UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION - for the six months ended 31 December 2016 - The ...
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WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b RESULTS AND COMMENTARY UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION for the six months ended 31 December 2016
New business API
increased by 15%
to R8.2 billion
(excluding Discovery
Health’s take-on of new
closed schemes)
Normalised profit from operations
(R million)
412
3 312
3 015
4
824
Normalised profit
32457
from operations
2 367
2 787
R3.4 billion
963
2 1316
up 13%
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
2012
2013
2014
2015
2016
Gross inflows under management
(R million)
55 202
49 335
Gross inflows under
42 963
management
36 425
R55.2 billion
30 980
up 12%
2012
2013
2014
2015
2016COMMENTARY
Strong Group financial performance Furthermore, the emerging businesses progressed, now comprising
Discovery Insure, Ping An Health, and Vitality Group (the consolidation
Discovery delivered a strong performance for the half year ended
of The Vitality Group and Discovery Partner Markets).
31 December 2016, with new business increasing by 15% to
R8 245 million (excluding Discovery Health’s take-on of new closed New business for the emerging businesses category grew 43% to
schemes), and normalised profit from operations increasing by 13% R1 768 million, and they are all substantial businesses of value:
to R3 412 million – this was despite economic headwinds in the United Discovery Insure covers more than 160 000 vehicles and is expected to
Kingdom due to falling exchange and interest rates, the combination of be profitable over the next half-year; Ping An Health is the leading
which impacted Group earnings by 4%. health insurer in China, with new business growth of 55% over the
Discovery’s operating model continued to deliver over the six months, period; and Vitality Group is a rapidly growing global franchise with
comprising three powerful drivers of performance: strong membership growth and 12 active markets.
The Vitality Shared-Value Insurance model: Businesses derive a
(1) Finally, new initiatives received an investment of R244 million, at 7% of
unique competitive advantage through the model’s profound earnings, and include Discovery’s banking aspiration; the Global Vitality
impact on sales, selective lapses, behaviour change and improved Network; and new adjacent businesses. The latter include a commercial
insurance risk, created by generating and sharing economic value offering in Discovery Insure; the addition of Umbrella Funds in
with clients. Discovery Invest; and a new investment venture by Vitality UK, which
will leverage the knowledge, infrastructure and expertise of Discovery
An organic growth methodology: Operating profit growth of CPI
(2)
Invest and the distribution network of VitalityLife.
+10% is targeted through a methodical and substantial investment
in new initiatives, which evolve into emerging businesses (with
target profit growth of CPI +30%); and ultimately scale into Capital management philosophy
established businesses (with target profit growth of CPI +5%). During the period under review, Discovery continued to apply its
A sophisticated capital management philosophy: Discovery
(3) capital management philosophy to ensure the growth ambitions are
applies rigorous solvency assessments and standards to its appropriately funded. This is based on maintaining independently
businesses according to a five-year capital plan, as well as a robust levels of solvency cover within each of the regulated entities;
Group-wide buffer. This enables Discovery to provide a safety planning explicitly for the expected future funding needs of the current
margin for emerging and new businesses, while additional capital and planned growth businesses; and maintaining a central buffer to
is raised for new initiatives of considerable scale. withstand potential adverse experience, as well as provide capacity for
an element of unplanned initiatives. A key premise of the philosophy is
The combination of these three components gives the Group confidence
to ensure that where debt is used, it is maintained within acceptable
in reaching its 2018 Ambition of being the best insurance organisation
limits. The Financial Leverage Ratio is a key measure used by the Group,
globally, and a powerful force for social good.
and over the past year and the five-year planning horizon, it remains
within the Board-approved limit, as do the available liquidity resources
Vitality Shared-Value Insurance model and after taking account of the range of capital resources available to
Discovery’s organic growth methodology the Group.
Over the period, a deeper understanding of the mathematics underlying
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
Discovery’s approach to capital management served it well over the
Discovery’s Vitality Shared-Value Insurance model, and its manifestation
in product design across the Group, allowed for systemic improvement past year, ensuring that the Group made responsible and optimal use
of engagement; behaviour change; differentiated mortality, morbidity of a variety of appropriate and efficient forms of funding. While the
and claims experience; and sharing the value created with clients. This capital, debt and liquidity plans allow for known initiatives and a buffer
was evidenced by exceptional global adoption of and engagement in for adverse scenarios, the buffer is not maintained at a level to pursue
Vitality Active Rewards, with over one million members in South Africa, new opportunities requiring significant additional capital.
the United Kingdom, United States, Hong Kong and China actively using
the benefit – and over 100 000 new members using the benefit every Business-specific performance: South Africa
month. The result was an improvement in physical activity of over 25%,
shown to have significant benefits in hindering the onset of disease and DISCOVERY HEALTH
improving claims experience. Discovery Health continued to deliver excellent results during the
period under review. Normalised operating profit increased by 12%
The Vitality Shared-Value Insurance model continued to gain scale over
to R1 188 million, and core new business API increased by 20% to
the period via the Global Vitality Network – a platform of leading
international insurers using Discovery’s proprietary business model in R3 030 million. During the period, Discovery Health was awarded the
their markets. The business model is now being employed across 14 contract to administer SAB Medical Aid, bringing its restricted scheme
markets, with Discovery accessing over 65% of the global life insurance client base to 18 schemes and 581 821 lives under management, and
market by premium. total lives under management to 3 317 507 at the end of the period.
The efficacy of the Vitality Shared-Value Insurance model gives the The Discovery Health Medical Scheme (DHMS) performed strongly
Group the confidence to grow according to the principles of the during the 2016 calendar year. Net membership grew by 2% over the
organic growth methodology as outlined above. Over the period, this year, to a membership base of 2.74 million lives at year-end. Despite
was evidenced by the performance of the respective businesses, as significant claims-cost pressures, Discovery Health’s substantial
well as their progression through the growth cycle (from new to ongoing investment in risk management interventions, systems and
emerging to established businesses). The established businesses assets to ensure effective claims-risk and fraud management, ensured
delivered a solid performance of 11% growth in operating profit to that DHMS ended the year with a robust operating surplus, and capital
R3 786 million, and 9% growth in new business to R6 477 million. reserves above the statutory level of 25% of gross contributions.
Unaudited interim results and cash dividend declaration December 2016 1Discovery Health continued its significant innovation and investment in During the period Discovery Invest extended its innovation in the
the healthcare system and digital healthcare assets over the period. retirement space by allowing investors to convert Discovery Miles and
This included further expansion in the homecare, pharmacy distribution Vitality points into their retirement plans, and becoming the first
and wellness operations; and enhanced value-based contracting with provider in South Africa to offer zero administration fees on retirement
health professionals and hospital centres of excellence. Discovery provision within certain conditions. Discovery Invest’s market share
Health’s fraud and forensics team alone saved over R405 million for its increased by 80% in the retirement annuity and preservation funds
client schemes during the 2016 calendar year. space, and by 50% in the retirement income space (year to end
In addition, the period saw new investments and partnerships in data September 2016).
analytics and machine learning capabilities, as well as further
enhancements in the functionality and coverage of Discovery HealthID
DISCOVERY INSURE
– the country's leading electronic health record system, which is now in Discovery Insure showed significant new business growth for the
regular use by over 1.2 million members and over 50% of doctors six-month period, up 23% to R495 million, mainly driven by higher
treating Discovery Health clients. All of these investments ensure that intermediated sales – which also improved the quality of the in-force
members of Discovery Health’s client schemes are part of an book. The gross written premium for the six-month period was
increasingly integrated healthcare system. R997 million (up 33%) and the book now covers over 160 000 vehicles.
The business continued to scale and is now close to monthly
Discovery Health maintains its firm support for the objectives of the
breakeven. The combined ratio improved over the period to 103%,
proposed National Health Insurance (NHI) system, and continues to
despite pressure on the loss ratio caused by two catastrophe-level
work closely with the National Department of Health and all other
storm events taking place in the six-month period.
stakeholders to ensure optimal policy outcomes. Discovery Health also
continued to actively participate in the processes of the Health Market The Vitalitydrive model continues to produce excellent results, as
Inquiry of the Competition Commission, which is expected to report its members’ engagement translates into better driving, and lower claims.
findings by the end of 2017. This is evident in the continued reduction in claim frequency over the
period, and since inception (10% lower than inception). In addition,
DISCOVERY LIFE Discovery Insure broadened access to reward partners, and addressed
Discovery Life delivered a strong performance in growth and profit. high-risk behaviour categories, such as night driving, through a
New business grew by 9% (API including servicing and ACIs) to strategic partnership with Uber.
R1 053 million, compared with the same period in the prior year,
largely driven by individual new business which grew by 10.2%. Using telematics expertise and the footprint of Discovery clients across
Operating profit for the period increased by 13% to R1 768 million. the country, Discovery Insure developed Crowdsearch – a technology
which turns the Vitalitydrive sensor into a beacon which can be located
The Vitality Shared-Value Insurance model continued to exhibit using the smartphones of the business’s member base.
encouraging results, both for Discovery Life and its policyholders. The
impact of Discovery Life’s incentives for healthy lifestyle behaviours INTENT TO ENTER BANKING
and outcomes have translated into exceptional Vitality engagement
Progress was made during the period regarding the intention to enter
levels, with a 7-fold increase in the number of policyholders on Gold
banking. On 25 October 2016, Discovery received authorisation from
and Diamond Vitality status over the past eight years. Mortality,
the Registrar of Banks to establish a banking presence in South Africa,
morbidity and lapse experience are within expectation, with lapses at
granted in terms of Section 13(1) of the Banks Act, Act No. 94 of 1990
94% of expected on an Embedded Value (EV) basis. Policyholders
(“Banks Act”), subject to certain conditions.
benefited from Life PayBack benefits equivalent to 26% of individual
Life claims (excluding PayBack) – highlighting the value derived by Pursuant to this authorisation, Discovery has a period of 12 months to
healthy clients. The Value of In-Force (VIF) increased by an annualised fulfil the said conditions and make application for final approval in
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
16% to R17 313 million from June 2016. terms of Section 16 of the Banks Act. The granting of a banking license
Product innovation as well as improved new business volume, mix, pursuant to Section 17 of the Banks Act, and the timing of such grant,
servicing and efficiencies, enabled a 20% increase in Value of New is subject to the approval and discretion of the Registrar of Banks.
Business (VNB) when measured on constant economic assumptions Progress is being made in developing the system infrastructure,
compared with the prior period. The recent launch of Vitality operating processes, regulatory engagement and the customer
Underwriting, a first-of-its-kind dynamic underwriting method based value proposition. Subject to the above, Discovery anticipates being
on client biometrics, combined with other product enhancements, has in a position to launch its proposed banking offering during the
resulted in Discovery Life strengthening its market share in the retail
course of 2018.
affluent segment to 27.5% (for January to September 2016), with both
intermediated and tied channels experiencing positive growth.
Business-specific performance: United Kingdom
Discovery Life remains well capitalised and generated over R1.5 billion
in cash from the total existing book, which was utilised largely to Discovery’s UK business, comprising VitalityHealth and VitalityLife,
continue funding further growth of the Discovery Life and Invest delivered a robust performance, in spite of economic headwinds
businesses through new business acquisition. including falling interest and exchange rates, calculated to have
dampened profits by £4 million for the period. This included a 6%
DISCOVERY INVEST increase in new business to £57.7 million, and a 10% increase in
Discovery Invest grew assets under management by 14% year-on-year normalised operating profit to £22.5 million (-11% to R1 024 million
to R64 billion, with new business growth of 9% to R1 278 million, and -8% to R400 million in rand terms respectively, considering the
dampened by weaker market conditions. Operating profit grew to 16% appreciation of the rand over the period).
R326 million, 21% higher than the same period in the prior year. With over 950 000 clients and engagement at record levels, the Vitality
Discovery Invest maintained a position in the top 6 retail asset takers Shared-Value Insurance model is gaining traction in the UK market.
in the industry in every quarter of 2016. There is also evidence of significant behavioural change – since the
The business model of sharing economic value has resulted in over launch of Active Rewards in May 2015, there has been an 8-fold
R4 billion in upfront investment boosts being awarded to Discovery increase in the number of engaged Vitality members reaching weekly
Invest’s over 250 000 policyholders. physical activity thresholds.
2Allied to continued investment in brand, partner integration and enhancements to the wellness and Private Medical Insurance
service journeys, Vitality built on the success of the Active Rewards components of the VitalityHealth proposition. This included the addition
programme with the launch of a new Apple Watch benefit, and of Consultant Select, a consultant-led directional care pathway, and the
HealthyFood through Ocado (an online supermarket). There were introduction of a new approach to individual renewal pricing, which
close to 9 000 Ocado registrations in the first two months of this moves away from the traditional no-claims-discount model.
benefit, and 15 000 Apple Watch orders in the first four months of the
benefit. Underpinned by the high levels of Vitality penetration and the
Business-specific performance: Vitality Group
proprietary Vitality Shared-Value Insurance model, the claims and
lapse experience continues to improve across both business lines. Over the period, Discovery Partner Markets in South Africa and The
Vitality Group in the United States were consolidated into one entity,
VITALITYLIFE Vitality Group, with a unified strategy, executive team and a consistent
VitalityLife produced a steady performance in the face of a complex approach to product, partners and systems.
six-month period. This included an unpredictable economic climate
with volatility in interest rates and exchange rate movements. The net AIA VITALITY
effect was an increase in new business of 8% in GBP, to 32.7 million The period was noteworthy for AIA Vitality with Vitality-integrated
(decrease of 10% in rand terms to R581 million). Normalised profit insurance products now live in six AIA markets, and Vitality Active
decreased by 10% in GBP to 14.5 million (decrease of 25% in rand Rewards in the process of being rolled out in an additional three
terms to R258 million), with the low interest rate environment markets. The Vitality Shared-Value Insurance model continues to
accounting for an estimated 22% decrease in profits. create value, with significant increases in VNB and membership, as well
as a continued increase in Vitality penetration.
VitalityLife saw continued adoption of the Vitality-integrated model
over the period, with the Vitality Optimiser product comprising over
JOHN HANCOCK VITALITY AND MANULIFE VITALITY
60% of all new business sales. The period also witnessed better-than-
expected overall claims experience dynamics (actual to expected John Hancock Vitality continued to experience strong penetration rates
claims of 85%, net of reinsurance), with optimised cases showing and the sales and engagement performance was in line with expectation.
significantly lower claims than non-optimised cases (optimised clients The launch in New York State and the introduction of Apple Watch to
claim 14% less relative to non-optimised clients). Furthermore, all customers over the period were well received by the markets, and
VitalityLife’s continued product innovation saw a drive towards more will drive a further increase in sales and engagement.
capital-efficient products in terms of sales and business mix, Manulife Vitality successfully launched in the Canadian market in
highlighting its adaptability to an uncertain economic climate. September 2016 offering Vitality on Family Term products.
VitalityLife achieved a market share of 13% for protection business in
the Independent Financial Adviser space during the period. It also GENERALI VITALITY
launched three new initiatives which are all market-firsts in the UK: a Generali Vitality launched in Germany during July 2016 in the agency
Wellness Optimiser designed to reflect health-related behaviour distribution channel with integrated disability and Term Life products.
change through discounts on health checks (premiums change based New business volumes have been exceptional with the disability
on Vitality status); enhanced Severe Illness Cover (SIC) with a cancer product volumes up by 60% and Term Life product volumes up 82%
relapse benefit, whereby following one year in remission, clients can compared with the period leading up to the launch.
get SIC if there is a cancer relapse; and Vitality Nurses, a convenient
France launched its shared-value offering through various distribution
online booking system with a nurse going to clients for their Vitality
channels on 9 January 2017, with Vitality being offered to corporate clients.
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
screening and non-laboratory medical diagnostic testing as part of
underwriting.
Business-specific performance: Ping An Health (PAH)
VITALITYHEALTH The business performed excellently over the period, reaching its stretch
The period was characterised by excellent actuarial dynamics, with a target of RMB 2 billion premium income for the year, with one million
continuation of good loss ratio and retention performance; and 4% clients (an average of 3 871 clients were added each day in December
growth in new business in GBP terms, driven predominantly by the 2016). The recently-developed internet products ended the year
individual market in which record sales of £13 million (up 20% on the strongly with a premium run rate of RMB 1 million each day, and
prior year) were achieved. Overall, operating profit for H12017 grew attractive loss ratios.
from £4.4 million to £8 million (up 82%), with the in-force book
generating £21 million over the period. From a balance sheet Over 650 000 policyholders have joined Vitality Active Rewards through
perspective, in September 2016, the cash-based financial reinsurance Ping An Life over the past five months, with current run rates of over
structures were converted to cashless structures, resulting in around 5 000 new activations each day, and high levels of physical activity
£50 million of reinsurance being repaid and a significant reduction in being recorded.
future financing cost. Importantly, Ping An Group sees the healthcare environment in China as
Engagement in the Vitality wellness programme has delivered clear a key strategic area. With PAH the designated health insurance specialist
benefits from both a claims and retention perspective. When engagement company, PAG will leverage its impressive agency force to realise its
is tracked year-on-year, VitalityHealth members who increased their ambition of being China’s largest comprehensive healthcare player.
wellness engagement had a claims cost around 20% lower than those
who maintained their starting level of engagement. The effect on the On behalf of the Board
lapse rate was even more pronounced, with this being halved for
Vitality members who were actively engaged. MI HILKOWITZ A GORE
Chairperson Group Chief Executive
The period under review was one of significant investment to further
progress VitalityHealth’s Shared-Value Insurance proposition. The Sandton
product launch in September 2016 included a number of key 22 February 2017
Unaudited interim results and cash dividend declaration December 2016 3Statement of financial position
at 31 December 2016
Group Group
December June
2016 2016
R million Unaudited Audited
ASSETS
Assets arising from insurance contracts 34 897 33 815
Property and equipment 1 107 1 052
Intangible assets including deferred acquisition costs 4 396 4 584
Goodwill 2 093 2 447
Investment in equity accounted investments 602 491
Financial assets
– Available-for-sale investments 8 730 9 794
– Investments at fair value through profit or loss 53 759 50 948
– Derivatives 258 590
– Loans and receivables including insurance receivables 5 417 4 891
Deferred income tax 764 824
Current income tax asset 137 97
Reinsurance contracts 244 410
Cash and cash equivalents 6 545 8 634
Total assets 118 949 118 577
EQUITY
Capital and reserves
Ordinary share capital and share premium 8 310 8 300
Perpetual preference share capital 779 779
Other reserves 171 1 934
Retained earnings 21 031 19 594
30 291 30 607
Non-controlling interest – –
Total equity 30 291 30 607
LIABILITIES
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
Liabilities arising from insurance contracts 47 291 44 673
Liabilities arising from reinsurance contracts 5 703 4 894
Financial liabilities
– Negative reserve funding 1 907 4 248
– Borrowings at amortised cost 6 558 5 400
– Investment contracts at fair value through profit or loss 13 882 13 514
– Derivatives 250 49
– Trade and other payables 5 986 8 563
Deferred income tax 6 553 6 035
Deferred revenue 275 291
Employee benefits 174 169
Current income tax liability 79 134
Total liabilities 88 658 87 970
Total equity and liabilities 118 949 118 577
4Income statement
for the six months ended 31 December 2016
Group Group Group
Six months Six months Year
ended ended ended
December December June
2016 2015 % 2016
R million Unaudited Unaudited change Audited
Insurance premium revenue 16 652 16 047 33 074
Reinsurance premiums (1 949) (2 093) (4 316)
Net insurance premium revenue 14 703 13 954 28 758
Fee income from administration business 4 002 3 638 7 651
Vitality income 2 129 1 838 3 844
Investment income 392 354 745
– investment income earned on shareholder investments and cash 62 163 265
– investment income earned on assets backing policyholder liabilities 330 191 480
Net realised gains on available-for-sale financial assets 5 3 5
Net fair value gains on financial assets at fair value through profit or loss 172 1 318 2 720
Net income 21 403 21 105 43 723
Claims and policyholders’ benefits (9 388) (9 192) (19 163)
Insurance claims recovered from reinsurers 1 436 1 662 3 586
Recapture of reinsurance (882) – –
Net claims and policyholders’ benefits (8 834) (7 530) (15 577)
Acquisition costs (2 703) (2 965) (6 185)
Marketing and administration expenses (7 707) (7 080) (14 789)
Amortisation of intangibles from business combinations (87) (122) (275)
Recovery of expenses from reinsurers 1 999 297 1 346
Transfer from assets/liabilities under insurance contracts (987) (445) (1 745)
Fair value adjustment to liabilities under investment contracts 165 (517) (695)
Profit from operations 3 249 2 743 18 5 803
Gain from business combination – – 8
Finance costs (232) (97) (293)
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
– finance charge on negative reserve funding (22) – –
– finance costs (210) (97) (293)
Foreign exchange (losses)/gains (17) 25 18
Share of net profits/(losses) from equity accounted investments 16 (54) (66)
Profit before tax 3 016 2 617 15 5 470
Income tax expense (947) (807) (17) (1 740)
Profit for the period 2 069 1 810 14 3 730
Profit attributable to:
– ordinary shareholders 2 028 1 773 14 3 655
– preference shareholders 41 37 75
– non-controlling interest – – –
2 069 1 810 14 3 730
Earnings per share for profit attributable to ordinary shareholders
of the company during the period (cents):
– undiluted 314.8 281.0 12 573.1
– diluted 314.4 277.1 13 568.8
Unaudited interim results and cash dividend declaration December 2016 5Statement of comprehensive income
for the six months ended 31 December 2016
Group Group Group
Six months Six months Year
ended ended ended
December December June
2016 2015 % 2016
R million Unaudited Unaudited change Audited
Profit for the period 2 069 1 810 3 730
Items that are or may be reclassified subsequently to profit or loss:
Change in available-for-sale financial assets (7) 9 4
– unrealised (losses)/gains (11) 9 24
– capital gains tax on unrealised gains/losses 8 2 (16)
– realised gains transferred to profit or loss (5) (3) (5)
– capital gains tax on realised gains 1 1 1
Currency translation differences (1 646) 1 891 62
– unrealised (losses)/gains (1 657) 1 926 86
– tax on unrealised gains/losses 11 (35) (24)
Cash flow hedges (78) (43) (195)
– unrealised (losses)/gains (7) 9 (129)
– tax on unrealised gains/losses 2 (1) 14
– gains recycled to profit or loss (86) (61) (95)
– tax on recycled gains 13 10 15
Share of other comprehensive income from equity accounted
investments (41) 87 39
– change in available-for-sale financial assets (1) 9 (11)
– currency translation differences (40) 78 50
Other comprehensive (losses)/income for the period, net of tax (1 772) 1 944 (90)
Total comprehensive income for the period 297 3 754 (92) 3 640
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
Attributable to:
– ordinary shareholders 256 3 717 (93) 3 565
– preference shareholders 41 37 75
– non-controlling interest – – –
Total comprehensive income for the period 297 3 754 (92) 3 640
6Headline earnings
for the six months ended 31 December 2016
Group Group Group
Six months Six months Year
ended ended ended
December December June
2016 2015 % 2016
R million Unaudited Unaudited change Audited
Normalised headline earnings per share (cents):
– undiluted 339.0 336.6 1 676.3
– diluted 338.6 331.9 2 671.1
Headline earnings per share (cents):
– undiluted 314.0 280.6 12 571.1
– diluted 313.7 276.7 13 566.7
The reconciliation between earnings and headline earnings is shown below:
Net profit attributable to ordinary shareholders 2 028 1 773 3 655
Adjusted for:
– gain from business combination – – (8)
– gain on disposal of property and equipment net of tax (1) – (2)
– realised gains on available-for-sale financial assets net of CGT (4) (2) (4)
Headline earnings 2 023 1 771 14 3 641
– accrual of dividends payable to preference shareholders (1) (1) (4)
– amortisation of intangibles from business combinations net
of deferred tax 78 97 224
– rebranding and business acquisitions expenses 84 199 365
– additional 54.99% share of DiscoveryCard after tax profit – 58 86
Normalised headline earnings 2 184 2 124 3 4 312
Weighted number of shares in issue (000’s) 644 350 631 079 2 637 608
Diluted weighted number of shares (000’s) 645 080 639 919 1 642 534
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
Unaudited interim results and cash dividend declaration December 2016 7Statement of changes in equity
for the six months ended 31 December 2016
Attributable to equity holders of the Company
Share capital Preference Share-based
and share share payment
R million premium capital reserve
Period ended 31 December 2016
At beginning of the period 8 300 779 319
Total comprehensive income for the period – 41 –
Profit for the period – 41 –
Other comprehensive losses – – –
Transactions with owners 10 (41) 9
Increase in treasury shares (1) – –
Delivery of treasury shares 11 – –
Share buy-back * – –
Employee share option schemes:
– Value of employee services – – 9
Dividends paid to preference shareholders – (41) –
Dividends paid to ordinary shareholders – – –
At end of the period 8 310 779 328
Period ended 31 December 2015
At beginning of the period 7 488 779 319
Total comprehensive income for the period – 37 –
Profit for the period – 37 –
Other comprehensive income – – –
Transactions with owners 813 (37) –
Increase in treasury shares (4) – –
Proceeds from treasury shares * – –
Share issue 817 – –
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
Share buy-back * – –
Dividends paid to preference shareholders – (37) –
Dividends paid to ordinary shareholders – – –
At end of the period 8 301 779 319
1 This relates to the fair value adjustments of available-for-sale financial assets.
* Amount is less than R500 000.
8Attributable to equity holders of the Company
Available- Non-
for-sale Translation Hedging Retained controlling
investments1 reserve reserve earnings Total interest Total
164 1 485 (34) 19 594 30 607 – 30 607
(8) (1 686) (78) 2 028 297 – 297
– – – 2 028 2 069 – 2 069
(8) (1 686) (78) – (1 772) – (1 772)
– – – (591) (613) – (613)
– – – – (1) – (1)
– – – (11) – – –
– – – – * – *
– – – – 9 – 9
– – – – (41) – (41)
– – – (580) (580) – (580)
156 (201) (112) 21 031 30 291 – 30 291
171 1 373 161 17 065 27 356 – 27 356
18 1 969 (43) 1 773 3 754 – 3 754
– – – 1 773 1 810 – 1 810
18 1 969 (43) – 1 944 – 1 944
– – – (575) 201 – 201
– – – – (4) – (4)
– – – – * – *
– – – – 817 – 817
WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
– – – – * – *
– – – – (37) – (37)
– – – (575) (575) – (575)
189 3 342 118 18 263 31 311 – 31 311
Unaudited interim results and cash dividend declaration December 2016 9Statement of cash flows
for the six months ended 31 December 2016
Group Group Group
Six months Six months Year
ended ended ended
December December June
2016 2015 2016
R million Unaudited Unaudited Audited
Cash flow from operating activities (2 140) 527 985
Cash generated by operations 4 666 4 325 8 481
Net purchase of investments held to back policyholder liabilities (3 205) (2 493) (9 597)
Working capital changes (3 884) (1 527) 1 699
(2 423) 305 583
Dividends received 61 265 171
Interest received 896 483 1 478
Interest paid (214) (73) (277)
Taxation paid (460) (453) (970)
Cash flow from investing activities (82) (3 994) (2 428)
Net proceeds/(purchase) of financial assets 682 (1 892) 286
Purchase of equipment (224) (222) (465)
Proceeds from the sale of equipment 2 – 20
Purchase of intangible assets (399) (1 880) (2 253)
Proceeds from the sale of intangible assets – – 4
Increase in investment in associate (143) – –
Purchase of businesses – – (20)
Cash flow from financing activities 763 4 349 4 009
Proceeds from issuance of ordinary shares – 817 817
Share buy-back * * *
Share issue costs – * *
Dividends paid to ordinary shareholders (581) (574) (1 130)
Dividends paid to preference shareholders (41) (37) (75)
Increase in borrowings 1 548 4 162 7 608
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Repayment of borrowings (163) (19) (3 211)
Net (decrease)/increase in cash and cash equivalents (1 459) 882 2 566
Cash and cash equivalents at beginning of period 8 614 6 251 6 251
Exchange (losses)/gains on cash and cash equivalents (610) 245 (203)
Cash and cash equivalents at end of period 6 545 7 378 8 614
Reconciliation to statement of financial position
Cash and cash equivalents 6 545 7 378 8 634
Bank overdraft included in borrowings at amortised cost – – (20)
Cash and cash equivalents at end of period 6 545 7 378 8 614
* Amount is less than R500 000.
10Additional information
at 31 December 2016
FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The Group’s financial instruments measured at fair value have been disclosed using a fair value hierarchy. The hierarchy has three levels that reflect
the significance of the inputs used in measuring fair value. These are as follows:
Level 1 includes financial instruments that are measured using unadjusted, quoted prices in an active market for identical financial instruments.
Quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those
prices represent actual and regularly occurring market transactions on an arm’s length basis.
Level 2 includes financial instruments that are valued using techniques based significantly on observable market data. Instruments in this category
are valued using:
(a) quoted prices for similar instruments or identical instruments in markets which are not considered to be active or
(b) valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.
Level 3 includes financial instruments that are valued using valuation techniques that incorporate information other than observable market data
and where at least one input (which could have a significant effect on instruments’ valuation) cannot be based on observable market data.
31 December 2016
R million (unaudited) Level 1 Level 2 Level 3 Total
Financial assets
Financial instruments at fair value through profit or loss:
– Equity securities 16 193 3 922 – 20 115
– Equity linked notes – 2 532 – 2 532
– Debt securities 2 980 6 587 – 9 567
– Inflation linked securities 303 – – 303
– Money market securities 5 128 3 334 – 8 462
– Mutual funds 12 780 – – 12 780
Available-for-sale financial instruments:
– Equity securities 130 5 – 135
– Equity linked notes – 15 – 15
– Debt securities 71 673 – 744
– Inflation linked securities 5 – – 5
– Money market securities 323 1 082 – 1 405
– Mutual funds 6 426 – – 6 426
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Derivative financial instruments at fair value:
– Hedges – 254 – 254
– Non-hedges – 4 – 4
44 339 18 408 – 62 747
Financial liabilities
Derivative financial instruments at fair value:
– Hedges – 79 – 79
– Non-hedges – 171 – 171
– 250 – 250
There were no transfers between level 1 and 2 during the current financial period.
Unaudited interim results and cash dividend declaration December 2016 11Additional information continued
at 31 December 2016
FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS CONTINUED
Specific valuation techniques used to value financial instruments in level 2
– Discovery has invested in equity linked notes offered by international banks in order to back certain unit-linked contract liabilities. The calculation
of the daily value of the equity linked investments is made by the provider of the note. Discovery has procedures in place to ensure that these
prices are correct. Aside from the daily reasonableness checks versus similar funds and movement since the prior day’s price, the fund values
are calculated with reference to a specific formula or index, disclosed to the policyholders, which is recalculated by Discovery in order to check
if the price provided by the provider is correct.
– If a quoted market price is not available on a recognised stock exchange or from a broker for non-exchange traded financial instruments, the fair
value of the instrument is estimated by the asset managers, using valuation techniques including the use of recent arm’s length market
transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option
pricing models or other valuation techniques that provide a reliable estimate of prices obtained in actual market transactions.
– The fair value of the hedged derivatives is calculated by the issuers of those instruments, as follows:
(a) The fair value of call options is calculated on a Black-Scholes model.
(b) The fair value of the return swaps is calculated by discounting the future cash flows of the instruments.
(c) The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
30 June 2016
R million (audited) Level 1 Level 2 Level 3 Total
Financial assets
Financial instruments at fair value through profit or loss:
– Equity securities 20 049 – – 20 049
– Equity linked notes – 2 462 – 2 462
– Debt securities 10 238 731 – 10 969
– Inflation linked securities 429 – – 429
– Money market securities 601 4 157 – 4 758
– Mutual funds 12 281 – – 12 281
Available-for-sale financial instruments:
– Equity securities 151 – – 151
– Equity linked notes – 5 – 5
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– Debt securities 91 189 – 280
– Inflation linked securities 5 – – 5
– Money market securities 299 1 571 – 1 870
– Mutual funds 7 483 – – 7 483
Derivative financial instruments at fair value:
– Hedges – 521 – 521
– Non-hedges – 69 – 69
51 627 9 705 – 61 332
Financial liabilities
Derivative financial instruments at fair value:
– Hedges – 29 – 29
– Non-hedges – 20 – 20
– 49 – 49
12EXCHANGE RATES USED IN THE PREPARATION OF THESE RESULTS
USD GBP
31 December 2016
– Average 13.97 17.76
– Closing 13.74 16.92
30 June 2016
– Average 14.60 21.44
– Closing 14.73 19.78
31 December 2015
– Average 13.97 21.25
– Closing 15.63 23.18
30 June 2015
– Average 11.49 18.04
– Closing 12.18 19.19
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Unaudited interim results and cash dividend declaration December 2016 13Segmental information
for the six months ended 31 December 2016
SA SA SA SA
R million Health Life Invest Vitality
Income statement
Insurance premium revenue 8 4 844 5 727 –
Reinsurance premiums (1) (867) – –
Net insurance premium revenue 7 3 977 5 727 –
Fee income from administration business 3 014 10 799 –
Vitality income – – – 1 180
Investment income on assets backing policyholder liabilities – 258 – –
Finance charge on negative reserve funding – – – –
Inter-segment funding1 – (269) 269 –
Net fair value gains on financial assets at fair value through profit or loss – 184 120 –
Net income 3 021 4 160 6 915 1 180
Claims and policyholders’ benefits (1) (2 927) (3 405) –
Insurance claims recovered from reinsurers 1 585 – –
Recapture of reinsurance – – – –
Net claims and policyholders’ benefits – (2 342) (3 405) –
Acquisition costs – (823) (510) (43)
Marketing and administration expenses
– depreciation and amortisation (148) (8) – –
– other expenses (1 685) (757) (319) (1 104)
Recovery of expenses from reinsurers – – – –
Transfer from assets/liabilities under insurance contracts
– change in assets arising from insurance contracts – 1 735 – –
– change in assets arising from reinsurance contracts – (11) – –
– change in liabilities arising from insurance contracts – 11 (2 402) –
– change in liabilities arising from reinsurance contracts – (196) – –
Fair value adjustment to liabilities under investment contracts – (1) 47 –
Share of profits from equity accounted investments – – – –
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Normalised profit/(loss) from operations 1 188 1 768 326 33
Investment income earned on shareholder investments and cash 24 7 11 7
Net realised gains on available-for-sale financial assets – – 5 –
Rebranding and business acquisitions expenses – – – –
Amortisation of intangibles from business combinations – – – –
Finance costs (17) (4) – –
Foreign exchange losses – – (10) –
Profit before tax 1 195 1 771 332 40
Income tax expense (327) (502) (92) (11)
Profit for the period 868 1 269 240 29
1 The inter-segment funding of R269 million reflects a notional allocation of interest earned on the negative reserve backing policyholders’ funds of guaranteed investment products
and hence is transferred to Discovery Invest.
14IFRS reporting adjustments
Normalised
UK UK All other Segment UK profit IFRS
Health Life segments total Life2 DUT3 adjustments4 total
3 641 1 824 972 17 016 (364) – – 16 652
(806) (541) (98) (2 313) 364 – – (1 949)
2 835 1 283 874 14 703 – – – 14 703
10 – 169 4 002 – – – 4 002
269 40 640 2 129 – – – 2 129
10 11 51 330 – – (330) –
– (26) – (26) 4 – – (22)
– – – – – – – –
– (101) – 203 – (31) – 172
3 124 1 207 1 734 21 341 4 (31) (330) 20 984
(2 195) (326) (683) (9 537) 149 – – (9 388)
699 167 133 1 585 (149) – – 1 436
(882) – – (882) – – – (882)
(2 378) (159) (550) (8 834) – – – (8 834)
(294) (936) (93) (2 699) (4) – – (2 703)
(108) – (79) (343) – – – (343)
(1 248) (698) (1 316) (7 127) (65) (88) (84) (7 364)
1 296 703 – 1 999 – – – 1 999
– 394 – 2 129 500 – – 2 629
(123) 4 – (130) (2) – – (132)
(127) (6) (15) (2 539) 2 – – (2 537)
– (251) – (447) (500) – – (947)
– – – 46 – 119 – 165
– – 16 16 – – – 16
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142 258 (303) 3 412 (65) – (414) 2 933
1 4 8 62 – – 330 392
– – – 5 – – – 5
(76) – (8) (84) – – 84 –
– – (87) (87) – – – (87)
– (7) (182) (210) – – – (210)
– – (7) (17) – – – (17)
67 255 (579) 3 081 (65) – – 3 016
(6) (126) 52 (1 012) 65 – – (947)
61 129 (527) 2 069 – – – 2 069
The segment information is presented on the same basis as reported to the Chief Executive Officers of the reportable segments. The segment total is then adjusted for accounting
reclassifications and entries required to produce IFRS compliant results. These adjustments include the following:
2 The VitalityLife results are reclassified to account for the contractual arrangement as a reinsurance contract under IFRS 4.
3 The Discovery Unit Trusts (DUT) are consolidated into Discovery’s results for IFRS purposes. In the Segment information the DUT column includes the effects of consolidating the unit
trusts into Discovery’s results, effectively being the income and expenses relating to units held by third parties.
4 Investment income on assets backing policyholder liabilities is included as part of the normalised profit from operations in the segmental disclosure, but is included together with
shareholder investment income for IFRS purposes. Rebranding and business acquisitions expenses are excluded from normalised profit from operations, but are included in marketing
and administration expenses for IFRS purposes.
Unaudited interim results and cash dividend declaration December 2016 15Segmental information continued
for the six months ended 31 December 2015
Unaudited and restated
SA SA
SA Life Invest SA
R million Health Restated2 Restated2 Vitality
Income statement
Insurance premium revenue 8 4 366 5 298 –
Reinsurance premiums (1) (988) – –
Net insurance premium revenue 7 3 378 5 298 –
Fee income from administration business 2 622 16 716 –
Vitality income – – – 1 085
Investment income on assets backing policyholder liabilities – 138 – –
Finance charge on negative reserve funding – – – –
Inter-segment funding1 – (215) 215 –
Net fair value gains on financial assets at fair value through profit or loss – (77) 1 022 –
Net income 2 629 3 240 7 251 1 085
Claims and policyholders’ benefits (1) (2 552) (2 672) –
Insurance claims recovered from reinsurers * 767 – –
Net claims and policyholders’ benefits (1) (1 785) (2 672) –
Acquisition costs (3) (761) (490) (33)
Marketing and administration expenses
– depreciation and amortisation (120) (12) – –
– other expenses (1 444) (680) (278) (1 021)
Recovery of expenses from reinsurers – – – –
Transfer from assets/liabilities under insurance contracts
– change in assets arising from insurance contracts – 1 553 – –
– change in assets arising from reinsurance contracts – 11 – –
– change in liabilities arising from insurance contracts – 171 (3 398) –
– change in liabilities arising from reinsurance contracts – (175) – –
Fair value adjustment to liabilities under investment contracts – (1) (143) –
Share of profits/(losses) from equity accounted investments – – – –
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Normalised profit/(loss) from operations 1 061 1 561 270 31
Investment income earned on shareholder investments and cash 60 46 14 7
Net realised gains on available-for-sale financial assets – 1 2 –
Rebranding and business acquisitions expenses – – – –
Amortisation of intangibles from business combinations – – – –
Finance costs (21) (9) – –
Foreign exchange gains/(losses) 1 – 6 –
Profit before tax 1 101 1 599 292 38
Income tax expense (312) (443) (79) (11)
Profit for the period 789 1 156 213 27
* Amount is less than R500 000.
1 The inter-segment funding of R215 million reflects a notional allocation of interest earned on the negative reserve backing policyholders’ funds of guaranteed investment products
and hence is transferred to Discovery Invest.
The segment information is presented on the same basis as reported to the Chief Executive Officers (CEO) of the reportable segments. At each reporting date, Discovery must review
whether the segments being disclosed still comply with IFRS8 – Segment reporting. Based on this review, the following changes were required:
2 Since the beginning of the current financial period, the performance of the Discovery Retirement Optimiser (DRO) product is reported to the CEO of Discovery Invest. DRO was
previously reported as part of the SA Life segment. The comparatives have been restated to include the DRO product in the SA Invest segment, in line with the current year disclosure.
16IFRS reporting adjustments
All other Normalised
UK UK segments Segment UK profit IFRS
Health Life Restated3 total Life4 DUT5 adjustments6 total
4 227 1 828 724 16 451 (404) – – 16 047
(1 013) (404) (91) (2 497) 404 – – (2 093)
3 214 1 424 633 13 954 – – – 13 954
24 – 260 3 638 – – – 3 638
259 30 464 1 838 – – – 1 838
24 – 29 191 – – (191) –
– (172) – (172) 172 – – –
– – – – – – – –
– – – 945 – 373 – 1 318
3 521 1 282 1 386 20 394 172 373 (191) 20 748
(3 342) (348) (470) (9 385) 193 – – (9 192)
832 193 63 1 855 (193) – – 1 662
(2 510) (155) (407) (7 530) – – – (7 530)
(294) (1 130) (82) (2 793) (172) – – (2 965)
(76) – (49) (257) – – – (257)
(1 310) (596) (1 182) (6 511) (113) – (199) (6 823)
297 – – 297 – – – 297
– 1 528 – 3 081 (580) – – 2 501
1 6 – 18 (6) – – 12
463 (12) (13) (2 789) 6 – – (2 783)
– (580) – (755) 580 – – (175)
– – – (144) – (373) – (517)
1 – (55) (54) – – – (54)
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93 343 (402) 2 957 (113) – (390) 2 454
3 – 33 163 – – 191 354
– – – 3 – – – 3
(199) – – (199) – – 199 –
– – (122) (122) – – – (122)
(3) – (64) (97) – – – (97)
(96) – 114 25 – – – 25
(202) 343 (441) 2 730 (113) – – 2 617
38 (113) – (920) 113 – – (807)
(164) 230 (441) 1 810 – – – 1 810
3 The operating segments that were previously reported in the “New Business Development” segment no longer meet the aggregation criteria. As they do not meet the quantitative
thresholds either, they have moved to the “All other segments” column. Comparative disclosure has been updated to be consistent with the current year disclosure. New business
development previously included The Vitality Group in the United States of America, Ping An Health in China, AIA Vitality in Asia and Discovery Insure in South Africa, as well as expenses
incurred to investigate new products and markets.
The segment total, as reported to the Chief Executive Officers, is adjusted for accounting reclassifications and entries required to produce IFRS compliant results. These adjustments include
the following:
4 The VitalityLife results are reclassified to account for the contractual arrangement as a reinsurance contract under IFRS 4.
5 The Discovery Unit Trusts (DUT) are consolidated into Discovery’s results for IFRS purposes. In the Segment information the DUT column includes the effects of consolidating the unit
trusts into Discovery’s results, effectively being the income and expenses relating to units held by third parties.
6 Investment income on assets backing policyholder liabilities is included as part of the normalised profit from operations in the segmental disclosure, but is included together with
shareholder investment income for IFRS purposes. Rebranding and business acquisitions expenses are excluded from normalised profit from operations, but are included in marketing
and administration expenses for IFRS purposes.
Unaudited interim results and cash dividend declaration December 2016 17Review of Group results
for the six months ended 31 December 2016
NEW BUSINESS ANNUALISED PREMIUM INCOME
December December %
R million 2016 2015 change
Discovery Health – DHMS 2 552 2 190 17
Discovery Health – Closed Schemes1 478 337 42
Discovery Life2 1 053 970 9
Discovery Invest2 1 278 1 168 9
Discovery Insure 495 402 23
Discovery Vitality 92 97 (5)
VitalityHealth 443 513 (14)
VitalityLife 581 643 (10)
Vitality Group (stand alone) 33 60 (45)
Ping An Health 1 169 752 55
Fees earned from Vitality Group partners3 71 24 196
New business API of Group excluding new Closed Schemes 8 245 7 156 15
New Closed Schemes1 487 1 303 (63)
New business API of Group including new Closed Schemes 8 732 8 459 3
1 The new business API for Closed Schemes includes additional lives on existing closed schemes. The new business API for New Closed Schemes includes contracted new business API
and business in the first twelve months of on-boarding.
2 The comparative has been restated to include Discovery Retirement Optimiser (DRO) in the Discovery Invest new business API. This was previously reported under Discovery Life.
3 Not annualised.
In the past two years, Discovery Health has brought on a number of – The timing of inclusion of policyholders in the calculation of new
new Closed Schemes, of varying sizes, resulting in large fluctuations in business API – In the embedded value, new business is included
the new business annualised premium income in the year of from the earlier of the date that the first premium has been
acquisition. By excluding the new business annualised premium received or when the policy is on risk, whereas in the table above,
income for these new schemes, hence reducing the volatility caused, new business is included when the policy has been contractually
the new business annualised premium income for Discovery increased committed.
15% for the six months ended 31 December 2016, when compared to
the same period in the prior year. – Inclusion of automatic premium increases and servicing increases on
existing life policies – These are included in the table above but
Calculation of new business annualised premium income (API) excluded in the embedded value API values disclosed.
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New business API is calculated at 12 times the monthly premium for
For Vitality Group and Ping An Health, the embedded value definition
new recurring premium policies and 10% of the value of new single
of new business is used in the table above.
premium policies. It also includes both automatic premium increases
and servicing increases on existing policies. Refer to the footnotes to Table 7: Embedded Value of New Business
for a more detailed description of the differences in new business
The new business API in the table above differs from the new business
disclosures between the embedded value and the table above.
API disclosed in the embedded value largely as a result of:
18GROSS INFLOWS UNDER MANAGEMENT
Gross inflows under management measures the total funds collected by Discovery. Gross inflows under management increased 12% for the six
months ended 31 December 2016 when compared to the same period in the prior year.
December December %
R million 2016 2015 change
Discovery Health 32 239 27 434 18
Discovery Life1 4 854 4 382 11
Discovery Invest1 9 364 8 618 9
Discovery Insure 980 734 34
Discovery Vitality 1 180 1 085 9
VitalityHealth 3 920 4 510 (13)
VitalityLife 1 864 1 858 –
Vitality Group 569 474 20
All other businesses 232 240 (3)
Gross inflows under management 55 202 49 335 12
Less: collected on behalf of third parties (32 055) (27 408) 17
Discovery Health (29 217) (24 804) 18
Discovery Invest (2 838) (2 604) 9
Gross income of Group per the segmental information2 23 147 21 927 6
Gross income is made up as follows:
– Insurance premium revenue 17 016 16 451 3
– Fee income from administration business 4 002 3 638 10
– Vitality income 2 129 1 838 16
Gross income of Group per the segmental information2 23 147 21 927 6
1 The comparative has been restated to include Discovery Retirement Optimiser (DRO) inflows in Discovery Invest. This was previously reported under Discovery Life.
2 The appreciation of the rand over the period had a negative impact of 5% on Gross income of the Group.
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Unaudited interim results and cash dividend declaration December 2016 19You can also read
