DISCOVERY LIMITED | DSBP: DISCOVERY LIMITED - Unaudited interim results and cash dividend declaration for the six months ended 31 December 2017 |
DSBP: DISCOVERY LIMITED - Unaudited interim results and cash dividend declaration for the six months ended 31 December 2017
Unaudited interim results and cash dividend declaration for the six months ended 31 December 2017
Discovery Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1999/007789/06)
Company tax reference number: 9652/003/71/7
JSE share code: DSY ISIN: ZAE000022331
JSE share code: DSBP ISIN: ZAE000158564
JSE bond code: DSY01 ISIN: ZAG000148362
JSE bond code: DSY02 ISIN: ZAG000148347
JSE bond code: DSY03 ISIN: ZAG000148354
Unaudited interim results and cash dividend declaration
for the six months ended 31 December 2017
Normalised profit from operations
up 19% to R4 059 million
Core new business annualised premium income (API)
up 16% to R9 303 million
Embedded value
up 13% to R60.4 Billion
Transfer secretaries
Computershare Investor Services Pty Limited
(Registration number 2004/003647/07)
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196, PO Box 61051, Marshalltown 2107
Sponsors Rand Merchant Bank (A division of FirstRand Bank Limited)
Secretary and registered office MJ Botha, Discovery Limited
1 Discovery Place, Sandton 2146
PO Box 786722, Sandton 2146
Tel: (011) 529 2888
Fax: (011) 539 5503
Directors MI Hilkowitz (Chairperson), A Gore* (Chief Executive Officer), HL Bosman, Dr BA Brink, SE de Bruyn Sebotsa, R Enslin (USA), R Farber*, HD Kallner*, F Khanyile,
NS Koopowitz*, Dr TV Maphai, HP Mayers*, TT Mboweni, Dr A Ntsaluba*, AL Owen (UK), A Pollard*, JM Robertson*, B Swartzberg*, DM Viljoen* (Financial Director),
SV Zilwa
*Executive
Interim financial results
- prepared by L van Jaarsveldt CA(SA) and A Nel CA(SA)
- supervised by DM Viljoen CA(SA)
Embedded value statement
- prepared by M Curtis FASSA, FIA
- supervised by A Rayner FASSA, FIA
Commentary
Strong Group performance and acceleration towards 2018 Ambition
Discovery's performance over the six months ended 31 December 2017 exceeded expectation, enabling it to track strongly towards its stated 2018 Ambition.
Normalised operating profit increased by 19% to R4 059 million; normalised headline earnings increased by 30% to R2 829 million; and core new business Annualised
Premium Income (API) (which excludes Discovery Health's take-on of new closed medical schemes and gross revenue of Vitality Group) increased by 16% to R9 303
million. The Embedded Value grew by 13% on an annualised basis to R60.4 billion.
Over the period, the Group continued to make substantive progress against all three Ambition criteria:
1) Financial and social impact, targeting R10 billion in normalised profit from operations, with growth of CPI + 10%; return on capital of risk-free + 10%; and making 10
million people around the world healthier.
2) A unique foundation, comprising a sophisticated data and science capability; an aspirational global Vitality brand; exceptional talent, particularly in terms of critical
skills; and an entrenched values-based culture.
3) Brilliant businesses that are 1) insurgent in their markets; 2) offer sustainable products that meet complex consumer needs; 3) generate excellent member
engagement; 4) deliver superior actuarial dynamics; and 5) offer an exceptional service ecosystem.
In terms of financial impact, the Group surpassed its growth methodology targets. The established businesses delivered combined growth in operating profit of 15%
- well above the guidance of CPI + 5%; the emerging businesses exceeded their target of CPI + 30%, and 8% of earnings was invested in new initiatives, including
Discovery Bank, Umbrella Funds, Vitality Invest, and Discovery Insure Commercial Insurance - all of which are within budget and on track for launch in 2018.
The Group also continued to meet the requirements of its capital allocation model in terms of solvency capital, allocated capital, and maintaining an above-guidance
buffer of R2.5 billion as at 31 December 2017. During the period, Discovery came to market for its inaugural Domestic Medium Term Note issuance to diversify its
funding sources, and this was oversubscribed. The Financial Leverage Ratio (FLR) as at 31 December 2017 was 26.5%, remaining below the limit of 28%.
The third tier of Discovery's operating model is its cash management approach. The Group generated R6.1 billion in cash, and after payment of tax, dividends and
interest on debt, invested R3.8 billion in new business and R1.1 billion in new initiatives. Both these investments meet the criteria of risk-free + 10%, validating the
approach to continue to invest significantly without breaching the FLR or cash buffer.
The above financial performance illustrates how the 2018 Ambition has been instrumental in framing and driving financial outcomes and scale since 2013. During the
currency of the Ambition, sizeable businesses (Discovery Invest, VitalityLife and VitalityHealth) moved into the established category; high-potential businesses (Discovery
Insure, Ping An Health and Vitality Group) became emerging; and ongoing investment took place in new ventures to ensure a pipeline for future growth.
Discovery's unique foundation and Shared-Value Insurance model - the manifestation of its core purpose - continued to create competitive advantage across markets,
in spite of economic complexity and volatility. Considerable investment took place through the Global Vitality Network (GVN), ensuring repeatability and scalability
across adjacencies and geographies. Among the GVN's activities and initiatives, three notable developments include:
Firstly, from an architecture perspective, progress was made towards a universal behavioural platform through a common status and points currency that manifests in
a simple, digital user journey based on Active Rewards. This is being powered by a configurable global technology platform - Vitality One - currently tracking over 1 000
activities and 50 biometric readings every minute.
Secondly, Vitality Active Rewards with Apple Watch continued to exemplify Discovery's sophisticated data and science asset, leveraging the Group's two decades of
expertise in behaviour change to drive powerful changes in risk and lifestyle. Vitality members using the Apple Watch benefit across SA, the UK and the US have shown
consistent and sustained increases in engagement and behaviour change (35% - 100% more active following take-up of benefit; 22% - 63% more active in the long run).
Thirdly, as an evolution of its healthy ageing agenda, Discovery completed work to quantify the most influential interventions that extend life and quality of life at older
ages, and this is being consolidated into a sophisticated wellness product. In addition, these insights are being used to shape a retirement planning proposition
incorporating financial security and wellness; with learnings being applied to Vitality Invest's impending launch in the UK.
Finally, the businesses continued to make progress against their Group-set performance measures.
Performance of established businesses
Discovery Health
Discovery Health delivered excellent results for the period to 31 December 2017, with normalised operating profit increasing by 12% to R1 332 million; new business
API increasing by 10% to R3 324 million (excluding take-on of new closed schemes); and lives under management reaching 3.44 million. Discovery Health Medical
Scheme (DHMS) also performed excellently, announcing a highly-competitive contribution increase of 7.9%.
Discovery Health's ongoing investment in risk management assets and systems ensured that DHMS ended the calendar year with a surplus of R2.45 billion, taking
solvency to 27.45% of gross contributions - well above the statutory level of 25%. DHMS is now in the strongest financial position in its history, with membership of 2.78
million lives at year-end. Discovery Health is also creating ongoing value for its schemes - in 2016 alone, Discovery Health saved DHMS R6.2 billion through its managed
care initiatives and Vitality programme, equating to 14% savings in risk claims.
Over the period, Discovery Health continued to grow its restricted medical scheme client base, now at 18 with over 660 000 lives under management. Immediately
following the review period, Discovery Health was awarded the tender for BP Medical Aid Society, to be administered by DH from 1 July 2018.
Discovery Health has made significant investments in initiatives aimed at maintaining and improving the quality of care, including programmes tailored to members
with diabetes, heart disease, kidney failure and those undergoing joint replacement surgery - all with demonstrative outcomes. In addition, Discovery Health's
investment in technology and expertise to address medical scheme fraud led to recoveries of over R538 million for its client medical schemes during the 2017 calendar
year. The business also made significant new investments in big data analytics and artificial intelligence capabilities.
Finally, several innovative changes were developed for the 2018 DHMS and Discovery Health launch. These included benefit changes to enhance cover for young
families; extending the Vitality programme to lower-income segments; and introducing a fully-integrated corporate health offering.
Discovery Health maintains its strong support for the objectives of the proposed National Health Insurance (NHI), and continues to work closely with the National
Department of Health and other stakeholders to ensure optimal outcomes of the NHI policy process. Discovery Health also continues to participate actively in the
processes of the Health Market Inquiry of the Competition Commission, which is expected to report its findings in the latter half of 2018.
Discovery Life
Over the period, Discovery Life continued to utilise the Shared-Value Insurance model to maintain its market-leading position. New business API increased by 6% to R1
121 million and earnings increased by 4% to R1 839 million, despite the impact of claims volatility. Market share increased to 27.5%(1) in the retail affluent protection
segment, while the value of new business grew by 11%, reflecting a continued focus on quality of new business.
The second quarter of the financial year saw a rapid acceleration in new business, driven by the annual product launch, with Individual new business increasing by 7%
compared with the same quarter in the prior year. The launch of the new Global Education Protector, Vitality Purple and the Purple Plan range has been very well
received. Annual premiums collected exceeded R10 billion for the first time.
The higher-than-expected claims experience was due primarily to a small, but increased, number of large non-natural deaths and claims. Apart from this, the business
delivered positive experience variances across both expenses and lapses, with policy lapses at 87% of expectation, emphasising the value of integration.
The clinical refinement of the Vitality points structure, which was accelerated over the period, has resulted in strong health behaviour change, as clients strive to
maintain their integration benefits (PayBacks of R511 million were paid to policyholders) - demonstrating the efficacy of the Shared-Value Insurance model. This is
further validated by an independent reinsurance report showing a distinction between Discovery Life's population and the rest of the industry.
Discovery Life remains well-capitalised at 3.8x CAR and generated cash of R1.9 billion (including Discovery Invest) from the inforce book over the period (before
reinsurance and acquisition-related costs). It invested the majority of this in new business growth, ending in a net cash generation of R354 million.
1 NMG Life Insurance New Sales Report Q1-Q4 2017.
Discovery Invest
The business performed strongly over the period. While new business decreased by 5%, reflecting an environment of weakened inflows, Discovery Invest's net flows
grew by 20% to R3.3 billion. Its gross LISP flows market share increased from 4.3% to 5.2% for the six months compared to the same prior period. Operating profit grew
29% to R419 million, driven by growth in assets under administration of 22% to R77.8 billion, with 77% of linked funds in Discovery funds, and an improvement in the
value of new business since June 2017.
The Discovery Balanced Fund continued to perform well and remains in the top 10 retail flow taking SA Unit Trusts in each quarter for the past two years. In the
PlexCrown Ratings, a widely-quoted unit trust rating agency in SA, Discovery Invest climbed from 12th to 4th place (out of 17) in the final quarter of 2017 - Discovery's
highest rating to date.
The recent product launch saw the introduction of investment offerings tailored to specific client segments. This included a more accessible product for younger clients;
an enhanced offering for clients who reinvest their Discovery Life cash back; and a Purple range with unique benefits targeted to high net worth clients.
Discovery Card
The Discovery Card business exceeded expectation. Profits for the Discovery Card JV with FNB grew by 16% to R207 million and revenue increased by 7% to R500
million.
Discovery's credit card base is less sensitive to negative market conditions due to a substantially better risk profile. The credit loss ratio to advances was 1.5% compared
to the market average of 6% for tier 1 credit providers. Over the period, turnover spend on the Discovery Card was up 4.6% and advances were up 3.8%.
Vitality UK
Discovery's UK business, comprising VitalityLife and VitalityHealth, continued to deliver robust results during the period under review. Combined new business sales
grew 6% to a record £61.0 million (R1 079 million); and operating profit grew 55% to £35 million (R616 million). Insured lives exceed one million members.
The UK business continued its strategic development, with significant investment made to enhance the resonance and reach of the Vitality brand; the adoption and
impact of Vitality; the relevance of the product construct to members given emerging risk profiles and needs; the move towards greater digitisation and use of
self-servicing channels; and to more extensively deliver the composite Discovery model in the UK.
Significant progress was made in each of these areas. Prompted brand awareness reached nearly 50%, accompanied by significant growth in business derived through
direct channels; and engagement in Vitality increased by 58% to over 30 million activities in the 2017 calendar year. The business launched Vitality Kids in partnership
with Disney, a new Healthy Mind component of Vitality, and new digital platforms. Finally, Vitality UK received regulatory approval for the launch of a long-term savings
business during 2018, which will leverage behavioural learnings from the UK, as well as the experience of Discovery Invest in South Africa.
VitalityLife
VitalityLife showed a resilient half-year performance with normalised operating profit increasing by 2% to £14.8 million - a positive result considering the low interest
rate environment and negative impact of higher-than-expected lapses. New business sales were £31.5 million, 4% lower than the comparative prior year volumes.
VitalityLife has reconfigured and priced its business for a low-interest-rate environment, with a focus on Term products and Vitality integration. As a result, sales
performance picked up strongly in the second quarter of the financial year.
The fundamentals of the VitalityLife business remained strong over the period, with claims ratios below expectation (both gross and net of reinsurance). The steady and
continued adoption of the Vitality Shared-Value Insurance model (Vitality-linked products comprise approximately 73% of new business), has been a key driver of the
increasing value of new business margin, which improved to 49% (compared with an H1 2017 margin of 36%). VitalityLife's continued product innovation saw a drive
towards more capital-efficient products with a focus on business mix.
VitalityHealth
VitalityHealth recorded an excellent half-year performance across new business, claims, loss ratio and operating profit. New business was 18% higher than the prior
period, at £29.5 million, with continued strong growth in the more profitable individual (+14%) and SME (+13%) markets. Operating profit of £20.1 million was up from
£8 million for the comparative period in the prior year, on the back of a continuing strong loss ratio and tight control of operating expenses. The business was also
strongly cash flow positive, generating £47.7 million of cash from the inforce book, relative to acquisition costs of £21.8 million, resulting in a net cash position of £25.9
million for the six months.
Notably, there was a significant improvement in the quality of business both written and retained. This was driven by greater sophistication in the application of the
value over volume approach; the impact of Vitality on member selection; and targeted retention strategies. In addition, claims performed well as a result of the
combined effect of the improved risk profile of new business; sophisticated care pathways that enhance member experience and quality of care, at reduced cost per
claim; and increased levels of wellness engagement that have resulted in a reduction in member risk across the book.
In addition, the business continued to invest in digital assets essential to achieving service ambitions, including sophisticated machine learning techniques in sales and
retention. These investments will ensure the business keeps up with changing member demands, removes barriers to engagement and creates cost efficiencies across
service operations.
Performance of emerging businesses
Discovery Insure
Discovery Insure delivered a profit of R29 million for the six months, with Gross Premium Income growing 30% to R1.3 billion, and new business increasing by 22% with
R495 million in API written in the period. The business is also growing at five times the rate of the South African short-term insurance industry growth rate.
The excellent performance over the period was driven by the continued progress of the Vitality Shared-Value Insurance model, as well as management efficiencies.
Premium income growth continued to exceed total claims plus expenses growth, leading to the strong emergence of operating profit.
Offering a competitive premium, telematics and exceptional rewards for good driving behaviour has resulted in: 1) selection of better risks; 2) behaviour change, with a
significant improvement in driver scores; 3) lower claims frequency and severity; and 4) selective lapsation, evidenced by a shift to higher driver scores over time. This
has culminated in a low loss ratio and appealing value of new business, leading to the existing Discovery Insure book (excluding the impact of new business) producing
R99 million in profit over the six months.
Discovery Insure has codified its model and data asset (with over 200 000 clients insured as at February 2018 and more than six billion kilometres of driving data). The
business is exploring the opportunity to extend the model into the commercial and fleet insurance market in 2018, as well as into international markets as an extension
of the Global Vitality Network.
Vitality Group
Vitality Group produced strong results, with significant growth in Insurance Partner Markets, and Vitality membership growing by 49% to over 1.7 million. The business
has broken even in its own right, with operating profit of $0.1 million, largely driven by new business growth of insurance partners and efficiencies gained from merging
the US and SA international operations. Vitality Group is also investing substantially in the Vitality One Platform, which will enable accelerated rollout of innovation
across the world.
The financial dynamics of Vitality Group involve a largely fixed cost base and rapidly-growing fee income from insurance partners (up 39% over the half-year). This gives
Discovery confidence that Vitality Group will reach its target of achieving R300 million to R500 million operating profit (including Ping An Health) in two to four years'
time.
There have been substantial efforts to develop partnerships with additional insurers in Latin America, Europe and Asia, under Vitality Group's partnership with
Hannover Re. There is a strong pipeline of insurers at different stages of the sales process. Vitality Group has already concluded one new partnership with a launch
planned before the end of FY2018, and aims to conclude another partnership in the same timeframe.
AIA Vitality
AIA had record sales with a profound increase in membership, which grew by 63%, and engagement in Vitality by 12%. Revenue from AIA integrated products increased
by 18% and some AIA markets now offer more than twice the number of integrated products compared to a year ago.
Generali
Generali continued to see strong sales, positive media reaction and high client engagement in Germany, France and Austria. Over the period Annualised Premium
Equivalent grew by 8%, total membership grew by 45%, and engagement grew by 5%. Substantial growth is expected following the January launch of Vitality to the
Deutsche Vermogensberatung network in Germany, which services six million clients.
John Hancock and Manulife
These businesses produced a strong result, with API growing 26% over the period; membership up 160%; and a notable increase in engagement after the launch of the
Apple Watch benefit.
Vitality USA
The corporate wellness business performed well during the period, contributing $1 million to Vitality Group profits. As Vitality USA continues to create value for US
employers by improving employee health promotion, it is also focused on expanding its future customer base beyond employers, by investigating opportunities to
serve other stakeholders interested in incentivising health and wellness behaviours among consumers.
Ping An Health
Ping An Health (PAH) continued to perform exceptionally over the six months, with membership growing by 60% from 1 July 2017. Discovery's interest in PAH is now
profitable, with operating profit of R36 million (an increase of 500%) for the period. This substantial growth was driven by the success of e-Sheng Bao (high deductible
health cover sold largely online), which contributed more than 68% of the R2 billion in new business volumes during the period. Ping An Health's distribution model
with the Ping An Group (PAG) is changing as PAH leverages its reinsurance licence to participate directly in sales, enabling it to access PAG's full distribution network.
This will result in higher new business strain as the reinsured book builds.
The opportunity in China is compelling, with private health insurance set to grow substantially given the underdeveloped market; favourable government policies; and
demographic trends, including an ageing society. Ping An Health is set to take advantage of this opportunity, with access to a massive distribution network throughout
Ping An, and a segmented product suite consisting of internet, Group high-end, and intermediate offerings. Ping An Health is also prioritising product development,
operations and technology capabilities, while PAG is investing heavily in broader healthcare assets, which will work in harmony with PAH. Discovery continues to
support PAH through its health insurance expertise.
Furthermore, PAH is growing its own distribution channels to sustain this rapid growth. In support of this, it opened two branches during the period, collectively
covering a population of almost 20 million people, with plans to open two additional branches during the first half of 2018.
Vitality continues to gain traction throughout Ping An. The membership of Vitality Active Rewards within Ping An Life passed the three-million-member mark within 14
months of launching. There are now more Vitality members in China than any country where Vitality is present.
New initiatives
Discovery Bank
On 16 October 2017, Discovery Bank was granted a banking licence from the Registrar of Banks in terms of the Banks Act, Act No. 94 of 1990 and the South African
Reserve Bank (SARB) subsequently published in the Government Gazette, on Friday 10 November 2017, the granting of a banking licence to Discovery Bank.
As previously announced, the licence is subject to certain conditions imposed by the Registrar relating to the shareholding in Discovery Bank. Shareholders of the Bank
are currently in discussions to agree how best to manage these conditions. The proposed purchase of the Discovery-branded FirstRand Bank-issued credit card
business and book is subject to Competition Commission approval. The outcome of the above-mentioned discussions may also potentially impact this approval.
Over the six-month period, management worked alongside regulators and industry associations to obtain the required licences and perform associated testing. The
support of these regulatory and industry bodies enabled Discovery Bank to build and demonstrate compliance in parallel with obtaining a bank licence. The alternative
would have required obtaining a licence and only thereafter being eligible to join the various fora and prove capability. This would have resulted in considerable extra
time and costs.
In addition to its banking licence, Discovery Bank has received the following licences/memberships:
- National Credit Act (NCA), which facilitates the advancement of credit to the public.
- SAMOS (South African Multiple Options Settlement), which allows Discovery Bank to settle transactions with other banks within South Africa; and enables it to be a
settlement bank from date of launch.
- SWIFT (Society of Worldwide Interbank Financial Telecommunication), which allows Discovery Bank to transact on the SAMOS systems with the SARB.
- PASA (Payments System of South Africa), reflecting that the business is able to conform to the rules and conventions necessary to process specified payments, e.g.
EFT transactions, debit orders.
- Visa Principal Issuer licence, with Discovery Bank receiving its globally unique six-digit BIN-number for both credit and debit cards.
- 'Restricted Authorised Dealer in Foreign Exchange' granted by the Financial Surveillance Department of the SARB Exchange Control.
Discovery Bank is testing its capabilities with live testing of system infrastructure, operating processes and regulatory engagement. Discovery will launch its proposed
banking offering to the public during 2018. Spend to date is R1.2 billion and this is expected to reach R1.5 billion by launch.
Prospects for growth
Prospects for continued growth are compelling. Discovery's established businesses are all well positioned in their respective markets, its emerging businesses are
insurgent, and four substantial businesses will be launched during 2018. This gives the Group confidence of ongoing growth and performance into the future.
Any forecast financial information contained in this announcement has not been reviewed or reported on by the Group's external auditors.
On behalf of the Board
MI HILKOWITZ A GORE
Chairperson Group Chief Executive
Sandton
19 February 2018
Statement of financial position
at 31 December 2017
Group Group
December June
2017 2017
R million Unaudited Audited
Assets
Assets arising from insurance contracts 39 687 37 691
Property and equipment 3 967 1 210
Intangible assets including deferred acquisition costs 5 615 5 096
Goodwill 2 060 2 107
Investment in equity accounted investments 1 045 979
Financial assets
- Available-for-sale investments 7 565 7 298
- Investments at fair value through profit or loss 66 836 58 948
- Derivatives 876 392
- Loans and receivables including insurance receivables 7 117 6 470
Deferred income tax 1 819 1 337
Current income tax asset 27 34
Reinsurance contracts 278 263
Cash and cash equivalents 9 771 9 098
Total assets 146 663 130 923
Equity
Capital and reserves
Ordinary share capital and share premium 8 306 8 306
Perpetual preference share capital 779 779
Other reserves 244 346
Retained earnings 24 883 22 859
34 212 32 290
Non-controlling interest * *
Total equity 34 212 32 290
Liabilities
Liabilities arising from insurance contracts 57 813 52 477
Liabilities arising from reinsurance contracts 7 536 6 746
Financial liabilities
- Negative reserve funding 195 847
- Borrowings at amortised cost 12 429 8 524
- Investment contracts at fair value through profit or loss 17 108 14 867
- Derivatives 136 135
- Trade and other payables 8 783 7 369
Deferred income tax 7 757 6 963
Deferred revenue 293 291
Employee benefits 224 191
Current income tax liability 177 223
Total liabilities 112 451 98 633
Total equity and liabilities 146 663 130 923
* Amount is less than R500 000.
Income statement
for the six months ended 31 December 2017
Group Group Group
Six months Six months Year
ended ended ended
December December June
2017 2016 % 2017
R million Unaudited Unaudited change Audited
Insurance premium revenue 17 758 16 652 33 533
Reinsurance premiums (2 127) (1 949) (3 837)
Net insurance premium revenue 15 631 14 703 6 29 696
Fee income from administration business 4 477 4 002 8 372
Vitality income 2 199 2 129 4 267
Investment income 446 392 758
- investment income earned on shareholder investments and cash 117 62 150
- investment income earned on assets backing policyholder liabilities 329 330 608
Net realised gains on available-for-sale financial assets 8 5 8
Net fair value gains on financial assets at fair value through profit or loss 4 806 172 2 108
Net income 27 567 21 403 29 45 209
Claims and policyholders' benefits (9 767) (9 388) (19 237)
Insurance claims recovered from reinsurers 1 366 1 436 2 816
Recapture of reinsurance - (882) (858)
Net claims and policyholders' benefits (8 401) (8 834) (17 279)
Acquisition costs (2 846) (2 703) (5 237)
Marketing and administration expenses (8 449) (7 707) (15 652)
Amortisation of intangibles from business combinations (63) (87) (171)
Recovery of expenses from reinsurers 1 237 1 999 2 985
Net transfer to/from assets and liabilities under insurance contracts (4 031) (987) (3 362)
- change in assets arising from insurance contracts 2 278 2 629 5 346
- change in assets arising from reinsurance contracts 21 (132) (109)
- change in liabilities arising from insurance contracts (5 442) (2 537) (6 625)
- change in liabilities arising from reinsurance contracts (888) (947) (1 974)
Fair value adjustment to liabilities under investment contracts (1 155) 165 (248)
Profit from operations 3 859 3 249 19 6 245
Finance costs (390) (232) (478)
Foreign exchange losses (17) (17) (21)
Share of net profits from equity accounted investments 82 16 26
Profit before tax 3 534 3 016 17 5 772
Income tax expense (837) (947) 12 (1 278)
Profit for the period 2 697 2 069 30 4 494
Profit attributable to:
- ordinary shareholders 2 656 2 028 31 4 411
- preference shareholders 41 41 83
- non-controlling interest * * *
2 697 2 069 30 4 494
Earnings per share for profit attributable to ordinary shareholders of the company during the
period (cents):
- undiluted 411.7 314.8 31 684.2
- diluted 411.5 314.4 31 683.6
* Amount is less than R500 000.
Statement of comprehensive income
for the six months ended 31 December 2017
Group Group Group
Six months Six months Year
ended ended ended
December December June
2017 2016 % 2017
R million Unaudited Unaudited change Audited
Profit for the period 2 697 2 069 30 4 494
Items that are or may be reclassified subsequently to profit or loss:
Change in available-for-sale financial assets 27 (7) 17
- unrealised gains/(losses) 54 (11) 32
- capital gains tax on unrealised (gains)/losses (21) 8 (9)
- realised gains transferred to profit or loss (8) (5) (8)
- capital gains tax on realised gains 2 1 2
Currency translation differences (315) (1 646) (1 575)
- unrealised losses (321) (1 657) (1 581)
- tax on unrealised losses 6 11 6
Cash flow hedges 205 (78) 33
- unrealised gains/(losses) 393 (7) 159
- tax on unrealised (gains)/losses (71) 2 (25)
- gains recycled to profit or loss (140) (86) (123)
- tax on recycled gains 23 13 22
Share of other comprehensive income from equity accounted investments (24) (41) (58)
- change in available-for-sale financial assets (4) (1) (1)
- currency translation differences (20) (40) (57)
Other comprehensive losses for the period, net of tax (107) (1 772) (1 583)
Total comprehensive income for the period 2 590 297 772 2 911
Attributable to:
- ordinary shareholders 2 549 256 896 2 828
- preference shareholders 41 41 83
- non-controlling interest * * *
Total comprehensive income for the period 2 590 297 772 2 911
* Amount is less than R500 000.
Headline earnings
for the six months ended 31 December 2017
Group Group Group
Six months Six months Year
ended ended ended
December December June
2017 2016 % 2017
R million Unaudited Unaudited change Audited
Normalised headline earnings per share (cents):
- undiluted 438.5 339.0 29 722.2
- diluted 438.3 338.6 29 721.5
Headline earnings per share (cents):
- undiluted 426.1 314.0 36 683.1
- diluted 425.8 313.7 36 682.5
The reconciliation between earnings and headline earnings is shown below:
Net profit attributable to ordinary shareholders 2 656 2 028 4 411
Adjusted for:
- gain on disposal of property and equipment net of tax - (1) (1)
- impairment of intangible assets net of tax 99 - -
- realised gains on available-for-sale financial assets net of CGT (6) (4) (6)
Headline earnings 2 749 2 023 36 4 404
- accrual of dividends payable to preference shareholders - (1) (1)
- amortisation of intangibles from business combinations net of deferred tax 55 78 154
- duplicate building costs 25 - -
- rebranding and business acquisitions expenses - 84 99
Normalised headline earnings 2 829 2 184 30 4 656
Weighted number of shares in issue (000's) 644 986 644 350 - 644 651
Diluted weighted number of shares (000's) 645 344 645 080 - 645 236
Statement of changes in equity
at 31 December 2017
Attributable to equity holders of the Company Attributable to equity holders of the Company
Share capital Preference Share-based Available- Non-
and share share payment for-sale Translation Hedging Retained controlling
R million (unaudited) premium capital reserve investments(1) reserve reserve earnings Total interest Total
Period ended 31 December 2017
At beginning of the period 8 306 779 314 180 (147) (1) 22 859 32 290 * 32 290
Total comprehensive income for the period - 41 - 23 (335) 205 2 656 2 590 * 2 590
Profit for the period - 41 - - - - 2 656 2 697 * 2 697
Other comprehensive income - - - 23 (335) 205 - (107) * (107)
Transactions with owners - (41) 5 - - - (632) (668) - (668)
Employee share option schemes:
- Value of employee services - - 5 - - - - 5 - 5
Dividends paid to preference shareholders - (41) - - - - - (41) - (41)
Dividends paid to ordinary shareholders - - - - - - (632) (632) - (632)
At end of the period 8 306 779 319 203 (482) 204 24 883 34 212 * 34 212
Period ended 31 December 2016
At beginning of the period 8 300 779 319 164 1 485 (34) 19 594 30 607 * 30 607
Total comprehensive income for the period - 41 - (8) (1 686) (78) 2 028 297 * 297
Profit for the period - 41 - - - - 2 028 2 069 * 2 069
Other comprehensive income - - - (8) (1 686) (78) - (1 772) * (1 772)
Transactions with owners 10 (41) 9 - - - (591) (613) - (613)
Increase in treasury shares (1) - - - - - - (1) - (1)
Delivery of treasury shares 11 - - - - - (11) - - -
Share buy-back * - - - - - - * - *
Employee share option schemes:
- Value of employee services - - 9 - - - - 9 - 9
Dividends paid to preference shareholders - (41) - - - - - (41) - (41)
Dividends paid to ordinary shareholders - - - - - - (580) (580) - (580)
At end of the period 8 310 779 328 156 (201) (112) 21 031 30 291 * 30 291
1 This relates to the fair value adjustments of available-for-sale financial assets.
* Amount is less than R500 000.
Statement of cash flows
for the six months ended 31 December 2017
Group Group Group
Six months Six months Year
ended ended ended
December December June
2017 2016 2017
R million Unaudited Unaudited Audited
Cash flow from operating activities 1 736 (2 140) (832)
Cash generated by operations 5 034 4 666 9 672
Net purchase of investments held to back policyholder liabilities(1) (3 697) (3 205) (7 084)
Working capital changes 236 (3 884) (4 146)
1 573 (2 423) (1 558)
Dividends received 92 61 197
Interest received 1 007 896 1 711
Interest paid (307) (214) (437)
Taxation paid (629) (460) (745)
Cash flow from investing activities (1 613) (82) 15
Net (purchase)/disposal of financial assets(2) (283) 682 2 125
Purchase of equipment (426) (224) (239)
Proceeds from the sale of property and equipment 1 2 5
Purchase of intangible assets (885) (399) (1 353)
Proceeds from the sale of intangible assets - - 7
Increase in investment in equity accounted investments (20) (143) (530)
Cash flow from financing activities 566 763 1 913
Share buy-back - * *
Dividends paid to ordinary shareholders (632) (581) (1 152)
Dividends paid to preference shareholders (41) (41) (83)
Increase in borrowings 1 655 1 548 3 514
Repayment of borrowings (416) (163) (366)
Net increase/(decrease) in cash and cash equivalents 689 (1 459) 1 096
Cash and cash equivalents at beginning of period 9 097 8 614 8 614
Exchange losses on cash and cash equivalents (16) (610) (613)
Cash and cash equivalents at end of period 9 771 6 545 9 097
Reconciliation to statement of financial position
Cash and cash equivalents 9 771 6 545 9 098
Bank overdraft included in borrowings at amortised cost - - (1)
Cash and cash equivalent at end of period 9 771 6 545 9 097
1. Net purchase of investments held to back policyholder liabilities (3 697) (3 205) (7 084)
Purchase of investments held to back policyholder liabilities (16 634) (11 804) (32 104)
Disposal of investments held to back policyholder liabilities 12 937 8 599 25 020
2. Net (purchase)/disposal of financial assets (283) 682 2 125
Purchase of financial assets (13 191) (9 374) (14 083)
Disposal of financial assets 12 908 10 056 16 208
* Amount is less than R500 000.
Additional information
at 31 December 2017
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 2017
R million (unaudited) Level 1 Level 2 Level 3 Total
Financial assets
Financial instruments at fair value through profit or loss:
- Equity securities 26 175 - - 26 175
- Equity linked notes - 2 758 - 2 758
- Debt securities 13 071 986 - 14 057
- Inflation linked securities 279 20 - 299
- Money market securities 281 8 415 - 8 696
- Mutual funds 14 851 - - 14 851
Available-for-sale financial instruments:
- Equity securities 155 - - 155
- Equity linked notes - 15 - 15
- Debt securities 142 165 - 307
- Money market securities 1 312 1 662 - 2 974
- Mutual funds 4 114 - - 4 114
Derivative financial instruments at fair value:
- Hedges - 766 - 766
- Non-hedges - 110 - 110
60 380 14 897 - 75 277
Financial liabilities
Derivative financial instruments at fair value:
- Hedges - 73 - 73
- Non-hedges - 63 - 63
- 136 - 136
There were no transfers between level 1 and 2 during the current financial period.
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.
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| 2018-02-20 08:00:00 Source: JSE News Service (SENS) |
Discovery Limited published this content on 20 February 2018 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 20 February 2018 06:25:06 UTC.
Original documenthttp://dischealth.hosted.inet.co.za/news/story/4ca8fd1c-aa58-434e-9cb8-9f7b49583d60
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