UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION - for the six months ended 31 December 2016 - The ...

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UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION - for the six months ended 31 December 2016 - The ...
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

                                            2016
COMMENTARY
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            1
Discovery 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.

  2
Allied 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               3
Statement 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

  4
Income 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      5
Statement 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

  6
Headline 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     7
Statement 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.

  8
Attributable 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   9
Statement 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

                                                                                                           WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
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.

    10
Additional 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

                                                                                                                                                               WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
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               11
Additional 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

                                                                                                                                                             WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
– 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

 12
EXCHANGE 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

                                                                                                                           WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b

                                            Unaudited interim results and cash dividend declaration December 2016     13
Segmental 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                                                          –                     –                       –                       –

                                                                                                                                                                                        WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
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.

 14
IFRS 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

                                                                                                                                                                                           WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
               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                             15
Segmental 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                                                  –                     –                       –                        –

                                                                                                                                                                                            WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
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.

 16
IFRS 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)

                                                                                                                                                                                                 WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
                 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                                17
Review 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.

                                                                                                                                                                                     WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b
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:

 18
GROSS 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.

                                                                                                                                                                                WorldReginfo - aa896405-e6fe-4352-9818-b608a92a3d9b

                                                                              Unaudited interim results and cash dividend declaration December 2016                        19
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