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Discovery Limited (JSE:DSY) News - Trading statement for the six months ended 31 December 2021
DISCOVERY LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1999/007789/06)
Legal Entity Identifier: 378900245A26169C8132
JSE share code: DSY, DSYBP
DSY ISIN: ZAE000022331
DSBP ISIN: ZAE000158564
JSE bond company code: DSYI
(“Discovery” or “the Group”)
Trading statement for the six months ended 31 December 2021
1. Strong operational performance highlights the financial strength and relevance of the model
Discovery’s performance for the six months ended 31 December 2021 (reporting period) was robust and reflected a dual
focus of navigating the COVID-19 pandemic, while also pursuing a pivot to growth strategy, given the increasing relevance
of its business model.
• Normalised Profit from operations is expected to increase by between 5% and 10% for the reporting period
compared to the six months ended 31 December 2020 (prior period).
• Normalised Headline Earnings (NHE) are expected to increase by between 20% and 30% compared to the prior
period.
• Headline Earnings (HE) are expected to increase by between 70% and 80%.
• Core New Business API (Annualised Premium Income) increased by 6% compared to the prior period.
Table 1: Change in key metrics over prior period
Normalised profit from operations Core New business API
% change % change
Business 6 months ended 31 December 2021 6 months ended 31 December 2021
vs 6 months ended 31 December vs 6 months ended 31 December
2020 2020
Discovery Health 3% to 8% 29%
Discovery Life 0% to 3% 9%
Discovery Invest 7% to 12% 15%
VitalityHealth 37% to 42% 11%
VitalityLife 7% to 12% -1%
Discovery Insure Lower by 84% to 89% -3%
Vitality Group -4% to 0% NA
Ping An Health Insurance (PAH) 23% to 28% -21%
Discovery Bank Spend reduced by 16% to 21% NA
New initiatives (Excluding Bank) (all other businesses) Spend increased by 18% to 23% -23%#
Normalised Profit from operations 5% to 10%
Normalised Headline Earnings 20% to 30%
Headline Earnings 70% to 80%
Core new business API 6%
* Vitality Group and Discovery Bank are not included in the calculation of core new business API
# New business in this category was impacted by the lumpy nature of Umbrella funds sales, which had strong growth in the prior period.
The reporting period included the end of the Delta third wave of the COVID-19 pandemic in South Africa (SA), in the latter
part of September 2021, and the start of the highly infectious Omicron variant resulting in a fourth wave commencing
towards the end of November 2021. Discovery continued to support SA in its vaccination roll-out across its vaccination sites.
During the period, the third wave led to a significant number of deaths in SA while the fourth wave has been characterised
by a considerable number of new infections but with less severe clinical outcomes compared to the other waves.
There was careful management of the Group during this period. While R3.4 billion COVID-19 claims, gross of reinsurance,
were paid in the reporting period (the highest throughout the pandemic), the earnings impact was limited as previously
raised provisions were adequate. Liquidity and solvency remained strong across the Group. New business trends in SA and
the United Kingdom improved over the period and persistency has continued to exceed expectations.
2. Business specific observations:
• Discovery Bank’s performance exceeded expectation, with excellent performance across all metrics. In particular,
client acquisition, revenue per client and the performance of the advances book exceeded expectations, resulting
in the Bank’s operating loss reducing faster than plan. The spend on Discovery Bank amounted to 9% of Group
operating profit, compared with 11% in the prior period.
• Discovery Health performed robustly across all metrics with strong new business growth.
• Discovery Life performed robustly with strong positive experience variances, particularly lapse experience, while
capital and liquidity positions remain robust. The earnings growth must be seen in the context of Discovery Life
having paid out cumulatively more than R6 billion COVID-19 claims, gross of reinsurance, over the prior and the
current reporting periods, with returns on the reduced asset base impacting earnings. Provisions were sufficient
for claims paid in the reporting period and the Group believes that remaining provisions are sufficient to withstand
a potential fifth wave. This is supported by high levels of vaccination amongst its clients and high levels of natural
immunity in SA, borne out by the significant reduction in case fatality rates in the fourth Omicron wave.
• Discovery Invest delivered a robust performance with strong increase in new business growth and assets under
management.
• VitalityHealth delivered exceptional performance reflecting the cumulative effect of sustained membership growth
driven by strong new business and continued low lapse rates, rigorous expense controls and excellent care
management. The incidence of claims has returned to pre-COVID-19 levels although the severity and cost of claims
was still less than expected.
• VitalityLife performed robustly, as result of management actions taken over previous reporting periods, particularly
in respect of persistency management.
• Discovery Insure had a difficult period, characterised by an increased loss ratio driven by adverse weather events
combined with motor parts inflation dramatically exceeding CPI.
• Vitality Group delivered strong underlying growth, with growth in profit from operations impacted by foreign
exchange gains in the prior period not being repeated.
• PAH delivered robust profit growth, with increased scale, improved lapse experience and tight expense
management. New business written premium reduced by 21% primarily due to a rebasing of the co-operation with
Ping An Life for business written in certain regions in China. This was part of overall re-alignment of PAH given its
increased scale to focus on high quality own business. This is not expected to impact on growth in profitability going
forward.
• Discovery spent 8% of Group operating profit on new initiatives (excluding the bank), compared with 7% in the
prior period. Half of this spend relates to Vitality Group with a notable increase in spend on globalising Discovery’s
Vitality and Health capabilities via the Vitality Group. Amplify Health, a health insuretech JV with AIA in Asia,
announced on 15 February 2022, was an important manifestation of this.
3. Normalised Headline and Headline Earnings
• NHE are expected to increase by 20% to 30%, positively impacted by mark-to-market foreign currency gains arising
from a weakening of the Rand during the reporting period compared to losses in the previous period, partly offset
by a substantial investment in the national vaccination campaign in SA, for which Discovery incurred costs of R137
million.
• HE are expected to increase by 70% to 80% as a significant reduction in real interest rates in SA resulted in positive
economic basis changes recognised in the income statement, compared to negative economic basis changes in the
prior period. In addition, the Rand depreciation, as explained above, had a further positive impact on reported
growth in HE.
4. Trading statement
In accordance with paragraph 3.4(b) of the JSE Listings Requirements, issuers must publish a trading statement as soon as
they have a reasonable degree of certainty that earnings per share (EPS) and / or headline earnings per share (HEPS) for the
next reporting period will differ by at least 20% from that of the previous corresponding period. Shareholders and
noteholders are advised that:
• EPS (basic) is expected to be between 70% and 80% higher (to between 476.3 cents and 504.4 cents compared to the
reported EPS (basic) of 280.2 cents for the prior period).
• HEPS (basic) is expected to be between 70% and 80% higher (to between 476.5 cents and 504.5 cents compared to the
reported HEPS (basic) of 280.3 cents for the prior period).
• NHEPS (basic) is expected to be between 20% and 30% higher (to between 417.5 cents and 452.3 cents compared to
the reported NHEPS (basic) of 347.9 cents for the prior period).
Discovery intends to report its half year 2022 results on 24 February 2022. The information contained in this announcement,
including any forecast financial information on which this trading statement is based, is the responsibility of the board of
directors of Discovery and has not been reviewed and reported on by Discovery's external auditors.
Sandton
18 February 2022
Sponsor and Debt Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 18-02-2022 08:00:00
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