Discovery Limited (DCYHY) Q4 2025 Earnings Call Prepared Remarks Transcript

2025-09-13 01:37:14 ET

Discovery Limited (DCYHY) Q4 2025 Earnings Call September 10, 2025 8:00 PM EDT

Company Participants

Adrian Gore - Founder, Group Chief Executive & Executive Director

Presentation

Adrian Gore
Founder, Group Chief Executive & Executive Director

Good morning, and thank you very much for the time. It is always a pleasure and an honor for me to present our group's results to you, and the results today are for the full 12 months to 30 June 2025.

At the outset, let me say it's been an absolutely tremendous year. The growth of our business has been really strong, as you can see. Operating profit has grown by 29% and the other measures tend to follow that. And there's a lot to be told today, and I hope I get that across to you clearly. But I have to say the performance has been remarkably strong in a very complex and very volatile geopolitical environment. And I think it is testimony to our people, to our purpose, to our values and to our business model. And so we are focused in a very, very complex environment.

The presentation today will take you through, and I said I hope I get it across clearly, four distinct insights. I'm joined by our CFO, Deon with me here and then all of our executives are online for questions afterwards that David, you will host and chair.

But I will do the presentation and take you through four insights. And let me just make them clear upfront, so I get them across. Firstly, the growth was robust for the year, and I think robust across the entire group and within the group. So the performance within all of the businesses has been tremendously strong, and I hope you will see that.

Secondly, we're growing strongly, but we have the expectation of growing at 15% to 20% per year for the next five years. And we've kind of framed this internally as a growth corridor. I think it's been an excellent start to the growth corridor and to the dynamics underlying the corridor. I hope I make that clear to you.

Thirdly, the business model itself and the data has become more relevant in a world where some of the key trends are accelerating, and that makes us more relevant. It gives us more opportunity for impact and for growth.

And then finally, very importantly, the manifestation of the strategy now is through two focused business composites, Discovery in South Africa, Vitality globally. I think the strategy is clear and the growth potentials in each should be evident to you as I go forward.

Let me start by just taking you through the performance of the group, the financials and just getting to the main issues. I said that operating profit grew by 15% -- by 29% to just over ZAR 15.2 billion. You can see that how that's made up in the various -- in the two composites, 22% growth in South Africa, Discovery. 70% growth in Vitality globally.

On the left-hand side on the table, you can actually see the actual makeup of the growth. In South Africa, Health and Life grew or performed really robustly. Life had a particularly good mortality experience that drove up the profitability. Invest and Insure, also exceptional profitability. Invest growing by 29%. Two one-offs that I'll talk to you a bit later about. Discovery Insure, a tremendous performance, a remarkable year, up 229%. Discovery Bank had a seminar turn to profitability during the year. In the last six months of the year, the profit was tremendous.

The other, as you can see on the chart, an increase of 91%, driven primarily by an increase in Vitality costs. The counter entry is the performance of the businesses, and that won't -- I think that will recur. So some spend in Vitality, spend on healthy food, spend on travel, et cetera, all of that driving the shared value model and a number of other one-offs, but over time, that will ameliorate. You can see the SA business growing by just by 22% to just over ZAR 12 billion.

We are now nine months into the amalgamation of our global businesses and Vitality. You can see the performance, a variety of different dynamics, but I think the actual progress in this period has been really, really remarkable. Vitality Health and Vitality Life really strongly growing, turning around off a lower base, and you'll see the dynamics in the performance in the U.K. has been tremendous.

Vitality Network is a principal area for us to expand. The growth is somewhat muted. There's a lot of restructuring taking place. We have a lot of optimism about that business. There's a central focus on this concept of Vitality AI that I'd like to take you through later.

Ping An Health continues to push ahead robustly. Operating profit up 7%, actually 10% in RMB, but 22% at the top in terms of Ping An Health itself. And then you see coming down to the bottom, up 70%, driven largely by the U.K., incredibly strong performance.

I want to just talk to cash generation briefly of the operating profit. You can see the cash generation has been very strong. The group generated ZAR 17.7 billion of cash from all the businesses after new business strain and tax, ZAR 9 billion of net cash. And then after investment in growth and finance costs, kind of net cash generation of ZAR 5.5 billion -- ZAR 5.4 billion, as you can see, after capital movements, dividends, ZAR 1.6 billion of net cash. But if you look at that ZAR 5.4 billion and you then compare it to previous years, you can see how rapid and how strong the cash generation of the group has been over the period. And it talks to, I think, the dynamics that are underplaying our growth.

Let me go to the face of the revenue account and just reconcile the normalized operating profit down to the normalized headline earnings. I think fairly simple. You can see the gearing effect of a flat debt level, slightly higher finance charges. But given the rate of growth of the business, it has a gearing effect of the 29% becomes 33% growth at the profit before tax. Our tax in the previous year was reduced by the release of deferred tax assets. So it was, I think, 26% tax rate that's come back to 29%. So that somewhat has a muting effect on the profit after tax, up 27%. A line for compulsory headline items takes headline earnings up 30% to just over ZAR 9.6 billion. There's not much normalizing out IFRS 17, as you can see, and therefore, normalized headline earnings up 30%.

We've declared a final dividend formula that's 5x coverage gives you ZAR 2.1 the final dividend, adding it to the interim is ZAR 2.88, giving a 33% growth and really working exactly on the 5x cover. The difference in the 33% to the 30% is really a function of the restatement of the previous earnings slightly up. And therefore, in a sense, the previous dividend was slightly lower or higher than 5x cover. So therefore, when you get the 5x cover in this period, you end up with a 33% growth. But all of it, as you can see, from operating profit to normalized headline earnings to dividend kind of in the same range, and I think holding very clearly. The dividend cover is we're applying it algorithmically, as you can see to the business.

Let me turn to embedded value, growing strongly. The return on embedded value of 15.7% I think very importantly, over the period, every single one of our businesses had positive experience variances. So every single business performed ahead of expectation. You can see the buildup of the EV. It doesn't cover the entire value inside our noncovered businesses, but the non-covered business is net asset value and kind of starting to build up inside the EV. But of course, there's a lot in the group, the bank, et cetera. It's not properly captured in the embedded value.

Let me talk to new business. This is a complicated chart because today, the group is not just an insurance group, but banking and other businesses. And therefore, you can't -- it's hard to have one number to illustrate, to illustrate the growth. So two dimensions of complexity. One is kind of the new business from an insurance perspective and the noninsurance perspective, as you can see on the noninsurance side, like the bank, we simply saw the income flow and the growth in that income.

And then another distortion is Sasolmed. It's an in-house scheme. It seems kind of an isolated issue, but it was of considerable scale in the previous period, 76,000 lives, I think, that we took on. And therefore, that added a huge amount to the base in the previous period, distorting the number somewhat. So we kind of took that out and brought it down to the bottom, as you can see.

If you look at the new business growth of the insurance businesses, up about 8%, you can see graphically on the right-hand side, we continue to kind of grow kind of organically over decades. And I think that's very, very gratifying.

If you cast your eye over the table, you can see the incredibly strong growth of Discovery Bank. You can see the muted growth of Vitality Network. I'll touch on that later. Very strong focus on margin in insure and Vitality Health that muted the new business growth, but I think we're happy with the outcomes of that. Discovery Life new business was below expectation and that effect on the VNB margin that I'll touch on later.

So giving you an illustration of a more complex slide, but hopefully, it gives you a sense of the new business play out. And I think as I go through the presentation and I get to the actual business-specific observations, you'll see the tactical effects of the new business flow. A way to look at this that might make the analysis simple is simply the growth in the client base. And if you break it up into three components, South Africa grew by 6% fully to 6.4 million individual clients. Vitality, excluding Ping An Health, which is very large in China, as you can see, grew by 25% over 10.4 million lives, and Ping An Health is of considerable size, going 17% over 32 million lives. So it gives you a sense without the complexity, simply how the group kind of is growing in a sense from year-to-year. So I hope that illustrates kind of the growth of the group and the core financial numbers.

I wanted to talk about the growth corridor because we're growing at 15% to 20% here. That is our expectation. It's not guidance, but it's our internal focus on this growth corridor, F '25 to F '29. It's a considerable growth rate. And given our size, if you can grow at 15% to 20% compound over five years, you end up in a very, very different place after 5s and the scale is, as I think you would know, quite significant.

The question, of course, is how and why and what are the dynamics underpinning this growth? Well, let me just take you back maybe 10, 15 years, if you followed us. Discovery has been built organically. It's, I think, one of our considerable strengths about building businesses from the start, building them life by life according to a specific purpose and our shared value business model, and that's how we focused growing the group overtime.

The process and the capital allocation has been in this model. If you followed us, you will know that's how we operate kind of starting new businesses, scaling them to an emerging business and then becoming established. And to an extent, our mathematics have been 90% of the profit in the established businesses, 20% in emerging and spending 10% on new initiatives. So 90% plus 20%, minus 10% gives you 100% of the profit.

Our guidance at the time was kind of different growth rates, obviously, for these different phases of growth. But mathematically, what you find is if you cross multiply, the capital model at the time had a goal of growing our earnings by CPI plus 10%. That was the target.

The complexity of this model, and it really started to hit in 2015 is as the group gets bigger, you find that starting a new business has to have a much bigger bet to really start to scale to impact the group given its size. And so in 2015, we started thinking and planning about the bank starting that from scratch, acquiring the other 50% of the Prudential JV in the U.K. and investing in that, et cetera. And so considerable investment was made over the period from 2015. And so this kind of smooth 19-20 minus 10 started to be much more lumpy. It had to be given the scale of the group.

What it gave rise to is kind of different phases of growth. And we illustrated to you this at the previous announcement, kind of unfettered organic growth in the group is still smaller, growing at 22% per annum on the left-hand side of the chart. So normalized profit growth of 22%. The spend on new was around 8% to 10%, and that was our guidance. We spent around 10% per year on new initiatives as we grew the business. You can see ROE was high. Cash conversion was around 60%, very little debt in the group and dividend cover around 4.5 to 5x.

As you went through this complex phase, you can see the effect of it. When you're building a bank out of organic profit, your profits come down and your CAGR of growth comes down. The spend on new went up dramatically. Debt went up to fund that and dividend cover went down and through COVID, the dividend was suspended, et cetera.

The point, though, is that we are through this process now and to an extent, I think, in a very, very strong position. All the investments made are scaling. We've called anything that doesn't work. And we've got to a stage where the group now has two distinct composite businesses, as I mentioned, and very importantly, in all of our businesses, strong, strong potential for growth. And therefore, the point we made at the last announcement was kind of anchoring around this idea of a corridor of growth for the next five years of 15% to 20%. The kind of metrics falling off that spend on new initiatives, 5% or thereabout. We don't believe we need to spend that much on new initiatives. ROE between 15% and 20% cash conversion of 60% to 70%, and dividend cover at 5%, but potentially coming down. And to an extent, that's kind of framed the phase of growth that really characterizes this corridor for '25 to '29.

The reality is that the year under review has been kind of outside of that corridor. It's been quite exceptional. And when you plot it graphically, you can see the kind of over time, just how the group has grown organically. And you can see how the last year has grown as well and the previous year. So you see the effect of this kind of corridor of growth starting to emerge.

And as I said, I think an absolutely excellent start to the corridor of growth. I think what's gratifying is the kind of the outperformance is not in any one area. It's actually throughout. So if you look at the kind of analysis of the growth on the right-hand side, you'll see that we expected SA without the bank to grow at around 10% to 12%, it grew at 17% on the back of Discovery Life, Invest and Insure. So a lot in the SA business. The bank gave us super growth, up 5% in the U.K. and Vitality Global gave the extra 8%. And so you get this 29% outperformance of the corridor.

An interesting question is, if you pull this all together, we're now kind of -- we've moved off that old organic growth model. The question is, did the CPI plus 10% work? Because it is quite a lumpy, difficult process. So interesting, if you go back 15 years and you kind of do the work before the investment, that investment period, you find that, in fact, that's exactly the case. The 15-year CAGR is about 14%, which is around CPI plus 10% on a weighted average, if you look at various markets that we're in. And in fact, if you project forward at the end of the growth corridor and you do the same thing, you'll find the same CPI plus 10%. So in fact, the mathematics has worked and the original kind of organic model has worked remarkably well. So I would say to you, a difficult phase, a complex phase of building the bank, building other businesses, but we've got to a dynamic now that illustrates the ability to grow at 15% to 20% over five years.

But let me be clear, we're kind of slightly out of that corridor, as you can see, we've tried to kind of show how that compound growth effect takes place and compound interest, as you know, is incredibly strong. So if you compound growth by 15% or 20%, you get a massive growth in absolute terms. But you can see we've kind of popped out of the corridor. I want to be clear that corridor is important to us and we will fit into the corridor over time. This year was, in fact, I think, quite remarkable.

It's also important to show when you look at the other metrics, we are again outside of the corridor. The 29% growth is clear, but the spend on new in this period was lower than 5%, around 3%. The ROE climbed to 15.4%. Bear in mind, the bank is a drag on ROE. If you've got a massive capital investment without profits or losses, that has an effect on ROE, but that's coming through nicely now. Cash conversion, as I showed you before, nearly 77% and dividend cover, we declared a 5x dividend.

When you look at the numbers over time, I think we're very comfortable with how they've played out. Cash conversion is improving. The -- all of our entities are strongly capitalized. The FLR is decreasing. Our debt levels are our financial leverage ratio is decreasing to around 16.8%, as you can see. And therefore, now, we're in a very, very different phase.

The capital allocation framework, I think, is very rational, and it pivots really on this idea of normalized profit growth and ROE on the other end. So essentially pivoting on that corridor of 15% to 20%. The cash conversion coming out of that then determines the strategic choices we make, how much we spend on new, what leverage we have and how much dividend we pay out. And therefore, the manifestation of all of that pops out as a return on equity. And so the cycle starts again. And to an extent, this is -- this replaces the old model, and I think it's a very, very rational way of thinking about how the group will grow.

The metrics, I think, are very coherent and very strong. As I said, we're confident of the 15% to 20% growth. We're confident of the cash conversion. The spend on new 5% seems a lot lower, but 5% in actual monetary terms, if you think about the growth yield is about ZAR 5 billion to ZAR 6 billion of money to be spent during that period. We'll think about that as we go forward. I don't see us starting new businesses given the scale of the group, but we're investing a lot in Vitality, AI and other new initiatives, and you'll see that play out, but we think 5% is sufficient. Our mathematics show that around 15% is the right leverage level in terms of the risk return on capital optimization. So 10% to 20%, which is where we are, is actually very, very comfortable.

And then as you've seen, I think the cash generation of the group and where we are, it could support a more aggressive dividend over time. We'll think about that. The options are there. We are at this stage at a 5x cover. And then the ROE 15% to 20%, you should see that climb above 15% quite quickly as the bank starts to scale, et cetera. So that's kind of the framework of the capital allocation model. And I hope by kind of explained of strong results and a pop outside of the corridor. Initially, this has been a great start to that period. The group is very well positioned for growth going forward.

But it's a good segue, I think, to the actual business model because growth, of course, doesn't come from financials. It comes from actually the ability to compete and win in the marketplace and the ability to add value to our customers, and that's where we focused. And the group has very, very strong growth platforms and primarily around our business model. If anything, we have actually focused more on the singularity of the Vitality shared value model. And the point of this is that the trends that underpin our business model, if anything, are accelerating. Over many years, we've presented the same set of trends that we believe are formative. While we live in a very complex geopolitical world, there's a number of fundamental trends in our space that are critical, understanding the nature of risk not being preexisting, but the behavioral aspects and the causal aspects of risk in mortality, morbidity, banking, driving, et cetera. The power of technology, the power of demography and of course, a shift towards companies being less transactional and much more engaged and having a purpose.

The point of this is that these trends are accelerating at a dramatic rate. There's just continual evidence, not just from us but across the board of the causal effect of behavior. Issues like sleep, you will have noticed Apple, I think, two days ago, launched the sleep part of their watch. There's just a continual flow around understanding causal effects of sleep, nutrition, prevention, et cetera, and what that does to mortality and morbidity. We're uniquely positioned to understand the data, cause and correlation effects of that.

Technology is accelerating tremendously. For us, the advent of AI is just so powerful and so exciting. We have a unique data set in that regard and our ability to use that is incredible. We're not hyping up or getting caught up in all the hot air around AI. There will be many aspects of it that will not materialize. But at the core, the potential of it is quite tremendous. And I think the idea of Moore's Law that every 18 months, things double in technology, AI could really change that, the calculus of that significantly. At the same time, in the health care space, massive technology, GLP-1 agonists, Ozempic, Mounjaro, et cetera, changing a lot of aspects of health care. So driving up cost but driving better health. And again, dynamics that we are very well positioned to work with.

The demographic issue is important. The world is depopulating except for sub-Saharan Africa. And that means people are getting older, chronicity is increasing. It has a massive knock-on impact on health care systems, on social security systems. Governments with limited fiscal room and high levels of debt will battle in terms of national health systems. That means health insurance, social security, our kind of markets are likely to grow. And again, our shared value model is so well positioned to do that. So if anything, over the period, the actual acceleration of these trends has been very favorable to us.

I would put to you that our group has the most unique data set globally, over 25 years of data, two dimensions of data. This is a complex diagram, but hopefully shows you two dimensions. One is kind of behavioral data, wellness, fitness, behavioral clinical data that we kind of merged together. And then operational data. We have 25 years of structured and unstructured data. And you can see if you go through the slide we're providing massive amount of work on our individual databases, all of the internal data pipelines to integrate the data, over 100 AI models developed across the group to work through this. And this really powers both the Vitality shared value model, but also the operational efficiency and the ability to meet the needs of customers. And I'd like to demonstrate that to you in a few moments of how that can work.

It provides the most remarkable power. I thought this was interesting to show you about how the data kind of shows interesting cross-sectional, not only observations, but fundamental issues that affect our business. So for example, we're doing a lot of work on sleep, it's causal effect on mortality morbidity.

What we found from the data, and you can see on the left-hand side, is REM sleep and the quantum of REM sleep has a dramatic impact on the potential for driving accidents. So fatalities and accidents has a tremendous correlation to how you sleep. And that has a huge impact on how we think about incentivizing people, helping them sleep better, et cetera. So these cross-sectional observations are fundamental to how our model will form over time, but the ability to actually build a shared value model in a very different way as we go forward.

So what is happening to our group is it's kind of focusing down on the Vitality shared value model, making sure that all of the learnings, all of the data is available to evolve and to kind of to distribute across the markets that we're in. So to an extent, I would tell you that the evolution of the group is from kind of this business by business, kind of the insurance or banking entity sitting on Vitality to a centralized idea organizing principle of Vitality AI, data, risk assessment, next best actions, integration, simple UX.

And to the extent where we are trying to head to, and we're moving quickly in that direction is really two manifestations to our customers. If you're in South Africa, Discovery will appear on the Discovery Bank in a way and everything is in that universe, in that composite. You can control everything, all the products work together. That's the idea and everything sits in this kind of super app in a way. And then globally, Vitality AI will manifest in a very simple 3-dimensional way of dealing with customers where all of their health issues sit on the face of the mobile. And again, control, access, rewards, incentives, et cetera, is centralized. So taking the complexity of the entire edifice and putting it simply on the face of the mobile. This is not an insurance offering. It's really a consumer offering in a very, very different way. Given the rates of engagement, the rate of using the bank, for example, in SA provides a very, very different value proposition.

So let me end off -- sorry, not an end, get to the last section of just talking through the businesses and give you a sense of where we're at and particularly the two composites. As I said at the outset, the group is now focused in two distinct composes, Discovery South Africa and Vitality globally. I made the point about the growth, 22% up and 7% up globally. I'd like to give you a sense of those numbers per business, but also try to give you a sense of the strategy. Discovery in South Africa is a composite of exceptional businesses, all of them focused on leading in their markets and focused on the Vitality shared value model consistently and again, making the point more and more focused and streamlined and consistent.

The strategy is actually a complex one, but in fact, three very, very simple profound steps. Number one, scale Discovery Bank, profitability and scale and functionality. Number two, make sure every one of our businesses is #1 in its category, not just in terms of margin and market share, but from a customer perspective, consistency, coherency, how it uses Vitality, how the incentives are built, how the behavior is build in, et cetera, et cetera, make sure they're working collectively together. And then thirdly, put them on to the face of the bank. The bank has the payment rails, the security. It has all the structures. It's used all the time. And therefore, getting back to this concept of a super app that controls the composite, every product sits on the bank, and therefore, our customers have a unique experience.

Getting that right provides a, we think, a considerable, sustainable competitive advantage. It will add unique value to our customers and it will bring on to the face of the bank the best products that are out there. And that's the idea. So central to this, of course, is Discovery Bank. The performance has been absolutely tremendous over the period under review. I made the point about its maiden profits in the last six months of the year. You can see that on the right-hand side of the chart. But you can see across the board, very strong growth. Total clients growing by 30% to over ZAR 1.2 million, total accounts over 3 million. Deposits continue to grow. Advances growing faster now. And you can see the revenue growth, the NII and the NIR growing by over 31% just over ZAR 2.4 billion.

The quality of the clients continues, and that's, I think, one of the hallmarks of Discovery and Discovery Bank. You can see advances book growing nicely. Our home loan book is now over ZAR 2 billion. And you can see now we've launched personal loans early in that launch, but that provides considerable utility, not just to the bank but to other areas of the group like Discovery Health. You can see the credit loss ratio remains very stable and way below the market norm. And importantly, one of the hypotheses of building the bank was that people would bank with us from a primary perspective. You can see on the right-hand side, we see when people take up more products, the kind of percentage of wallet being used by the bank is very, very high. So we're getting considerable traction and engagement.

I think one of the central questions, of course, is given the rate of growth of the bank, are we getting the right quality clients and is the quality staying where it is? We thought that this analysis provides a very interesting kind of conclusion to that question. What this does is kind of a cohort month-by-month analysis of how people or customers come in and how they use the bank over time. And what you see, maybe focusing on the middle is kind of the NIR, kind of the transaction, the fees, how people are using the bank from a transactional perspective. You can see that they come in quite quickly, they engage. And thereafter, over 12 to 24 months, that engagement level typically grows by 50% to 100%.

What is interesting is the growth is strong. But importantly, cohort by cohort, it doesn't change much. So it really does answer the question that we're attracting the same kind of clients on a continuous basis. And therefore, on the right-hand side of the chart, from a profit perspective, you get kind of a gearing effect. You get this increasing engagement, increasing growth. And of course, given the digital frame, kind of cost -- the cost per member or cost per customer coming down and therefore, driving up the profitability of the bank. So the performance, I think, has been very, very strong over the period, ahead of expectation in every regard, and the bank has turned to profitability inside of the amount of capital that was earmarked for it. So we're very pleased with the process of the bank.

Now I wanted to make this point to you, and I think it is important. We built the bank on four distinct hypotheses. Firstly, we could build a full retail bank. So not a skinny bank, but a full services retail bank. Secondly, it will be based on the shared value banking frame. Thirdly, digital first and entirely digital in a sense, but access to obviously, to people through the process, but a digital-first bank, but obviously, with data and AI that provides a unique opportunity. And then finally, the point I made, I hope you will see that is the actual -- the operating system of the composite, the organizing principle and giving our customers a unique kind of one-touch approach to the bank.

What has happened, though, is the manifestation is it is the fastest-growing retail bank in South Africa. And importantly, what's been a number of kind of different hypotheses has merged together to form massive opportunity. And to the power of the data, the power of AI, we now have the ability through AI to offer our customers kind of end-to-end service on an AI basis. That doesn't mean that they're not interacting potentially with a human touch if they want.

But I wanted to actually demonstrate to you, if I can, I hope I get this right, just on the face of the bank, what you can do. And it's quite remarkable. There were kind of four distinct things I wanted to show you how easy it is to do. First is simple stuff like operational stuff, getting a tax certificate, easy; second, checking a fraudulent message, so almost multimedia capabilities through AI. Thirdly, agentic AI, the ability to have a bank to actually pay accounts through WhatsApp essentially through the power of the bank. And finally, to the issue of the composite, while on the face of the bank, take out a motor insurance policy through Discovery Insure. And essentially, that is what the bank can do kind of just on the face of the mobile.

Let me play this demo to you. I hope I get it right. It will -- it moves quite quickly, and let me just try and call it out. So I'm on the face of the bank and essentially, firstly, going to WhatsApp. I touch on Discovery Bank, and I say hello, it greets me back. and I asked to do things and immediately, it needs to go into the bank, as you can see, to authenticate me, which it does quite quickly. I accept I'm chatting with Discovery AI.

I come back to WhatsApp and I ask for, firstly, can I have my tax certificate at the touch of a button that pops up with choices. And once I do that, the tax certificate pops up quickly. I then come back and see that there's a fraudulent message. I take a picture of it, worried it's fraud. I simply send it to the bank, take a picture of it. Is this fraud on WhatsApp? The bank pops up immediately. Yes, it is. It's worried and it notifies our fraud people. I then make a payment to a friend, Jack, brings up my contacts, ask me a few details about it and gone, it's done and dusted. I then turn to the face of the bank, pays through my carousel, all of my products and say, I don't have car insurance, I'm going to take it out. And in 5 to 10 minutes, that is activated.

So giving you a sense of what the journey can do, what the bank can do is incredibly powerful with all of those things coming together with the data, with the model, with all of the aspects of it. And therefore, the bank in and of itself offers considerable power, but again, making the point of its ability to act as an organizing principle and the face of the composite and to our customers, we think the value proposition, the ability to sell product to offer value will be unique.

Let me turn to Discovery Health. Discovery Health is so complex, so important from a national perspective. I can never do it justice in a simple presentation. It's an exceptionally run business, an exceptionally run health insurer by global standards. The performance continues to be robust, normalized operating profit up 7%. You can see membership growth nicely, just below ZAR 4 million. New business, ignoring Sasolmed, the bump in the previous period, up 12%. So good traction in the period under review. We're getting a lot of growth in the non-scheme market, Gap Cover, Flexicare, et cetera, growing 18%, not insignificant, nearly 450,000 lives.

We always show this particular slide on the strength of the Discovery Health Medical scheme. You can see its market share in the commercial, the open scheme market now 58%. It dwarfs any of its competitors. It is of considerable national importance. But the important point is you can just see how steady it is. The kind of buy-ups buydowns remain at the kind of 5% or less level, 90%, 95% of members don't, in fact, change their plans. You can see the lapse rates tend to stay stable and the solvency levels, ZAR 32 billion of solvency capital sitting in the scheme.

I guess the point I wanted to make here is not only the strength of the scheme, but kind of the paradox, the narrative around private health care's volatility, sustainability, buying up, buying down the perception of considerable threat and volatility. In reality, our strategic view is the opposite. With aging, with the need for health care, with all the various issues and the actual fact that technology and health care drives costs up, the spend on health care is likely to increase, not decrease and the stability of what we're doing is fundamental. And so Discovery Health continues to power along meeting the needs of members. There's a whole slate of things that will be launched to our membership base going into 2026 in a few weeks' time, the rate increase keeping -- trying to work hard to keep costs under control, a number of different options, a key area in this idea of personal health pathways, Vitality, AI of personalizing what you should do, why should it, et cetera. And so you'll see that playing out in the next few weeks, but the performance has been very, very strong.

I wanted to demo for you also coming back to the concept of the bank as the composite and how, in fact, it can play that role in the context of health care and personal health pathways. So this is, in fact, my own health data that I'm showing. I assume the bank data has been changed. But what I will show you here is I'm on the face of the bank, right? And that's kind of how it looks. You can see my portfolios across the board. I've just bought that motor insurance policy from the previous demo, if you give me that credibility, and that's kind of where I sit.

I now skull through the bank and go down to the health issues and the personal health pathways. And you can see that it's got a number of personal health pathways for me, and there's a number of things that's recommended that I do, a prostate screen, tells me what I need to do. It gives me considerable rewards in terms of miles, in terms of money of my personal health fund. Also now gives me context, work we're doing now on AI that actually tells me from all the data health issues, it went through the first piece. It actually picked up some potential thyroid elevation and it suggests I see my GPU, which, in fact, post this demo, I actually did do and there is nothing fortunately that I need to do, but it actually talks to the granularity of the data. It also picks up, it's getting those sleep data from me. And now in this new world, we want that sleep data and encourages me to actually start using a device and sharing my data.

So it's providing absolutely personalized recommendations, incentivizing me, providing me context for that. And of course, that has a tremendous impact on getting people to do the right thing at the right time in the right way, and that's critical to making people healthier.

What is interesting is the Personal Health pathways has rolled out properly over the last six months. You can see the rate of growth. Fully 360,000 people have activated on it. You can see nearly 70% of people are chronic ill, which is exactly what we want. We need the chronic ill to actually engage. And on the right-hand side, you can see how strong the behavior change has been. So kind of a 5x increase in total number of completed health actions across the board from next best actions to complex screening, et cetera. So if you look at the dark blue 2024 to the light in 2025 of personal health pathways, you can see the dramatic change in kind of the traction of getting people to do the right thing.

It's early in the evolution, and this will play a considerable role in bringing health care costs down for the Discovery Health Medical Scheme, of course, driving the health of our people, of our members and critically also kind of the training of these models and how we can use them globally. So Discovery Health, I think, had a tremendous, tremendous year and watch out for a number of things that are coming up in the next number of weeks.

Discovery Life's performance was exceptional. You can see normalized operating profit up 14% on the individual side, up 11%. The fundamental driver has been a tremendous mortality experience, and that generated a lot of cash. So you can see the Discovery Life cash generation climbing year-by-year, reaching ZAR 3.3 billion in this period. Capital and liquidity being strengthened. New business, as I said before, is below expectation. Individual Life new business down 2%. The quality of the business is exceptional. We keep a very strong focus on quality, but the volume has an effect on the VNB margin that I'll touch on in a moment.

In terms of mortality, this is a busy chart on the left-hand side, but we did want you to see it. What this shows you effectively is kind of 100% what we expect mortality to be and then kind of what we experienced moping on Vitality, blue status, bronze silver all the way down to the diamond status. The three bars are the kind of long-term assumption, the first bar. The second is the last four years. And the third is the experience this year. And what you see is the tremendous dropdown of mortality versus expectation. And particularly, you can see non-Vitality to diamond Vitality, nearly an 80% difference in mortality rates.

So the experience is quite tremendous. It's illustrating how the model kind of classifies, categorizes and causes better mortality. And therefore, on the right-hand side, you can see the cash generation coming out of all the various operations of Discovery Life, but of course, the additional performance of mortality, a 60% cash conversion to ZAR 3.3 billion. It paid ZAR 1 billion in dividends to the group. refinanced some of its debt and some of its financing structures and kept, I think about ZAR 1 billion or so in its own by as it grows going forward. So I think a very, very strong performance. In terms of buildup of the embedded value, positive experience variances of ZAR 1.2 billion. You can see the strong mortality and morbidity experience.

In the middle of the chart shows the new business issue. Our margin in the previous year was 3.8%. It's down to 2.1%, primarily, as you can see in the analysis because of lower volumes that ends up costing you more per unit cost per policy and that somewhat erodes the margin. But again, if you look at the return on capital, it was 20% internal return on the previous block of new business. It's dropped to 18.5%, still a very, very attractive return on capital. So work to be done in terms of driving that up, and you'll see that playing out in the next six months.

Bringing it all together, you can see the growth in embedded value, 15.7%, positive experience variances, unwind of the discount rate, et cetera, the payment of the dividend to the group, and therefore, you get this 15.7% annualized return on embedded value, a very strong performance, and I think well positioned going forward.

Let me turn to Discovery Invest. Very strong performance, 29% increase in operating profit. You can see assets and administration up 15% to ZAR 179 billion. New business looks somewhat muted, but in fact, guaranteed bonds with low rates of interest are less appealing, that drops off. So it has that effect. I think amazingly, if you look over the last 10 years, Discovery Invest has been third biggest in terms of net flows. So it really has gathered assets.

The 29% is flattering. There were two one-offs, an accrual of tax that we could release -- policyholder tax that we could release. The other was kind of a matching gain from our guaranteed portfolio. So that kind of bumped up 15% to 29%. But regardless, a very, very strong performance.

The business, I think, is very well positioned strategically. We are clear that we are not an asset manager. We've had many debates over the years about that -- about us doing that kind of business. We don't. We work with, we believe, the best. We work with Ninety One in South Africa and work with BlackRock globally. It's given us considerable range of expertise, considerable leverage and I think the ability to offer value to our customers.

We are -- we have a fantastic partnership with BlackRock. We are focused very hard on building our DFM Cogence. It grew nicely during the period, assets under management over ZAR 28 billion. In addition, BlackRock is allowing us to offer unique value proposition to our customers. We launched private markets to our customers that you can access that through the BlackRock technology.

And then importantly, we continue to pioneer around the idea of shared value and how we get behavior change and long-term savings. It's a fundamental issue to get people to understand the risk that they run the right asset management choices, of course. But importantly, to save the right amount, save earlier, save longer and retire in good health if you can. And in the period under review, we launched this kind of guaranteed income from age 80. So for the first time, kind of bringing probabilistic theory into living annuities that if you live beyond 80, your income gets boosted to give you that protection. So a number of different exciting propositions forming out of the partnerships we have in Discovery Invest and very pleased with the performance.

Let me turn to Discovery Insure. An absolutely tremendous year. As you can see, operating profit really jumping up to over ZAR 800 million. We've been very focused on quality of new business. So the new business is down 2%, but a strong focus on margin. You can see the revenue growing by 8%. If you look at the actual performance, there's been a reduction of the loss ratio of the claims level by about 10% across a range of issues. It has been a fantastic period from a weather perspective. And you can see in that chart, the 28 or 2.5% of weather variability that, in fact, didn't happen. So to an extent, 2.5% of that 10% or 11% improvement is because of better weather. But the other piece, the 8% or 9% thereafter, you can see if you go across the chart, that reduction is from a range of activities, pricing activities, underwriting activities going through every single claim initiative, having a tremendous effect on the loss ratio. So the team has done a remarkable job.

And on the right-hand side, the focus, as I said, on the quality of new business, you can see that superior risk profile now makes up 90% to 95% of the new business coming in. So a real focus on quality that manifesting in considerable cash generation and considerable profitability. So the business is well positioned.

I wanted to segue into something that you may think is actually unimportant, but it is important, and that's the issue of potholes because the potholes initiative of Discovery Insure is kind of important on a number of levels. The first issue is just simply the issue of shared value. We've been having considerable claims over the years about potholes and the naive view that if you fix the potholes, can you kind of reduce the claim level? And the answer to that is yes.

But I think the second and third points are more important. The second is just the team's belief that they can make the environment better, kind of the values and purpose of our organization that we can fix things at scale.

And then the third thing I wanted to say is in the city of Johannesburg, we fixed potholes and the kind of evidence is that you can make a considerable difference, not anecdotally, but really systemically. And what I wanted to show you is a simple demo here of looking at Johannesburg and kind of just the map of Johannesburg as it was. We started the pothole process in 2021 with a considerable vision of working with the city to fill all of the potholes. So we have our teams across the city doing this and working over time.

What's amazing is if you go through the years, you'll see what has happened kind of month by month to the potholes. It is quite remarkable that we have filled over 300,000 potholes over the period. And you can see the scale of where they are. They are everywhere in our city. And in fact, if you go down to -- if you kind of -- if you zoom into any area, this, I think, is a Parker's, Rosebank area, wherever you may be, you'll find every street is marked with our potholes being filled. So really illustrating the power of what has been achieved.

And as I said to you before, that we can fix things quite quickly with the right execution, the right focus, the right collaboration. So amazing initiative, and it kind of talks to, I think, the spirit of our group, the spirit -- the amazing spirit of our team on the ground, but that you can make a difference quickly. And in fact, if you now do the numbers, although it costs money, the savings for us alone is sufficient to pay for the initiative. And of course, other competitors get the benefit of that, and that's a good thing. That's a good thing. It's now public good.

So let me end Discovery South Africa with just clarity on where we are. excellent businesses in the composite more and more forming around this idea of a centralized approach to Vitality AI and then sitting on the face of Discovery Bank as we go forward.

I'm turning to Vitality, our global business. It is now nine months since the amalgamation of all of our businesses into one focused area under one leadership structure, governance structure, et cetera. It's been a frenetic, but I think very, very successful period. There have been four phases to the amalgamation. The first, the exploration; the second, a very different operating model put in place different governance structures, different executive structures, et cetera. A strong focus on growth and efficiencies, reworking on certain headcount in certain areas. And now Phase 4, regionalization. While the business has been built in businesses, we will be going forward regionalizing in Asia, U.K., Europe, the U.S., et cetera, and you'll see that playing out going forward. And then critically in Phase 4B is this very big initiative of Vitality AI that we will launch on November 4.

There's a lot happening in the businesses. There are three very big businesses, Vitality U.K., Ping An Health Insurance and Vitality Network. And then Vitality U.S. and Amplify Health. I won't say much about the last two, but to make the point in terms of Vitality Health U.S., our WellSpark acquisition has been successfully integrated and performing ahead of expectations. Our pivot to health plans have gone very well. We signed up a number of health plans, and we're working very closely with Emblem Health, a major health player in New York. And the Vitality AI platform that has been built will roll out from the start of 2026.

In terms of Amplify Health, to make the point, it's taken a long, long time, it's moved very slowly, but we're gaining traction now. A lot of push from AIA into their markets, into their business units and to external clients. There's been a successful deployment of the integrated product package, and it's now in four markets and will roll out strongly in the next period. So expect improved financial performance and increased revenues that will drive that business. Much to be done. The next year is important for both of these businesses.

But let me turn to the three businesses, the U.K., Ping An Health and Vitality Network. The U.K. has had a tremendous period. We felt giving you kind of a composite view of the U.K. gives you a sense of the scale. We cover now over 2 million lives in the U.K. New business has grown strongly by 14%, operating profit jumping up tremendously and total premium income up 15%. The positioning of our U.K. business, I think, is quite unique. It's a financial services company. It's an insurance, health and life insurance business, but it actually has a consumer brand. And amazingly, one of the kind of complex things for us is to build a brand against very complex massive competitors that have been around for decades, if not centuries, Aviva, AXA, the Prudential, et cetera. You can see on the left-hand side of the chart, the brand awareness actually has passed has surpassed our competitors.

We have the ability now to make this claim that if you're with us, you can live five years longer. In a highly regulated market like the U.K., that has required a lot of research and working to be able to make that statement. It creates a very different kind of brand. And then, of course, our assets like Stanley, our dog around. Our [indiscernible] pink roundel does remarkably well, and you see it playing out across many assets in the U.K. and provides a fantastic base for us to use that globally. So the business is well positioned. Vitality Health had a tremendous period.

You can see the drop-off in IFRS 17, but now climbing nicely. The fundamental issue has been the operating margin with complexity in the NHS, and I'll touch on that in a moment. Lives covered growing to over 1.1 million. I made the point there's been a very, very careful focus on segments of business where we believe profitability is present. We are not competing on price in the wrong market. So new business is up to GBP 121 million, but 3% up. And you see the premium income jumping by 16%, really on the work done around margin.

So the major issue, and there's so much complexity to this, but simply put, with the NHS and its difficulties, there's been a change in kind of the demand for PMI and certainly, the claims profile and things that people claim for under PMI. And that has manifested, as you can see on the left-hand side, to a massive 20% increase in claims over a very short space of time. That increase, of course, is ahead of the premium increase. And so we had to follow that up over time to regain the margin.

You can see from the right -- the left-hand side of the chart, we've actually managed to achieve that by repricing very, very carefully in an equitable fair way to make sure that we actually catch the claims curve. But importantly, in the middle of the chart, you can see the Vitality shared value model has worked. You can see the lapse rates of 15% less than we expected despite the pricing up. And of course, lapse rates go down by status. So you get the right kind of engagement, you get the right kind of selective lapsation. And then on the right-hand side, you can see that the margin we should at about 7.5%. That is the target. climbed during COVID with lower claims, came down significantly and now it has climbed back, not quite there, but getting there quite strongly. That really explains the turnaround, as you can see.

In Vitality Life, a strong growth in operating -- normalized operating profit up 70% off a lower base, very strong. I think the story of Vitality Life has been the strong new business growth, 28% to over ZAR 106 million. Now I have to tell you that Vitality Life has been a business of considerable complexity. And if you follow us, you'll know over many years, many of the steps taken to get the business to scale and to profitability. We are very pleased by the performance. Every aspect of the company has kind of come to fruition.

I think the major challenge in life insurance is making sure you can get the right return on capital and the scale of new business. You can see the step change in new business up 28%, as I made that point, a function of many more advisers selling more products for us, as you can see, they're growing by 30% over the year. And then we are now the third largest market share against very big competitors like Aviva, Zurich, L&G, et cetera. So going to over 13% market share.

What is important is the ability to use our Vitality shared value model to be competitive, but at the same time, to make sure that we are profitable. And the main issue, and this is a fundamental competitive aspect of the model. We have the ability to price competitively to make sure once people come in, they flare out based on their engagement, which is entirely equitable. In the U.K., which is the fourth largest market in the world, it is exceptionally price competitive. Advisers and intermediaries use portals, pricing portals to actually sell. And therefore, if you're not competitive on price, you get crowded out very, very quickly.

What the left-hand side shows, I'll point to one issue is our Optimiser product, which is really the Vitality shared value linked product in 54% of cases is at the top of the portal. So more than half of the times we quote, we are the cheapest on price, but in the middle, not the lowest on margin, quite the opposite. We maintain our margin. But in fact, the manifestation of profit comes through margin and growth, a 73% growth from kind of increased volume of sales. And you get this massive jump up in value of new business that we've generated from GBP 16 million to nearly GBP 54 million, as you can see. And that, of course, has a very strong effect on the ability to maintain or grow the CSM. So the U.K., very well positioned, and I think we're very pleased with the performance.

I want to talk to the Vitality network. This is a business for us of considerable opportunity. It is really the business that we believe we can scale the IP across the world, and we can really revolutionize insurance as a business that has the most remarkable partners across the world in many countries, national champions that we work with. The relationships are exceptionally strong, and we are proud of those relationships. But we are working hard to make sure that we can scale this business. In the period under review, there's been a considerable amount of focus, restructure. And you'll see that and the rationale for that, I think, in the face plate.

Firstly, to make the point, if you look at the growth of our partners using the product, it's been tremendous. So if you look at the total integrated new business written by our partners, nearly $2 billion of new business, nearly ZAR 35 billion of new business, a considerable volume, 27% growth in number of membership to over 6.7 million, as you can see.

But if you look at our size, our profit has grown by 7% to $30 million. This business should be bigger and should be growing stronger. And this profit itself is a function of a number of one-offs up and down as we've kind of restructured, but our aim here is to really grow this business substantially.

Our conviction comes from the effect the model has in different markets. And the effect tends to be entirely consistent, strong and entirely coherent, as you can see. So this is the latest data from the South African experience, the U.K. experience, Sumitomo Life in Japan, which is the third largest life insurance market in the world; and John Hancock in the U.S., which is the first largest. And you can see, and we've shown this data many times, but it tends to get better. levels of engagement are very, very high. Claims rates come down as people engage in a very predictable way. You can see in Japan, even better than other markets. And lapse rates come down as people engage. You get the selective lapsation force. And it kind of strips out the inefficiency of traditional life insurance and health insurance, which provides considerable economic value. You can see the same in John Hancock, they measure it slightly differently, but the numbers or the direction tends to be exactly the same.

So we have a deep conviction about the effect of the model. We have great confidence in how it is growing globally, but we need to make sure that we kind of scale the business. And that scaling of the business in this restructure is a function of three distinct things. Firstly, working with our partners in certain key areas to restructure certain aspects of it. In the case of Sumitomo Life, it's the most remarkable partnership. They're growing strongly. They're committed to getting to 5 million lives by 2030. We've restructured and simplified kind of the contract to make sure that we capture some of the emergence of that value over time based on performance.

In the case of AIA, we are now jointly investing back in the program, working through all of the systems to bring the hyper-personalization, the Vitality AI thinking into the business. We've mutually terminated the Generali relationship in Europe. It was kind of holding us back, and there was a mutual agreement from their side that we just were not mutually benefiting from the partnership. That has opened up the whole of Europe for us. The second point in this is the rollout of Vitality AI. As I made the point on November 4, we will launch globally Vitality AI, and it's leveraging virtually everything we've built into one kind of focused capability, one piece of technology we can inject into hopefully, every insurer around the world if we can achieve it. And then thirdly, rapidly pursuing areas in North America, but particularly in Europe, given the Generali termination. We have teams in Europe working through this, talking to many insurers about signing up as many as we can partners as we go forward.

You will see on June -- on November 4, the rollout of Vitality AI, and I don't want to give away all of the components. But as I said before, it really is the ability to bring massive amounts of data, very sophisticated dynamic risk assessment techniques, using AI to get next best actions, providing proper incentivized engagement, as you saw on my own personal health pathway that is personalized, spoken to me in the right way with the right kind of incentives and then the ability to integrate that into the pricing of insurance. This requires global reward partners. We're working with a global panel of reinsurers. We're working with certain tech companies to be able to deliver this data and this deep engineering of AI. But the power of it, as I said before, is a manifestation to the client of a very, very simple interface, as you can see, that really controls every aspect and offers the customer real proper personalized guidance.

Our conviction on this is not just the actual, as I said to you before, the kind of the correlations and the causality and how you see lapsation and claims. But if you actually look at the work done for the European market, you can see the power of the shared value. What I'm showing on the left-hand side is a particular model point of our portfolio of term assurance, what Vitality AI does to the V0 and V2 to the value to the insurer. On the right-hand side, what the value is to the member. What you see is in the black, kind of a standard policy is a certain value of new business, a certain actuarial value. When you roll out the Vitality AI, you get different levels of engagement.

The fundamental hypothesis is getting people engaged, drives better behavior and all the value factors, selection, pricing, claims, selected lapsation all improving. And you can see from that waterfall that from our projections, we can increase the value by 48% to nearly 80%, depending on levels of engagement. So by personalizing and getting more people engaged, the value to customers is quite remarkable.

On the right-hand side, you can see the value to member. If you're not engaged at all, you pay slightly more, which is correct from a share value perspective. When you engage slightly or get to platinum, you get massive value, nearly 12x a year's premium in values and you live longer. And I think that's a proposition that is so different to the standard life insurance proposition. Life insurance is inefficient. This makes it more efficient, and you can see the economic value being shared between the insurer and the member. So a lot of work taking place in Vitality Network. We remain optimistic. Watch our launch in November. And hopefully, in February, March, we'll have a lot to tell you about the traction we're achieving.

Let me end on Ping An Health. I made the point of robust performance. The profit of Ping An Health growing 22% to ZAR 2.5 billion. Our growth after expenses up 10%. We had a once-off tax benefit in the previous year, so it kind of boosted the previous year's base. 10% up. You can see the tremendous levels of new business. And you can see the scale of the business, 32 million lives paying massive amounts of premium, nearly RMB 18 billion of premium. This is a very, very large health insurance business that's been built from the start.

Our analysis shows clearly that private health insurance in China is likely to grow strongly. The analysis shows that when you look at things like innovative drug coverage, projections are that very quickly private health insurance will really start to move in and cover the out-of-pocket exposure that social health insurance simply can't. And so the growth is likely to be very strong.

You can see Ping An Health really is leading the pack. Our market share has climbed from 6% to nearly 10%, and our margin is higher on the third panel than our competitors. So the margin is dramatically different. The quality of the business is quite tremendous.

And then the balance sheet strength and the cash generation, the balance sheet now is close to RMB 12 billion, 330% solvency level. So it's paying out considerable dividends, declared a dividend now of nearly RMB 700 million, a quarter which flows to Discovery. So a tremendous, tremendous success story and an exceptional business.

I will point out one cross-functional observation, Ping An Health to Vitality Health to Discovery Health, 3 of our health insurance businesses in different markets, all performing exceptionally well. I think that talks to the efficacy of the technology, the model and what we do with our partners in different ways. So really illustrating the group's health insurance capabilities in different markets, completely different territories in a way. And to end off on the global stuff, we're doing a similar kind of focus around the organizing principle around Vitality AI, all of this complexity manifesting regionally on the face of the mobile.

So let me end just tell you again that the group has performed robustly around a 30% level in a complex environment. It's been an excellent start to our 5-year growth corridor, pivoting of 15% to 20% growth, a very strong conviction we can grow, but at the same time, generate cash, pay dividends, have a superior ROE. So do all of it from the basis of the model. The model itself is likely to be more relevant, unique data, unique capabilities, and I hope I've demonstrated how that may play out regardless of the complexity and scale of our business to our customers, will appear simply on the face of the bank or the face of the mobile. And then fourth point, our businesses are now focused in two composites with two growth targets, I think very, very well focused. Our global business now really restructured and focused and the next year will be very important to illustrate how we scale that further.

So, and that's it for me. It's been a great year, and thank you very much for the time again. It's been a great year and grateful for your support and interest. Thank you.

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