% MMI | 33% SEGMENTAL EARNINGS Short term | 34% DIVIDENDS (R1 826m) OUTsurance | 49% (%) Health
Slide 9: Market performance (June 2014 – June 2015)
Market performance (June 2014 – June 2015) 1 RMI 2 DISCOVERY 160 160 Total shareholder return (rebased to 100) Total shareholder return (rebased to 100) Share price¹ R42.5 Share price¹ R126.5 150 150 Market cap R63.1bn Market cap R81.8bn 140 140 12M 12M 130 high/ 48.9/ 130 high/ 142.0/ 33% 36% low 3
Slide 10: Market performance since unbundling (March 2011 – June 2015)
Market performance since unbundling (March 2011 – June 2015) Total return CAGR of 41% per annum since listing Shareholder return comparison vs. FINI 15 500 Total shareholder return CAGR (March 2011-June 2015) 400 411 44% 41% 35% 34% 300 296 31% 30% 29% 24% 24% 24% 23% 200 209 21% 19% 18% 17% 16% 15%
Slide 11: Review of 2014-2015
Reflections on 2015 results Review of 2014-2015
Slide 12: Review of 2014-15
Review of 2014-15 APPOINTMENT Outcome Reflections OF TEAM • High calibre team attracted and integrated • Specialist and impactful resources • Team complement: • Relationships established with investee companies › 5 investment executives • Market presence › 5 finance and administration executives › 6
Slide 13: Review of 2014-15
Review of 2014-15 GOVERNANCE Outcome Reflections • Appointed 3 independent non-executive directors • Appropriate representation for RMI in investee companies and • All sub-committees King III compliant relevant committees being implemented • Hand-over to new CEO completed ALPHACODE Outcome Reflectio
Slide 14: Review of 2014-15
Review of 2014-15 STAKEHOLDER Outcome Reflections MANAGEMENT Change in shareholding • More than 100 investors seen in last 12 months • Top buyers: PIC, Sanlam Investment Management, Peregrine, William Blair Investment Management, Visio Capital, AMF Pensions, Vunani Fund Managers, BlackRock Investmen
Slide 15: Investment positioning
Reflections on 2015 results Investment positioning
Slide 16: RMI strategic positioning and vision
RMI strategic positioning and vision • Client centricity • Technology • Regulation THEMES • Entrepreneurship • Collaboration • Retain and optimise existing • Consumer demographics investments • Africa’s emergence • Acquire or invest in existing and OPPORTUNITY substantial financial services • Forefr
Slide 17: Select comparable investment holding companies
Select comparable investment holding companies ACCESS POINTS GEARING BENCHMARKS (Discount)/premium to NAV (Discount)/premium to NAV Hal Trust, Aktiebolaget Industrivärden, Berkshire Hathaway Inc., Borgwarner Inc, Bouygues S.A, Brait S.E, Brimstone Investment 16 Corporation Limited, China Everbright
Slide 18: Future financial services landscape
Future financial services landscape TRADITIONAL INVESTMENTS PORTFOLIO NEXT GENERATION INVESTMENTS OPTIMISATION 17
Slide 19: Existing portfolio
Reflections on 2015 results Existing portfolio
Slide 20: Existing portfolio
Existing portfolio RESULTS COMMENTS R’m 2014 2015 % chg • Normalised operating profit growth driven by established markets (12%) with significant profit Discovery Health 1 854 2 031 9.5% traction in emerging businesses (28%) • New business growth engine at work from new and emerging businesses, spec
Slide 21: Existing portfolio
Existing portfolio RESULTS COMMENTS R’m 2014 2015 % chg • Contribution from operating divisions increased 17% to R3.5bn Momentum Retail 1 372 1 531 12% • Diluted core EPS grew 6% to 239cps due to investments into new initiatives and impact of Metropolitan Retail 587 738 26% R800m special dividend pa
Slide 22: Existing portfolio
Existing portfolio RESULTS COMMENTS R’m 2014 2015 % chg • 21% top-line growth and 4% decrease in headline earnings. Youi subject to numerous large OUTsurance 1 216 1 443 18.7% natural catastrophe events which off-set impressive performance by the South African business Youi Group 231 (110) >(100%) •
Slide 23: OUTsurance – key results highlights
OUTsurance – key results highlights Business unit KPI 2015 % chg Comments • Strong premium growth coupled with a lower claims ratio benefitting from relatively benign weather Headline earnings R1 443m 18.7% conditions Gross written premium R6.6bn 8.8% • Personal lines grew 8.2% whilst the commercial
Slide 24: Challenger brands making progress in Australia
Challenger brands making progress in Australia ATTRACTIVE AVERAGE ROEs “CHALLENGER BRANDS” STILL GROWING RAPIDLY Estimated reported ROEs in short-tail property classes 2012-2014 Personal lines (motor and home) growth rates 53 40 39 39 35 31 32 28 29 28 25 26 20 0 (7) (20) Home Motor Motor Fire & ISR
Slide 25: Existing portfolio
Existing portfolio RESULTS COMMENTS R’m 2014 2015 % chg • RMB SI invested in two new initiatives and established risk finance and credit insurance Fee income businesses which should contribute to earnings in FY2016 Structured 25.4 29.9 17.8% • Reduction in investment income earned from a large corpo
Slide 26: Strategic and shareholder perspectives
Strategic and shareholder perspectives THEME CULTURE AND PEOPLE GROWTH CAPITAL ALLOCATION WORK IN PROGRESS • Client centricity • Shared value model • Rights issue • Investor communication • Collaboration • Active Rewards implemented • Partnership model rollout • Data analytics • Insure and Invest •
Slide 27: New investments: Traditional
Reflections on 2015 results New investments: Traditional
Slide 28: RMI’s investment approach
RMI’s investment approach RMI STRATEGIC POSITIONING Value-adding, active enabler of leadership and innovation in financial services INVESTMENT MANDATE • Financial sector or related business • Predominantly, although not limited to, South Africa • Entrepreneur led with significant management ownershi
Slide 29: Expanding the RMI portfolio
Expanding the RMI portfolio INTERNATIONAL TRADITIONAL INVESTMENTS SA NEXT GENERATION INVESTMENTS 28
Slide 30: Expanding on the investment approach
Expanding on the investment approach TRADITIONAL INVESTMENTS NEXT GENERATION INVESTMENTS • Later stage financial service operations with established track record • Early stage independent financial service operations seeking to be an independent business • Focussed on partnering entrepreneurs with i
Slide 31: Traditional investments
Traditional investments STATISTICS INDUSTRIES ENCOUNTERED Asset management Closed book life insurance 40 RMI assessed c. 40 different Banking Traditional life insurance Traditional Investment opportunities of which 10% were presented Property Mutual insurance to the RMI Investment Committee… 4 REASO
Slide 32: RMI Investment Managers
RMI Investment Managers WHY ASSET MANAGEMENT? RMI IM IS UNIQUELY POSITIONED TO ASSIST BOUTIQUES 1 RMI is currently underweight in the asset management industry • RMI IM follow the affiliate and specialist model of asset management: › Acquire equity in boutique/independent asset managers • RMI/RMH cu
Slide 33: RMI Investment Managers
RMI Investment Managers RMI IM WILL ADD VALUE TO AFFILIATES AND INVESTMENT TEAMS IN THE WHAT WE STAND FOR… FOLLOWING WAYS… Our mission is to establish, grow and partner with world-class asset managers • Credible shareholder Partner STRATEGIC SUPPORT • Enhance capacity and experience through • Partne
Slide 34: RMI Investment Managers
RMI Investment Managers BRINGING THE MODEL TO LIFE… 100% 70%¹ 30%¹ 49% 51% Stand-alone affiliates model Affiliates with distribution partner model EE model 25-30% equity stakes 25-30% equity stakes 50-90% equity stakes 25-30% equity stakes 50-90% equity stakes Fixed Income Team 1. Effective economic
Slide 35: RMI Investment Managers
RMI Investment Managers HIGH RETURN EFFICIENT FRONTIER BALANCED Equity Fixed income LOW Fixed Income Team RISK LOW HIGH Cash Bonds Credit Property Passive equity Core active equity Specialist equity 34
Slide 36: RMI Investment Managers
RMI Investment Managers MMI IS WELL POSITIONED AS A STRONG DISTRIBUTION PARTNER FOR RMI IM IN THE INSTITUTIONAL AND RETAIL MARKET… Market share of corporate umbrella funds Direct | R80bn [2%] PIC | R1.4trn [43%] R35bn AUM Broker Agent derived derived Umbrella | R480bn [15%] 52% 12% INSTITUTIONAL Pen
Slide 37: RMI Investment Managers
RMI Investment Managers WE MODEL OURSELVES ON… AMG’s investment structure As a private shareholder with access to We believe that experienced and trusted portfolio For specialist investment styles and provides affiliate partners with continued significant long term capital and no managers accomplish
Slide 38: New investments: Next generation
Reflections on 2015 results New investments: Next generation
Slide 39: Next generation investments
Next generation investments THEMES/INDUSTRIES ENCOUNTERED REASONS FOR DECLINING INVESTMENTS Next generation investment Not aligned with RMI investment strategy Payments Funeral insurance opportunities 47% Business and management expertise unproven Almost half of all the investment Blockchain Sociali
Slide 40: Overview
Overview ALPHACODE THE DIFFERENTIATING FACTOR AlphaCode is a club for next generation financial services entrepreneurs, which is AlphaCode is a development hub, bringing together a unique community of next supported by a physical workspace and virtual platform generation financial services entrepren
Slide 41: Membership tiers
Membership tiers Description/intention Benefits Businesses that are poised for high growth. Need to meet • Access to dedicated workspace certain minimum criteria: • Access to exclusive networking events • At least 3 years old • Dedicated mentorship for 24 months through the • Turnover of R4m per ann
Slide 42: Route to market
Route to market • AlphaCode was launched over a series of 4 dialogue evenings with the entrepreneurial community scheduled between July and August 2015 • The official launch took place on 2 September 2015 with the RMI board, executives from RMI portfolio companies and the first 25 gold members TOPIC
Slide 43: Next generation investments
Next generation investments THE BUSINESS STRATEGIC RATIONALE FOR TRANSACTION • Merchant Capital was founded in 2012 in response to the lack of funding • RMI Holdings will take a 25.1% stake in Merchant Capital, with an option to options available to SMEs. increase this shareholding, and provide stra
Slide 44: In a nutshell…
In a nutshell… • Form a view of the future financial service landscape • Enhance existing portfolio by actively engaging in strategic dialogue with management • Invest in and build traditional financial services assets • Enable and invest in next generation financial services businesses • Expand geo
Slide 45: Appendix: RMI Investment Managers
Appendix RMI INVESTMENT MANAGERS
Slide 46: Why asset management?
Why asset management? 1 RMI is currently underweight in the asset management industry… RMI¹ currently holds c. 3% of operating profit market share in the asset management industry in South Africa… • RMI/RMH currently holds c. 3% of operating profit market share of the asset management industry in 10
Slide 47: Why asset management?
Why asset management? 4 An opportunity to challenge South Africa’s highly concentrated asset management industry… In South Africa, the 5 largest asset managers In the UK, the 5 largest managers capture c. 51% of total AUM only capture c. 28% of the total AUM Top 5 managers Top 5 managers 51% 28% • I
Slide 48: How we are uniquely positioned
How we are uniquely positioned RMI IM IS UNIQUELY POSITIONED TO ASSIST BOUTIQUES… • RMI IM follow the affiliate and specialist model of asset management: › Acquire equity in boutique/independent asset managers › Lift out specialist investment talent on the RMI IM platform • RMI IM is well placed to
Slide 49: What we stand for
What we stand for Our mission is to establish, grow and partner with world-class asset managers SOME OF OUR KEY PRINCIPLES… Partner through Permanent capital and strategic partner to independent boutiques market cycles and teams with a view to using our resources to establish and grow world class as
Slide 50: What we bring
What we bring RMI IM WILL HELP ADDRESS THE CHALLENGES BOUTIQUES RMI IM RECOGNISES THE CORE CHARACTERISTICS OF SUCCESSFUL ASSET MANAGERS. AND INVESTMENT TEAMS FACE THIS WE WILL PROTECT • Credible shareholder Alignment of interest (client objective = asset manager business objective) STRATEGIC • Enhan
Slide 51: Bringing the model to life
Bringing the model to life Bringing the model to life… 100% 70%¹ 30%¹ 49% 51% STAND-ALONE AFFILIATES AFFILIATES WITH DISTRIBUTION PARTNER MODEL EE MODEL Buy into affiliates who want RMI as strategic partner but Buy into affiliates and team ‘lift outs’ who see value from A majority black owned vehicl
Slide 52: How we select affiliates and investment teams
How we select affiliates and investment teams SELECTION CRITERIA AND PROCESS IMPORTANCE 1 Cultural fit with RMI IM and good long term partner 2 Investment track record and pedigree 3 Industry verifications with pension and retail market consultants, other asset managers and sell-side banks 4 Area of
Slide 53: Our first affiliates and investment team
Our first affiliates and investment team Overview Opportunity Key individuals Transaction • Good 15-year track record as equity and multi-asset • Good management with ability to execute on growth strategy • Adrian Clayton - CEO • RMI IM to become a manager • Strong multi-asset strategy which is popu
Slide 54: An investor/client view of where our affiliates fit in
An investor/client view of where our affiliates fit in HIGH RETURN EFFICIENT FRONTIER BALANCED Equity Fixed income LOW Fixed Income Team RISK LOW HIGH Cash Bonds Credit Property Passive equity Core active equity Specialist equity 53
Slide 55: MMI a strong distribution partner
MMI a strong distribution partner MMI IS WELL POSITIONED AS A STRONG DISTRIBUTION PARTNER FOR RMI IM IN THE INSTITUTIONAL AND RETAIL MARKET… Market share of corporate umbrella funds Direct | R80bn [2%] PIC | R1.4trn [43%] R35bn AUM Broker Agent derived derived Umbrella | R480bn [15%] 52% 12% INSTITU
Slide 56: Valuation of asset managers
Valuation of asset managers VALUATION OF ASSET MANAGERS CONSIDERED FROM VARIOUS ANGLES… GLOBAL LISTED ASSET MANAGERS Forward P/E EBITDA 1 Globally listed long-only asset managers 10x – 15x 2 Globally listed alternative managers 6x – 11x 3 Implied performance fee multiples of globally listed managers
Slide 57: We model ourselves on established global affiliate and boutique businesses
We model ourselves on established global affiliate and boutique businesses… AMG’s investment structure As a private shareholder with access to We believe that experienced and trusted portfolio For specialist investment styles and provides affiliate partners with continued significant long-term capit