Domestic Medium Term Note Programme Deal Roadshow November 2019 1 - PowerPoint PPT Presentation

Domestic Medium Term Note Programme Deal Roadshow November 2019 1

Team introduction Group Chief Financial Officer Group Chief Risk Officer Group Corporate Finance 2

Business Model and Financial Performance Operating Model Debt Overview Discussion Points DMTN Issuance 3

Business Model and Financial Performance 4

Financial results overview | 12 months to 30 June 2019 Normalised operating profit Normalised headline Core new business 1 Net cash flow earnings Operating cash flow to R7 747m to R18 299m to R5 035m Interest cover 2 Bank & DMTN Debt Return on Embedded Earnings investment in Value new initiatives Other Borrowings 3 Including associated closing EV R71 217m financing costs 1 Applied to core new business 2 Interest Cover = EBIT / Finance Costs; EBIT and finance cost excludes IFRS16 adjustments relating to 1DP 5 3 Other borrowings excludes the head office finance lease liability (R3,321m), and is the amount owed to the Prudential in respect of historic new business liquidity funding

Core new business 12 months 12 months % change Rm to R18 299m to 30 Jun 2019 to 30 Jun 2018 1 6 640 6 573 +1% 18,299 ESTABLISHED BUSINESSES 2 312 2 188 +6% +5% 2 604 2 454 +6% 16,137 14,660 1 346 1 107 +22% 13,303 12,320 1 291 1 172 +10% 1 041 1 047 -1% EMERGING BUSINESS 2 +43% 922 645 +43% 3 2 518 1 434 +76% NEW 386 - New businesses 4 2015 2016 2017 2018 2019 1 Excludes new scheme take-ons 3 Represents 25% of Ping An Health New Business API 6 2 Includes gross recurring and lump sum revenues 4 Vitality Invest, Umbrella Funds and Discovery Insure Commercial

Normalised operating profit Normalised operating profit 12 months 12 months % change Rm to 30 Jun 2019 to 30 Jun 2018 to R7 747m 3 044 2 777 +10% ESTABLISHED BUSINESSES 3 230 3 551 -9% +3% 966 885 +9% 7,980 7,747 758 589 +29% 6,860 6,261 578 515 +12% 5,703 155 68 +128% EMERGING BUSINESS +94% 161 94 +71% 106 56 +89% 17% of 1 (1 311) (613) +114% NEW New businesses earnings 21% after 2015 2016 2017 2018 2019 financing costs Operating profit Investment in New 1 Includes Discovery Card profits, excludes financing costs Non-insurance based business excluded – Vitality SA 7

Operating Model 8

Operating model 9

Cash management supports growth methodology Net cash flow Cash Funding Cash generated used R1.2bn Tax Debt R1.2bn Equity Raise Finance costs R1.5bn Dividend Cash generated from in-force business New business R8.1bn R14.6bn New businesses R3.6bn R1.7bn Net cash flow 1 10 1 Movement in shareholder free cash

Operating to net cash flow Funding and investment decisions Cash from Operations Tax R1.4bn R1.2bn Finance costs R1.2bn Funding R2.6bn Cash generated Dividend from in-force R1.5bn New business business R8.1bn (Excl. One-offs) SAM one-off New businesses R3.5bn R3.6bn R11.1bn Business development R1.4bn Operating cash flow Net cash flow Funding & Cash Cash spent Cash used One-offs generated 11

Group’s positive cash generating businesses is growing Net operating cash flow (Rm) Relative increase in cash contributing business (%) 3 500 80% 3 000 60% 2 500 40% 2 000 20% 1 500 R millions 1 000 0% 500 -20% 0 -40% ( 500) (1 000) -60% FY2016 FY2017 FY2018 FY2019 (1 500) FY2016 FY2017 FY2018 FY2019 Positive Operating Cashflow Negative Operating Cashflow 12

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 More than 50% of operating profit must be cash Operating cashflow should be enough to at least cover than 50% of the total operating cash earnings dividends and finance costs 1.5x 𝐷𝑏𝑡ℎ 𝑔𝑚𝑝𝑥 𝑔𝑠𝑝𝑛 𝐶𝑣𝑡𝑗𝑜𝑓𝑡𝑡 𝑗 𝑃𝑞𝑓𝑠𝑏𝑢𝑗𝑜𝑕 𝑑𝑏𝑡ℎ 𝑔𝑚𝑝𝑥 𝑃𝑞𝑓𝑠𝑏𝑢𝑗𝑜𝑕 𝑑𝑏𝑡ℎ 𝑔𝑚𝑝𝑥 max( σ 𝑗 𝐷𝑏𝑡ℎ 𝑔𝑚𝑝𝑥 𝑔𝑠𝑝𝑛 𝐶𝑣𝑡𝑗𝑜𝑓𝑡𝑡 𝑗 ) < 50% > 50% 𝐸𝑗𝑤𝑗𝑒𝑓𝑜𝑒𝑡+𝑔𝑗𝑜𝑏𝑜𝑑𝑓 𝑑𝑝𝑡𝑢𝑡 > 1.5x 𝑃𝑞𝑓𝑠𝑏𝑢𝑗𝑜𝑕 𝑞𝑠𝑝𝑔𝑗𝑢 100% 70% 4.0 Finance cost cover 90% 3.5 60% 80% 3.0 50% 70% Target > 50% 2.5 60% 40% 50% 2.0 Cash cover 30% 40% Target < 50% 1.5 Target > 1.5 30% 20% 1.0 20% 10% 0.5 10% 0% 0% - 2017 2018 2019 2020 2021 2022 2023 2024 2017 2018 2019 2020 2021 2022 2023 2024 2017 2018 2019 2020 2021 2022 2023 2024 13

De-risking the balance sheet Strongly capitalised FLR is decreasing Cash buffer has grown strongly Statutory capital Rm Cover requirements 29% 28% 28% R17 396m 1.6x 27% 26% R789m 1.7x 25% Cash buffer: R1bn – R2bn 24% R1 777m 1.4x 23% 22% R3 810m 1.5x 21% Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-17 Jun-18 Dec-18 Jun-19 14

FLR and cash buffer projection FLR is decreasing Cash buffer stabilises over projection period 28% 25.8% 23.3% Cash buffer: R1bn – R2bn FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 15

Key focus areas The Bank has made Actions taken to mitigate low significant progress since its interest rates in the United public launch in July Kingdom 16

Timeline Bank costs (Rm) Slightly delayed to ensure the delivery of a robust, brilliant bank Within expectation due to the disciplined management of costs ACTUAL First S.17 Gallagher Public roll Media R3 172m R3 212m deposit Licence Launch out launch VS received Actual cost Expected cost ~three- month 1,738 delay BUILD Client 1,500 ramp TEST BETA up RUN 860 EXPECTED First S.17 Public roll 676 deposit 631 Licence out 614 received BUILD TEST 189 176 RUN Build Test Run Infrastructure Oct ‘17 Dec ‘17 Nov ‘18 Mar ‘19 Jun ‘19 Sep ‘19 17

The Bank has made significant progress in the last 8 months Accounts Clients Retail deposits Total credit card facilities R584m Credit used R518m Utilised Credit Credit Facility 18

UK Interest rate exposure Recent movement in UK Interest Rates • UK long-term interest rates have decreased to their during October 2019 % 6 25 year GBP IRS Since 2000 • IFRS sensitivity to interest rate movements: 5 (Previously communicated) Global Financial • Primarily a back book issue, with the Crisis 4 Quantitative Easing • Impact of fair valuing the reserves to current interest rates is 3 Post Brexit Referendum 2 • The risk of a further decline in interest rates is beyond our risk appetite, therefore we have taken 1 • VitalityLife has entered into an 0 June-00 June-01 June-02 June-03 June-04 June-05 June-06 June-07 June-08 June-09 June-10 June-11 June-12 June-13 June-14 June-15 June-16 June-17 June-18 June-19 (detailed explanation of hedge further on) 19

UK Interest rate hedge IFRS/Potential Cashflow impact on VitalityLife Illustrative example of IFRS/Cashflow position Impact of Hedge 150 • The payoff profile of the underlying From 25 October 2019 Indicative VL gross earnings sensitivity (£ millions) . 100 30 June 2019 Level • At current rates plus 200bp, profits (before margining) are close to 25 Oct 2019 Level £100m. The 50 . - • At current rates less 100bp (effectively zero long term interest rates) significant losses would occur. -50 . No Hedge - Economic Hedge - Economic • If rates remain at current levels until June 2020, reported -100 No Hedge - IFRS Hedge - IFRS . -150 • This is the result of a and -100bps -75bps -50bps -25bps 0bps +25bps +50bps +75bps +100bps +125bps +150bps +175bps +200bps . Indicative interest rates from point of hedge Note: Above chart is at specified point in time, assuming no basis or other risks or operational variances 20

Debt overview 21

Existing debt maturity profile UK debt maturity profile South African debt maturity profile 3,000 45 40 2,500 35 2,000 30 R Millions £ Millions 25 1,500 20 1,000 15 10 500 5 - - FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2020 FY2021 FY2022 FY2023 FY2024 Other Funding DMTN • Two UK bank loans: • Syndicated loan of R3.6bn 5-year bullet and amortising raised in FY2016  £100m 5-year amortising loan • Bank Funding of R0.5bn on 5-year basis raised in FY2017  £50m 5-year bullet loan • Bank loan of R1bn on 5-year basis issued in FY2018 • DMTN funding of R1.5bn on 5-year and 7-year basis in FY2018 • Syndicated loan of R1.4bn 5-year bullet refinanced in H1 FY2019 • DMTN funding of R0.7bn on 8-year basis in H1 FY2019 22

Existing bank debt covenants Covenant Minimum Requirement 30-Jun-19 30-Jun-18 Group Debt to EBITDA ratio Less than 2.5X 1.59 1.53 Group financial Indebtedness to EV Less than 30% of Group EV 18.4% 19.9% Group EV Greater than R30 billion ZAR 71,217 ZAR 65,624 Discovery Life SCR Cover Current: SCR Cover > 1.1 1.6x 3.5x (Previously: CAR Cover) Prior Year: CAR Cover > 1.5x June 2019: R1,322 June 2018: R1,552 Positive VNB for 3 consecutive New Business EV not negative Dec 2018: R1,300 Dec 2017: R1,274 6-month period June 2018: R1,552 Jun 2017: R 1,281m 23