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DISCOVERY LIMITED - Summary of Unaudited Interim Results and Cash Dividend Declaration for the Six Months Ended 31 December 2014

Release Date: 24/02/2015 08:59
Code(s): DSBP DSY     PDF:  
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Summary of Unaudited Interim Results and Cash Dividend Declaration for the Six Months Ended 31 December 2014

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 
155 West Street, Sandton 2146 PO Box 786722, Sandton 2146
Tel: (011) 529 2888 Fax: (011) 539 8003

Summary of unaudited interim results and cash dividend declaration
for the six months ended 31 December 2014

Highlights

Normalised profit from operations
R2 824 million
up 19%

Normalised headline earnings
R1 981 million
up 20%

Embedded value
R45.5 billion
up 14%

Commentary

Overview: Model and Discovery Group performance

The period under review to 31 December 2014 saw continued investment in the Discovery business model. This model uses behavioural incentives to engage
members to make better health and lifestyle choices, and integrates this engagement into their insurance. This shared value approach leads to lower price points,
the attraction of healthier lives, behaviour change, lower lapse rates, and better selective lapsation - thereby creating value for members, the insurer, and broader
society.

Over the period, the model delivered continued growth in the established businesses, and strong new business growth (+100%) in the new businesses. This
manifested in total new business growth of 17% for the period to R6 663 million; growth in headline earnings of 106% (distorted by the accounting treatment of the
acquisition of Prudential's remaining stake in the UK joint venture); an uplift in normalised headline earnings of 20% to R1 981 million; an embedded value increase
of 14% to R45.5 billion; and return on capital exceeding the internal benchmark rate of risk free plus 10%.

The period was also one of significant corporate activity, including the acquisition of Prudential's remaining 25% shareholding in the UK joint venture for £155 million,
and the successful restructuring of the UK business. In addition, the period saw Discovery formally establish Discovery Partner Markets; expanding the Discovery
business model with some of the world's leading insurers in their markets.

Expansion and strategic overview

Discovery's expansion strategy is based on two philosophies: (1) a growth engine, comprising businesses at different stages of maturity, powered by start-ups, and
organic growth in established businesses; and (2) choosing the right archetype for entry, being either Primary Markets, where Discovery owns, and operates the
insurer; or Partner Markets, where Discovery partners with leading global insurers in their markets. During the period, the model continued to be deployed
successfully across the Group.

In the UK Primary Market, the business has been rebranded as "Vitality" to reflect the integral nature of this asset to the overall insurance proposition, with the
operating entities being VitalityHealth and VitalityLife respectively.

With full ownership, Discovery intends to accelerate towards its ambition of building the leading protection business in the UK through:
- Rolling out a highly-visible and distinctive brand campaign, under the unified Vitality banner.
- Pursuing a multi-product distribution strategy through the franchise channel.
- Significantly enhancing presence in the direct-to-consumer space through investment in the brand.
- Enhancing the wellness platform, for example, through a new category of real-time benefits, and the inclusion of British Airways, iTunes and Starbucks in the
  partner network.
- Further enhancing its market-leading products through the introduction of innovations such as virtual primary care delivery, and the acceleration of life cover for
  degenerative diseases of later life.

In the South African Primary Market, deployment over the period focused on building a better insurance system for Discovery members through:
- Product innovation across all of its businesses. This included new product lines, further integration between businesses, and enhancements to current product
  suites.
- Strengthened and expanded distribution, most notably through growth in the tied agency force and significant traction in the direct-to-consumer channels.
- Advancing the member experience, supported by innovative technologies.

In Discovery's Partner Markets, the strategy has been to partner with leading global insurers in markets that are characterised by large life insurance industries; a
high prevalence of non-communicable diseases; a strong intermediary presence; and product commoditisation.

These markets are most receptive to the Discovery model, and can be accessed on a capital-light basis, which harnesses the existing brand, and distribution assets
of the partner. Partners franchise this model, acquiring the licence to use its assets in exchange for a share of the economic value created.

Building on the existing partnerships in Asia through AIA, Discovery is partnering with Generali in mainland Europe to launch Vitality-integrated products in Germany,
France, and Austria. In addition, Discovery will soon announce a partnership with a large US life insurer. Discovery Partner Markets is now in a position to serve
eight out of the 10 largest protection markets globally.

Business-specific performance

Discovery Health

Discovery Health has built a sophisticated healthcare system that creates shared value for all its stakeholders. It achieves this by providing better healthcare
services at a lower cost; and by improving the health of members of the schemes under its management.

The success of the shared value health insurance model was evidenced by the strong performance of both open, and restricted scheme clients over the period.
Discovery Health Medical Scheme (DHMS) accelerated its market-leading position to 53% of the open schemes market (2.6 million lives); and Discovery Health
proved highly competitive in the restricted schemes space (just under 300 000 lives under management).

In terms of financial performance, Discovery Health exceeded expectation during the period: normalised operating profit increased by 11% to R954 million, and new
business increased by 7% to R2 806 million, off a significant base, powered by an increasing contribution from the newly-formed direct-to-consumer channel (40% of
individual new business with favourable demographics).

DHMS saw similar excellent performance. Lapses remained comparatively low at 4.6%, and the Scheme ended the calendar year 2014 with a solvency of 25.8%,
with R11.6 billion in reserves.

Discovery Health continued to invest in its model by giving low-income employees access to basic healthcare through the newly-launched Discovery PrimaryCare
product. In addition, it launched initiatives aimed at improving the quality of care, including virtual consultations, and online booking of consultations; a new Discovery
HomeCare nursing service; and Personal Health Programmes which assist GPs to provide improved care to patients with chronic illnesses. Discovery Health is also
making it easier for members to be active through VitalityFit, Team Vitality, and Scheme funding of fitness devices.

Discovery Health maintains its commitment to building a sustainable, and equitable national healthcare system through supporting roll-out of the National Health
Insurance system, and optimising interactions between the public, and private healthcare systems. In addition, Discovery Health continues to play its part in building
a private healthcare system that is accessible, affordable, and of high quality; and is supportive of the Competition Commission's Inquiry into Private Healthcare.
Discovery Health is of the view that the Inquiry will contribute to the development of a more efficient healthcare system for all stakeholders; and looks forward to
engaging in the Inquiry process, and the Panel's report in late 2015.

Discovery Life

Discovery Life's integrated model is the most sophisticated manifestation of the Group's behavioural life insurance model. It creates better initial selection, ongoing
behaviour change, and positive selective lapsation.

Due to the strength of this model, the period under review saw normalised operating profit growth of 17% to R1 464 million; new business uplift of 9% to R1 151
million; claims experience well below expected; and R1 billion of cash generated from existing business, before financing activities, and investment into new
business activities. The embedded value was marginally impacted by a change in the risk-discount rate in combination with increased engagement in high-value
member segments.

Discovery Invest

Discovery Invest's performance was ahead of expectation, with normalised operating profit of R191 million, up 29%; and assets under management increasing to
R45.6 billion, up 27% from the prior period. This sustained growth was largely driven by increased take-up of integrated products, market momentum, and increased
adviser support. The value of new business margins increased due to a shift toward Discovery Invest managed funds, and integrated products.

Discovery Insure

Discovery Insure saw phenomenal growth over the period: new business grew 57% to R403 million; in force premium income grew 82% to R1 403 million; cars
covered grew to 100 000; and the profit signature turned in a positive direction.

Furthermore, the adjacent application of the behavioural insurance model yielded positive actuarial results, with loss ratios trending downwards, and significant
improvement in both loss ratios, and lapse rates by duration. In addition, the period was notable for the emergence of increased business efficiencies, indicative of
Discovery Insure progressing towards scale.

During the period, Discovery Insure's strategic focus was on raising brand awareness, harnessing advanced mobile tracking technology, and transforming the
member claims experience.

DiscoveryCard

DiscoveryCard continued to exhibit exceptional economic dynamics, and quality of client base, as evidenced by spend rates, which grew 12.6% year-on-year, and
bad debt experience, which is among the lowest in the industry. The DiscoveryCard client base now exceeds 250 000 cardholders, and was independently rated as
offering the best credit card benefits in the market. These were further enhanced during the period with the inclusion of new cash-back partners, and incentive
structures where cardholders can earn enhanced miles in a select range of retail stores as they improve their health.

Ping An Health

The opportunity within the Chinese private health insurance sector remains robust, given a significant proportion of out-of-pocket medical spend; a rapidly-expanding
middle class; the increased use of technology to provide access to private healthcare; and government policy that strongly supports the development of commercial
health insurance. Against this backdrop, Ping An Group is developing a health ecosystem characterised by best-in-class health insurance, and the use of technology
to enhance the provision of healthcare services.

Within this ecosystem, Ping An Health is well positioned in both the high-end Group market, and the Individual mid-market segments. Over the period, it built on its
leading position in the high-end market. Individual sales witnessed explosive growth, with a current run rate of over 800 cases sold per day, following an agreement
to issue the product on the Ping An Life licence, thereby making optimal use of the Ping An Life distribution capability. In addition, the loss ratio, and lapse rates
were carefully maintained within tolerance levels.

AIA Vitality

The initial market roll-outs in Singapore, and Australia are well underway, and market receptivity to the integrated products has been excellent - of the current
products with integrated options available, 52% of all sales are Vitality integrated in Singapore, and 33% in Australia. AIA Vitality continued to win awards, with AIA
Australia the recipient of two recent accolades: "Most innovative risk product" for AIA Vitality, by the Association of Financial Advisers, and the "Gold Quill Merit
Award" for AIA Australia's internal launch of Vitality, from the International Association of Business Communicators.

The Vitality Group

The United States is characterised by the biggest spending on healthcare globally, and is the largest wellness and protection market in the world. Discovery
introduced its business model to the US through The Vitality Group, which now covers over 700 000 members in 50 states.

Over the period, the model's capability was endorsed in this highly competitive market, with excellent health participation rates, and member engagement. In
addition, seven Vitality corporate clients were recognised in the 2014 Healthiest 100 Workplaces in America programme.

During the period, the HumanaVitality partnership ended. While the partnership was fruitful for Discovery, it caused brand, and product confusion among distribution
channels, and conflicted with The Vitality Group's agenda for expansion in the US. Humana will continue to use the Vitality asset for a period of two years. Discovery
Partner Markets is now set to partner with a large national life insurer, leveraging off the existing infrastructure provided by The Vitality Group.

The United Kingdom

The UK business is a fundamental beachhead for Discovery's strategy of internationalising its composite Health, and Life insurance model, given the UK's lifestyle
disease burden, ageing population, sizeable protection market, and commoditised offerings. Against this backdrop, the performance of the UK business was strong:
operating profit grew 20% to R432 million; and new business grew 7% to R915 million, driven by VitalityLife which had excellent sales in the last quarter.

VitalityLife

Discovery's UK protection business produced a strong second quarter, with normalised operating profit for the year-to-date, up 18% to R269 million, and new
business up 20% to R502 million. The period also saw the continued adoption of the Vitality-integrated model, with the Vitality Optimiser product comprising 46% of
new business. VitalityLife continued to grow its distribution footprint, and is now on all the major network panels, having recently been added to the prestigious St
James's Place panel.

VitalityHealth

In the period under review, VitalityHealth made a major breakthrough by introducing primary care benefits into the market through its proprietary virtual GP service;
and a new proposition for the Corporate market, which leverages the workplace to drive behaviour change. VitalityHealth made a normalised operating profit of R163
million, up 24% from the prior period, driven by a sophisticated approach to claims management, and price optimisation which saw the loss ratio improve to its
lowest level. New business was down by 4% to R413 million, reflecting the pursuit of quality in a highly competitive, and aggressive new business acquisition
market. Focus on the more profitable business segments brought a substantial uplift in better quality direct business - total direct sales contributed 35% of total
sales, and are up 11% year-on-year.

Rights Issue

The work done over the period has manifested in attractive growth opportunities for the Group. The Board has resolved to raise capital to pursue distinct
opportunities for additional growth:
- In the context of the UK, the rationale behind the acquisition of Prudential's remaining 25% shareholding in the UK joint venture was to pursue strong, profitable
  growth and further opportunities. In particular, VitalityLife presents a strong case for further investment, given the success of the Vitality-integrated life insurance
  product, the scale and reach of the distribution and wellness network, and attractive returns on new business. Historically, new business was funded through the
  Prudential structure. Going forward, to maintain the rate of growth, additional capital is required.
- In the South African Primary Market, Discovery is pursuing adjacent opportunities, which will require capital to fully pursue.

The capital of R4 billion to R5 billion will be raised by way of an underwritten renounceable rights issue, the terms of which will be finalised by 10 March 2015. The
rights issue will be priced at R90.00 per rights issue share, and the capital raising will not exceed R5 billion.

Adrian Gore, Barry Swartzberg, Rand Merchant Insurance Holdings Limited, and other Discovery directors, collectively holding c.37% of Discovery shares, have
irrevocably committed to follow their rights pursuant to the rights issue. The balance of the rights issue is underwritten by Rand Merchant Insurance Holdings
Limited.

Shareholders are referred to the rights issue declaration announcement, released on SENS on 24 February 2015, for further information on the proposed rights
issue.

On behalf of the Board



MI HILKOWITZ                       A GORE
Chairperson                        Group Chief Executive
Sandton

23 February 2015

Statement of financial position
at 31 December 2014

                                                                 Group     Group
                                                              December      June
                                                                  2014      2014



R million                                                    Unaudited   Audited
Assets
Assets arising from insurance contracts                         19 737    17 999
Property and equipment                                             715       666
Intangible assets including deferred acquisition costs           2 344     2 344
Goodwill                                                         2 231     2 239
Investment in associates                                           494       551
Financial assets
- Equity securities                                             22 569    19 830
- Equity linked notes                                            2 405     1 672
- Debt securities                                               10 556    10 318
- Inflation linked securities                                      219       483
- Money market securities                                        7 728     8 028
- Derivatives                                                      652       588
- Loans and receivables including insurance receivables          2 768     3 110
Deferred income tax                                                374       406
Current income tax asset                                            46        46
Reinsurance contracts                                              286       266
Cash and cash equivalents                                        4 658     3 650
Total assets                                                    77 782    72 196
Equity
Capital and reserves
Ordinary share capital and share premium                         2 583     2 582
Perpetual preference share capital                                 779       779
Other reserves                                                   1 653     1 501
Retained earnings                                               15 584    12 549
                                                                20 599    17 411
Non-controlling interest                                             -         -
Total equity                                                    20 599    17 411
Liabilities
Liabilities arising from insurance contracts                    28 323    25 797
Liabilities arising from reinsurance contracts                   3 659     2 247
Financial liabilities
- Puttable non-controlling interests                                 -     4 494
- Negative reserve funding                                       5 112     4 684
- Borrowings at amortised cost                                   1 956       572
- Investment contracts at fair value through profit or loss      9 069     8 264
- Derivatives                                                        9        10
- Trade and other payables                                       3 676     3 752
Deferred income tax                                              4 801     4 647
Deferred revenue                                                   164       157
Employee benefits                                                  160       154
Current income tax liability                                       254         7
Total liabilities                                               57 183    54 785
Total equity and liabilities                                    77 782    72 196


Income statement
for the six months ended 31 December 2014

                                                                                                 Group      Group               Group
                                                                                            Six months Six months                Year
                                                                                                 ended      ended               ended
                                                                                              December   December                June
                                                                                                  2014       2013        %       2014
R million                                                                                    Unaudited  Unaudited   change    Audited
Insurance premium revenue                                                                       13 529     11 001              23 090
Reinsurance premiums                                                                            (1 368)    (1 017)             (2 182)
Net insurance premium revenue                                                                   12 161      9 984              20 908
Fee income from administration business                                                          3 082      2 647               5 863
Vitality income                                                                                  1 459      1 167               2 492
Receipt arising from reinsurance contracts                                                       1 250          -                   -
Investment income                                                                                  212        192                 414
- investment income earned on shareholder investments and cash                                      74         86                 152
- investment income earned on assets backing policyholder liabilities                              138        106                 262
Net realised (losses)/gains on available-for-sale financial assets                                  (8)        43                 231
Net fair value gains on financial assets at fair value through profit or loss                    1 023      2 359               4 278
Net income                                                                                      19 179     16 392              34 186
Claims and policyholders' benefits                                                              (7 415)    (5 350)            (11 718)
Insurance claims recovered from reinsurers                                                       1 132        857               1 809
Net claims and policyholders' benefits                                                          (6 283)    (4 493)             (9 909)
Acquisition costs                                                                               (2 472)    (2 007)             (4 296)
Marketing and administration expenses                                                           (5 883)    (4 769)            (10 146)
Amortisation of intangibles from business combinations                                            (113)       (91)               (187)
Recovery of expenses from reinsurers                                                               214        153                 360
Transfer from assets/liabilities under insurance contracts                                      (1 770)    (2 320)             (3 726)
- change in assets arising from insurance contracts                                              1 772        959               2 816
- change in assets arising from reinsurance contracts                                               23        (29)                 20
- change in liabilities arising from insurance contracts                                        (2 153)    (3 220)             (5 815)
- change in liabilities arising from reinsurance contracts                                      (1 412)       (30)               (747)
Fair value adjustment to liabilities under investment contracts                                   (276)      (486)             (1 224)
Profit from operations                                                                           2 596      2 379               5 058
Puttable non-controlling interest fair value adjustment                                          1 661        105                (201)
Finance costs                                                                                     (106)      (108)               (220)
- finance costs raised on puttable non-controlling interest financial liability                    (64)       (75)               (157)
- other finance costs                                                                              (42)       (33)                (63)
Foreign exchange gains                                                                              18          1                  18
Realised gains from the sale of associate                                                            7          -                   -
Share of net profits/(losses) from equity accounted investments                                     48        (16)                (14)
Profit before tax                                                                                4 224      2 361       79      4 641
Income tax expense                                                                                (694)      (614)     (13)    (1 327)
Profit for the period                                                                            3 530      1 747      102      3 314
Profit attributable to:
- ordinary shareholders                                                                          3 495      1 713      104      3 246
- preference shareholders                                                                           35         34                  68
- non-controlling interest                                                                           -          -                   -
                                                                                                 3 530      1 747      102      3 314
Earnings per share for profit attributable to ordinary shareholders of the company during
the period (cents):
- basic                                                                                          608,7      307,7       98      574,2
- diluted                                                                                        600,4      301,1       99      559,8


Statement of comprehensive income
for the six months ended 31 December 2014

                                                                                                 Group      Group               Group
                                                                                            Six months Six months                Year
                                                                                                 ended      ended               ended
                                                                                              December   December                June
                                                                                                  2014       2013        %       2014
R million                                                                                    Unaudited  Unaudited   change    Audited
Profit for the period                                                                            3 530      1 747               3 314
Items that are or may be reclassified subsequently to profit or loss:
Change in available-for-sale financial assets                                                       13         96                  (3)
- unrealised gains                                                                                   4        160                 272
- capital gains tax on unrealised gains                                                              2        (29)                (87)
- realised losses/(gains) transferred to profit or loss                                              8        (43)               (231)
- capital gains tax on realised losses/(gains)                                                      (1)         8                  43
Currency translation differences                                                                    57        227                 256
- unrealised gains                                                                                  58        253                 285
- deferred tax on unrealised gains                                                                  (1)       (26)                (29)
Cash flow hedges                                                                                    47        (78)                (32)
- unrealised gains/(losses)                                                                         79        (14)                 51
- tax on unrealised gains/losses                                                                   (12)         2                  (9)
- current tax on unrealised gains                                                                    -          -                   4
- gains recycled to profit or loss                                                                 (24)       (78)                (87)
- tax on recycled gains                                                                              4         12                   9
Share of other comprehensive income from equity accounted investments                               35         26                  27
- change in available-for-sale financial assets                                                      4         (6)                 (*)
- currency translation differences                                                                  31         32                  27

Other comprehensive income for the period, net of tax                                              152        271                 248
Total comprehensive income for the period                                                        3 682      2 018       82      3 562
Attributable to:
- ordinary shareholders                                                                          3 647      1 984       84      3 494
- preference shareholders                                                                           35         34                  68
- non-controlling interest                                                                           -          -                   -
Total comprehensive income for the period                                                        3 682      2 018       82      3 562

* Amount is less than R500 000


Headline earnings
for the six months ended 31 December 2014

                                                                                                 Group      Group               Group
                                                                                            Six months Six months                Year
                                                                                                 ended      ended               ended
                                                                                              December   December                June
                                                                                                  2014       2013        %       2014
R million                                                                                    Unaudited  Unaudited   change    Audited
Normalised headline earnings per share (cents):
- undiluted                                                                                      345,0      296,2       16      611,3
- diluted                                                                                        340,3      289,9       17      595,9
Headline earnings per share (cents):
- undiluted                                                                                      602,6      301,4      100      542,0
- diluted                                                                                        594,4      294,9      102      528,4
The reconciliation between earnings and headline earnings is shown below:
Net profit attributable to ordinary shareholders                                                 3 495      1 713               3 246
Adjusted for:
- realised losses/(gains) on available-for-sale financial assets net of CGT                          7        (35)               (188)
- realised gain from sale of associate including deferred tax reversal                             (42)         -                   -
- impairment of property and equipment                                                               -          -                   3
Headline earnings                                                                                3 460      1 678      106      3 061
- amortisation of intangibles from business combinations net of deferred tax                        89         42                 116
- finance costs raised on puttable non-controlling interest financial liability                     64         75                 157
- fair value adjustment to puttable non-controlling interest financial liability                (1 661)      (105)                201
- non-controlling interest allocation if no put options                                            (42)       (40)                (81)
- once-off costs relating to business acquisitions                                                  73          -                   -
- accrual of dividends payable to preference shareholders                                           (2)         *                   -
Normalised headline earnings                                                                     1 981      1 650       20      3 454
Weighted number of shares in issue (000's)                                                     574 157    556 944             565 471
Diluted weighted number of shares (000's)                                                      582 060    569 101             580 047

* Amount is less than R500 000


Statement of changes in equity
for the six months ended 31 December 2014

                                                                                  Attributable to equity holders of the Company               Attributable to equity holders of the Company
                                                                                    Share capital    Preference    Share-based                                                                                 Non-
                                                                                        and share         share        payment    Revaluation    Translation       Hedging       Retained               controlling
R million                                                                                 premium       capital        reserve      reserve(1)       reserve       reserve       earnings       Total      interest     Total
Period ended 31 December 2014
At beginning of the period                                                                  2 582           779            319            250            829           103         12 549      17 411             -    17 411
Total comprehensive income for the period                                                       -            35              -             17             88            47          3 495       3 682             -     3 682
Profit for the period                                                                           -            35              -              -              -             -          3 495       3 530             -     3 530
Other comprehensive income                                                                      -             -              -             17             88            47              -         152             -       152
Transactions with owners                                                                        1           (35)             -              -              -             -           (460)       (494)            -      (494)
Increase in treasury shares                                                                     1             -              -              -              -             -              -           1             -         1
Dividends paid to preference shareholders                                                       -           (35)             -              -              -             -              -         (35)            -       (35)
Dividends paid to ordinary shareholders                                                         -             -              -              -              -             -           (460)       (460)            -      (460)

At end of the period                                                                        2 583           779            319            267            917           150         15 584      20 599             -    20 599
Period ended 31 December 2013
At beginning of the period                                                                  1 470           779            319            267            917           150         10 204      14 106             2    14 108
Total comprehensive income for the period                                                       -            34              -             90            259           (78)         1 713       2 018             -     2 018
Profit for the period                                                                           -            34              -              -              -             -          1 713       1 747             -     1 747
Other comprehensive income                                                                      -             -              -             90            259           (78)             -         271             -       271
Transactions with owners                                                                    1 021           (34)             -              -              -             -           (379)        608            (2)      606
Share buy-back(2)                                                                               *             -              -              -              -             -              -           *             -         *
Share issue                                                                                 1 030             -              -              -              -             -              -       1 030             -     1 030
Share issue costs                                                                              (1)            -              -              -              -             -              -          (1)            -        (1)
Increase in treasury shares                                                                    (9)            -              -              -              -             -              -          (9)            -        (9)
Proceeds from treasury shares                                                                   1             -              -              -              -             -              -           1             -         1
Non-controlling interest share issues                                                           -             -              -              -              -             -              -           -             1         1
Non-controlling interest share buy-backs                                                        -             -              -              -              -             -              -           -            (3)       (3)
Dividends paid to preference shareholders                                                       -           (34)             -              -              -             -              -         (34)            -       (34)
Dividends paid to ordinary shareholders                                                         -             -              -              -              -             -           (379)       (379)            -      (379)

At end of the period                                                                        2 491           779            319            357          1 176            72         11 538      16 732             -    16 732

(1) This reserve relates to the revaluation of available-for-sale financial assets
(2) Amount is R12 441


Statement of cash flows
for the six months ended 31 December 2014

                                                                                                  Group            Group           Group
                                                                                             Six months       Six months            Year
                                                                                                  ended            ended           ended
                                                                                               December         December            June
                                                                                                   2014             2013            2014
R million                                                                                     Unaudited        Unaudited         Audited
Cash flow from operating activities                                                               3 057            1 251           2 813
Cash generated by operations                                                                      3 296            3 352           6 424
Receipt arising from reinsurance contracts                                                        1 250                -               -
Net purchase of investments held to back policyholder liabilities                                (2 581)          (2 742)         (6 036)
Working capital changes                                                                             877              389           1 988
                                                                                                  2 842              999           2 376
Dividends received                                                                                  112              133             362
Interest received                                                                                   411              446             802
Interest paid                                                                                       (41)             (34)            (63)
Taxation paid                                                                                      (267)            (293)           (664)
Cash flow from investing activities                                                                 (71)            (859)         (1 102)
Disposal/(purchase) of financial assets                                                             121             (366)           (228)
Purchase of equipment                                                                              (126)            (104)           (208)
Purchase of intangible assets                                                                      (208)            (257)           (512)
Increase in investment in associate                                                                 (58)            (132)           (133)
Disposal of investment in associate                                                                 200                -               -
Purchase of businesses                                                                                -                -             (21)
Cash flow from financing activities                                                              (1 853)             297            (176)
Dividends paid to ordinary shareholders                                                            (460)            (380)           (810)
Dividends paid to preference shareholders                                                           (35)             (34)            (68)
Increase in borrowings                                                                            1 500                -               -
Non-controlling interest share buy-backs                                                              -               (3)             (3)
Proceeds from issuance of ordinary shares                                                             -            1 030           1 032
Proceeds from issuance of preference shares                                                           -               45              45
Repayment of borrowings                                                                             (14)              (8)            (18)
Settlement of puttable non-controlling interest liability                                        (2 844)            (352)           (352)
Share buy-back                                                                                        -                *               *
Share issue costs                                                                                     -               (1)             (2)
Net increase in cash and cash equivalents                                                         1 133              689           1 535
Cash and cash equivalents at beginning of period                                                  3 520            1 887           1 887
Exchange gains on cash and cash equivalents                                                           5               48              98
Cash and cash equivalents at end of period                                                        4 658            2 624           3 520
Reconciliation to statement of financial position
Cash and cash equivalents                                                                         4 658            2 624           3 650
Bank overdraft included in borrowings at amortised cost                                               -                -            (130)
Cash and cash equivalents at end of period                                                        4 658            2 624           3 520

* Amount is R12 441


Additional information
at 31 December 2014

Financial assets - investments
                                                                                                  Group          Group
                                                                                               December           June
                                                                                                   2014           2014
R million                                                                                     Unaudited        Audited
Available-for-sale financial assets:                                                              7 482          7 578
- Equity securities                                                                                 982            887
- Equity linked notes                                                                                40             30
- Debt securities                                                                                   945          1 836
- Inflation linked securities                                                                         -             71
- Money market securities                                                                         5 515          4 754
Financial assets at fair value through profit or loss:                                           35 995         32 753
- Equity securities                                                                              21 587         18 943
- Equity linked notes                                                                             2 365          1 642
- Debt securities                                                                                 9 611          8 482
- Inflation linked securities                                                                       219            412
- Money market securities                                                                         2 213          3 274
                                                                                                 43 477         40 331

Available-for-sale financial assets are shareholder investments. Unrealised gains and losses arising from changes in the fair value of these assets are recognised in
the statement of other comprehensive income. When the assets are sold the accumulated fair value adjustments are included in profit or loss as net realised gains/
losses on available-for-sale financial assets. Interest income and dividends received from these assets are recognised as investment income in profit or loss.

Financial assets designated as financial assets at fair value through profit or loss are those that are held in internal funds to match insurance and investment
contract liabilities that are linked to the changes in the fair value of these assets. Discovery recognises interest income, dividends received, realised and unrealised
gains and losses from these assets in profit or loss in 'Net fair value gains on financial assets at fair value through profit or loss'.


Exchange rates used in the preparation of these results

                                                                                                   USD             GBP
31 December 2014
- Average                                                                                        11,04           17,82
- Closing                                                                                        11,57           18,03
30 June 2014
- Average                                                                                        10,43           17,06
- Closing                                                                                        10,63           18,17
31 December 2013
- Average                                                                                        10,16           16,20
- Closing                                                                                        10,50           17,37



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 2014
R million (unaudited)                                                                          Level 1       Level 2        Level 3              Total
Financial assets
Financial instruments at fair value through profit or loss:
- Equity securities                                                                             21 587             -              -         21 587
- Equity linked notes                                                                                -         2 365              -          2 365
- Debt securities                                                                                7 209         2 299            103          9 611
- Inflation linked securities                                                                      219             -              -            219
- Money market securities                                                                        1 349           861              3          2 213
Available-for-sale financial instruments:
- Equity securities                                                                                982             -              -            982
- Equity linked notes                                                                                -            40              -             40
- Debt securities                                                                                  832            17             96            945
- Money market securities                                                                        5 503            12              -          5 515
Derivative financial instruments at fair value:
- Hedges                                                                                             -           651              -            651
- Non-hedges                                                                                         -             1              -              1
                                                                                                37 681         6 246            202         44 129
Financial liabilities
Negative reserve funding                                                                             -         5 112              -         5 112
Borrowings at amortised cost                                                                         -         1 956              -         1 956
Derivative financial instruments at fair value:
- Hedges                                                                                             -             5              -             5
- Non-hedges                                                                                         -             4              -             4
                                                                                                     -         7 077              -         7 077


Investments in unit trusts have been assessed as level 1, as the fair value derives from observable market data and are traded in an active market.

Shareholders' and policyholders' exposure to African Bank Investments Limited (ABIL), through indirect investments in unit trusts, have been reclassified to level 3
(from level 1) on the fair value hierarchy. The total exposure at 31 December 2014 is R202 million. Values are estimated by asset managers using valuation
techniques or models incorporating information based on unobservable market inputs. A 10% haircut has been applied to these investments.

                                                                           30 June 2014
R million (audited)                                           Level 1   Level 2       Level 3    Total
Financial assets
Financial instruments at fair value through profit or loss:
- Equity securities                                           18 937         6              -   18 943
- Equity linked notes                                              -     1 642              -    1 642
- Debt securities                                              7 551       931              -    8 482
- Inflation linked securities                                    412         -              -      412
- Money market securities                                      2 291       983              -    3 274
Available-for-sale financial instruments:
- Equity securities                                              887         -              -      887
- Equity linked notes                                              -        30              -       30
- Debt securities                                              1 834         2              -    1 836
- Inflation linked securities                                     71         -              -       71
- Money market securities                                      4 748         6              -    4 754
Derivative financial instruments at fair value:
- Hedges                                                           -       585              -      585
- Non-hedges                                                       -         3              -        3
                                                              36 731     4 188              -   40 919
Financial liabilities
Puttable non-controlling interests                                  -        -          4 494    4 494
Negative reserve funding                                            -    4 684              -    4 684
Borrowings at amortised cost                                        -      572              -      572
Derivative financial instruments at fair value:
- Hedges                                                            -        3              -        3
- Non-hedges                                                        -        7              -        7
                                                                    -    5 266          4 494    9 760

Segmental information
for the six months ended 31 December 2014


                                                                                                                                                                                                      IFRS reporting adjustments
                                                                                                                                                                 New                                                       Normalised
                                                                                        SA         SA         SA           SA         UK          UK        business    All other     Segment         UK                       profit        IFRS
R million                                                                           Health        Life     Invest    Vitality     Health        Life     development     segments       total     Life(1)     DUT(2)    adjustments(3)      total
Income statement
Insurance premium revenue                                                                8       4 700      3 932           -      3 434       1 213             498            -      13 785       (256)         -                 -      13 529
Reinsurance premiums                                                                    (1)       (665)         -           -       (607)       (256)            (95)           -      (1 624)       256          -                 -      (1 368)
Net insurance premium revenue                                                            7       4 035      3 932           -      2 827         957             403            -      12 161          -          -                 -      12 161
Fee income from administration business                                              2 321         109        461           -         44           -             147            -       3 082          -          -                 -       3 082
Vitality income                                                                          -           -          -       1 003        156           -             300            -       1 459          -          -                 -       1 459
Receipt arising from reinsurance contracts                                               -       1 250          -           -          -           -               -            -       1 250          -          -                 -       1 250
Investment income on assets backing policyholder liabilities                             -         102          -           -         26           -              10            -         138          -          -              (138)          -
Finance charge on negative reserve funding                                               -           -          -           -          -        (153)              -            -        (153)       153          -                 -           -
Inter-segment funding#                                                                   -        (234)       234           -          -           -               -            -           -          -          -                 -           -
Net fair value gains on financial assets at fair value through profit or loss            -         287        490           -          -           -               -            -         777          -        246                 -       1 023
Net income                                                                           2 328       5 549      5 117       1 003      3 053         804             860            -      18 714        153        246              (138)     18 975
Claims and policyholders' benefits                                                       *      (2 552)    (2 298)          -     (2 146)       (192)           (325)           -      (7 513)        98          -                 -      (7 415)
Insurance claims recovered from reinsurers                                               *         540          -           -        532          98              60            -       1 230        (98)         -                 -       1 132
Net claims and policyholders' benefits                                                   -      (2 012)    (2 298)          -     (1 614)        (94)           (265)           -      (6 283)         -          -                 -      (6 283)
Acquisition costs                                                                       (1)       (855)      (332)        (30)      (275)       (758)            (68)           -      (2 319)      (153)         -                 -      (2 472)
Marketing and administration expenses
- depreciation and amortisation                                                       (100)        (14)         -           -        (39)          -             (25)          (1)       (179)         -          -                 -        (179)
- other expenses                                                                    (1 273)       (721)      (190)       (945)    (1 069)       (529)           (783)         (61)     (5 571)       (60)         -               (73)     (5 704)
Recovery of expenses from reinsurers                                                     -           -          -           -        151           -              63            -         214          -          -                 -         214
Transfer from assets/liabilities under insurance contracts
- change in assets arising from insurance contracts                                      -         923          -           -          -         (98)              -            -         825        947          -                 -       1 772
- change in assets arising from reinsurance contracts                                    -         (18)         -           -         39           2               -            -          23          -          -                 -          23
- change in liabilities arising from insurance contracts                                 -          26     (2 078)          -        (83)         (5)            (13)           -      (2 153)         -          -                 -      (2 153)
- change in liabilities arising from reinsurance contracts                               -      (1 412)         -           -          -         947               -            -        (465)      (947)         -                 -      (1 412)
Fair value adjustment to liabilities under investment contracts                          -          (2)       (28)          -          -           -               -            -         (30)         -       (246)                -        (276)
Share of net profits from equity accounted investments                                   -           -          -           -          -           -              48            -          48          -          -                 -          48
Normalised profit/(loss) from operations                                               954       1 464        191          28        163         269            (183)         (62)      2 824        (60)         -              (211)      2 553
Investment income earned on shareholder investments and cash                            21          20         10           3          3           -               7           10          74          -          -               138         212
Net realised gains on available-for-sale financial assets                                *          (8)         -           -          -           -               -            -          (8)         -          -                 -          (8)
Once-off costs relating to business acquisitions                                         -           -          -           -        (46)          -               -          (27)        (73)         -          -                73           -
Amortisation of intangibles from business combinations                                   -           -          -           -          -           -               -         (113)       (113)         -          -                 -        (113)
Puttable non-controlling interest fair value adjustment                                  -           -          -           -          -           -               -        1 661       1 661          -          -                 -       1 661
Finance costs                                                                          (15)          -          -           -         (1)          -               -          (90)       (106)         -          -                 -        (106)
Foreign exchange gains                                                                   -           -          2           -          2           -              14            -          18          -          -                 -          18
Realised gain from sale of associate                                                     -           -          -           -          -           -               -            7           7          -          -                 -           7
Profit before tax                                                                      960       1 476        203          31        121         269            (162)       1 386       4 284        (60)         -                 -       4 224
Income tax expense                                                                    (272)       (416)       (56)         (5)       (14)        (60)             13           56        (754)        60          -                 -        (694)
Profit for the period                                                                  688       1 060        147          26        107         209            (149)       1 442       3 530          -          -                 -       3 530

* Amount is less than R500 000
# The inter-segment funding of R234 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 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:
1 The VitalityLife results are reclassified to account for the contractual arrangement as a reinsurance contract under IFRS 4.
2 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.
3 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.


Segmental information
for the six months ended 31 December 2013

                                                                                                                                                                                                      IFRS reporting adjustments
                                                                                                                                                                 New                                                       Normalised
                                                                                        SA          SA         SA          SA         UK          UK        business    All other     Segment         UK                       profit        IFRS
R million                                                                           Health        Life     Invest    Vitality     Health        Life     development     segments       total     Life(1)     DUT(2)    adjustments(3)      total
Income statement
Insurance premium revenue                                                                8       4 118      2 969           -      2 929         848             251            -      11 123       (122)         -                 -      11 001
Reinsurance premiums                                                                    (1)       (613)         -           -       (372)       (122)            (31)           -      (1 139)       122          -                 -      (1 017)
Net insurance premium revenue                                                            7       3 505      2 969           -      2 557         726             220            -       9 984          -          -                 -       9 984
Fee income from administration business                                              2 136          86        363           -         43           -               9            -       2 637          -          -                10       2 647
Guarantee received from HumanaVitality                                                   -           -          -           -          -           -              10            -          10          -          -               (10)          -
Vitality income                                                                          -           -          -         910         91           -             166            -       1 167          -          -                 -       1 167
Investment income on assets backing policyholder liabilities                             -          84          -           -         22           -               -            -         106          -          -              (106)          -
Finance charge on negative reserve funding                                               -           -          -           -          -         (74)              -            -         (74)        74          -                 -           -
Inter-segment funding#                                                                   -        (215)       215           -          -           -               -            -           -          -          -                 -           -
Net fair value gains on financial assets at fair value through profit or loss            -         547      1 515           -          -           -               -            -       2 062          -        297                 -       2 359
Net income                                                                           2 143       4 007      5 062         910      2 713         652             405            -      15 892         74        297              (106)     16 157
Claims and policyholders' benefits                                                      (1)     (1 949)    (1 108)          -     (2 029)       (226)           (183)           -      (5 496)       146          -                 -      (5 350)
Insurance claims recovered from reinsurers                                              (1)        450          -           -        374         146              34            -       1 003       (146)         -                 -         857
Net claims and policyholders' benefits                                                  (2)     (1 499)    (1 108)          -     (1 655)        (80)           (149)           -      (4 493)         -          -                 -      (4 493)
Acquisition costs                                                                        -        (774)      (249)        (34)      (241)       (595)            (40)           -      (1 933)       (74)         -                 -      (2 007)
Marketing and administration expenses
- depreciation and amortisation                                                        (87)        (15)         -           -          -           -             (18)          (1)       (121)         -          -                 -        (121)
- other expenses                                                                    (1 194)       (667)      (160)       (871)      (846)       (423)           (428)         (17)     (4 606)       (42)         -                 -      (4 648)
Recovery of expenses from reinsurers                                                     -           -          -           -        127           -              26            -         153          -          -                 -         153
Transfer from assets/liabilities under insurance contracts
- change in assets arising from insurance contracts                                      -         284          -           -          -         644               -            -         928         31          -                 -         959
- change in assets arising from reinsurance contracts                                    -          (4)         -           -        (26)          1               -            -         (29)         -          -                 -         (29)
- change in liabilities arising from insurance contracts                                 -         (53)    (3 211)          -         59          (2)            (13)           -      (3 220)         -          -                 -      (3 220)
- change in liabilities arising from reinsurance contracts                               -         (30)         -           -          -          31               -            -           1        (31)         -                 -         (30)
Fair value adjustment to liabilities under investment contracts                          -          (3)      (186)          -          -           -               -            -        (189)         -       (297)                -        (486)
Share of net losses from equity accounted investments                                    -           -          -           -          -           -             (16)           -         (16)         -          -                 -         (16)
Normalised profit/(loss) from operations                                               860       1 246        148           5        131         228            (233)         (18)      2 367        (42)         -              (106)      2 219
Investment income earned on shareholder investments and cash                            18          29          8           4          2           -              10           15          86          -          -               106         192
Net realised gains on available-for-sale financial assets                                -          41          2           -          -           -               -            -          43          -          -                 -          43
Amortisation of intangibles from business combinations                                   -           -          -           -          -           -               -          (91)        (91)         -          -                 -         (91)
Puttable non-controlling interest fair value adjustment                                  -           -          -           -          -           -               -          105         105          -          -                 -         105
Finance costs                                                                          (12)          -          -           -         (1)         (1)              -          (95)       (109)         1          -                 -        (108)
Foreign exchange gains/(losses)                                                          -           -          4           -        (35)          -               1           31           1          -          -                 -           1
Profit before tax                                                                      866       1 316        162           9         97         227            (222)         (53)      2 402        (41)         -                 -       2 361
Income tax expense                                                                    (245)       (350)       (45)         (2)       (18)        (41)             11           35        (655)        41          -                 -        (614)
Profit for the period                                                                   621        966        117           7         79         186            (211)         (18)      1 747          -          -                 -       1 747

# 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 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:
(1) The VitalityLife results are reclassified to account for the contractual arrangement as a reinsurance contract under IFRS 4.
(2) 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.
(3) 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.


Review of Group results
for the six months ended 31 December 2014

New business annualised premium income

New business annualised premium income increased 17% for the six months ended 31 December 2014 when compared to the same period in the prior year.

                                                                                           December       December              %
R million                                                                                      2014           2013         change
Discovery Health                                                                              2 806          2 623              7
Discovery Life                                                                                1 151          1 056              9
Discovery Invest                                                                                797            652             22
Discovery Insure                                                                                403            257             57
Discovery Vitality                                                                              104             90             16
VitalityHealth(1)                                                                               413            432             (4)
VitalityLife                                                                                    502            420             20
The Vitality Group                                                                               61             50             22
Ping An Health                                                                                  426            138            209
New business API of Group                                                                     6 663          5 718             17

(1) The comparative for VitalityHealth has been reduced by R130 million to exclude the new joiners as this has not been included in
the 2014 number. New joiners are additional members to existing employer groups.
(2) Due to the sale of the HumanaVitality associate in November 2014, R35 million new business API in respect of this associate has
been excluded from the comparative number.

New business API is calculated at 12 times the monthly premium for new recurring premium policies and 10% of the value of new single premium policies. It also
includes both automatic premium increases and servicing increases on existing policies. For The Vitality Group and Ping An Health, new business API is calculated
based on the date of policy inception.


Gross inflows under management

Gross inflows under management measures the total funds collected by Discovery and is an accurate measure of the growth of Discovery. Gross inflows under
management increased 18% for the six months ended 31 December 2014 when compared to the same period in the prior year.

                                                                                           December       December              %
R million                                                                                      2014           2013         change
Discovery Health                                                                             24 589         22 011             12
Discovery Life                                                                                4 809          4 204             14
Discovery Invest                                                                              6 770          4 953             37
Discovery Insure                                                                                506            253            100
Discovery Vitality                                                                            1 003            910             10
VitalityHealth                                                                                3 634          3 063             19
VitalityLife                                                                                  1 213            848             43
The Vitality Group                                                                              300            176             70
Other new business development                                                                  139              7           1886
Gross inflows under management                                                               42 963         36 425             18
Less: collected on behalf of third parties                                                  (24 637)       (21 488)            15
Discovery Health                                                                            (22 260)       (19 867)            12
Discovery Invest                                                                             (2 377)        (1 621)            47
Gross income of Group per the segmental information                                          18 326         14 937             23
Gross income is made up as follows:
- Insurance premium revenue                                                                  13 785         11 123             24
- Fee income from administration business                                                     3 082          2 637             17
- Vitality income                                                                             1 459          1 167             25
- Guarantee received from HumanaVitality                                                          -             10
Gross income of Group per the segmental information                                          18 326         14 937             23


Normalised profit from operations

The following table shows the main components of the normalised profit from operations for the six months ended 31 December 2014:

                                                                                           December       December              %
R million                                                                                      2014           2013         change
Discovery Health                                                                                954            860             11
Discovery Life                                                                                1 464          1 246             17
Discovery Invest                                                                                191            148             29
Discovery Vitality                                                                               28              5            460
VitalityHealth                                                                                  163            131             24
VitalityLife                                                                                    269            228             18
Normalised profit from established businesses                                                 3 069          2 618             17
Development and other segments                                                                 (245)          (251)            (2)
Normalised profit from operations                                                             2 824          2 367             19


Significant transactions affecting the current results

Discovery acquired Prudential's remaining 25% shareholding in the UK joint venture

In November 2014, Prudential Assurance Company (Prudential) agreed to sell its remaining 25% shareholding in Prudential Health Holdings Limited (PHHL) to
Discovery Limited for GBP 155 million (R2 790 million). The note entitled 'Put options in subsidiaries' gives a detailed description of the impact of this transaction.

This acquisition was primarily funded as follows:
- Bridging debt was raised by Discovery Limited for R1.5 billion. This is included in borrowings at amortised cost in the Statement of Financial Position.
- Discovery Life Limited entered into a financial reinsurance treaty resulting in a cash inflow of R1 250 million. This treaty effectively reinsures approximately 8% of
the negative reserve at 31 December 2014. The inflow has been disclosed as a receipt arising from reinsurance contracts and transfer to liabilities arising from
reinsurance contracts in profit or loss.

Following the purchase of the remaining 25% in PHHL, the products being offered in the UK-market have been rebranded. PruHealth and PruProtect have been
rebranded as VitalityHealth and VitalityLife respectively. These rebranding costs, as well as other once-off costs relating to the acquisition totalled R73 million in the
six month period to 31 December 2014 and have been excluded from normalised headline earnings.

HumanaVitality partnership ended

In November 2014, the HumanaVitality partnership ended. This resulted in the following transactions:
- Humana paid The Vitality Group (TVG) USD 10 million for its initial investment and a further USD 9 million of accrued profits (totaling R200 million) to purchase
TVG's 25% shareholding in HumanaVitality. This resulted in a profit from the sale of the associate of R7 million being recognised in profit or loss. A deferred tax
liability raised upon recognition of the associate of R35 million has also been released to income tax in the Income Statement. Both these values have been
excluded from headline earnings and normalised headline earnings.
- TVG Inc. paid Humana USD 5 million (R54 million) to purchase Humana's 25% shareholding in TVG LLC. The note entitled 'Put options in subsidiaries' gives a
detailed description of the impact of this transaction.

Put options in subsidiaries

During the 2011 financial year, put options were granted to the non-controlling interests of two of Discovery's subsidiaries, entitling the non-controlling interests to
sell their interests in the subsidiaries to Discovery at contracted dates at fair value. In accordance with IAS 32, Discovery recognised the fair value of the non-
controlling interest, being the present value of the estimated purchase price, as a financial liability in the Statement of Financial Position (Puttable non-controlling
interests).

In November 2014, both these put options lapsed, with the purchase by Discovery of the following:
- Prudential's remaining 25% shareholding in PHHL for GBP 155 million (R2 790 million).
- Humana's 25% shareholding in TVG LLC for USD 5 million (R54 million).

The excess between the carrying amount of the puttable non-controlling interest financial liability and the consideration paid, has been recognised in profit or loss as
a puttable non-controlling interest fair value adjustment. This profit has been included in headline earnings but reversed when calculating normalised headline
earnings.

The aggregate effects of these transactions are as follows:

R million                                                                                             Total
Value of puttable non-controlling interests at 1 July 2014                                            4 494
Finance costs recognised in profit or loss                                                               64
Subsidiary purchases                                                                                 (2 844)
Fair value adjustments recognised in profit or loss                                                  (1 661)
Net exchange differences arising during the year allocated to the translation reserve                   (53)
Value of puttable non-controlling interests at 31 December 2014                                            -


Other significant items in these results

Share-based payments

Included in marketing and administration expenses, in employee costs, is R203 million (2013: R137 million) in respect of phantom shares and options granted under
the employee share incentive schemes, which is expensed in accordance with the requirements of IFRS 2. Discovery has entered into transactions to hedge its
exposure to changes in the Discovery share price arising from these schemes. As at 31 December 2014, approximately 92.6% (2013: 90%) of this exposure was
hedged. Fair value gains of R96 million (2013: R49 million) relating to the hedge were recognised in profit or loss resulting in a net expense to Discovery of R107
million (2013: R88 million).

Taxation

For South African entities that are in a tax paying position, tax has been provided at 28% (2013: 28%) in the financial statements. No deferred tax has been raised
on the assessed losses in Discovery Insure, VitalityHealth and The Vitality Group.

Material transactions with related parties

Discovery Health administers the Discovery Health Medical Scheme (DHMS) and provides managed care services for which it charges an administration fee and a
managed healthcare fee respectively. These fees are determined on an annual basis and approved by the trustees of DHMS. The fees totalled R2 094 million for the
six months ended 31 December 2014 (2013: R1 942 million). Discovery offers the members of DHMS access to the Vitality programme.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss have increased by R3.2 billion due to the sale of Discovery Invest products.

Negative reserve funding

The negative reserve funding liability on Discovery's Statement of Financial Position represents the acquisition costs that are funded by Prudential on behalf of
VitalityLife. The liability unwinds and is repaid on a matched basis as the cash flows emerge from the assets arising from insurance contracts. In the event that the
cash flows do not emerge as anticipated, VitalityLife would be required to repay these liabilities from other resources.

The increase in the negative reserve funding liability relates to the increase in new business written by VitalityLife in the current period.

Deferred tax liability

The deferred tax liability is primarily attributable to the application of the Financial Services Board directive 145. This directive allows for the zeroing on a statutory
basis of the assets arising from insurance contracts. The statutory basis is used when calculating tax payable for Discovery Life, resulting in a timing difference
between the tax base and the accounting base.

Shareholder information

Directorate

There were no changes to the Board of Discovery Limited during the current period.

Dividend policy and capital

The following final dividends were paid during the current period:
- Preference share dividend of 442.19178 cents per share, paid on 22 September 2014.
- Ordinary share dividend of 78.0 cents per share, paid on 13 October 2014.

On the statutory basis the capital adequacy requirement of Discovery Life was R519 million (2013: R517 million) and was covered 3.5 times (2013: 3.9 times).

B preference share cash dividend declaration:

On 19 February 2015, the Directors declared a gross cash dividend of 465.0 cents (395.25 cents net of dividend withholding tax) per B preference share for
the period 1 July 2014 to 31 December 2014. The dividend has been declared from income reserves and no secondary tax on companies' credits has been used. A
dividend withholding tax of 15% will be applicable to all shareholders who are not exempt.

The issued preference share capital at the declaration date is 8 million B preference shares.

The salient dates for the dividend will be as follows:

Last day of trade to receive a dividend                                                 Friday, 6 March 2015
Shares commence trading "ex" dividend                                                   Monday, 9 March 2015
Record date                                                                            Friday, 13 March 2015
Payment date                                                                           Monday, 16 March 2015

B preference share certificates may not be dematerialised or rematerialised between Monday, 9 March 2015 and Friday, 13 March 2015, both days inclusive.

Ordinary share cash dividend declaration

Notice is hereby given that the Directors have declared an interim gross cash dividend of 85.5 cents (72.675 cents net of dividend withholding tax) per ordinary
share for the six month period ended 31 December 2014. The dividend has been declared from income reserves and no secondary tax on companies' credits has
been used. A dividend withholding tax of 15% will be applicable to all shareholders who are not exempt.

The issued ordinary share capital at the declaration date is 591 872 390 ordinary shares.

The salient dates for the dividend will be as follows:

Last day of trade to receive a dividend                                                Friday, 13 March 2015
Shares commence trading "ex" dividend                                                  Monday, 16 March 2015
Record date                                                                            Friday, 20 March 2015
Payment date                                                                           Monday, 23 March 2015

Share certificates may not be dematerialised or rematerialised between Monday, 16 March 2015 and Friday, 20 March 2015, both days inclusive.

Accounting policies

The interim results have been prepared in accordance with International Financial Reporting Standards including IAS 34, as well as the South African Companies
Act 71 of 2008. The accounting policies adopted are consistent with the accounting policies applied in the last annual report.

Embedded value statement
for the six months 31 December 2014

The embedded value of Discovery at 31 December 2014 consists of the following components:
- the free surplus attributed to the covered business at the valuation date;
- plus: the required capital to support the in-force covered business at the valuation date;
- plus: the present value of expected future shareholder cash flows from the in-force business;
- less: the cost of required capital.

The present value of future shareholder cash flows from the in-force covered business is calculated as the value of projected future after-tax shareholder cash flows
of the business in force at the valuation date, discounted at the risk discount rate.

The value of new business is the present value, at the point of sale, of the projected future after-tax shareholder cash flows of the new business written by
Discovery, discounted at the risk discount rate, less an allowance for the reserving strain (for Life), initial expenses and cost of required capital. The value of new
business is calculated using the current reporting date assumptions.

For Life, the shareholder cash flows are based on the release of margins under the Statutory Valuation Method ("SVM") basis.

The embedded value includes the insurance and administration profits of the subsidiaries in the Discovery Limited group. Covered business includes business
written in South Africa through Discovery Life, Discovery Invest, Discovery Health and Discovery Vitality, and in the United Kingdom through VitalityLife (previously
PruProtect) and VitalityHealth (previously PruHealth). For The Vitality Group (USA), AIA Vitality, Ping An Health and Discovery Insure, no published value has been
placed on the current in-force business as the businesses have not yet reached suitable scale with predictable experience.

In November 2014, Prudential Assurance Company (Prudential) agreed to sell its remaining 25% shareholding in Prudential Health Holdings Limited (PHHL) to
Discovery Limited for GBP 155 million (R2 790 million). Following the purchase of the remaining 25% in PHHL, PruHealth and PruProtect have been rebranded as
VitalityHealth and VitalityLife respectively.

In November 2014, the HumanaVitality partnership concluded. As a result, Humana purchased The Vitality Group's 25% shareholding in HumanaVitality and The
Vitality Group purchased Humana's 25% shareholding in TVG LLC.

During the 2011 financial year, put options were granted to the non-controlling interests of PHHL and TVG LLC, entitling the non-controlling interest to sell their
interests in the subsidiaries to Discovery at contracted dates at fair value. In November 2014, both these put options lapsed, with the purchase by Discovery of the
remaining 25% of PHHL and TVG LLC.

For accounting purposes, in accordance with IAS32, Discovery has included 100% of the subsidiaries' results. The fair value of the non-controlling interest, being the
present value of the estimated purchase price, is recognised as a financial liability in the Statement of Financial Position (Puttable non-controlling interest). For
embedded value purposes, the accounting treatment is unwound to reflect Discovery's 75% shareholding in these subsidiaries up to the date Discovery's
shareholding increased to 100%.

In August 2011, Discovery raised R800 million through the issue of non-cumulative, non-participating, non-convertible preference shares. For embedded value
purposes, the capital raised, net of share issue expenses, has been excluded from the adjusted net worth.

The 31 December 2014 embedded value results and disclosures were not subjected to an external review or audit.

Table 1: Group embedded value

                                                                                                 31 December  31 December                  %        30 June
R million                                                                                               2014         2013             change           2014
Shareholders' funds                                                                                   20 599       16 332                 26         17 411
Adjustment to shareholders' funds from published basis(1)                                            (16 441)     (10 894)                          (11 799)
Adjusted net worth                                                                                     4 158        5 438                             5 612
- Free surplus                                                                                           192        2 248                             2 311
- Required capital(2)                                                                                  3 966        3 190                             3 301
Value of in-force covered business before cost of required capital                                    42 299       35 189                            38 368
Cost of required capital                                                                              (1 003)        (845)                             (930)
Discovery Limited embedded value(3)                                                                   45 454       39 782                 14         43 050
Number of shares (millions)                                                                            574.2        574.1                             574.1
Embedded value per share                                                                              R79.16       R69.29                 14         R74.98
Diluted number of shares (millions)                                                                    591.2        591.2                             591.2
Diluted embedded value per share(4)                                                                   R78.25       R68.55                 14         R74.13

(1) A breakdown of the adjustment to shareholders' funds is shown in the table below:

                                                                                                 31 December  31 December    30 June
  R million                                                                                             2014         2013       2014
  Life net assets under insurance contracts                                                          (12 119)     (10 451)   (11 691)
  VitalityHealth and VitalityHealth Insurance Limited deferred acquisition costs (net of
  deferred tax)                                                                                         (226)        (214)      (243)
  VitalityLife receivable relating to the Unemployment Cover benefit (net of deferred tax)               (43)         (32)       (34)
  Goodwill and intangible assets (net of deferred tax) relating to the acquisition of Standard
  Life Healthcare and the Prudential joint venture                                                    (3 274)      (2 356)    (2 550)
  Unwind puttable non-controlling interest liability                                                       -        2 927      3 511
  Non-controlling share of profits/losses included in retained earnings                                    -           11        (13)
  Net preference share capital raised                                                                   (779)        (779)      (779)
                                                                                                     (16 441)     (10 894)   (11 799)

(2) The required capital at December 2014 for Life is R1 037 million (June 2014: R1 043 million; December 2013: R1 033 million), for Health and Vitality is R635
million (June 2014: R614 million; December 2013: R589 million), for VitalityHealth and VitalityHealth Insurance Limited is R1 647 million (June 2014: R1 154 million;
December 2013: R1 173 million) and for VitalityLife is R647 million (June 2014: R490 million; December 2013: R397 million). For Life, the required capital was set
equal to two times the statutory Capital Adequacy Requirement ("CAR"). For Health and Vitality, the required capital was set equal to two times the monthly renewal
expense and Vitality benefit cost. For VitalityHealth, the required capital amount was set equal to 1.25 times the capital prescribed by the Prudential Regulatory
Authority under the Individual Capital Adequacy Standards ("ICAS") framework. For VitalityLife, the required capital was set equal to the UK Pillar 1 capital
requirement.
(3) The Discovery Limited embedded value is calculated based on a risk discount rate using the CAPM approach with specific reference to the Discovery beta
coefficient. The Discovery beta coefficient used at 31 December 2014 is 0.33 (30 June 2014: 0.4). The Discovery beta coefficient reflects the historic performance of
the Discovery share price relative to the market and may not allow fully for non-market related and non-financial risk. Investors may want to form their own view on
an appropriate allowance for the non-financial risks which have not been modelled explicitly. To illustrate the sensitivity of the embedded value to the beta coefficient,
the 31 December 2014 embedded value would be R1 042 million lower had the beta coefficient as at 30 June 2014 of 0.4 been used. As a prudent response to the
recent significant reduction in the beta coefficient used in the Discovery EV, a review of the methodology will be undertaken.
(4) The diluted embedded value per share allows for Discovery's BEE transaction where the impact is dilutive i.e. where the current embedded value per share
exceeds the current transaction value.

Table 2: Value of in-force covered business

                                                                                      Value before                   Value after
                                                                                           cost of         Cost of       cost of
                                                                                          required        required      required
R million                                                                                  capital         capital       capital
at 31 December 2014
Health and Vitality                                                                         14 670            (207)       14 463
Life and Invest(1)                                                                          22 050            (523)       21 527
VitalityHealth(2)                                                                            3 996            (122)        3 874
VitalityLife(2)                                                                              1 583            (151)        1 432
Total                                                                                       42 299          (1 003)       41 296
at 31 December 2013
Health and Vitality                                                                         12 942            (199)       12 743
Life and Invest(1)                                                                          18 835            (392)       18 443
VitalityHealth(2)                                                                            2 411            (150)        2 261
VitalityLife(2)                                                                              1 001            (104)          897
Total                                                                                       35 189            (845)       34 344
at 30 June 2014
Health and Vitality                                                                         13 879            (209)       13 670
Life and Invest(1)                                                                          20 701            (481)       20 220
VitalityHealth(2)                                                                            2 762            (130)        2 632
VitalityLife(2)                                                                              1 026            (110)          916
Total                                                                                       38 368            (930)       37 438

(1) Included in the Life and Invest value of in-force covered business is R800 million (June 2014: R735 million; December 2013: R673 million) in respect of
investment management services provided on off balance sheet investment business. The net assets of the investment service provider are included in the adjusted
net worth.
(2) The value of in-force has been converted using the closing exchange rate of R18.03/GBP (June 2014: R18.17/GBP; December 2013: R17.37/GBP). The value
of in-force at 31 December 2014 represents Discovery's 100% ownership of VitalityHealth and VitalityLife, compared to 75% in prior periods.

Table 3: Group embedded value earnings

                                                                                            Six months ended          Year ended
                                                                                       31 December    31 December        30 June
R million                                                                                     2014           2013           2014

Embedded value at end of period                                                             45 454         39 782         43 050
Less: Embedded value at beginning of period                                                (43 050)       (35 721)       (35 721)
Increase in embedded value                                                                   2 404          4 061          7 329
Net change in capital                                                                           (1)        (1 021)        (1 020)
Dividends paid                                                                                 495            413            878
Transfer to hedging reserve                                                                    (41)            70             30
Embedded value earnings                                                                      2 857          3 523          7 217
Annualised return on opening embedded value                                                  13.7%          20.7%          20.2%


Table 4: Components of Group embedded value earnings

                                                                                                                                           Six months
                                                                                                                                                ended     Year
                                                                                                                                                   31    ended
                                                                                                                                             December  30 June
                                                                                                   Six months ended 31 December 2014             2013     2014
                                                                                                                        Value of
                                                                                                            Cost of     in-force
                                                                                                 Net       required      covered    Embedded Embedded Embedded
R million                                                                                      Worth        capital     business       Value    Value    Value
Total profit from new business (at point of sale)                                             (1 127)           (61)       2 409       1 221    1 086    2 248
Profit from existing business
- Expected return                                                                              1 687             25          191       1 903    1 581    3 234
- Change in methodology and assumptions(1)                                                     1 382             51         (502)        931     (108)      21
- Experience variances                                                                           (44)           (11)         560         505      625    1 433
Acquisition of Prudential joint venture(2)                                                    (1 978)           (78)       1 282        (774)       -        -
Acquisition of Discovery Insure joint venture                                                      -              -            -           -     (297)    (297)
Intangibles no longer allocated to minorities(3)                                                (765)             -            -        (765)       -        -
Increase in goodwill and intangibles                                                             (90)             -            -         (90)    (125)    (256)
Other initiative costs(4)                                                                       (219)             -            8        (211)    (185)    (445)
Non-recurring expenses(5)                                                                       (100)             -            -        (100)      (9)     (23)
Acquisition costs(6)                                                                             (32)             -           (2)        (34)     (36)      (2)
Finance costs                                                                                    (19)             -            -         (19)     (11)     (37)
Foreign exchange rate movements                                                                   68              1           (7)         62      765      986
Other(7)                                                                                         140              -           (8)        132        -        -
Return on shareholders' funds(8)                                                                  96              -            -          96      237      355
Embedded value earnings                                                                       (1 001)           (73)       3 931       2 857    3 523    7 217

(1) The changes in methodology and assumptions will vary over time to reflect adjustments to the model and assumptions as a result of changes to the operating
and economic environment. The current period's changes are described in detail in Table 6 below (for previous periods refer to previous embedded value
statements).
(2) The net worth item represents the difference between the purchase price and the minority share of PHHL's tangible net asset value at the acquisition date. The
value of in-force covered business and cost of required capital items represent the 25% of the value in-force and cost of required capital that Discovery purchased in
the transaction.
(3) This item reflects the unwinding of the goodwill and intangible assets (net of deferred tax) relating to the acquisition of Standard Life Healthcare and the
Prudential joint venture allocated to minorities.
(4) This item reflects Group initiatives including expenses relating to the investment in The Vitality Group, Vitality International, once-off expenses in Invest,
Discovery Insure and other new business initiatives.
(5) This item includes rebranding costs, as well as other once-off costs relating to the acquisition of 25% of PHHL, totalling R73 million.
(6) Acquisition costs relate to commission paid on Life business and expenses incurred in writing Health and Vitality business that has been written over the period
but will only be activated and on risk after the valuation date. These policies are not included in the embedded value or the value of new business and therefore the
costs are excluded.
(7) This item includes the tax benefit that will be obtained as the VitalityHealth DAC and intangible software assets amortise.
(8) The return on shareholders' funds is shown net of tax and management charges.

Table 5: Experience variances

                                                                                 Health and Vitality      Life and Invest       VitalityHealth        VitalityLife
                                                                                             Value                  Value                Value                 Value
                                                                                     Net        of          Net        of       Net         of       Net          of
R million                                                                          worth  in-force        worth  in-force     worth   in-force     worth    in-force     Total
Renewal expenses                                                                       1         -            2         2       (67)         -         6           -       (56)
Other expenses                                                                         2         -            -         -         -          -         -           -         2
Lapses and surrenders                                                                  4       124          (90)       61         -        (25)       15          (2)       87
Mortality and morbidity                                                                -         -           79        (6)       98          -        23           -       194
Policy alterations(1)                                                                  -       (11)        (188)      159         -          -       (11)          3       (48)
Premium and fee income                                                                (1)       19          (32)       67         -          -         -           -        53
Economic assumptions                                                                   -         -          (69)       19         -          -         -           -       (50)
Commission                                                                             -         -            -         -        30          -         -           -        30
Tax(2)                                                                                (4)        -          115      (124)      (15)         -        12           -       (16)
Reinsurance                                                                            -         -            -         -        33          -         -           -        33
Maintain modelling term(3)                                                             -       107            -        96         -         26         -           -       229
Vitality benefits                                                                     23         -            -         -        (5)         -         -           -        18
Other                                                                                 51         3          (49)       36        (0)         0        (7)         (5)       29
Total                                                                                 76       242         (232)      310        74          1        38          (4)      505

(1) Policy alterations relate to changes to existing benefits at the request of the policyholder.
(2) The tax variance for Life and Invest arises due to a movement in the deferred tax asset which delays the payment of tax.
(3) The projection term for Health and Vitality, Life, Group Life and VitalityHealth at 31 December 2014 has not been changed from that used in the 30 June 2014
embedded value calculation. Therefore, an experience variance arises because the total term of the in-force covered business is effectively increased by six months.

Table 6: Methodology and assumption changes

                                                                                 Health and Vitality      Life and Invest       VitalityHealth        VitalityLife
                                                                                             Value                  Value                Value                 Value
                                                                                     Net        of          Net        of       Net         of       Net          of
R million                                                                          worth  in-force        worth  in-force     worth   in-force     worth    in-force     Total
Modelling changes                                                                      -         -          (23)      (27)        -          -         3          (1)      (48)
Expenses                                                                               -         -            -         -         -          -         -           -         -
Lapses                                                                                 -         -          (30)       26         -          -         -           -        (4)
Mortality and morbidity                                                                -         -            -         -         -        (1)         -           -        (1)
Benefit enhancements                                                                   -         -            -         -         -          -         -           -         -
Vitality benefits                                                                      -        (1)           -         -         -          -         -           -        (1)
Tax                                                                                    -         -            -         -         -          -         -           -         -
Economic assumptions(1)                                                                -       242          (18)      760         -        383       (11)         98     1 454
Premium and fee income(2)                                                              -         -         (157)     (205)        -          -         -           -      (362)
Reinsurance(3)                                                                         -         -        1 497    (1 584)      121       (141)        -           -      (107)
Other                                                                                  -         -            -         -         -          -         -           -         -
Total                                                                                  -       241        1 269    (1 030)      121        241        (8)         97       931

(1) This is due to the reduction in the risk discount rate following the reduction in the risk free rate since 30 June 2014, and the change in the beta coefficient from
0.4 at 30 June 2014 to 0.33 at 31 December 2014. For VitalityHealth and VitalityLife, this further includes the impact of aligning the equity risk premium assumption
used across the Discovery EV, resulting in a change from 4.0% at 30 June 2014 to 3.5% at 31 December 2014.
(2) Higher levels of engagement in the Vitality programme resulted in lower levels of future premium and higher policyholder benefits being projected.
(3) For Life and VitalityHealth, the reinsurance item primarily relates to the impact of the financing reinsurance arrangements.


Table 7: Embedded value of new business

                                                                                       Six months ended                            Year ended
                                                                                  31 December      31 December               %        30 June
R million                                                                                2014             2013          change           2014
Healthy and Vitality
Present value of future profits from new business at point of sale                        269              244                            570
Cost of required capital                                                                   (9)              (8)                           (19)
Present value of future profits from new business at point of sale after cost of
required capital(1)                                                                       260              236              10            551
New business annualised premium income(2)                                               1 032              944               9          2 858
Life and Invest
Present value of future profits from new business at point of sale(3)                     680              556                          1 191
Cost of required capital                                                                  (29)             (26)                           (52)
Present value of future profits from new business at point of sale after cost of
required capital(1)                                                                       651              530              23          1 139
New business annualised premium income(4)                                               1 239            1 065              16          2 163
Annualised profit margin(5)                                                              6.2%             6.3%                           6.3%
Annualised profit margin excluding Invest Business                                       9.5%            10.1%                          10.1%
VitalityHealth
Present value of future profits from new business at point of sale                         22               70                            118
Cost of required capital                                                                   (6)             (10)                           (21)
Present value of future profits from new business at point of sale after cost of
required capital(1,6)                                                                      16               60             (73)            97
New business annualised premium income (Rand)(7)                                          345              348              (1)           761
Annualised profit margin(5)                                                              0.7%             3.1%                           2.3%
VitalityLife(8)
Present value of future profits from new business at point of sale                        311              274                            493
Cost of required capital                                                                  (17)             (14)                           (32)
Present value of future profits from new business at point of sale after cost of
required capital(1,6)                                                                     294              260              13            461
New business annualised premium income (Rand)                                             391              315              24            647
Annualised profit margin(5)                                                              9.5%            11.4%                          10.0%

(1) The Discovery Limited embedded value of new business is calculated based on a risk discount rate using the CAPM approach with specific reference to the
Discovery beta coefficient. The Discovery beta coefficient used at 31 December 2014 is 0.33 (30 June 2014: 0.4). The Discovery beta coefficient reflects the historic
performance of the Discovery share price relative to the market and may not allow fully for non-market related and non-financial risk. Investors may want to form
their own view on an appropriate allowance for the non-financial risks which have not been modelled explicitly. To illustrate the sensitivity of the embedded value of
new business to the beta coefficient, the 31 December 2014 embedded value of new business would be R53 million lower had the beta coefficient as at 30 June
2014 of 0.4 been used. As a prudent response to the recent significant reduction in the beta coefficient used in the Discovery EV, a review of the methodology will
be undertaken.
(2) Health new business annualised premium income is the gross contribution to the medical schemes. The new business annualised premium income shown
above excludes premiums in respect of members who join an existing employer where the member has no choice of medical scheme, as well as premiums in
respect of new business written during the period but only activated after 31 December 2014.
  The total Health and Vitality new business annualised premium income written over the period was R2 910 million (June 2014: R5 206 million; December 2013: R2
713 million).
(3) Included in the Life and Invest embedded value of new business is R32 million (June 2014: R39 million; December 2013: R18 million) in respect of investment
management services provided on off balance sheet investment business.
  Risk business written prior to the valuation date allows certain Invest business to be written at financially advantageous terms, the impact of which has been
recognised in the value of new business.
(4) Life new business is defined as Life policies or Discovery Retirement Optimiser policies which incepted during the reporting period and which are on risk at the
valuation date. Invest new business is defined as business where at least one premium has been received and which has not been refunded after receipt.
  The new business annualised premium income of R1 239 million (June 2014: R2 163 million; December 2013: R1 065 million) (single premium APE: R481 million
(June 2014: R865 million; December 2013: R385 million)) shown above excludes automatic premium increases and servicing increases in respect of existing
business. The total Life new business annualised premium income written over the period, including automatic premium increases of R457 million (June 2014: R773
million; December 2013: R387 million) and servicing increases of R252 million (June 2014: R473 million; December 2013: R255 million) was R1 948 million (June
2014: R3 409 million; December 2013: R1 707 million) (single premium APE: R502 million (June 2014: R904 million; December 2013: R409 million)). Single
premium business is included at 10% of the value of the single premium.
  Policy alterations, including Discovery Retirement Optimisers added to existing Life Plans are shown in Table 5 as experience variances and not included as new
business.
  Term extensions on existing contracts are not included as new business.
(5) The annualised profit margin is the value of new business expressed as a percentage of the present value of future premiums.
(6) VitalityHealth and VitalityLife new business values have been prorated to allow for Discovery's ownership increasing from 75% to 100% in November 2014.
(7) VitalityHealth new business is defined as individuals and employer groups which incepted during the reporting period. The new business annualised premium
income shown above has been adjusted to exclude premiums in respect of members who join an existing employer group after the first month as well as premiums
in respect of new business written during the period but only activated after 31 December 2014.
(8) VitalityLife new business is defined as policies which incepted during the reporting period and which are on risk at the valuation date.


Table 8: Embedded value economic assumptions

                                                                                          31 December      31 December      30 June
                                                                                                 2014             2013         2014
Beta coefficient
South Africa                                                                                     0.33             0.43         0.40
United Kingdom                                                                                   0.33             0.43         0.40
Equity risk premium (%)
South Africa                                                                                     3.50             3.50         3.50
United Kingdom                                                                                   3.50             4.00         4.00
Risk discount rate (%)
Health and Vitality                                                                            10.155           10.500       10.650
Life and Invest                                                                                10.155           10.500       10.650
VitalityHealth                                                                                   3.03             4.70         4.24
VitalityLife                                                                                     4.22             5.76         5.50
Rand/GB Pound Exchange Rate
Closing                                                                                         18.03            17.37        18.17
Average                                                                                         17.82            16.20        17.06
Medical inflation (%)
South Africa                                                                                     8.00             8.00         8.25
United Kingdom                                                                                   6.50             6.50         6.50
Expense inflation and CPI (%)
South Africa                                                                                     5.00             5.00         5.25
United Kingdom           - VitalityHealth                                                        3.00             3.40         3.30
                         - VitalityLife                                                          3.00             3.40         3.30
Pre-tax investment return (%)
South Africa             - Cash                                                                  7.50             7.50         7.75
                         - Bonds                                                                 9.00             9.00         9.25
                         - Equity                                                               12.50            12.50        12.75
United Kingdom           - VitalityHealth investment return                                      1.87             2.94         3.16
                         - VitalityLife investment return                                        3.26             4.00         3.90
Income tax rate (%)
South Africa                                                                                    28.00            28.00        28.00
United Kingdom - Long Term                                                                      20.00            20.00        20.00
Projection term
- Health and Vitality                                                                        20 years         20 years     20 years
- Life value of in-force                                                                     40 years         40 years     40 years
- Group Life                                                                                 10 years         10 years     10 years
- VitalityHealth                                                                             20 years         20 years     20 years


Life and Invest mortality, morbidity and lapse and surrender assumptions were derived from internal experience, where available, augmented by reinsurance and
industry information.

The Health and Vitality lapse assumptions were derived from the results of recent experience investigations.

The VitalityHealth assumptions were derived from internal experience, augmented by industry information.

VitalityLife assumptions were derived from internal experience, where available, augmented by reinsurance, industry and Discovery group information.

Renewal expense assumptions were based on the results of the latest expense and budget information.

The initial expenses included in the calculation of the embedded value of new business are the actual costs incurred excluding expenses of an exceptional or
non-recurring nature.

The South African investment return assumption was based on a single interest rate derived from the risk-free zero coupon government bond yield curve. Other
economic assumptions were set relative to this yield. The current and projected tax position of the policyholder funds within the Life company has been taken into
account in determining the net investment return assumption.

The best estimate investment return assumption for VitalityHealth and VitalityLife was based on the single interest rate derived from the risk-free zero coupon
sterling yield curve. The United Kingdom expense inflation assumption was set in line with long-term United Kingdom inflation expectations.

It is assumed that, for the purposes of calculating the cost of required capital, the Life and Invest required capital amount will be backed by surplus assets consisting
of 100% equities and the Health, Vitality and VitalityHealth required capital amounts will be fully backed by cash. The VitalityLife required capital amount is assumed
to earn the same return as the assets backing the VitalityLife policyholder liabilities. Allowance has been made for tax and investment expenses in the calculation of
the cost of capital. In calculating the capital gains tax ("CGTc") liability, it is assumed that the portfolio is realised every 5 years. The Life and Invest cost of capital is
calculated using the difference between the gross of tax equity return and the equity return net of tax and expenses. The Health and Vitality and VitalityHealth cost of
required capital is calculated using the difference between the risk discount rate and the net of tax cash return. The VitalityLife cost of required capital is calculated
using the difference between the risk discount rate and the net of tax asset return assumption.

Sensitivity to the embedded value assumptions

The embedded value has been calculated in accordance with the Actuarial Society of South Africa's Advisory Practice Note APN 107: Embedded Value Reporting.
The risk discount rate, calculated in accordance with the guidance note, uses the CAPM approach with specific reference to the Discovery beta coefficient. The
Discovery beta coefficient reflects the historic performance of the Discovery share price relative to the market and may not allow fully for non-market related and
non-financial risk. Investors may want to form their own view on an appropriate allowance for the non-financial risks which have not been modelled explicitly. As a
prudent response to the recent significant reduction in the beta coefficient used in the Discovery EV, a review of the methodology will be undertaken. The sensitivity
of the embedded value and the embedded value of new business at 31 December 2014 to changes in the risk discount rate is included in the tables below.

For each sensitivity illustrated below, all other assumptions have been left unchanged. No allowance has been made for management action such as risk premium
increases where future experience is worse than the base assumptions.

Table 9: Embedded value sensitivity

                                                                                                          Health and Vitality          Life and Invest             VitalityHealth          VitalityLife(2)
                                                                                                                         Cost of                   Cost of                    Cost of                  Cost of
                                                                                              Adjusted      Value of    required    Value of      required    Value of       required    Value of     required     Embedded        %
R million                                                                                    net worth      in-force     capital    in-force       capital    in-force        capital    in-force      capital        value   change
Base                                                                                             4 158       14 670         (207)     22 050          (523)      3 996           (122)      1 583         (151)      45 454
Impact of:
Risk discount rate +1%                                                                           4 158       13 791         (236)     19 595          (458)      3 701           (225)      1 366         (208)      41 484       (9)
Risk discount rate -1%                                                                           4 158       15 650         (174)     25 071          (603)      4 328             (4)      1 857          (76)      50 207       10
Lapses -10%                                                                                      4 158       15 235         (218)     24 024          (560)      4 622           (127)      1 714         (169)      48 679        7
Interest rates -1%(1)                                                                            4 158       14 760         (196)     22 576          (574)      4 299           (115)      2 204         (177)      46 935        3
Equity and property market value -10%                                                            4 055       14 670         (207)     21 856          (522)      3 996           (122)      1 583         (151)      45 158       (1)
Equity and property return +1%                                                                   4 158       14 670         (207)     22 249          (523)      3 996           (122)      1 583         (151)      45 653        0
Renewal expenses -10%                                                                            4 158       16 130         (192)     22 314          (521)      4 329           (122)      1 555         (150)      47 501        5
Mortality and morbidity -5%                                                                      4 158       14 670         (207)     23 407          (511)      5 371           (122)      1 557         (148)      48 175        6
Projection term +1 year                                                                          4 158       14 896         (210)     22 261          (527)      4 058           (122)      1 583         (151)      45 946        1

(1) All economic assumptions were reduced by 1%.
(2) The sensitivity impact on the VitalityLife value of in-force excludes the net of tax change in negative reserves.

The following table shows the effect of using different assumptions on the embedded value of new business.


Table 10: Value of new business sensitivity

                                                                                                Health and Vitality        Life and Invest           VitalityHealth             VitalityLife
                                                                                              Value of      Cost of    Value of      Cost of     Value of      Cost of      Value of     Cost of     Value of
                                                                                                   new     required         new     required          new     required           new    required          new            %
R million                                                                                     business      capital    business      capital     business      capital      business     capital     business       change
Base                                                                                               269           (9)        680          (29)          22           (6)          311         (17)       1 221
Impact of:
Risk discount rate +1%                                                                             245          (10)        541          (25)           8          (10)          293         (25)       1 017          (17)
Risk discount rate -1%                                                                             295           (7)        843          (33)          37           (1)          335         (10)       1 459           19
Lapses -10%                                                                                        287           (9)        811          (31)          47           (6)          361         (20)       1 440           18
Interest rates -1%(1)                                                                              273           (8)        711          (32)          35           (5)          321         (20)       1 275            4
Equity and property return +1%                                                                     269           (8)        698          (29)          21           (6)          312         (18)       1 239            1
Renewal expense -10%                                                                               311           (8)        695          (29)          42           (6)          323         (18)       1 310            7
Mortality and morbidity -5%                                                                        269           (8)        738          (28)          78           (6)          328         (18)       1 353           11
Projection term +1 year                                                                            274           (9)        690          (29)          22           (6)          312         (18)       1 236            1
Acquisition costs -10%                                                                             277           (8)        735          (29)          27           (2)          336         (18)       1 318            8

(1) All economic assumptions were reduced by 1%.

Transfer secretaries Computershare Investor Services Pty Limited (Registration number 2004/003647/07) Ground Floor, 70 Marshall Street, Johannesburg 2001,
PO Box 61051, Marshalltown 2107

Sponsors Rand Merchant Bank (A division of FirstRand Bank Limited)
Secretary and registered office MJ Botha, 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
155 West Street, Sandton 2146 PO Box 786722, Sandton 2146 Tel: (011) 529 2888 Fax: (011) 539 8003

Directors MI Hilkowitz (Chairperson), A Gore* (Chief Executive Officer), HL Bosman, Dr BA Brink, SE de Bruyn Sebotsa, JJ Durand, SB Epstein (USA), R Farber*
(Financial Director), HD Kallner*, NS Koopowitz*, Dr TV Maphai, HP Mayers*, TT Mboweni, Dr A Ntsaluba*, AL Owen (UK), A Pollard*, JM Robertson*, T Slabbert,
B Swartzberg*, SV Zilwa
*Executive

Interim financial results
- prepared by L Capon CA(SA) and L van Jaarsveldt CA(SA)
- supervised by R Faber CA(SA), FCMA
Embedded value statement
- prepared by M Curtis FIA
- supervised by A Rayner FASSA, FIA

24 February 2015
Date: 24/02/2015 08:59:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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