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DISCOVERY LIMITED - Summary of audited results, cash dividend declaration for the year ended 30 June 2015 and trading statement

Release Date: 10/09/2015 08:15
Code(s): DSBP DSY     PDF:  
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Summary of audited results, cash dividend declaration
for the year ended 30 June 2015 and trading statement

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



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


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



Summary of audited results, cash dividend declaration
for the year ended 30 June 2015 and trading statement


Embedded value up 21% to R52.3 billion


Normalised headline earnings up 16% to R4 027 million


Normalised profit from operations up 17% to R5 789 million






Commentary



01 Strong financial performance, balanced with significant investment in future growth


The full year to 30 June 2015 marked a period of strong performance for Discovery. The period saw new business grow 51% to R17 532 million (boosted by the award of the
Bankmed Medical Scheme, without which core new business grew 15%); normalised profit from operations up 17% to R5 789 million; normalised headline earnings up 16% to
R4 027 million; growth in embedded value of 21% to R52 billion; and return on average equity of 18%. Importantly, the period was also noteworthy for its sizeable investment in
new initiatives and for its successful capital raising.


In February, Discovery announced a rights issue to fund growth opportunities in the UK and local adjacencies, with the response being overwhelmingly positive. The rights issue
was notably oversubscribed: less than 1% of the shares offered were not taken up directly, and for these excess shares, Discovery had applications for over R6 billion in shares.


02 Discovery's business model


The year under review has been seminal for the Discovery business model, in terms of defining it in a disciplined way, building it and globalising it. A core development in this
regard has been Discovery's collaboration with Apple to launch Vitality Active Rewards with Apple Watch, for use by Vitality and the Vitality Network.


As context, the global insurance landscape is subject to a number of accelerating trends. First, the nature of risk continues to change, becoming increasingly behavioural and
complex in nature. Second, technology is becoming foundational to risk management, with the ubiquity of wearable devices providing the opportunity for insurers to better
influence and price risk. Third, health promotion and disease prevention continue to be personalised - moving away from one-size-fits-all interventions to individualised treatment
and dynamic advice. For insurers to succeed in this environment, there is a growing pressure to build the appropriate assets - from an insurance, behaviour and technology
perspective.


Discovery's shared value business model - which incentivises healthier behaviour for the benefit of both members and insurers - is now visibly a global leader in the
behavioural-insurance space. In August 2015, Discovery ranked at 17th position in Fortune's new index of 51 companies "changing the world" - a curation of organisations which
have made a sizable impact on major global problems as part of their competitive strategy. This has validated Discovery's strategy to invest in the Vitality chassis to make it
excellent and as such, globally relevant.


Discovery accelerated this investment with work in the areas of nutrition, preventive screening, and most significantly - physical activity. With the growing evidence of physical
inactivity's impact on sickness and death, and the ability of wearable devices to enable better risk management - the case for technology-enabled physical activity in insurance
is well made. On the back of this, the team in the UK pioneered Active Rewards - the next frontier in the science of Vitality - where physical activity is rewarded through a
real-time rewards chassis, with Starbucks as a reward partner. The results of the UK prototype have been compelling, in terms of Active Rewards being a paradigm for driving
significant member engagement and behaviour change.


This informed the intent for Active Rewards to become a chassis that underpins Vitality in all Discovery's markets, as a means of creating a scalable, global capability of benefit
to all Discovery's insurance partners and members. During the period, Discovery collaborated with Apple on the development of Vitality Active Rewards with Apple Watch, which
is designed to enable Vitality members around the world to be motivated and encouraged to get more active and by achieving their goals, earn their Apple Watch and pay less
for their health or life insurance. Vitality Active Rewards with Apple Watch is made possible by the innovative health and fitness features of Apple Watch and Vitality's clinical,
actuarial and behavioural economics capability which has delivered demonstrable and sustainable health improvements within its client base over the past 15 years; and the
actuarial surplus generated by the insurance products using Vitality at their core.


Aligned to this, Discovery continued to build out its Vitality Network of global insurers. Progress over the year included the launch of AIA Vitality in Hong Kong; the launch of
Vitality-integrated insurance through John Hancock Vitality in the United States, and plans to expand into Europe through Generali.



03 Business-specific performance


In South Africa, the incumbent businesses demonstrated outstanding performance. Discovery Health exceeded expectation with operating profit increasing 10% to R2 031
million, with significant investment in new initiatives; and new business growing 92% to R9 598 million with the award of the administration and managed care contract for the
Bankmed Medical Scheme. Without Bankmed, new business increased 8% to R5 398 million. Lives under management achieved the milestone of three million, just after the
reporting period.


Discovery Health continues to create a highly-competitive healthcare system for the Discovery Health Medical Scheme and its 16 other schemes under management, through
investment and innovation in its core assets. These include wellness programmes for corporates and individuals; sophisticated digital platforms for member-provider interactions;
a comprehensive product range; extensive provider networks; risk management assets; and access to the newest advances in medicine. As a result, members experience
personalised care, access to the latest technology, extensive provider networks and excellent value for member selected benefits.


The competitiveness of the Discovery Health chassis is evidenced by its success in managing both its open and closed schemes, as well as in its ability to win new closed
scheme business. Notably, Discovery Health has experienced rapid growth in its management of closed schemes, winning seven of the last eight tenders, the most recent being
the award of the contract for the Bankmed Medical Scheme with over 209 000 lives, which will come onto the Discovery Health platform on 1 January 2016. This will take
market share in the closed scheme segment from 8% to 13% and Discovery Health's total market share to 38%.


Furthermore, the performance of the Discovery Health Medical Scheme has been excellent, driven by the success of the Direct to Consumer (D2C) channel, as well as
significant efforts in other channels. Over the 2014 financial period, lives covered grew 2.7% off an extremely high base to 2.6 million; and loss ratios, lapse rates and
buy-downs remained low and within budget. Taking investment income into account, the net annual surplus for the last year was R1.5 billion and the solvency level exceeded
the statutory requirement of 25% of annual premium income, well ahead of the planned target date. As further validation, a recent benchmarking exercise by Deloitte
consistently ranked Discovery Health Medical Scheme in the top-3 performing health insurers from a sample of 25 health insurers globally over the past decade, assessed
against criteria that included financial health, scale and growth metrics, claims and expenditure, and innovation.


Discovery Life demonstrated excellent operating profit growth of 15% to R2 968 million over the period (+18% gross of FinRe), driven by new business growth of 11% to R2 231
million, competitive products, and innovations in the servicing space. Experience variances were positive at R236 million and the business generated R1 073 million in cash
over the period. The new business growth took place in a fairly flat market, representing a market share gain from 26% to 29% on a run rate basis. This was largely due to new
products and the business' high-quality, aligned-adviser force, which grew in both size and productivity.


Discovery Life's strong performance is a testament to the efficacy of the shared value model, with members gaining access to competitive products and exceptional policyholder
returns. To date, members have received over R1.3 billion in PayBacks, while the business benefits from a healthier, more integrated base and a lower lapse rate.


Furthermore, from a distribution perspective, tied agents and direct business are growing faster than the Independent Financial Adviser segment, with all distribution channels
having a positive effect on service quality and product knowledge for members. The business continues to take proactive steps in light of the potential regulatory shifts, with the
launch of the Discovery Financial Adviser academy in August 2015. It is expected to graduate approximately 100 new high-quality aligned advisers per year, who are mentored
by the leading performers over a two-year period.


The performance of Discovery Invest was exceptional. Operating profit increased by 39% to R460 million, driven largely by the intersection of the following factors - achieving
scale, continued market share gain in the retail savings space, high percentage of funds flowing into Discovery funds, and strong performance of the market. Assets under
Management (AUM) reached the milestone of R50 billion, with new business annual premium equivalent increasing by 18% to R1 646 million. Discovery Invest continues to
have the largest share of new endowment business and its balanced funds (the majority of AUM) have shown top quartile performance over one, three and five-year terms. An
above-the-line campaign around "Performing brilliantly even if you're young" speaks to this message and will be used to drive continued growth.


Discovery Insure continued to grow rapidly, with new business up 25% to R789 million. Discovery Insure is now ranked in the top three insurers in personal lines new business
and is attracting 12%-15% of new business volumes in South Africa. The loss ratio also continues to improve, trending towards the long-term target.


The period saw Discovery Insure's differentiated model being further enhanced and validated, through an evolving reward proposition and measurable behaviour change. The
business now covers over 120 000 cars and 7 million kilometres of data being tracked daily, with proven influence on risk and losses through the appropriate rewards. This
reaffirms the power of the shared value model, as members are rewarded for safer driving, with loss ratios and lapse rates improving by duration, having a positive impact on
the overall safety of South Africa's roads.


In addition, a hybrid distribution model and brand-building efforts are demonstrating value. Discovery Connect (direct agent cohort) has been a major source of new business
growth over the past year and now accounts for 54% of new business. As of 1 July 2015, Discovery Connect will become a separate entity to ensure sufficient focus on this
channel and appropriate investment in its continued growth.


Local adjacencies: Discovery's intention is to expand its business model into banking, and to establish an innovative full-service retail bank. The success of the DiscoveryCard
has demonstrated the efficacy of the Discovery model which utilises the Vitality capability to leverage behavioural economic insights and incentives to encourage better
behavioural choices, when combined with market-leading banking capabilities. This has resulted in a fast-growing, profitable credit card of excellent quality that offers unique
value to members, and ongoing value to shareholders. It is this shared value model that Discovery intends to build on.


From a regulatory perspective, the ambition to establish and build a bank involves a lengthy and complex process in which the outcome is not guaranteed. A two-step approval
is required: firstly to obtain authorisation to establish a bank - and thereafter, post complying with all the conditions, to apply for registration as a bank. Banking business may
only commence once registration as a bank has been granted. Discovery is about to embark on this process.


From a strategic perspective, the first step in this direction was buying up Discovery's economic interest in the DiscoveryCard to 74.99% earlier this year. FirstRand Bank will
retain 25.01%. Over the next few years, Discovery will move the Card off FNB's systems and onto Discovery's systems and platform. Discovery will then take operational control
of the asset, and eventually build additional banking products on its chassis. This is a multi-year process and Discovery will communicate its progress periodically.


In the UK, the period under review was characterised by the successful rebrand of PruHealth and PruProtect to VitalityHealth and VitalityLife, following Discovery's acquisition of
the remaining shareholding in the joint venture. The rebrand reflects the integral nature of the Vitality asset to Discovery's ambition of building the best protection business in the
UK.


Discovery's UK protection VitalityLife business produced a strong second quarter, with normalised operating profit for the year-to-date up 27% to R542 million and new business
up 22% to R1 079 million. The period also saw the continued adoption of the Vitality-integrated model, with the Vitality Optimiser product comprising over 50% of new business.
Following the rebrand, VitalityLife recorded three consecutive record sales quarters. This reflects the powerful consumer brand the business has developed. VitalityLife
continued to grow its market share in the Independent Financial Adviser space to 12.6%, and is now second placed in that segment.


In VitalityHealth, the period under review saw the continuation of the excellent loss ratio and lapse rate performance of the business. It also experienced strong product
resonance and member engagement with the Vitality wellness programme - particularly with the new Active Rewards benefit which was pioneered by VitalityHealth and
launched at the start of the 2015 calendar year. Finally, VitalityHealth saw a reduction in the operational complexity of the business with the exit of the Transitional Services
Agreement in place with Standard Life Healthcare.


From a new business perspective, VitalityHealth continued to focus on quality and margin in the highly-competitive and aggressive new business acquisition environment. While
this approach delivers long-term value in the form of sustainably lower loss ratios and more engaged members, it comes at the expense of short-term new business growth.
This was particularly pronounced in the intermediated SME market, where VitalityHealth's pricing position and target new business loss ratios were difficult to achieve in the
prevailing environment. This focus on quality resulted in a reduction in overall new business from R953 million to R814 million over the period. The post-reporting period monthly
new business run-rate has, however, recovered to R83.7 million in 2015 from R67.9 million in 2014. VitalityHealth made a normalised operating profit of R223 million, up 10%
from the prior period.


The past financial year saw Discovery Partner Markets restructure its traditional joint venture operating model with insurance partners in foreign markets. Discovery has now
adopted a "Partner Market" model where it acts as an intellectual property and service provider, enjoying a further share in performance profits. During the financial year under
review, Discovery Partner Markets continued to show promising performance as several partner businesses head towards profitability. The performance of Discovery Partner
Markets is now on par with Discovery's other local and UK businesses at a similar juncture in their respective life cycles.


In the United States, The Vitality Group demonstrated improvement in both new membership and engagement, increasing new adult membership by 33% to 774 518 and
maintaining an excellent rate of members on the silver or higher statuses. This indicates a growing realisation in the market that Vitality is changing the conversation to focus on
healthy living. The Vitality Group is working on a re-launch of its corporate offering in September, which will align its incentives with those of its corporate members, and make
the product more differentiated in an increasingly-competitive market.


Ping An Health had a successful last 12 months and continues to grow the emerging health insurance industry in China. The Chinese private healthcare insurance environment,
while still in its infancy, continues to show significant long-term opportunity. The Chinese Ministries of both Health and Finance continue to put forward proposals that encourage
the purchase of medical insurance by employers and individuals.


New business more than tripled over the period to R991 million, predominantly driven by individual insurance sales, with white-labelled products continuing to exhibit aggressive
growth. In the group market, Ping An Health achieved a year-on-year total revenue growth of 34%, maintaining its market-leading position with 40% share in this market
segment. The quality of individual and group businesses remain excellent, with loss ratio and lapse rates continuing within assumptions.


Discovery remains excited about the potential of the Ping An Health business, especially given the new product innovations that are expected to boost new business. These
innovations include the recent launch of China's first group mid-market product, online individual products and an enhanced version of Vitality embedded into WeChat, China's
largest social networking platform.


04 Prospects and Trading Statement


The progress made over the past financial year positions Discovery strongly for future growth.


Due to the once-off accounting treatment resulting from the lapsing of the put options Prudential held in respect of its interest in the UK joint venture, Discovery's undiluted
headline earnings per share and basic earnings per share for the six months ending 31 December 2015 ("next period") is expected to be lower by more than 20% (117.3 cents
and 118.5 cents respectively) than that of the six months ended 31 December 2014 ("prior period") of 586.6 cents and 592.6 cents respectively (restated for the bonus element
of the rights issue shares). Normalised headline earnings per share, which the Company views as the appropriate measure of performance, will not be impacted by this
accounting treatment.


Any forecast information has not been reviewed and reported by the Group's external auditors and a further trading statement will be released when the Company is reasonably
certain and specific guidance can be given.

On behalf of the Board

MI Hilkowitz            A Gore
Chairperson             Group Chief Executive

Sandton
9 September 2015



Statement of financial position
at 30 June 2015


                                                                                                   Group            Group
                                                                                                    2015             2014
R million                                                                                        Audited          Audited
ASSETS
Assets arising from insurance contracts                                                           21 726           17 999
Property and equipment                                                                               727              666
Intangible assets including deferred acquisition costs                                             2 526            2 344
Goodwill                                                                                           2 375            2 239
Investment in associates                                                                             505              551
Financial assets
- Available-for-sale investments                                                                   9 454            7 578
- Investments at fair value through profit or loss                                                40 132           32 753
- Derivatives                                                                                        825              588
- Loans and receivables including insurance receivables                                            3 884            3 110
Deferred income tax                                                                                  690              406
Current income tax asset                                                                               5               46
Reinsurance contracts                                                                                362              266
Cash and cash equivalents                                                                          6 251            3 650
Total assets                                                                                      89 462           72 196
EQUITY
Capital and reserves
Ordinary share capital and share premium                                                           7 488            2 582
Perpetual preference share capital                                                                   779              779
Other reserves                                                                                     2 024            1 501
Retained earnings                                                                                 17 065           12 549
                                                                                                  27 356           17 411
Non-controlling interest                                                                               -                -
Total equity                                                                                      27 356           17 411
LIABILITIES
Liabilities arising from insurance contracts                                                      30 818           25 797
Liabilities arising from reinsurance contracts                                                     3 827            2 247
Financial liabilities
- Puttable non-controlling interests                                                                   -            4 494
- Negative reserve funding                                                                         5 437            4 684
- Borrowings at amortised cost                                                                       954              572
- Investment contracts at fair value through profit or loss                                       10 059            8 264
- Derivatives                                                                                          7               10
- Trade and other payables                                                                         5 506            3 752
Deferred income tax                                                                                5 077            4 647
Deferred revenue                                                                                     192              157
Employee benefits                                                                                    152              154
Current income tax liability                                                                          77                7
Total liabilities                                                                                 62 106           54 785
Total equity and liabilities                                                                      89 462           72 196


Income statement
for the year ended 30 June 2015


                                                                                             Group        Group
                                                                                              2015         2014                %
R million                                                                                  Audited      Audited           change
Insurance premium revenue                                                                   27 694       23 090
Reinsurance premiums                                                                        (3 113)      (2 182)
Net insurance premium revenue                                                               24 581       20 908
Fee income from administration business                                                      6 630        5 863
Vitality income                                                                              3 029        2 492
Receipt arising from reinsurance contracts                                                   1 250            -
Investment income                                                                              507          414
- investment income earned on shareholder investments and cash                                 188          152
- investment income earned on assets backing policyholder liabilities                          319          262
Net realised gains on available-for-sale financial assets                                      188          231
Net fair value gains on financial assets at fair value through profit or loss                3 124        4 278
Net income                                                                                  39 309       34 186
Claims and policyholders' benefits                                                         (15 805)     (11 718)
Insurance claims recovered from reinsurers                                                   2 503        1 809
Net claims and policyholders' benefits                                                     (13 302)      (9 909)
Acquisition costs                                                                           (5 294)      (4 296)
Marketing and administration expenses                                                      (12 251)     (10 146)
Amortisation of intangibles from business combinations                                        (227)        (187)
Recovery of expenses from reinsurers                                                           447          360
Transfer from assets/liabilities under insurance contracts                                  (2 541)      (3 726)
- change in assets arising from insurance contracts                                          3 278        2 816
- change in assets arising from reinsurance contracts                                           81           15
- change in liabilities arising from insurance contracts                                    (4 320)      (5 810)
- change in liabilities arising from reinsurance contracts                                  (1 580)        (747)
Fair value adjustment to liabilities under investment contracts                               (912)      (1 224)
Profit from operations                                                                       5 229        5 058
Puttable non-controlling interest fair value adjustment                                      1 661         (201)
Finance costs                                                                                 (197)        (220)
- finance costs raised on puttable non-controlling interest financial liability                (64)        (157)
- other finance costs                                                                         (133)         (63)
Foreign exchange gains                                                                          40           18
Realised gain from the sale of associate                                                         7            -
Share of net profits/(losses) from equity accounted investments                                 26          (14)
Profit before tax                                                                            6 766        4 641               46
Income tax expense                                                                          (1 214)      (1 327)               9
Profit for the year                                                                          5 552        3 314               68
Profit attributable to:
- ordinary shareholders                                                                      5 480        3 246               69
- preference shareholders                                                                       72           68
- non-controlling interest                                                                       -            -
                                                                                             5 552        3 314               68
Earnings per share for profit attributable to ordinary shareholders of the company during
the year (cents):
- basic*                                                                                     914.8        558.7               64
- diluted*                                                                                   902.2        545.1               66
* The prior year's earnings per share has been restated



Statement of comprehensive income
for the year ended 30 June 2015


                                                                                             Group        Group
                                                                                              2015         2014                %
R million                                                                                  Audited      Audited           change
Profit for the year                                                                          5 552        3 314
Items that are or may be reclassified subsequently to profit or loss:
Change in available-for-sale financial assets                                                  (92)          (3)
- unrealised gains                                                                              72          272
- capital gains tax on unrealised gains                                                        (11)         (87)
- realised gains transferred to profit or loss                                                (188)        (231)
- capital gains tax on realised gains                                                           35           43
Currency translation differences                                                               492          256
- unrealised gains                                                                             504          285
- deferred tax on unrealised gains                                                             (12)         (29)
Cash flow hedges                                                                                58          (32)
- unrealised gains                                                                             143           51
- tax on unrealised gains                                                                      (23)          (9)
- current tax on unrealised gains                                                                -            4
- gains recycled to profit or loss                                                             (75)         (87)
- tax on recycled gains                                                                         13            9
Share of other comprehensive income from equity accounted investments                           65           27
- change in available-for-sale financial assets                                                 13           (*)
- currency translation differences                                                              52           27
Other comprehensive income for the year, net of tax                                            523          248
Total comprehensive income for the year                                                      6 075        3 562               71
Attributable to:
- ordinary shareholders                                                                      6 003        3 494               72
- preference shareholders                                                                       72           68
- non-controlling interest                                                                       -            -
Total comprehensive income for the year                                                      6 075        3 562               71
* Amount is less than R500 000



Headline earnings
for the year ended 30 June 2015


                                                                                                          Group
                                                                                                           2014
                                                                                             Group      Audited
                                                                                              2015          and                %
R million                                                                                  Audited     restated           change
Normalised headline earnings per share (cents):
- undiluted                                                                                  672.2        594.8               13
- diluted                                                                                    663.0        580.2               14
Headline earnings per share (cents):
- undiluted                                                                                  882.4        527.4               67
- diluted                                                                                    870.2        514.5               69


The reconciliation between earnings and headline earnings is shown below:
Net profit attributable to ordinary shareholders                                             5 480        3 246
Adjusted for:
- realised gains on available-for-sale financial assets net of CGT                            (153)        (188)
- realised gain from sale of associate including deferred tax reversal                         (42)           -
- impairment of property and equipment                                                           -            3
- impairment of intangible assets                                                                -            3
Headline earnings                                                                            5 285        3 064               72
- accrual of dividends payable to preference shareholders                                       (1)           -
- amortisation of intangibles from business combinations net of deferred tax                   170          116
- costs relating to the AIA restructure                                                         87            -
- deferred tax asset recognised on VitalityHealth assessed losses                             (295)           -
- fair value adjustment to puttable non-controlling interest financial liability            (1 661)         201
- finance costs raised on puttable non-controlling interest financial liability                 64          157
- non-controlling interest allocation if no put options                                        (42)         (81)
- rebranding and business acquisitions expenses                                                420            -
Normalised headline earnings                                                                 4 027        3 457               16
Weighted number of shares in issue (000's)                                                 598 946      581 123
Diluted weighted number of shares (000's)                                                  607 290      595 699


Statement of changes in equity
for the year ended 30 June 2015


                                                                     Attributable to equity holders of the Company                    Attributable to equity holders of the Company
                                                                    Share capital     Preference    Share-based         Available-                                                                     Non-
                                                                        and share          share        payment           for-sale    Translation         Hedging        Retained               controlling
R million                                                                 premium        capital        reserve        investments(1)     reserve         reserve        earnings      Total       interest     Total
Year ended 30 June 2015
At beginning of year                                                        2 582            779            319                250            829             103          12 549     17 411              -    17 411
Total comprehensive income for the year                                         -             72              -                (79)           544              58           5 480      6 075              -     6 075
Profit for the year                                                             -             72              -                  -              -               -           5 480      5 552              -     5 552
Other comprehensive income                                                      -              -              -                (79)           544              58               -        523              -       523
Transactions with owners                                                    4 906            (72)             -                  -              -               -            (964)     3 870              -     3 870
Proceeds from rights-issue                                                  5 000              -              -                  -              -               -               -      5 000              -     5 000
Rights-issue costs                                                            (94)             -              -                  -              -               -               -        (94)             -       (94)
Delivery of treasury shares                                                     *              -              -                  -              -               -               -          *              -         *
Dividends paid to preference shareholders                                       -            (72)             -                  -              -               -               -        (72)             -       (72)
Dividends paid to ordinary shareholders                                         -              -              -                  -              -               -            (964)      (964)             -      (964)
At end of year                                                              7 488            779            319                171          1 373             161          17 065     27 356              -    27 356
Year ended 30 June 2014
At beginning of year                                                        1 470            779            319                253            546             135          10 204     13 706              2    13 708
Total comprehensive income for the year                                         -             68              -                 (3)           283             (32)          3 246      3 562              -     3 562
Profit for the year                                                             -             68              -                  -              -               -           3 246      3 314              -     3 314
Other comprehensive income                                                      -              -              -                 (3)           283             (32)              -        248              -       248
Transactions with owners                                                    1 112            (68)             -                  -              -               -            (901)       143             (2)      141
Share buy-back(2)                                                               *              -              -                  -              -               -               -          *              -         *
Share issue                                                                 1 030              -              -                  -              -               -               -      1 030              -     1 030
Share issue costs                                                              (2)             -              -                  -              -               -               -         (2)             -        (2)
Increase in treasury shares                                                   (22)             -              -                  -              -               -              14         (8)             -        (8)
Delivery of treasury shares                                                   105              -              -                  -              -               -            (105)         -              -         -
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                                       -            (68)             -                  -              -               -               -        (68)             -       (68)
Dividends paid to ordinary shareholders                                         -              -              -                  -              -               -            (810)      (810)             -      (810)
At end of year                                                              2 582            779            319                250            829             103          12 549      17 411             -    17 411
1 This relates to the fair value adjustments of available-for-sale financial assets
2 Amount is R12 441
* Amount is less than R500 000


Statement of cash flows
for the year ended 30 June 2015


                                                                                                  Group            Group
                                                                                                   2015             2014
R million                                                                                       Audited          Audited
Cash flow from operating activities                                                               3 415            2 813
Cash generated by operations                                                                      5 340            6 424
Receipt arising from reinsurance contracts                                                        1 250                -
Net purchase of investments held to back policyholder liabilities                                (5 232)          (6 036)
Working capital changes                                                                           1 711            1 988
                                                                                                  3 069            2 376
Dividends received                                                                                  499              362
Interest received                                                                                   923              802
Interest paid                                                                                      (131)             (63)
Taxation paid                                                                                      (945)            (664)
Cash flow from investing activities                                                              (2 229)          (1 102)
Net purchase of financial assets                                                                 (1 656)            (228)
Purchase of property and equipment                                                                 (172)            (208)
Proceeds from the sale of property and equipment                                                      7                -
Purchase of intangible assets                                                                      (559)            (539)
Proceeds from the sale of intangible assets                                                           9               27
Increase in investment in associate                                                                 (59)            (133)
Disposal of investment in associate                                                                 201                -
Purchase of businesses                                                                                -              (21)
Cash flow from financing activities                                                               1 485             (176)
Proceeds from rights-issue                                                                        5 000                -
Rights-issue costs                                                                                  (94)               -
Proceeds from issuance of ordinary shares                                                             -            1 032
Proceeds from issuance of preference shares                                                           -               45
Share buy-back                                                                                        -                *
Share issue costs                                                                                     -               (2)
Dividends paid to ordinary shareholders                                                            (964)            (810)
Dividends paid to preference shareholders                                                           (72)             (68)
Non-controlling interest share buy-backs                                                              -               (3)
Settlement of puttable non-controlling interest liability                                        (2 844)            (352)
Increase in borrowings                                                                            1 992                -
Repayment of borrowings                                                                          (1 533)             (18)
Net increase in cash and cash equivalents                                                         2 671            1 535
Cash and cash equivalents at beginning of year                                                    3 520            1 887
Exchange gains on cash and cash equivalents                                                          60               98
Cash and cash equivalents at end of year                                                          6 251            3 520
Reconciliation to statement of financial position
Cash and cash equivalents                                                                         6 251            3 650
Bank overdraft included in borrowings at amortised cost                                               -             (130)
Cash and cash equivalents at end of year                                                          6 251            3 520
* Amount is R12 441



Additional information
at 30 June 2015



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.
                                                                                                                          30 June 2015
R million (audited)                                                                                  Level 1          Level 2           Level 3            Total
Financial assets
Financial instruments at fair value through profit or loss:
- Equity securities                                                                                   10 584                -                 -           10 584
- Equity linked notes                                                                                      -            2 576                 -            2 576
- Debt securities                                                                                      6 947              605                 -            7 552
- Inflation linked securities                                                                            218                -                 -              218
- Money market securities                                                                                157            1 013                 -            1 170
- Mutual funds                                                                                        18 032                -                 -           18 032
Available-for-sale financial instruments:
- Equity securities                                                                                       65                -                 -               65
- Equity linked notes                                                                                      -               19                 -               19
- Debt securities                                                                                         66              466                 -              532
- Money market securities                                                                                152              840                 -              992
- Mutual funds                                                                                         7 846                -                 -            7 846
Derivative financial instruments at fair value:
- Hedges                                                                                                   -              824                 -              824
- Non-hedges                                                                                               -                1                 -                1
                                                                                                      44 067            6 344                 -           50 411
Financial liabilities
Derivative financial instruments at fair value:
- Hedges                                                                                                   -                4                 -                4
- Non-hedges                                                                                               -                3                 -                3
                                                                                                           -                7                 -                7


                                                                                                                          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                                                                                    9 157                -                 -            9 157
- Equity linked notes                                                                                      -            1 612                 -            1 612
- Debt securities                                                                                      5 111              675                 -            5 786
- Inflation linked securities                                                                            189                -                 -              189
- Money market securities                                                                                344              743                 -            1 087
- Mutual funds                                                                                        14 922                -                 -           14 922
Available-for-sale financial instruments:
- Equity securities                                                                                       96                -                 -               96
- Equity linked notes                                                                                      -               42                 -               42
- Debt securities                                                                                        714              428                 -            1 142
- Inflation linked securities                                                                             75                -                 -               75
- Money market securities                                                                                272              865                 -            1 137
- Mutual funds                                                                                         5 086                -                 -            5 086
Derivative financial instruments at fair value:
- Hedges                                                                                                   -              585                 -              585
- Non-hedges                                                                                               -                3                 -                3
                                                                                                      35 966            4 953                 -           40 919
Financial liabilities
Puttable non-controlling interests                                                                         -                -             4 494            4 494
Derivative financial instruments at fair value:
- Hedges                                                                                                   -                3                 -                3
- Non-hedges                                                                                               -                7                 -                7
                                                                                                           -               10             4 494            4 504


There were no transfers between level 1 and 2 during the current financial year.


Included in level 3 is the Puttable non-controlling interest liability. For a detailed description of the valuation of this liability, refer to note 4.5 in the 30 June 2015 Annual Financial
Statements.


Specific valuation techniques used to value financial instruments in level 2


- Discovery has invested in equity linked notes offered by international banks in order to back certain unit-linked contract liabilities. The calculation of the daily value of the
  equity linked investments is made by the provider of the note. Discovery has procedures in place to ensure that these prices are correct. Aside from the daily reasonableness
  checks versus similar funds and movement since the prior day's price, the fund values are calculated with reference to a specific formula or index, disclosed to the
  policyholders, which is recalculated by Discovery in order to check if the price provided by the provider is correct.
- If a quoted market price is not available on a recognised stock exchange or from a broker for non-exchange traded financial instruments, the fair value of the instrument
  is estimated by the asset managers, using valuation techniques including the use of recent arm's length market transactions, reference to the current fair value of another
  instrument that is substantially the same, discounted cash flow techniques, option pricing models or other valuation techniques that provide a reliable estimate of prices obtained
  in actual market transactions.
- The fair value of the hedged derivatives is calculated by the issuers of those instruments, as follows:
(a) The fair value of call options is calculated on a Black-Scholes model.
(b) The fair value of the return swaps is calculated by discounting the future cash flows of the instruments.
(c) The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.


Exchange rates used in the preparation of these results
                                                                                                    USD            GBP
30 June 2015
- Average                                                                                         11.49          18.04
- Closing                                                                                         12.18          19.19
30 June 2014
- Average                                                                                         10.43          17.06
- Closing                                                                                         10.63          18.17


Segmental information
for the year ended 30 June 2015


                                                                                                                                                                                                      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(2)      DUT(3) adjustments(4)   total
Income statement
Insurance premium revenue                                                           16       9 711        7 821              -       6 958        2 629           1 102               -       28 237         (543)          -              -     27 694
Reinsurance premiums                                                                (2)    (1 579)            -              -      (1 314)        (543)           (218)              -       (3 656)         543           -              -     (3 113)
Net insurance premium revenue                                                       14       8 132        7 821              -       5 644        2 086             884               -       24 581            -           -              -     24 581
Fee income from administration business                                          4 881         248        1 106              -          97            -             298               -        6 630            -           -              -      6 630
Vitality income                                                                      -           -            -          2 051         323           25             630               -        3 029            -           -              -      3 029
Receipt arising from reinsurance contracts                                           -       1 250            -              -           -            -               -               -        1 250            -           -              -      1 250
Investment income on assets backing policyholder liabilities                         -         240            3              -          50            -              26               -          319            -           -           (319)         -
Finance charge on negative reserve funding                                           -           -            -              -           -         (314)              -               -         (314)         314           -              -          -
Inter-segment funding(1)                                                             -        (457)         457              -           -            -               -               -            -            -           -              -          -
Net fair value gains on financial assets at fair value through profit or loss        -         688        1 680              -           -            -               -               -        2 368            -         756              -      3 124
Net income                                                                       4 895      10 101       11 067          2 051       6 114        1 797           1 838               -       37 863          314         756           (319)    38 614
Claims and policyholders' benefits                                                  (1)     (5 173)      (5 296)             -      (4 393)        (471)           (715)              -      (16 049)         244           -              -    (15 805)
Insurance claims recovered from reinsurers                                           1       1 226            -              -       1 140          244             136               -        2 747         (244)          -              -      2 503
Net claims and policyholders' benefits                                               -      (3 947)      (5 296)             -      (3 253)        (227)           (579)              -      (13 302)           -           -              -    (13 302)
Acquisition costs                                                                   (5)     (1 606)        (713)           (64)       (535)      (1 914)           (143)              -       (4 980)        (314)          -              -     (5 294)
Marketing and administration expenses
- depreciation and amortisation                                                   (211)        (28)           -              -        (107)           -             (66)             (1)        (413)           -           -              -       (413)
- other expenses                                                                (2 648)     (1 490)        (430)        (1 945)     (2 125)        (860)         (1 598)            (59)     (11 155)        (176)          -              -    (11 331)
Recovery of expenses from reinsurers                                                 -           -            -              -         316            -             131               -          447            -           -              -        447
Transfer from assets/liabilities under insurance contracts
- change in assets arising from insurance contracts                                  -       1 526            -              -           -           10               -               -        1 536        1 742           -              -      3 278
- change in assets arising from reinsurance contracts                                -          (8)           -              -          89            7               -               -           88           (7)          -              -         81
- change in liabilities arising from insurance contracts                             -           3       (4 015)             -        (276)         (13)            (26)              -       (4 327)           7           -              -     (4 320)
- change in liabilities arising from reinsurance contracts                           -      (1 580)           -              -           -        1 742               -               -          162       (1 742)          -              -     (1 580)
Fair value adjustment to liabilities under investment contracts                      -          (3)        (153)             -           -            -               -               -         (156)           -        (756)             -       (912)
Share of net profits from equity accounted investments                               -           -            -              -           -            -              26               -           26            -           -              -         26
Normalised profit/(loss) from operations                                         2 031       2 968          460             42         223          542            (417)            (60)       5 789         (176)          -           (319)     5 294
Investment income earned on shareholder investments and cash                        67          33           15              9           6            -              17              41          188            -           -            319        507
Net realised gains on available-for-sale financial assets                            -         187            1              -           -            -               -               -          188            -           -              -        188
Rebranding and business acquisitions expenses                                        -           -            -              -        (366)           -               -             (54)        (420)           -           -              -       (420)
Costs relating to AIA restructure                                                    -           -            -              -           -            -             (87)              -          (87)           -           -              -        (87)
Amortisation of intangibles from business combinations                               -           -            -              -           -            -               -            (227)        (227)           -           -              -       (227)
Puttable non-controlling interest fair value adjustment                              -           -            -              -           -            -               -           1 661        1 661            -           -              -      1 661
Finance costs                                                                      (29)         (7)           -              -          (4)           -              (2)           (155)        (197)           -           -              -       (197)
Foreign exchange gains/(losses)                                                      -           1            4              -         (23)           -              19              39           40            -           -              -         40
Realised gain from sale of associate                                                 -           -            -              -           -            -               7               -            7            -           -              -          7
Profit before tax                                                                2 069       3 182          480             51        (164)         542            (463)          1 245        6 942         (176)          -              -      6 766
Income tax expense                                                                (595)       (877)        (132)           (15)        295         (176)             88              22       (1 390)         176           -              -     (1 214)
Profit for the year                                                              1 474       2 305          348             36         131          366            (375)          1 267        5 552            -           -              -      5 552
1 The inter-segment funding of R457 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:
2 The VitalityLife results are reclassified to account for the contractual arrangement as a reinsurance contract under IFRS 4.
3 The Discovery Unit Trusts (DUT) are consolidated into Discovery's results for IFRS purposes. In the Segment information the DUT column includes the effects of consolidating the unit trusts into Discovery's results, effectively being the
  income and expenses relating to units held by third parties.
4 Investment income on assets backing policyholder liabilities is included as part of the normalised profit from operations in the segmental disclosure, but is included together with shareholder investment income for IFRS purposes.


Segmental information
for the year ended 30 June 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(2)      DUT(3) adjustments(4)      total
Income statement
Insurance premium revenue                                                           16       8 522        6 336             -      6 259        1 920          603              -     23 656         (566)          -              -        23 090
Reinsurance premiums                                                                (2)    (1 186)            -             -       (925)        (566)         (69)             -     (2 748)         566           -              -        (2 182)
Net insurance premium revenue                                                       14       7 336        6 336             -      5 334        1 354          534              -     20 908            -           -              -        20 908
Fee income from administration business                                          4 453         204          837             -         94            -          265              -      5 853            -           -             10         5 863
Guarantee received from HumanaVitality                                               -           -            -             -          -            -           10              -         10            -           -            (10)            -
Vitality income                                                                      -           -            -         1 886        215            -          391              -      2 492            -           -              -         2 492
Investment income on assets backing policyholder liabilities                         -         204            -             -         47            -           11              -        262            -           -           (262)            -
Finance charge on negative reserve funding                                           -           -            -             -          -         (202)           -              -       (202)         202           -              -             -
Inter-segment funding(1)                                                             -        (448)         448             -          -            -            -              -          -            -           -              -             -
Net fair value gains on financial assets at fair value through profit or loss        -       1 010        2 382             -          -            -            -              -      3 392            -         886              -         4 278
Net income                                                                       4 467       8 306       10 003         1 886      5 690        1 152        1 211              -     32 715          202         886           (262)       33 541
Claims and policyholders' benefits                                                  (2)     (4 139)      (2 718)            -     (4 263)        (455)        (415)             -    (11 992)         274           -              -       (11 718)
Insurance claims recovered from reinsurers                                           -         896            -             -        852          274           61              -      2 083         (274)          -              -         1 809
Net claims and policyholders' benefits                                              (2)     (3 243)      (2 718)            -     (3 411)        (181)        (354)             -     (9 909)           -           -              -        (9 909)
Acquisition costs                                                                    -      (1 434)        (541)          (67)      (503)      (1 458)         (91)             -     (4 094)        (202)          -              -        (4 296)
Marketing and administration expenses
- depreciation and amortisation                                                   (183)        (31)           -             -        (38)           -          (40)            (1)      (293)           -           -              -          (293)
- other expenses                                                                (2 428)     (1 385)        (328)       (1 781)    (1 834)        (745)      (1 172)           (66)    (9 739)        (114)          -              -        (9 853)
Recovery of expenses from reinsurers                                                 -           -            -             -        292            -           68              -        360            -           -              -           360
Transfer from assets/liabilities under insurance contracts
- change in assets arising from insurance contracts                                  -       1 156            -             -          -          388            -              -      1 544        1 272           -              -         2 816
- change in assets arising from reinsurance contracts                                -           9            -             -          6            5            -              -         20           (5)          -              -            15
- change in liabilities arising from insurance contracts                             -         (35)      (5 752)            -          -           (7)         (21)             -     (5 815)           5           -              -        (5 810)
- change in liabilities arising from reinsurance contracts                           -        (747)           -             -          -        1 272            -              -        525       (1 272)          -              -          (747)
Fair value adjustment to liabilities under investment contracts                      -          (5)        (333)            -          -            -            -              -       (338)           -        (886)             -        (1 224)
Share of net losses from equity accounted investments                                -           -            -             -          -            -          (14)             -        (14)           -           -              -           (14)
Normalised profit/(loss) from operations                                         1 854       2 591          331            38        202          426         (413)           (67)     4 962         (114)          -           (262)        4 586
Investment income earned on shareholder investments and cash                        32          39           16             7          5            -           14             39        152            -           -            262           414
Net realised gains on available-for-sale financial assets                            -         228            2             -          -            -            -              1        231            -           -              -           231
Amortisation of intangibles from business combinations                               -           -            -             -          -            -            -           (187)      (187)           -           -              -          (187)
Puttable non-controlling interest fair value adjustment                              -           -            -             -          -            -            -           (201)      (201)           -           -              -          (201)
Finance costs                                                                      (22)          -            -             -         (2)          (2)           -           (196)      (222)           2           -              -          (220)
Foreign exchange gains/(losses)                                                      -           -            5             -        (55)           -            -             68         18            -           -              -            18
Profit before tax                                                                1 864       2 858          354            45        150          424         (399)          (543)     4 753         (112)          -              -         4 641
Income tax expense                                                                (523)       (760)         (97)          (13)         2         (112)          25             39     (1 439)         112           -              -        (1 327)
Profit for the year                                                              1 341       2 098          257            32        152          312         (374)          (504)     3 314            -           -              -         3 314
1 The inter-segment funding of R448 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:
2 The VitalityLife results are reclassified to account for the contractual arrangement as a reinsurance contract under IFRS 4.
3 The Discovery Unit Trusts (DUT) are consolidated into Discovery's results for IFRS purposes. In the Segment information the DUT column includes the effects of consolidating the unit trusts into Discovery's results, effectively being the
  income and expenses relating to units held by third parties.
4 Investment income on assets backing policyholder liabilities is included as part of the normalised profit from operations in the segmental disclosure, but is included together with shareholder investment income for IFRS purposes.


Review of Group results
for the year ended 30 June 2015



New business annualised premium income


New business annualised premium income increased 51% for the year ended 30 June 2015 when compared to the same period in the prior year.


                                                                                               June            June               %
R million                                                                                      2015            2014          change
Discovery Health - DHMS                                                                       4 442           3 952              12
Discovery Health - Closed Schemes(1)                                                          5 156           1 048             392
Discovery Life                                                                                2 231           2 013              11
Discovery Invest                                                                              1 646           1 396              18
Discovery Insure                                                                                789             632              25
Discovery Vitality                                                                              223             206               8
VitalityHealth(2)                                                                               814             953             (15)
VitalityLife                                                                                  1 079             883              22
The Vitality Group                                                                              161             164              (2)
Ping An Health                                                                                  991             339             192
New business API of Group                                                                    17 532          11 586              51
1 New business API for June 2015 includes R4,2 billion in respect of the Bankmed Medical Scheme administation and managed care services
  contract.
2 The comparative for VitalityHealth has been reduced by R293 million to exclude the new joiners as this has not been included in the
  2015 number. New joiners are additional members to existing employer groups.
3 Due to the sale of the HumanaVitality associate in November 2014, R317 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 15% for the year ended 30 June 2015 when compared to the same period in the prior year.


                                                                                               June            June                %
R million                                                                                      2015            2014           change
Discovery Health                                                                             51 891          46 395               12
Discovery Life                                                                                9 959           8 726               14
Discovery Invest                                                                             13 520          11 249               20
Discovery Insure                                                                              1 118             610               83
Discovery Vitality                                                                            2 051           1 886                9
VitalityHealth                                                                                7 378           6 568               12
VitalityLife                                                                                  2 654           1 920               38
The Vitality Group                                                                              634             402               58
Other partner markets                                                                           278             257                8
Gross inflows under management                                                               89 483          78 013               15
Less: collected on behalf of third parties                                                  (51 587)        (46 002)              12
Discovery Health                                                                            (46 994)        (41 926)              12
Discovery Invest                                                                             (4 593)         (4 076)              13
Gross income of Group per the segmental information                                          37 896          32 011               18
Gross income is made up as follows:
- Insurance premium revenue                                                                  28 237          23 656               19
- Fee income from administration business                                                     6 630           5 853               13
- Vitality income                                                                             3 029           2 492               22
- Guarantee received from HumanaVitality                                                          -              10
Gross income of Group per the segmental information                                          37 896          32 011               18
Normalised profit from operations


The following table shows the main components of the normalised profit from operations for the year ended 30 June 2015:


                                                                                               June            June                %
R million                                                                                      2015            2014           change
Discovery Health                                                                              2 031           1 854               10
Discovery Life                                                                                2 968           2 591               15
Discovery Invest                                                                                460             331               39
Discovery Vitality                                                                               42              38               11
VitalityHealth                                                                                  223             202               10
VitalityLife                                                                                    542             426               27
Normalised profit from established businesses                                                 6 266           5 442               15
Development and other segments                                                                 (477)           (480)               -
Normalised profit from operations                                                             5 789           4 962               17



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 debt was repaid before 30 June 2015.
- 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 R420 million in the year ended 30 June
2015 and have been excluded from normalised headline earnings.



HumanaVitality partnership concluded


In November 2014, the HumanaVitality partnership concluded. 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 (totalling R201 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.



AIA joint venture restructure


During the year the joint venture arrangement with AIA was restructured effectively moving from a profit share arrangement to a fee based arrangement. Discovery will now
earn fees based on new business written. This resulted in the unwind of the AIA joint venture entity and Discovery realising a loss of R87 million of the accumulated losses. This
expense has been included in headline earnings but excluded from normalised headline earnings.



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 the put options exercised 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 30 June 2015                                                       -



Rights-issue


As discussed earlier in this announcement, Discovery raised capital by way of an underwritten renounceable rights issue. This resulted in an increase in capital of R5 billion.
Costs of R94 million were incurred in respect of the rights issue and has been written-off against share premium. Shares in issue have increased by 55 555 556 shares to 647
427 946 shares.


When ordinary shares are issued at a discount to the market price, IAS 33 (Earnings per Share) requires that the discount is treated as a bonus given to the shareholders in
the form of shares for no consideration and this "bonus" element must be separately taken into account in calculating the weighted average number of shares. Further IAS 33
requires that the "bonus" shares must be added to the previous period in order to reflect the bonus element in the rights issue. This has resulted in a restatement of the prior
year's earnings per share calculations for the "bonus" element of 16 065 241 shares.


                                                                                            30 June 2014
                                                                                              Previously       30 June 2014
Cents per share                                                                                 reported           Restated
Weighted number of shares in issue                                                           565 471 445        581 122 914
Diluted weighted number of shares                                                            580 047 142        595 698 611
Earnings per share
- basic                                                                                            574.2              558.7
- diluted                                                                                          559.8              545.1
Headline earnings per share
- undiluted                                                                                        542.0              527.4
- diluted                                                                                          528.4              514.5
Normalised headline earnings per share
- undiluted                                                                                        611.3              594.8
- diluted                                                                                          595.9              580.2



Other significant items in these results



Share-based payments


Included in marketing and administration expenses, in employee costs, is R471 million (2014: R371 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 30 June 2015, approximately 91% (2014: 90.8%) of this exposure was hedged. Fair value gains of
R311 million (2014: R145 million) relating to the hedge were recognised in profit or loss resulting in a net expense to Discovery of R160 million (2014: R226 million).



Taxation


For South African entities that are in a tax paying position, tax has been provided at 28% (2014: 28%) in the financial statements. No deferred tax assets have been recognised
on the assessed losses in Discovery Insure and The Vitality Group.


A deferred tax asset of R295 million has been raised in respect of the VitalityHealth assessed losses. This approximates 50% of the potential deferred tax asset and is based on
forecast taxable income for the next five years.



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 R4 374 million for the year ended 30 June
2015 (2014: R4 046 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 R7.4 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 financial year.



Dividend policy and capital


The following interim dividends were paid during the current financial year:


- Preference share dividend of 465.0 cents per share, paid on 16 March 2015.
- Ordinary share dividend of 85.5 cents per share, paid on 23 March 2015.


On the statutory basis the capital adequacy requirement of Discovery Life was R557 million (2014: R522 million) and was covered 3.9 times (2014: 3.8 times).



B preference share cash dividend declaration:


On 27 August 2015, the directors declared a gross cash dividend of 458.699 cents (389.89415 cents net of dividend withholding tax) per B preference share for period 1 January
2015 to 30 June 2015. 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, 11 September 2015
Shares commence trading "ex" dividend                                                                      Monday, 14 September 2015
Record date                                                                                                Friday, 18 September 2015
Payment date                                                                                               Monday, 21 September 2015


B preference share certificates may not be dematerialised or rematerialised between Monday, 14 September 2015 and Friday, 18 September 2015, both days inclusive.



Ordinary share cash dividend declaration:


Notice is hereby given that the directors have declared a final gross cash dividend of 89.0 cents (75.65 cents net of dividend withholding tax) per ordinary share, out of income
reserves for the year ended 30 June 2015. 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 647 427 946 ordinary shares.


The salient dates for the dividend will be as follows:


Last day of trade to receive a dividend                                                                       Friday, 2 October 2015
Shares commence trading "ex" dividend                                                                         Monday, 5 October 2015
Record date                                                                                                   Friday, 9 October 2015
Payment date                                                                                                 Monday, 12 October 2015


Share certificates may not be dematerialised or rematerialised between Monday, 5 October 2015 and Friday, 9 October 2015, both days inclusive.


Accounting policies


The annual financial statements 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 prior annual financial statements.



Audit


The consolidated financial statements are considered preliminary based on the JSE Listings Requirements and are summarised from a complete set of the Group financial
statements on which the Independent Auditors, PricewaterhouseCoopers Inc., have expressed an unqualified audit opinion, which is available for inspection at the Company's
registered office.


This report is extracted from audited information, but is not itself audited. The Auditor's Report does not necessarily report on all of the information contained in this
announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of the
Auditor's Report together with the accompanying financial information from the Company's registered office.


The directors of Discovery take full responsibility for the preparation of this report and that the financial information has been correctly extracted from the underlying Annual
Financial Statements.


A copy of the Annual Financial Statements that have been summarised in this report can be obtained from the Company's registered office.



Embedded value statement
for the year ended 30 June 2015


The embedded value of Discovery at 30 June 2015 consists of the following components:

- the free surplus attributed to the 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 covered 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 covered business 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), 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 February 2015, Discovery raised capital by way of an underwritten renounceable rights issue. This resulted in an increase in capital of R5 billion. Costs of R94 million were
incurred in respect of the rights issue and has been written-off against share capital.


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, this
capital, net of share issue expenses, has been excluded from the adjusted net worth.


The auditors, PricewaterhouseCoopers Inc., have reviewed the consolidated value of in-force business and value of new business of Discovery Limited and its subsidiaries
as included in the embedded value statement for the year ended 30 June 2015. A copy of the auditors' unqualified review report is available for inspection at the company's
registered office.


Table 1: Group embedded value
                                                                                                 30 June         30 June                %
R million                                                                                           2015            2014           change
Shareholders' funds                                                                               27 356          17 411               57
Adjustment to shareholders' funds from published basis(1)                                        (17 784)        (11 799)
Adjusted net worth                                                                                 9 572           5 612
- Free surplus                                                                                     5 188           2 311
- Required capital(2)                                                                              4 384           3 301
Value of in-force covered business before cost of required capital                                44 006          38 368
Cost of required capital                                                                          (1 283)           (930)
Discovery Limited embedded value(3)                                                               52 295          43 050               21
Number of shares (millions)                                                                        629.0           574.1
Embedded value per share                                                                          R83.14          R74.98               11
Diluted number of shares (millions)                                                                646.7           591.2
Diluted embedded value per share(4)                                                               R82.29          R74.13               11
1 A breakdown of the adjustment to shareholders' funds is shown in the table below:
  R million                                                                                                 30 June 2015     30 June 2014
  Life net assets under insurance contracts                                                                      (13 208)         (11 691)
  VitalityHealth and VitalityHealth Insurance Limited deferred acquisition costs (net of deferred tax)              (230)            (243)
  VitalityLife receivable relating to the Unemployment Cover benefit (net of deferred tax)                           (44)             (34)
  Goodwill and intangible assets (net of deferred tax) relating to the acquisition of Standard Life
  Healthcare and the Prudential joint venture                                                                     (3 523)          (2 550)
  Unwind puttable non-controlling interest liability                                                                   -            3 511
  Non-controlling share of profits/losses included in retained earnings                                                -              (13)
  Net preference share capital                                                                                      (779)            (779)
                                                                                                                 (17 784)         (11 799)
2 The required capital at June 2015 for Life is R1 114 million (June 2014: R1 043 million), for Health and Vitality is R642 million (June 2014: R614 million), for VitalityHealth and
  VitalityHealth Insurance Limited is R1 693 million (June 2014: R1 154 million) and for VitalityLife is R935 million (June 2014: R490 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 30 June 2015 is 0.55 (30 June 2014: 0.4). Following a review of the approach to setting an assumed beta, the methodology has been
  amended. Under this revised methodology, the assumed beta is set with reference to the observed beta calculated using daily returns over a long time period. The beta will
  continue to be calculated with reference to the ALSI. The resulting assumed beta will be fixed at this level unless the observed beta calculated using daily returns over a long
  time period departs significantly from this assumption. As beta values reflect the historic performance of share prices relative to the market they 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 these risks which have not been modelled explicitly.
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 30 June 2015
Health and Vitality                                                                               15 500             (254)         15 246
Life and Invest(1)                                                                                22 464             (556)         21 908
VitalityHealth(2)                                                                                  4 188             (208)          3 980
VitalityLife(2)                                                                                    1 854             (265)          1 589
Total                                                                                             44 006           (1 283)         42 723
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 R884 million (June 2014: R735 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 R19.19/GBP (June 2014: R18.17/GBP). The value of
  in-force at 30 June 2015 represents Discovery's 100% ownership of VitalityHealth and VitalityLife, compared to 75% at 30 June 2014.


Table 3: Group embedded value earnings
                                                                                                        Year ended
                                                                                                 30 June               30 June
R million                                                                                           2015                  2014
Embedded value at end of period                                                                   52 295                43 050
Less: Embedded value at beginning of period                                                      (43 050)              (35 721)
Increase in embedded value                                                                         9 245                 7 329
Net change in capital                                                                                  -                (1 020)
Dividends paid                                                                                     1 036                   878
Transfer to hedging reserve                                                                          (50)                   30
Proceeds from rights-issue                                                                        (5 000)                    -
Rights-issue costs                                                                                    94                     -
Embedded value earnings                                                                            5 325                 7 217
Annualised return on opening embedded value                                                        12.4%                 20.2%



Table 4: Components of Group embedded value earnings
                                                                                                                                                                                  Year ended
                                                                                                                      Year ended 30 June 2015                                   30 June 2014
                                                                                                                                                Value of
                                                                                                                            Cost of             in-force
                                                                                                       Net                 required              covered          Embedded          Embedded
R million                                                                                            Worth                  capital             business             Value             Value
Total profit from new business (at point of sale)                                                   (2 025)                    (155)               4 794             2 614             2 248
Profit from existing business
- Expected return                                                                                    3 575                       48                  367             3 990             3 234
- Change in methodology and assumptions(1)                                                           1 762                     (127)              (2 434)             (799)               21
- Experience variances                                                                                 199                      (13)               1 266             1 452             1 433
Acquisition of Prudential joint venture(2)                                                          (1 978)                     (78)               1 282              (774)             (297)
Intangibles no longer allocated to minorities(3)                                                      (765)                       -                    -              (765)                -
Increase in goodwill and intangibles                                                                  (277)                       -                    -              (277)             (256)
Other initiative costs(4)                                                                             (509)                       -                   24              (485)             (445)
Non-recurring expenses(5)                                                                             (488)                       -                    -              (488)              (23)
Acquisition costs(6)                                                                                   (14)                       -                   (1)              (15)               (2)
Finance costs                                                                                         (103)                       -                    -              (103)              (37)
Foreign exchange rate movements                                                                        257                      (28)                 352               581               986
Other(7)                                                                                               181                        -                  (12)              169                 -
Return on shareholders' funds(8)                                                                       225                        -                    -               225               355
Embedded value earnings                                                                                 40                     (353)               5 638             5 325             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 at the acquisition date.
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, other new business initiatives and unallocated head office costs.
5 This item includes rebranding costs, as well as other once-off costs relating to the acquisition of 25% of PHHL, totalling R420 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                                                                                49                -          32              (4)        (86)         -         38            -           29
Other expenses                                                                                  30                -           -               -           -          -          -            -           30
Lapses and surrenders                                                                           28              343        (107)            161           -         72        (75)           3          425
Mortality and morbidity                                                                          -                -         140             (35)        224          -         44            -          373
Policy alterations(1)                                                                            -               44        (381)            212           -          -        (39)           3         (161)
Premium and fee income                                                                           9              (68)        (96)             78           -          -          -            -          (77)
Economic assumptions                                                                             -                -        (119)            117           -          -          -            -           (2)
Commission                                                                                       -                -           -               -          44          -          -            -           44
Tax(2)                                                                                         (16)               -         250            (234)        223          -        (70)           -          153
Reinsurance                                                                                      -                -           -               -          61          -          -            -           61
Maintain modelling term(3)                                                                       -              222           -             201           -         54          -            -          477
Vitality benefits                                                                               18                -           -               -         (40)         -          -            -          (22)
Other                                                                                           31                1         (66)             87          49         (2)        24           (2)         122
Total                                                                                          149              542        (347)            583         475        124        (78)           4        1 452
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. A deferred tax asset has been raised in respect of
  the VitalityHealth assessed losses. This approximates 50% of the potential deferred tax asset and is based on forecast taxable income for the next five years.
3 The projection term for Health and Vitality, Group Life and VitalityHealth at 30 June 2015 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 twelve months. The projection term for
  Life has been changed for the 30 June 2015 embedded value calculation and is described in detail in Table 6 below. However, as methodology changes are applied at the
  end of the year, an experience variance arises because the total term of the in-force covered business is effectively increased by twelve 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(1)                                                                                -             0      (57)         868         -            -        37         (42)           806
Expenses                                                                                            -          (104)       -            -         -       (1 172)        -           -         (1 276)
Lapses(2)                                                                                           -           477      (34)          30         -            -         4          28            505
Mortality and morbidity                                                                             -             -       66          (49)        -        1 446         -           -          1 463
Benefit enhancements                                                                                -             -      (22)        (201)        -            -         -           -           (223)
Vitality benefits                                                                                   -            (0)       -            -         -         (264)        -           -           (264)
Tax                                                                                                 -             -        -            -         -            -         -           -              -
Economic assumptions(3)                                                                             -           (36)       2       (1 136)        -          (23)     (214)        120         (1 287)
Premium and fee income(4)                                                                           -             -     (155)        (206)        -            -        50         (40)          (351)
Reinsurance(5)                                                                                      -             -    1 832       (2 001)      253         (256)        -           -           (172)
Other                                                                                               -             -        -            -         -            -         -           -              -
Total                                                                                               -           337    1 632       (2 695)      253         (269)     (123)         66           (799)
1 The impact of the model change for Discovery Life is largely a result of lifting the 40 year projection term limit on the value of in-force and valuing the policies over their full
  term.
2 The lapse assumption for Health has been reduced reflecting the sustained favourable lapse experience in recent years.
3 The economic assumption changes include the following items:
- The change in the beta coefficient from 0.4 at 30 June 2014 to 0.55 at 30 June 2015.
- For VitalityHealth and VitalityLife, there has been a reduction in the UK risk-free rate since 30 June 2014.
- Alignment of the equity risk premium assumption across the Discovery EV, resulting in the VitalityHealth and VitalityLife equity risk premium changing from 4.0% at 30 June
  2014 to 3.5% at 30 June 2015.
- For Health and Vitality, the risk-free rate is now being set with reference to its own cashflows (previously it was defaulted to the risk free rate set with reference to the
  Discovery Life cashflows). This reduces the Health and Vitality risk-free rate by 0.5% from the previous methodology.
4 For Life, higher levels of engagement in the Vitality programme resulted in lower levels of future premium and higher policyholder benefits being projected.
5 For Life and VitalityHealth, the reinsurance item primarily relates to the impact of the financing reinsurance arrangements.



Table 7: Embedded value of new business
                                                                                                          Year ended
                                                                                                     30 June           30 June                     %
R million                                                                                               2015              2014                change
Health and Vitality
Present value of future profits from new business at point of sale                                       606               570
Cost of required capital                                                                                 (22)              (19)
Present value of future profits from new business at point of sale after cost of required
capital(1)                                                                                               584               551                     6
New business annualised premium income(2)                                                              2 829             2 858                    (1)
Life and Invest
Present value of future profits from new business at point of sale(3)                                  1 268             1 191
Cost of required capital                                                                                 (56)              (52)
Present value of future profits from new business at point of sale after cost of required
capital(1)                                                                                             1 212             1 139                     6
New business annualised premium income(4)                                                              2 490             2 163                    15
Annualised profit margin5                                                                               5.9%              6.3%
Annualised profit margin excluding Invest Business                                                      9.7%             10.1%
VitalityHealth
Present value of future profits from new business at point of sale                                        45               118
Cost of required capital                                                                                 (20)              (21)
Present value of future profits from new business at point of sale after cost of required
capital(1),(6)                                                                                            25                97                   (74)
New business annualised premium income (Rand)(7)                                                         833               761                     9
Annualised profit margin(5)                                                                             0.6%              2.3%
VitalityLife(8)
Present value of future profits from new business at point of sale                                       850               493
Cost of required capital                                                                                 (57)              (32)
Present value of future profits from new business at point of sale after cost of required
capital(1),(6)                                                                                           793               461                    72
New business annualised premium income (Rand)                                                            967               647                    49
Annualised profit margin(5)                                                                            11.0%             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 30 June 2015 is 0.55 (30 June 2014: 0.4). Following a review of the approach to setting an assumed beta, the methodology
  has been amended. Under this revised methodology, the assumed beta is set with reference to the observed beta calculated using daily returns over a long time period. The
  beta will continue to be calculated with reference to the ALSI. The resulting assumed beta will be fixed at this level unless the observed beta calculated using daily returns over
  a long time period departs significantly from this assumption. As beta values reflect the historic performance of share prices relative to the market they 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 these risks which have not been modelled explicitly.
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 30 June 2015.
  The total Health and Vitality new business annualised premium income written over the period was R5 622 million (June 2014: R5 206 million).
3 Included in the Life and Invest embedded value of new business is R60 million (June 2014: R39 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 R2 490 million (June 2014: R2 163 million) (single premium APE: R1 005 million (June 2014: R865 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 R887 million (June 2014: R773 million) and servicing increases of R500 million (June 2014: R473 million) was R3 877 million (June
  2014: R3 409 million) (single premium APE: R1 048 million (June 2014: R904 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 adjusted 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 30 June 2015.
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
                                                                                                 30 June          30 June
                                                                                                    2015             2014
Beta coefficient
South Africa                                                                                        0.55             0.40
United Kingdom                                                                                      0.55             0.40


Equity risk premium (%)
South Africa                                                                                        3.50             3.50
United Kingdom                                                                                      3.50             4.00


Risk discount rate (%)
Health and Vitality                                                                               10.675           10.650
Life and Invest                                                                                   11.175           10.650
VitalityHealth                                                                                      4.05             4.24
VitalityLife                                                                                       5.045             5.50


Rand/GB Pound Exchange Rate
Closing                                                                                            19.19            18.17
Average                                                                                            18.04            17.06


Medical inflation (%)
South Africa                                                                                        8.25             8.25
United Kingdom                                                                                      6.50             6.50


Expense inflation (%)
South Africa                                                                                        5.25             5.25
United Kingdom                                                                                      3.30             3.30


Pre-tax investment return (%)
South Africa     - Cash                                                                             7.75             7.75
                 - Bonds                                                                            9.25             9.25
                 - Equity                                                                          12.75            12.75
United Kingdom   - VitalityHealth investment return                                                 2.12             3.16
                 - VitalityLife investment return                                                   3.12             3.90

Income tax rate (%)
South Africa                                                                                       28.00            28.00
United Kingdom - Long Term                                                                         20.00            20.00


Projection term
- Health and Vitality                                                                           20 years         20 years
- Life                                                                                            No cap         40 years
- Group Life                                                                                    10 years         10 years
- VitalityHealth                                                                                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 Limited 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 required capital.
In calculating the capital gains tax ("CGT") liability, it is assumed that the portfolio is realised every 5 years. The Life and Invest cost of required 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. As beta values reflect the
historic performance of share prices relative to the market they 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 these risks which have not been modelled explicitly. The sensitivity of the embedded value and the embedded value of new business at 30 June
2015 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                                                                            9 572         15 500           (254)       22 464           (556)         4 188             (208)      1 854               (265)      52 295
Impact of:
Risk discount rate +1%                                                          9 572         14 562           (282)       19 914           (480)         3 912             (306)      1 641               (326)      48 207        (8)
Risk discount rate -1%                                                          9 572         16 545           (221)       25 682           (655)         4 494              (95)      2 120               (184)      57 258         9
Lapses -10%                                                                     9 572         16 040           (266)       24 487           (598)         4 770             (221)      1 956               (296)      55 444         6
Interest rates -1%(1)                                                           9 572         15 451           (242)       23 040           (611)         3 893             (188)      2 400               (311)      53 004         1
Equity and property market value -10%                                           9 564         15 500           (254)       22 248           (556)         4 187             (207)      1 854               (265)      52 071        (0)
Equity and property return +1%                                                  9 572         15 500           (254)       22 670           (556)         4 187             (207)      1 854               (265)      52 501         0
Renewal expenses -10%                                                           9 572         17 073           (235)       22 728           (555)         4 731             (207)      1 824               (263)      54 668         5
Mortality and morbidity -5%                                                     9 572         15 500           (254)       23 842           (545)         5 359             (207)      1 823               (260)      54 830         5
Projection term +1 year                                                         9 572         15 749           (257)       22 516           (556)         4 259             (208)      1 854               (265)      52 664         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                         Cost of      Value of        Cost of    Value of            Cost of
                                                                                                                                                                                                                    Value of
                                                                                                 new          required       Value of         required          new        required         new        required          new         %
R million                                                                                   business           capital   new business          capital     business         capital    business         capital     business    change
Base                                                                                             606               (22)         1 268              (56)          45             (20)        850             (57)       2 614
Impact of:
Risk discount rate +1%                                                                           549               (25)         1 006              (48)          22             (28)        820             (71)       2 225       (15)
Risk discount rate -1%                                                                           668               (19)         1 594              (66)          70             (10)        888             (37)       3 088        18
Lapses -10%                                                                                      649               (24)         1 517              (60)          87             (21)        992             (62)       3 078        18
Interest rates -1%(1)                                                                            611               (21)         1 337              (62)          68             (20)        871             (64)       2 720         4
Equity and property return +1%                                                                   606               (22)         1 312              (56)          45             (20)        850             (57)       2 658         2
Renewal expense -10%                                                                             713               (21)         1 300              (56)          77             (20)        881             (56)       2 818         8
Mortality and morbidity -5%                                                                      606               (22)         1 385              (55)         146             (20)        894             (55)       2 879        10
Projection term +1 year                                                                          621               (22)         1 273              (56)          49             (20)        850             (57)       2 638         1
Acquisition costs -10%                                                                           627               (22)         1 374              (56)          61             (20)        916             (56)       2 824         8
1 All economic assumptions were reduced by 1%.

10 September 2015
Date: 10/09/2015 08:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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