| Mon 19 Feb 2001, 0:00 | | Discovery Holdings Limited - Interim Results |
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Discovery Holdings Limited
(Registration number 1999/007789/06)
Interim results for the six months ended 31 December 2000
Headline earnings per share up
Revenue Up
The first six months of Discovery's 2000/01 financial year have been both
exciting and successful. The company has intensified its core purpose of
enhancing the health and lifestyle of the fast growing Discovery community.
With the launch of Discovery Life, the company's ability to protect the
Discovery community throughout their lives is substantially enhanced. In
addition, the continual evolution of Vitality creates considerably improved
lifestyle benefits and powerful structures and incentives to manage health.
Financial results
Gross revenue increased by 56% for the six months to R2,3 billion from R1,5
billion over the same period last year. New business annualised premium income
increased by 35% to R799,5 million from R591,4 million. Embedded value profit
for the six months grew by 72% to R518,6 million from R301,3 million, taking
the embedded value at 31 December 2000 to R2,6 billion. Net profit before
results of new operations, Discovery Life and Destiny Health, increased by 104%
to R106,1 million from R52,1 million.
Discovery Health
Discovery Health's performance has been exceptional. On the back of record new
business volumes and strong persistency of existing business, covered and
administered lives grew to 770 249. Considerable investment and focus on
infrastructure has led to service levels at an all-time high. Through
scientific and technological enhancements, the company is moving toward greater
personalisation and proactivity in its service offerings. The financial and
medical management of the health plans have performed extremely well,
containing the increase of the Discovery Health Medical Scheme contribution
rates to one of the lowest in the industry. Two new exciting areas of growth
for Discovery Health have opened through the introduction of the Foundation and
Coastal Core Health Plans. These health plans provide Discovery with
competitive access to different market segments.
Discovery Life
Discovery Life was launched in September 2000 and was created to meet the
changing environment of unbundled risk and investment products. Its unique
product range makes use of its proprietary "Invested Risk Benefits" technology
and provides clients with comprehensive solutions to all life assurance needs.
This has been well received by the market. The rate of new business production
has been substantial and is increasing constantly. Currently, the company is
producing new business at a rate estimated at 10% of the entire risk market.
Vitality
The performance of Vitality has continued to impress. Vitality now incentivises
and provides lifestyle benefits to over 600 000 people. Vitality utilises data,
actuarial structures and knowledge gained to enhance the health and lifestyle
of the Discovery community. The Health & Racquet Club arrangement has been
reworked with new owners Virgin Active. In addition, a number of new benefits
were developed over the period including overseas travel with new partner
Swissair and enhanced local business travel with British Airways. Vitality also
launched VitalityMed, a structured clinical programme within Vitality that
enhances the compliance and health of chronic illness members.
Destiny Health
The timing of Destiny Health's entry into the US market has been excellent,
with the combination of rising medical inflation and a new presidential
administration that supports medical savings accounts and other new forms of
health insurance. The focus during the first six months of operation has been
to build a robust and efficient health insurance company with a competitive
product range. This has been achieved well within budget, and the company is
now a fully operational health insurer in the US. Destiny has written R6,1
million of annualised new business premium income during the period. The
challenge now is to build the company's presence and brand in this competitive
marketplace and to rapidly accelerate new business penetration through
aggressive marketing and an increased sales force. Substantial focus and
resources are now being applied to this with results expected during this
calendar year.
Prospects
The continued focus of the company on its core purpose of improving our
members' health and enhancing their lifestyle creates exciting opportunities in
Discovery's chosen markets. Growth is expected in all areas of Discovery's
business.56%57%Embedded value up61%Group Consolidated
Embedded Value Statement at 31 December 2000
Embedded value is an actuarial calculation of the value of the business of
Discovery Holdings, made up of two components:
* the current value of shareholders' funds as described in the financial
statements;
* the current or present value of all future profits on the existing business.
Embedded value
31 Dec 31 Dec Change
R million 2000 1999 %
Shareholders' funds 659,5 467,4 41
Value of existing business net of
cost of solvency margin 1 982,0 1 169,0 70
Embedded value 2 641,5 1 636,4 61
Embedded value profit
Six months Six months
Ended ended
31 Dec 31 Dec Change
R million 2000 1999 %
Embedded value at 31 December 2 641,5 1 636,4 61
Embedded value at 30 June 2 112,9 1 203,9 76
Increase in embedded value 528,6 432,5 22
Capital raised (10,0) (131,2) (92)
Embedded value profit 518,6 301,3 72
Components of embedded value profit
Six months Six months
Ended ended
31 Dec 31 Dec Change
R million 2000 1999 %
Profit from new business 238,1 174,2 37
Profit from existing business
- expected return 130,7 90,8 44
- experience variances 83,6 29,5 183
- change in basis 40,1 (6,3)
Return on shareholders' funds 26,1 13,1 99
Embedded value profit 518,6 301,3 72
Embedded value of new business
Six months Six months
Ended ended
31 Dec 31 Dec Change
R million 2000 1999 %
Health - South Africa
New business annualised premium
Income 799,5 591,4 35
Embedded value of new business 238,1 174,2 37
Health - North America
New business annualised premium
Income 6,1 n/a n/a
Life
New business annualised premium
Income 14,6 n/a n/a
Group Consolidated Income Statement
for the six months ended 31 December 2000
Six months Six months Year
Ended ended ended
31 Dec 31 Dec 30 June
2000 1999 Change 2000
R million Unaudited Unaudited % Audited
Gross revenue 2 332,1 1 491,3 56 3 546,7
Reinsurance and medical
scheme contributions (1 245,9) (620,3) (1 675,3)
Net premium revenue 1 086,2 871,0 25 1 871,4
Expenses and claims (978,5) (817,1) 20 (1 688,1)
Operating expenses (273,5) (195,3) (436,2)
Claims and policyholders'
Benefits (640,1) (608,8) (1 208,3)
Vitality benefits and costs (64,9) (13,0) (43,6)
Net operating income
before investment income
and transfers 107,7 53,9 100 183,3
Investment income 60,6 111,4 107,4
- shareholders 28,9 33,6 48,1
- policyholders 31,7 77,8 59,3
Transfers to reserves (62,2) (113,2) (78,8)
Transfer to life fund (25,4) (66,6) (0,2)
Transfer to claims reserves (27,9) (33,3) (32,4)
Transfer to investment
Reserve (8,9) (13,3) (46,2)
Net income
before taxation
before the
results of new
operations 106,1 52,1 104 211,9
Results of new operations (49,1) (10,9) (34,2)
Discovery Life (25,4) - (2,6)
Destiny Health (23,7) (10,9) (31,6)
Profit before taxation 57,0 41,2 38 177,7
Taxation (19,9) (10,5) (70,2)
Profit after taxation 37,1 30,7 107,5
Minority interest share of loss 12,6 - 0,2
Group profit attributable
to shareholders 49,7 30,7 62 107,7
Weighted average number
of shares in issue 385 304 333 373 556 164 373 907 863
Earnings per share (cents) 12,9 8,2 57 28,8
Headline earnings
per share (cents) 12,9 8,2 57 35,4
Group Consolidated Balance Sheet at 31 December 2000
31 Dec 30 June
2000 2000
R million Unaudited Audited
Assets
Non-current assets
Fixed assets 140,1 128,8
Investments 908,2 737,4
1 048,3 866,2
Current assets
Agents and other receivables 361,2 282,1
Cash and cash equivalents 236,2 242,6
597,4 524,7
1 645,7 1 390,9
Equity and liabilities
Capital and reserves
Issued capital 502,1 489,9
Accumulated profits 157,4 107,7
659,5 597,6
Minority interest 55,0 0,4
Actuarial liabilities
and reserves 529,7 464,4
Current liabilities 401,5 328,5
1 645,7 1 390,9
Group Consolidated Cash Flow Statement
for the six months ended 31 December 2000
31 Dec 31 Dec
2000 1999
R million Unaudited Unaudited
Cash generated by operations 123,1 59,0
Working capital changes (37,8) 43,1
85,3 102,1
Taxation paid (2,9) -
Interest and dividends
Received 27,8 24,4
Net cash flow from operating
Activities 110,2 126,5
Net cash outflow from
investment activities (183,8) (101,2)
Net cash inflow from
financing activities 67,2 130,9
Net (decrease)/increase in cash
and cash equivalents (6,4) 156,2
Cash and cash equivalents
at beginning of year 242,6 242,1
Cash and cash equivalents
at end of year 236,2 398,3
Group Consolidated
Statement of Changes in Equity
for the six months ended 31 December 2000
Share Total
Non- capital share-
Retained distributable and share holders'
R million earnings reserves premium funds
31 December 1999
Balance at 1 July 1999 - - - -
Issue of shares 426,1 426,1
Earnings attributable
to shareholders 30,7 0,1 30,8
Balance at
31 December 1999 30,7 0,1 426,1 456,9
31 December 2000
Balance at 1 July 2000 107,7 3,4 486,5 597,6
Issue of shares 10,0 10,0
Earnings attributable
to shareholders 49,7 2,2 51,9
Balance at
31 December 2000 157,4 5,6 496,5 659,5
Review of the Embedded Value Statement
Basis change
The embedded value results at 31 December 2000 have been calculated using the
same method as the 30 June 2000 calculation. In line with Discovery's
philosophy of following an active basis, the risk discount rate for this
valuation has changed as below. In addition, the following assumption changes
have been made since the valuation at 30 June 2000:
31 December 2000 31 December 1999
Risk discount rate 18,0% 19,5%
Medical inflation 10,5% 11,5%
Expense inflation 8,0% 9,5%
Investment return 12,5% 14,0%
Treatment of businesses owned by Discovery Holdings
Discovery Health, Vitality Lifestyle and Discovery Life post-retirement funding
business have been valued based on discounted earnings. No per policy embedded
values have been published for Discovery Life and Destiny Health. These
companies are valued at their net operating costs as reflected below and are
included in the value of current business.
Value of new ventures
31 December 2000
R million
Destiny Health 43,1
Discovery Life 28,0
These results have been reviewed by Hymans Robertson Consulting Actuaries who
have confirmed that the methodology and assumptions used to determine the
embedded value are reasonable.
Review of the Income Statement
Gross revenue increased by 56% to R2 332,1 million from R1 491,3 million over
the six-month period under review.
The net premium revenue increase of 25% to R1 086,2 million from R871 million
is attributable to:
* an increase in quota share reinsurance used by Discovery from December 1999;
and
* an increase in risk retained by the Discovery Health Medical Scheme (from 1
January 2000, Discovery Health reinsured a lower percentage of the Medical
Scheme's claims).
This, combined with effective medical management, resulted in the marginal
increase in claims and policyholders' benefits paid by Discovery Health and a
reduced transfer to the claims reserves.
Although gross premiums grew by 56%, operating expenses increased 40% to R273,5
million from R195,3 million, indicating further operating efficiencies as
alluded to at the financial year end.
Vitality benefits and costs have increased 400% to R64,9 million from R13
million as a result of the "drive, fly and stay" leisure rewards programme
introduced in January 2000 as well as a provision of R22,5 million made for
losses in respect of Health & Racquet Club contracts following the liquidation
of LeisureNet.
Investment income has declined as a result of the lacklustre performance of the
JSE. This in turn, led to a reduced transfer of investment income on
policyholders' funds to reserves.
Net profit before taxation from Discovery Health and Vitality increased by 104%
to R106,1 million from R52,1 million. Historically the greater portion of
operating income has been earned in the latter half of the financial year.
After absorbing the results of new operations, Destiny Health and Discovery
Life, profit increased by 38% to R57,0 million from R41,2 million.
The comparatives have been restated for a taxation charge of R10,5 million to
reflect the change in income tax legislation affecting life assurers. The
taxation charge for the six-month period under review is R19,9 million.
Minority interest share of loss relates to the minority shareholders of Destiny
Health.
Group profit after taxation and minority interest increased 62% to R49,7
million from R30,7 million.
Review of the Balance Sheet
The minority interest arises due to the issue of non-voting series A preferred
stock of Destiny Health, Inc.
Accounting Policy
The same accounting policies and methods of computation are followed in the
interim financial statements as those used in the most recent annual financial
statements.
The interim financial statements comply with statements of Generally Accepted
Accounting Practice.
Dividends
In line with Discovery's policy no dividend has been declared.
On behalf of the board
L L Dippenaar A Gore
(Chairman) (Chief Executive Officer)
20 February 2001www.discoveryhealth.co.zaGraphicor 22757Directors
L L Dippenaar (Chairman), A Gore (Chief Executive Officer),
B Swartzberg (Chief Operating Officer), S D Whyte*, N S Koopowitz*, H P
Mayers*,
J M Robertson*, R B Gouws, W E Lucas-Bull, S R Maharaj.
*Executive
Transfer Secretaries
Computershare Services Limited
(Registration number 1958/003546/06)
2nd Floor, Edura, 41 Fox Street
Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Secretary and Registered Office
A Cimring
Discovery Health
1st Floor, 25 Fredman Drive, Sandton, 2146
PO Box 786722, Sandton, 2146
Tel: (011) 881-2888 Fax: (011) 881-2547
