Discovery Limited (PDI.AX) Earnings Call Transcript & Summary

Good morning. It's really an honor and pleasure to present our 6 months results to 31, December 2023 to you this morning. It's been, I think, a very strong and good period for Discovery, and we have a lot to tell you. On the call, I have all of our executive team with us, our CFO, Deon Viljoen, is in the room with me. So we are looking forward to hopefully giving you a sense of all the happenings and all the dynamics and then obviously, we'll be able to take questions as we proceed. Let me at the outset make the point that we built an organization, I would like to give context just for simplicity. We built an organization on a very simple core purpose, make people healthier and enhance and protect their lives and core set of values that have driven the organization. We built it organically to the point where you see today 3 distinct businesses, Discovery South Africa, Vitality U.K. and Vitality Global. All of the businesses sit on this shared value chassis on Vitality, the Vitality shared value model. And in the period, there's been a lot happening in terms of evolving that one. I hope that becomes clear to you as we progress through the presentation. You can see on the bottom of the chart, the key results for the period for the 6 months normalized operating profit up 13%, new business up 28%; headline earnings flat and normalized headline earnings, which I'll explain later, at 11%, as you can see. For context, I wanted to make the point, of course, it is a very complex environment we're in. We've been through a pandemic. There's a trail issues coming through from that. We entered a very low rates of interest, then rising interest rates, rising inflation and now that is kind of hopefully subsiding. We have conflict in Europe, conflict in the Middle East. We have elections coming up, pivotal elections in places like the U.S., South Africa, a very, very important election coming up, and it is complex. But I have to say to you, I do believe, and I think our team does very strongly, great businesses manage ambiguity. Great businesses manage complexity, and they have the ability to spot opportunity through that process. It does require the ability to coalesce prudence and innovation at the same time. And we see that. We see risk, we see it, at the same time, we see considerable opportunity. Around the world, social security systems are having difficulty, there's less fiscal room, there's complexity, but the opportunity. In South Africa, there's specific challenges. We know that be coming to an election. It's a pivotal, very, very important election. We need to look through that election and think about how we build going forward. We remain convinced that Discovery deeply convicted to the idea that working with government, working with government from a business perspective to build, to use our skills to do so is important in the private sector, must collaborate to build and fix and help where we can. I think in the business initiative that we'll be part of regarding energy, transport, logistics, crime and corruption, we're getting some traction. We need to do more of that, and that's important going forward. So we're a business that is focused on the future, focused on any markets we're in, making a difference, and that's important. So there is complexity, but I think we are well positioned to manage that in the right way. From a micro perspective, if you look at our industry, it depends on dramatic, and I think very, very important in a certainly, in our view, a very strong set of opportunities. Firstly, most of the markets are experiencing an aging phenomenon, aging population, rising chronicity. It has a dramatic effect on all kinds of social issues, health care systems, et cetera. The nature of risk, I'm going to touch on this a bit later, is phenomenal. The behavioral effect on bringing mortality, mobility down is absolutely tremendous. Understanding that, understanding habit formation is fundamental in our business model and in helping society. Technology is remarkable. In the last number of years in our space, it is opening up a whole range of opportunities for our organization, obviously, AI. But GLP-1s, there's a number of things coming up, they just point a world of opportunity to incorporate that in our model and I hope you see that going forward. And then, of course, I think social responsibility, sustainability is becoming less in just tick box, but actual real authentic focus on being a force for good in society. And I hope you will see the discovery is doing that in the communities in which we operate. So in that context, let me talk about the 6 months under review. And maybe I'll make the point the 4 things we would like to get across to you. Firstly, in the fourth focal areas, number one, a focus on strong financial performance, robust operating performance, good cash generation, strong capital base, crucial, and I think we're happy with the performance. Second, the very complex transition to IFRS 17. We feel it's gone fairly smoothly. We're coming out the other side, we think, in a very strong space at deep insights into our business, and you'll see that going forward. The third point is that we are at a point of inflection. We've come to an investment cycle. We have a bunch of very important companies that have now come through and are getting scale, and I hope you see that the ability to dramatically increase the level of growth of our organization. And then finally, just taking you through a focus on our 3 composite businesses, the dynamics of them, what we've done well in the areas that we have to actually frankly improve, and you'll see that coming through in the presentation. So let me start by just giving you an overview of the performance. You will have seen it, I think, in the various announcements, but I think the growth and performance tell a very, very important story. I want to start with just an overview of the business's top down, give you a sense of how the confidence that we [indiscernible] on to make, maybe make a comment very quickly to give you a very brief sense of our feeling. As I said, operating profit up 13%, new business up 28%. You can see in the highlighted areas, the South Area composite up 9% and 29%. That is boosted by the take of the SasolMed medical scheme inside Discovery Health. U.K. Composite 13% growth in profit. That's quite a complicated dynamic number. I'll take you through that. New business is up 22%, being given a boost by the currency, obviously. And then Vitality Global have an exceptionally strong here. You can see operating profit up 71% and new business up 28%. The bank continues to grow strongly, and I think is one of the stars of the show. A few comments, Discovery Health, very, very strong, robust performance, successful take on SasolMed. Discovery Life had a very strong period. Group Life went backwards. It had a very strong period in the previous comparator. That is a risk business that will wax and wane. But Discovery Life individual earnings up 12%. New business up strong positive experience variances and a lot of work done on the new business margins. Discovery Invest, a robust performance. Discovery Insure, growing nicely, but the profitability lagging behind, because of a number of weather events, I'll touch on that, that shouldn't happen. We need to actually get that right. Discovery Bank, for the first time, broke even operationally in the period under review. So in total, of course, it hasn't, you can see that from the numbers. But moving ahead, of our expectations and the growth quicker than we expected, which I think is excellent. Vitality Health, really the U.K. dominated by the effect of the NHS and the dynamics in NHS. You will see claims level has gone up, and that has affected earnings in Vitality Health, but a strong new business performance illustrating how the market is growing, but having to adapt to the very complicated NHS dynamics. Discovery Life having a huge growth in profitability. That is a function of a one-off release of reserves and the other is a function of high rates of interest. There's a lot of cash bought in the back book of Vitality Life. It's just a natural flow of that effect. So it won't be -- that 97% does not reflect the ongoing performance growth of Vitality Invest. And then to make the point, Vitality Network growing strongly and Ping An Health having an absolutely exceptional period. So I'd like to give you a sense of these and how they work together as we go on. Let me give you a few overriding comments and I hope the dynamics become clear as I move forward. Firstly, the operating profit, if you look at the graphic, it's very interesting. From the start or just I think 10 years after start of the organization, you can see the effect of kind of organic growth, very smooth, flattening out [indiscernible] during the COVID period and thereafter, accelerating quite nicely. You can see the move from IFRS 4 to IFRS 17, we managed to grow strongly in IFRS 4 that allowed the moving to IFRS 17 to be fairly smooth. So the overall operating profit growing in this period by 13%. There's a complex issue of the restatement of the previous 6 months that I want to take you through in detail so you understand that dynamic. But you can see the smooth progression from IFRS 4 into IFRS 17. New business, strong growth. You can see up 28%. It is kind of lumpy because the Discovery Health, which is -- the numbers are very, very big. Discovery Health over time has often these big closed schemes like SasolMed that come in, you get these kind of fluctuations that come through. But overall, very strong growth. And if you take out Discovery Health in total, new business grew by 11% across all of our other businesses. So I think we're pleased with the high-level operating performance, operating profit and operating growth. From a cash and capital perspective, I think the business is very, very strong. You can see our leverage is coming down nicely. We had a self-impose number of 28%. We've been bringing that down consistently. The adoption of IFRS 17 brings out a very different dynamic, how much of the CSM do you count in the denominator we work out the leverage ratio. The best advice we had is to count half of the CSM, that's our policy going forward. But we wanted to show you how the variability. So if you count none of the CSM, you get 24% leverage. If you count all of the CSM, you get a 17% leverage. Once you count 50%, you get the leverage coming down in that purple line that you see hopefully on the chart. It is fairly clear. All of our entities are strongly capitalized, as you can see. The liquidity, of course, will be strong. The liquidity at the center is very strong, and the cash generation stays within what we set kind of 60% to 65% slight thereabout. And as the group grows, obviously, that cash is a bigger quantum, but some of the draws in the cash effect. So you get an increasing liquidity position in the group. Embedded value growing nicely, the annualized return on the EV up 12.1%. It's a fairly simplistic picture. You can see value of new business, the unwind very little economic experience variances. But there is a theme of high rates of interest, which you can see that kind of brings down the value of new business, which is important, obviously, but brings up the unwind and you can see that kind of interplay in the green. But the total EV growing from ZAR 98.2 billion to ZAR 103.5 billion, as you can see from the chart. I won't dwell on this point here, it's hopefully fairly self-explanatory deal. I think if you want to go through the detail, you can do that. This is straightforward stuff. The normalized operating profit up 13%. As you can see, there are a number of deductions off that, as you can see, profit before tax. The key issue, just to point out is that we had a swaption instrument inside our U.K. business with the restructure now that swaption has been realized in the previous period. There was a gain on that sale of that swaption. So we've taken that out and normalize out to show you a true effect from one period to the other at the bottom, normalized headline earnings at 11%. So that gives you a sense of the various issues. There's some rising interest rates. You can see there's some counter effects of that higher up. And I think, hopefully, that's fairly straightforward and linear and easy to understand. We're declaring a dividend of ZAR 0.65 a share. There's no magic to this. We followed very much the guidance that we spoke about at the reintroduction of the dividend at the last period. We made the point we'd like to cover the dividend approximately 5x, and we like the first -- the interim dividend to be 30% to 40% of the total dividend. And if you apply that logic, you get to about ZAR 0.65. So that's what we've settled on. Obviously, that will progress going forward as the business grows and as we apply mines to it. But we are following very much the philosophy that we set out in the previous period. Let me make some comments about the transition to IFRS 17, not a simple process, but I think we're very pleased as to where it has landed. You may recall from the previous announcement, we worked hard to explain that the nature of our business has a very different incidence of profits First and importantly, with IFRS 17 or IFRS 4, there is no change at all in the economic value of the business, the cash flows, the solvency. It simply changes the incidence of profits, how quickly profits emerge under the 2. Given the nature of our business under IFRS 4, the profits emerge quicker and therefore, were slow in the long term, you have this so-called crossover point, as you can see from the chart. IFRS 4 have high earnings flattens out over time. IFRS 17 lower and then on the time, it passes over and is higher. The consequence of that is you get a different kind of reserve buildup at the economic value is exactly the same. We did at the previous announcement, explain that Discovery Life is a lot more mature and therefore is closer to the passover point, and I think that is important. Vitality Life is a much younger business and there is, therefore, is much before the crossover point. What you see from the chart, as I said, when you bring the whole group together, you get a kind of a weighted average of all of these effects. And therefore, the total group profitability has kind of blended in from IFRS 4 to IFRS 17 fairly smoothly, as you can see from the right-hand side of the chart. But a fundamental issue is understanding the change from IFRS 4 for IFRS 17, and particularly the restatement of the previous comparator, the 6 months to December 2022. This is an important point. In our SENS announcement, we made the point that restating those earnings from IFRS 4 to IFRS 17 reduced operating profits by 16%. And there seem to give you some dissidence in the market about that. It's important that I lay this out to you. So the slide is a bit complex, and I hope not too complex, but we felt we need to play it out to you, because we need to understand the dynamics of IFRS 17 and particularly the crossover points and how it plays out. The reality is that 16% difference is more a function of the specifics of IFRS 17 versus IFRS 4, not the crossover point. So in the case of Discovery Life, in the previous period, there was a very -- there was an excellent lapsation experience. IFRS 4 takes it straight to P&L, whereas IFRS 17 only looks at the period effect of that. So that you get a very big difference, and you can see the effect of that is 15%. On the right-hand side of the chart, you can see in the second half, we've been through the year, the previous [indiscernible] we can show you this. The right-hand side of the chart is the 3% difference. So for Discovery Life, in fact, for the year, we restate the year, the effect will be a 9% difference between the 2. There were specific issues that need mentioning, Vitality Health and Vitality Life had specific issues. Vitality Health in managing the COVID claims, we're very careful to use reinsurance to make sure that the incidents of claims were appropriate. They created a GBP 10 million gain in the previous period. And the IFRS 17, that is reversed out and then if that appears in the net asset value in previous periods. So that affects Vitality Health profitability in the previous period. Vitality Life has a very powerful value creator in terms of premium indexation. When inflation rates rise and they have done, as you know, premiums go high. Under IFRS 17, that indexation goes to OCI, but under IFRS 4, it goes to profitability. That's a very big swing between the 2. So you get all of these variables coming through and that created the minus 16% difference. If you go out the whole year, you can see the minus 16% becomes minus 14%. Some of the effects in the U.K., in fact more marked over that period. The Discovery Life piece, if that comes down quite substantially. So important just to explain to you the differences here. I think the iron is IFRS 4 tends to be a lot more volatile. This volatility is actually for moving around versus a much more stable IFRS 17. Our view is that we are -- we've made the change. It's giving us a lot of insight into the business. It's going to be a lot less volatile going forward. And I think very pleasingly, we have in total about ZAR 38 billion or ZAR 38.2 billion of CSM plus OCI that's built up in the group. So that offers us the potential to grow strongly and to utilize obviously the margins as we go, as that unwind into profitability. So we are pleased with the process. It's been a very, very complex process. We've learned a lot throughout it, but it provides internal insights into the business. I hope I've given you some sense of it and explain the restatement of how that plays out. Let me turn to the businesses and how that performed. And I want to focus on the issue of growth and growth platforms. Very importantly, a number of years ago, we explained quite clearly Discovery as being an entirely organically built business. We've never made any dramatic acquisitions. We built our business off the shared value model, and we built new businesses that become emerging businesses and flow to established businesses. The truth, as you all know, is it's not a simple thing to do. Businesses take different amounts of time they had time to scale. But that was really the intellectual process, and we actually model our entire capital plan on the back of that. Over the last number of years, the second chart from the left, we went through quite an investment we actually invested in the bank and a lot of other initiatives. And we went way above the 10% guidance. We're clear about why we were doing it, particularly the bank, and that has now come down quite substantially. Where we are today, I think, is a point of inflection. We now have a number of businesses that are profitable or nearing profit like the bank. They are almost cash flow generative. In fact, going forward, they're going to be very cash flow generative. And importantly, there's not a dramatic investment in other initiatives. We've called off any initiative that we felt in their liability or real long-term potential. And what we left with is kind of the discovery stack on the top right-hand side of the chart, but about underneath that 4 distinct growth platforms. The Vitality base itself, which is really the enabler, Discovery Bank that is [indiscernible] even operationally, I want to show you the mathematics of growth how that plays forward, Vitality Group that is really starting to scale. And then, of course, Ping An Health, it really is reach the stage of considerable scale that we think has real potential. When you play this out, what these new starts do, what these growth platforms do is they add 5% to 10% to the operating growth of the group. So they become substantial very quickly and the 10% to 15% to the cash flow generation growth. Important point because, of course, in the past, we're using cash and liquidity to fund them. Now that are turning around, you start getting the cash coming out of them. So these are pretty fundamental points to make. And I do think the group is at a point of inflection. We called off [indiscernible] that we felt is not viable. And the platforms are strongly in place. I wanted to spend a bit of time just on the shared value model. This doesn't have a financial consequence, but it is at the core of the group. And in the last year, we have focused intensely in taking Vitality into a much more significant dimension of hyper personalization of the ability to really underpin globally, life insurance and health insurance businesses in a very, very different way. We alluded to this at the last announcement, but I wanted to give you a sense of how Vitality is evolving to do what it needs to do. The first point to make is that the Discovery data set is globally unique. As you can see, it coalesces well-stated device data, engagement data with health data, clinical data, radiology, pathology. It's made up of 600 million member months, longitudinal data we can track. Everything is verified. It's really a unique set globally that allows us to answer questions, but critically allows us real competitive advantage, allows us to use data in different markets in a very, very different way. And that's the basis of our competitive advantage. The point we made and I want to make it very strongly is what the data shows is a causal effect of behavior change on mortality morbidity is far bigger than we ever thought. At the start of Discovery, in the early days, this was kind of a thought that direction this should happen. But if you look at the actual data, this is data we've launched recently. But if you look at the data, it's quite remarkable. If we see when you isolate out everything else, the confounders, all other issues and you look simply at the effect of physical mortality, you can see that people going from the sedentary phase along at truly to low, medium, high levels of physical activity, bring Vitality down 50% to 60%. And the amazing point is that it's age-agnostic. If you do that post 65%, you get a similar effect. That's the same for health care customer, not to 60%, 20% to 30%. On the right-hand side, our data allows us to understand health span and life span risk factors, and that's important and allows us to understand which behaviors affect health span and life span and how elastic are they to behavior change. Again, you can see it's quite dramatic, and it's dramatic for older sicker people. And I think that's important. The contemporary review is that these kind of issues are for young, healthy people. That's not the case. It's particularly powerful for old and sicker people. So if you look at a male of 51 or in this case, an unhealthy 70-old female, you can see that you can actually affect the health span by 90% or 50%. And the key thing is that this people need to do specific things differently. Physical activity tends to be kind of a universal solvent, but there could be met and adherence. There could be nutrition. There are different activities you need to focus on, certain group preventive screening, HBA1C testing for diabetics, et cetera, et cetera. And so what it says is that the model has dramatic effect, but it has to be personalized, because people have different triggers, people need to do different things in order to get the impact that we expect. So what we have done over the last few year, and we brought the entire group. And this has been pioneered by the South African health business and the U.K. businesses and is being standout globally. We launched our partners and working with our partners on this is really interspersing the Vitality modules into the traditional value chain of insurance. The value chain of insurance is fairly transactional, underwriting price, cash premiums, pay claims and exits, and that's how it works. What we're bringing in is a set of modules that are now dynamic. Dynamic risk assessment that continuously is assessing risk from that, and AI recommended it's trained on our data that recommends that next best action, then incentivize engagement through 2 simple rings and then the dynamic pricing and bringing that in and creates a very, very different dynamic. I wanted to make the point just about how powerful the capability is. So I'm skipping a few steps, but the dynamic risk assessment together with our data allows us for each individual to populate a proper 7 dimensional risk vector; health span, lifespan, risk relativities, personalized mortality rates and critically, the signs of habit formation, our ability to understand, is it a strong habit or weak habit, what's the predictability of that behavior. That then goes into a recommended engine that uses our data to actually recommend what is that next best action. It's a crucial thing, I understand, that for a specific set of risk you have, you have hypertension or you have diabetes or whatever. These use a whole bunch of comorbidities involved. What is that next best action that will get the best effect. Now intellectually, you would accept that next best action is a function of 2 things. The value of that behavior change, the value of mortality or mobility, the improvement in that mortality due to that behavior change. And then obviously, the propensity of the likelihood that you'll do it. if something is high value, and you'll never do it, that can't be a next best action. So it's kind of a cross multiplication of value times propensity. So what the model does is through machine learning is actually works out, optimizing our value depends it throws out from all of the potential actions, what are 2 or 3 things you need to do as an individual based on your specific personalized risk factors. It also uses the habit formation work that we've done, in fact, launched in London last week about understanding predictability of behavior. And what it comes out is 2 things: personalized kind of exercise routine, steps of what you could be doing. And then very importantly, the specific actions you should take. What comes out of it is a personal pathway for every individual from understanding risk, all that through, as you can see, to those 3 next-best actions. And despite all the complexity that's served up in a very, very simple UX on the face of a mobile through WhatsApp, whatever it might be of 2 within magical rings, the exercise ring that is personalized and a healthy actions ring that determines what you should be doing based on the risk factors. Those ring get incentivized, all the other Vitality benefits obviously apply. The modeling we've done on this is tremendous. Life insurance markets are quite inefficient. You [indiscernible] controllable risk behavioral risk by stripping it out, you get a far better effect. And the value drivers of the half [indiscernible] is better laxation, better selection, better behavior, part of risk differentiation [indiscernible] and obviously making people a lot healthier. I urge you, if you can, to study this chart, it is quite fascinating of our modeling of a traditional -- it's one of our global partners, look at a traditional policy of this. On the left-hand side, you can see the VoNB under the insurer value, close from 100 units with low vitality to 104 to 112. So the effect of hyper-personalization is tremendous. People pay less, they get more rewards. And the critical thing for the societal perspective of the model is the portfolio pays less and the more of them, they're much less. So you're covering more people at a lower price, and that we believe is the fundamental disruptive ability of the model. In terms of health insurance, and this is the Discovery Health Medical Scheme distribution, one of the challenges is getting engagement for wellness and prevention and getting engagement for disease management. What this hyper-personalization does is create 1 continuous vector, because it's basing your own risk factors, if you need risk manage -- if you need disease management, that's the action that will be served up. If you need prevention, that's what will happen. And you can see from this chart here, we really have superimposed the distribution of the Vitality Health medical scheme by health utilization score. So from the sick people high users on the left to the lighter users on the right. And what you see, and I would argue our engagement levels are best in the world, given the history of the Vitality program. You can see the engagement levels are fairly high. But in fact, they come off for the sicker higher users, and that's the challenge. So through hyper-personalization, we believe by doing that, we get a dramatically different engagement profile. And as you see on the right-hand side, it's remarkable the level of savings that you get when you do it. So if we get to 25% of the right people to follow that next best action, you get 50% to 60% reduction in health costs from that particular disease. So the effects are tremendous. And I think as you see Asian chronicity, I'll touch on it later inside most health plans. The potential for this is quite remarkable. So a huge amount of work has taken place on the Vitality fair value platform that is obviously powering all of our businesses and hopefully, you'll see that come through. Let me turn to the different composites, and I'd like to run through them. I don't want to be laborious in my comments on a few key points. But I think, firstly, Discovery South African started the bank. The bank's performance has been absolutely tremendous. The growth has continued and accelerated. If you look at the actual top line numbers, clients have grown by over 40% to 825. We've crossed 2.1 million accounts. Our deposits have grown over 30%. Advances, we continue to be very careful in this environment. You see the revenue growth and the operating results, you can see coming down the losses coming down quite nicely. But we've broken it down between operational losses and acquisition costs. And you can see even in this period, the operational losses were there. But during the period, we crossed over in month operating losses were, in fact, profitable. So we broke even from an operational perspective. Obviously, the bank must make profitability quickly, and we believe we'll do that in this financial year. But it is important to understand the dynamics of the profitability of the bank as we cross through and I'll take you through that later. A few comments I want to make. Daily new business is strong. You can see it's come up over the last 2 or 3 years to over 1,000 new clients a day. The source of the business remains quite diversified over 50% of new clients or not discovery clients at all. You can see the quality of the business, over 40% of the clients are buying clients, actual and bundle accounts, protocols and suites. So there's value there. And we're keeping the acquisition costs in a very tight narrow barrier of acquisition cost per client. So there's a lot of learnings about how to acquire clients, obviously, that we will use going forward. Now I need to make the point that this is a bank that we are building on the back of NIR. We strongly believe in building a full services bank that people are using. You can see that we're getting very strong growth in NIR its growing to 38% compound over the last number of periods. And the dynamic, I think, is fairly straightforward and I think very pleasing. People come on to the bank. It has exceptional functionality. The digital experience is very strong, easy to use, intuitive. There's amazing capabilities. And after a few months, you can see our escalation in the utilization tends to go up. On the right-hand side, we're now seeing record high monthly banking activity as people in the back book are they using it more and more and more new people are coming on. It's quite tremendous how that NIR is growing. Now the keeping of the bank that I think driving NIR is to make it different to make it a real to make it bigger than just a full services bank. In and of itself, it needs to do what a bank does and that's what we're focusing on. But its ability to bring the group together to bring the composite together to use the power of discovery in the environment to make the bank is super powerful tool is there. So on the left-hand side at the top, that's kind of a banking stack you get kind of your accounts, your vitality money, your various incentives, your payments and structures. But essentially at the top, you can now -- all of your products sit there, you've seen this before, health, life, insurance, et cetera. All the behavioral factors come into Discovery Miles. So the architecture works well. But 1 of the powerful things that we are now working on is they have different ecosystems. Discovery systems, Vitality Travel sits on the face of the bank. It's been the most remarkably successful platform. When you want to travel and use your benefits, you're going to the face of the bank and you pull through this vitality travel ecosystem. It lets you gives you access to the entire universe of travel. You can discover where you want to go, you can do every single flight, every single airline, I select a flight, book it, pay through Discovery, pay whatever payment system that you want, it's remarkably strong. We're doing the same in other ecosystems. We're about to launch in a few months' time, the Vitality Fitness ecosystem. It's incredibly smart. It's a similar architecture, so it works exactly the same way. You have kind of a view entire fitness environment, different gyms, yoga, Pilates, et cetera. You can discover where they are, select what you want to do, you can book and schedule then you can pay. So you really have it on the face of the bank. In this idea of ecosystems that Discovery works in is obviously very important, makes the bank we think very valuable to our customers, makes the user interface intuitive, simple, powerful and drives up the usage and of course, the NIR. When it comes to NII, we've been judicious. You can see the total NII climbed. Lastly, we continue to be very careful about our growth strategy. As you can see, we are judicious. The new business distribution talent panel certainly from the left give the sense of the quality of the clients. And on the extreme right-hand side, you can see at the bottom, we've seen some rise in nonperforming loans, but we are way off levels of other banks who are being very careful to the quality of clients. And then second from the right chart at the top, it gives you a sense of the actual -- the intra correlations to the Vitality Money status. You can see that people that on higher Vitality Money status. It simply don't default on the credit and that is important. So we're getting a very good ability to drive the NII doing that in a very judicious way. Bear in mind that Discovery Bank was built off the back of Discovery Card. So it's started out an unsecured lending through the better car, but we're moving now into the home own space over the last year, the Discovery Bank home loan product has been built. It's been alpha tested now and we rolled out, we hope, in the next 4 weeks. I think it's a very compelling product. It's on the face of the mobile. It's simple, easy to use. And the value proposition is shared value if you manage your money if you're using our products, you bring your interest rate down. That's print's the principal value. We think the market potential for us is dramatic. The ZAR 1.4 trillion of home loans out there our embedded client base within Discovery Bank has been ZAR 280 billion of home loans as you can see. And our estimation is 60% of them are mispriced from a -- in terms of overpaying for interest, the interest cost. So we have the ability, we think, to penetrate quite deeply into that space that is with us already. So the bank is well positioned. I'll come back to the mathematics of growth I'm in a moment, and hopefully, make that makes a bit of sense. Let me talk a bit to Discovery Health, exceptionally robust business. It continues to grow. You can see operating profit up 7%. The membership has grown to over 3.8 million. The Sasolmed is not yet in that membership. You can see the effect of Sasolmed on new business. Now I need to point out Discovery Health -- Discovery Health Medical scheme new business is slightly down, as you can see. So in fact, it's kind of level off a bit. This is an important issue that we must address. Discovery Health medical scheme is remarkably successful. It is so large. It's new business is made up of 2 things. It's net new business. New business coming in, this lapse is going out. And these are the difference of 2 very, very large numbers. In this period, we had a slight reduction. We have to address that ring lapses down new business outside waxes and wanes, but that's an area that we must you must deal with going forward. But you can see the performance of Discovery Health is very strong. The Discovery Health Medical scheme continues to perform well. Its market share is high customer satisfaction, 90% of and I'll show this every year, stay where they are, they don't move up or down. So this kind of anecdotal view of people buying down is, in fact, not the case. Labs remain stable, and we're doing a very careful process of managing the solvency levels of the scheme. As you all know, during COVID, the solvency levels really climb to very, very high levels. We need to give them as back that money in a very careful way. We can never let the contributions go below the cost curve. So it's been a very careful process of setting contribution levels in the right way, delaying some of them the last time. And you can see the effect of that solvency is coming down. It's still about 30%. I mean, it's good for the scheme. But over time, we'd like to get that back to a more appropriate level. I must make a point of chronicity. We're seeing increasing chronicity and aging. And I think that's to be expected. You can see that on the left-hand side of the chart. And again, coming back to this issue of making sure people engage. We're working very hard on this Vitality 2.0 using, planning the data to be able to get to the right kind of people. And again, on the right-hand side, showing you the effect if we get people to follow those next best actions, the effect on health care costs will be dramatic. So there's a strong focus that we'll be rolling out in the next few months. And on the back of that, training of the data and learning, of course, that will inform and help us globally with Vitality Global in everything that we do. I don't want to dwell on the NHI. I want to make the same comment that I made at the previous announcements that Discovery is committed to universal health coverage. We committed to making the NHI workable and that is important. Our fundamental position is that NHI is not workable with our private sector collaboration. If you go through the numbers that I did this, we presented as previously, our team has modeled very, very carefully. You can just see we have a funding challenge. That's one of the tragedies of our country. If you need ZAR 200 billion for NHI, the question is where does it come from? Our analysis shows that you need to raise taxes by 30% in order to achieve it. Our tax base is just too narrow. And then on the bottom of the chart, it doesn't buy match. -- is ZAR 700 per person, not enough to drive very comprehensive coverage. And therefore, employ people, if you follow the act on Section 33, if they can't fund the balance of medical schemes, they would effectively go down from 2,300 spend per person to the ZAR 700. So effectively, you'll be saying to the employee people, we're saying employed sector, 31% more tax and at 70% less health care. Of course, that is not the intention at all of NHI. But the point is just when you look at the funding, as it is today, it's difficult to achieve. So we've been hopefully constructing and trying to put those points across. We're hoping that while it sits with the President and the presidents and minds apply to it legally to all the various aspects. There's an understanding of wisdom of how this needs to be changed in the right way to facilitate the process that is workable. We have worth than prevails, but ultimately, reality will prevail because we just don't have the funding. So from a strategic perspective, we continue to invest, we continue to drive Discovery Health. We continue to try and extend our coverage to more people and our appeal to people because we think the real issue of NHI is sentiment. It kind of really creates a different sentiment of doctors and hospitals and [indiscernible] in the health care system. We're really making a call out that to understand that this is a very, very long-term complex process just remain focused on building a system that is brilliant and needed and needs to extend it to more people. Let me turn to Discovery Life and make a few comments. As I said, I think Discovery Life's performance has been exceptionally strong. I want to reverse our group life because it had a really good period in the previous year, which hasn't repeated now, it's all wax and wane its risk business. But if you take that out, you can see that normalized operating profit for Discovery Life grew by 12%, individual life by 7% new business. If you add it in, you can see the 6% and 2%, respectively. The business is very strong. It's come out of COVID really strong. Liquidity levels are strong. Solvency levels are strong. It's maintaining its market share leading place. And then critically on the right-hand side is a waterfall of the cash flow generation, Discovery Life generates ZAR 750 million, that to grow over time. So a 35% conversion into cash, which is very important for the group, and we expect that to grow over time. The quality of the earnings, I think, is really strong. If you look at the experience variances that are the noneconomic experience vets are positive. It's interesting to look at the makeup of them. On the left-hand side, you can see that mortality is quite a long way below expectation. It's an important point to be made because in the shared value model as people increase their status, there's an expectation that the mortality comes down. So what this requires is to actually -- for us to do better than that expected value, which you see coming through we're seeing mobility. There's still -- we're still seeing about 100% experience. It's worse than expected, and it's complex. We're seeing high levels of early incidence of cancer. We think it's still the trail effect of COVID, lack of early diagnosis, et cetera. Also, you see the effect of higher rates of interest and inflation, you can see we're seeing lapses kind of making up a policy also not quite so people are [indiscernible] are lower than expected, which is good positive variances, but we've seen policy alterations. So people are staying with us with altering their policy, we must address that. That's a very important point. EV has run nicely, 12% return on EV. And if you take out the economic effect, it's been a 50.3% return on EV. So the EV is very strong. I wanted to make the point just again about the shared value as we start to understand the mathematics of share value. There's been a lot of work done on the margin of Discovery Life. It's gone up from 2.5% to 4.3%. If you take out group and you look only at individual, that experience has gone up from 3.2% to 5.6%. That's an internal rate return of over 21%. That is good. The effect of the model is on the right-hand side. You can see what that does to the VNB. That's very, very important. It drives better selection, better lapsation, better claims, better business mix. But of course, on the red, there's a cost of incentives and the rewards that we pay back. When you bring them together, you can see a 1.8 multiple of the VNB from the shared value model. So really coming through in what we said before in that day, our belief is if we hyper-personalize the fair value, the shared value model, we get a better result going forward. So a lot of work is taking place in this regard. Let me make some quick comments about Discovery Invest, robust performance, not only should dwell on this 11% increase to operating profit, good new business there were been asset values coming through from global markets at the end of the period, assets under administration climbing 11% to ZAR 145 billion. Our partnership with BlackRock and Cogent is they really getting some cases, we've had an excellent executive team in place. We're on track. We've been trying to get this $1 billion of assets. We're close to getting there. We fully integrated the product, Aladdin Wealth is now working well with Vitality, so you can offer kind of risk advice on the assets but also risk advice on the demographics at the same time. That's the value proposition and give you access to exceptionally good and diverse asset management skills across the world. So we're excited by the potential of Cogent and of Invest. Discovery Insure is interesting and in a sense, it's been problematic for us. If you look at Discovery Insure, gross new business up 8%. It's a big business for 6 months, it's a total premium of ZAR 2.8 billion. We've been very careful on the pricing. That's the key issue. You can see that the number of vehicles insured is only climb 1% of revenue is growing. So we're actually up pricing quite substantially. But the important point to look at is the profit curve. The business with all its dynamics has not generated significant profit. And in fact, if you go through its history over time, despite all of the positive dynamics, and I think an excellent business, the team has built, you'll see that just prior to COVID, it started to get scale and started to generate profits. And in the COVID period, as you can see on the chart, the profits were very, very high. But post-COVID, you can see them come down. In fact, in the last period, they came down dramatically to as the breakeven. And the reason for that has been 2 significant weather events, the Harting hailstorm it's certainly the worst we've seen in our history, the Cape floods, et cetera. And you can see the fact that the total cost of that of those weather events were $131 million net of reinsurance, a not insignificant for a business, the scale of Discovery Insure and then write out the profitability. But the point is in every period, you're going to have incidents, you're going to have different kinds of weather issues. In the previous period, we had the theft of -- high vehicle insurance, high-cost vehicles, et cetera. And that's predictable, and we have to manage that. But the point is the margins are just too low. The water level of the business is just too low. And the source of that issue is in COVID. So on the second from left and it's very important to point this out, you can see what the premium yield was. In other words, the increase in premiums every year in terms of our rate increases, pretty strong pre-COVID as we went into COVID understandably, we weaken them quite substantially and got people money back in terms of people not claiming. But what's coming out of COVID, you can see the cost curve in the black line dramatically, dramatically rising and so we've been in the process now of really re-rating the business. It's going to take a bit more time. But the dynamics of the business, as you can see on the right-hand side, second from the right is very, very strong. That shows the distribution of drivers from good to bad. And it shows cohorts that is 1 year old, cohort that is 2 years old, all the way to 10 years old. And what you see is that as people stay with us, we kind of bleed off the worst drivers to find better cover elsewhere, and we keep the better drivers as the share value more. They're getting value for money. They're enjoying the process. They're using the system. And so all the dynamics of duration or better quality are coming through still water level too low. So we have to increase the prices. And that's what we're doing. You can see on the right-hand side that we do have pricing power through price optimization, we can pass price off to the right people in the right way, equitable way, and that's what we're doing. So I think the business has great growth potential to grow, if you generate cash for the group in [indiscernible] concern, we're value with customers, which I think it does do through the shared value model. So I think good dynamics underlying profitability is letting us down. It must be addressed quickly to earn at least the cost of capital, but thereafter to earn the margin dramatically higher. Hope you will expect this in the next year or so as we work hard on the re-rating. Let me turn to the U.K. and talk about Vitality Life and Vitality Health, 2 very different dynamics here. And by lumping them together, you don't really get a set of -- you don't get a sense of what's going. The first point to make is the restate in the previous year is quite significantly affected by, as I said you before, the indexation on life and the reinsurance effects on Vitality Health. So you can see the drop in the previous comparator. But the growth of that -- the growth of that base in the previous compared to up 13% for the group. The reality is the growth of the group is very strong. Premiums grew by 11% in pounds, 27% in rand, effect on the currency is very strong. Last COVID grew actually quite a bit faster. What you're seeing here is the effect of Vitality Invest and [ car ] that we actually call. So a slight reduction that lies anyway grew by 5% and the new business, as you can see. But it's important to look at the different businesses. Vitality Health was dominated by the dynamics of the NHS. Massive opportunity and growth, as you can see, new business from the backlogs forming in the NHS but at the same time, dramatically different claim levels coming through from people using private medical insurance, very, very differently. And you can see the effect on profit to group profit down by 20%. You can see life COVID has grown strongly by 10% to nearly 1 million lives, which is good. On premiums growing by 11% to just under GBP 340 million. The NHS is a much remarkable social security system power of scale, but it's not simple. At the moment, it is understaffed in the funded with backlogs forming. I'm sure over time, the U.K. will get on top of it, not simple to solve a dramatically aging population, rising chronicity, too few home care centers, the people at a hospital instead of home care. There's a lot of dynamics underpinning the NHS you may be aware of. But the net result that you can see is a dramatic rise in backlog and from the backlog, the private medical insurance market has grown. On the right-hand side, you can see the gearing effect. The total market for private medical insurance is GBP 6.7 billion. The total spend on the NHS is 35x higher, GBP 230 billion. It's a huge amount of money. So crudely put 5% of the NHS spend is the entire private health insurance market. So if there's some kind of retardation of spend in the NHS by 1%, it grows the private health insurance market to many people out to ship and make the luck in private. And to an extent, that is what we're seeing. We're seeing strong new business, but we're seeing a very, very different pattern of claims. There's been a shift in the entire base to using private medics insurance for primary care. You can see on the left-hand side of the chart, so people getting dental checkups, general practitioners, physical therapy, et cetera, mental health checks, content of behavioral therapy, et cetera. In the middle chart, you can see what happened to the actual growth in claims. It is remarkable. So the usual inpatient stuff is under control. Now it's the GP visits, the CBT that's really climbing. The net effect is dramatic, been a GBP 25 million overrun in the 6 months that we're reporting on. You can see what that's made up of dramatic increase in utilization. Primary care, so the cost per claim is low by 9%, but the net effect is a 7% increase. We are moving quickly to increase our rates to do that. Obviously, you can't preempt the market in doing that as you get adverse selection. So we're moving quite quickly. I think by this point now, by March, April, we still have caught up. We'll see how that plays out. But the net result is that is kind of a shift in claims behavior from the NHS. I have to make the point, though, that we are very optimistic in the longer term. The team has built an exceptional business in the U.K., the brand, the fuel, the vitality model. You can see the actual metrics. It's the third largest health insurer. Now the U.K. growing strongly, very tight retention rates, we think the lowest loss ratio in the market and it's digital first. Everything is digital, service levels high. It's a fantastic health care system that has been built in the U.K. So we need to get on top of those claims levels, and we need to make sure that we can grow at the same time. The team I think is confident that they can achieve it, but not simple. A lot of work to be done. Let me talk about Vitality Life. And I think the primary issue in Vitality Life is making sure that the return on capital on new business is satisfactory. The experience variances are strong, the shared value model is working well. We need to make sure we can grow the new business at the rate that we need and generate the right levels of internal rates of return on that. You will see and I made the point, the growth in profitability of a lower base of 97% is not indicative of how the business has grown. It's effect of higher rates of interest on the back book, which has a massive amount of cash and assets. So you just get a natural increase in flow. And there's 1 variance came through that boosted that amount. You can see the new business flow, although rands up 17%, was only a 2 percentage times. We focused very carefully on sectors that we felt were profitable, but we're not taking enough new business to bring those unit costs down. We need to be more efficient to bring that out to drive up the internal rate of return on new business. Just to make a point about the once-off value uplift. I mean it really talks to the shared value potential. What we're doing now is we're really starting to understand the data and to use the data to actually understand liabilities better. So it's your understanding behavior change, the value behavior change on mortality, the ability to actually model the habit formation, in other words, the predictability of a behavior change and value that over time allows us to really understand our liabilities better. In this case, it released some value in the -- with the credential and that's why reposes went through in actually understanding it. It offers a tremendous potential an asset and capability as we go forward. But to talk to the quality of the work and where we need to go. You can see on the left-hand side, the businesses variances over period were positive to the tune of just under GBP 10 million of premium lapses, mortality mobility is profitable. The challenge is on the right-hand side. When you look at the value of new business, you can see the internal rate of return was above the risk free rate by 2%, but below the risk discount rate. So in VNB terms, it's slightly negative. We need to address and we need to bring that can substantially and there's a lot of work taking place to achieve it. Unit costs more volume, be more efficient in the distribution. It's a critical issue. But I do make the point, as I did before, some of the effect of this lower value of new business is the high into rate of return. The fact that iterates have gone up, so you get -- the demands are high and that's something we have to cross. But there is a kind comment of the fact, and that's the indexation of premiums. You can see in the third chart from the left, during the period, GBP 13.8 million of premium escalations came through. That doesn't feature in the P&L, as I said, we go through OCR in IFRS 17. But you can see the effect of that. So our view is if we can achieve that indexation in clearly be robust. It's a great thing of the business, but at the same time, address the internal rate return on new business, we think that we have a tremendously tight business in place. So work to be done on that and expect us to tell you more as we go forward. Let me turn to the Vitality Global and make the point, I think the performance over the period was exceptionally strong. Vitality Global is made up of 2 businesses, Vitality network, it takes our vitality business while we're partners with insurers around the world. And we have part of the value uplift from them as we go forward as a fee. So it's not -- it's a business that gets fees in and has an expense base that has a margin vested in it. And then Vitality Health International, it really equity stakes in certain key assets that we have in the global health insurance space. Operating result is up, it's an addition of 2 very different businesses, but operating results up 71%, as you can see, to just over ZAR 455 million for the period. Vitality network has had a tremendously good period. You can see operating profit like just under 50% in rent terms to just over ZAR 295 million. You can see on the right-hand side, growing base of members. Second from the left, I need to point out that the quantum of premium that the model is attached to over $800 million in the 6 months is tremendous. So we're actually -- we're getting real traction. And the revenue growth is strong 16% in dollars to over $50 million. So the business is strong. The strategy is about growth going forward are 3 distinct things. Number one, a deeper penetration in our partners and a construct where to add value to them. Number two -- sorry, within number one, adding more partners, and we're working hard in markets like the U.S. with John Hancock to expand the partnership. We'll tell you more about that. The second is just the mathematics. It's a gear business. You have kind of a few revenue and you have an expense line, and that's starting to open up, and that's important. And then thirdly, the ability to add value I've made the point, hopefully clearly, but it lent about the power of the shared value model about what we're doing to evolve the platform. We think that adds tremendously more value to our clients to more clients. And so we think we can grow really got the base. In the case of Vitality Health International, I mean it's dominated by Ping An Health, but we worked hard on ample health. We have a lot of work to be done. I think a good period of the products are now coming through on stream, there's a pipeline of new business, building up from AIA and other insurers in the region. And we're investing somewhat in the U.S. around taking the business focus then deploys and offering it to health plans, potentially taking that new vitality hyper-personalized model into the U.S. in the right way. It's a very complementary approach of building it for the entire market. I think it's good for us. So a lot is taking place there, but you can see the operating results growing by a mass of 125%. It really is off the back Ping An Health. The business had a tremendously strong calendar year and 6 months in terms of our financial year, you can see the effects of that Ping An Health's operating profit growing by over 126% over the period. And I wanted to point out, look at the left-hand bar in the orange, that's the operating profit. So you do get investment performance coming through, but in fact, the increase is primarily on the back of better performance of operating profit. In Discovery's hands, we've had geared result from a tax efficiency coming through. So you see an even bigger jump in terms of our earnings. But it's a big business. Written premium has grown to over ZAR 23 billion for the 6-month period. You can see it covers over 26 million lives, and we're now getting a top of the new business. For a number of years as Ping An Life were selling on their own license through a reinsurance structure, Ping An Health started to sell on its own basis. This is a health insurer in the Chinese market, transacting health insurance. So it's complicated and complex on the ground, but intellectually, this is a health insurer applying its trade, getting premiums, paying flames. And it's doing that, I think remarkably well. You can see the operating performance persistency levels are climbing. The loss ratio coming down, so the combined ratio coming down now to 91%, so 9% margin. Exceptionally strong generation of cash in the 6-month period RMB 3 billion, which is about ZAR 8 billion of cash flow generated and the balance sheet is incredibly strong. I showed you earlier, 300% -- over 300% solvency level. And you can see the balance sheet has a NAV of just ZAR 9 billion, ZAR 8.6 billion of net assets. So that's substantial close to ZAR 20 billion of NAV. So this is a business that has grown substantially. In terms of its peer group, it's done remarkably well. You can see it compared to other insurers margins on the left-hand side are dramatically higher. And then to give a little bit of color, it's in terms of margin #1 in China in terms of profit margin. It's in 16 provinces across China deals with 1,000 hospitals, which is quite remarkable and is the sixteenth largest producer of insurers in the Chinese market. So it is significant. We've made the point of the previous results announcement that, in fact, the kind of tailwinds in this space are fairly strong. It's a market that's complex. We know it's made through difficult times in terms of all kinds of other dynamics, property prices, et cetera. But in terms of social security is a strong cushion was creating a viable health insurance market, and we do believe Ping An Health is well positioned to do that. The team does believe that the earnings growth, the earnings level should grow strongly going forward. So let me end just this section by making the point that I think the composites are well positioned. There's work to be done, Vitality Health claims, Vitality Life new business, ensure pricing, it's fair to share what we need to do, I believe, but generally, I think the business -- the group is in a strong position. I want to come back though to the growth platforms, just to make the point, the mathematics and growth. I said earlier that the business has gone through the cycle of investment, we have 4 platforms for growth, the Vitality chassis that affects everything we do, Vitality Global, vitality network and the bank. When you put that together, I believe what you will see is adding to the group 5 to 10 percentage points of operating profit growth and 10% to 15% points growth in class flow generation. And you can see that when you look at it mathematically. For the first time on the right-hand side of the chart, you can see that the effect of these -- this core of businesses is actually raises the level of profitability. In the past, it was actually draining which we're investing a lot in it. So the cost over has taken place. And that difference in compound growth rate starts to open up where we would have been without these compared to where we are now with these platforms in place. And the mathematics of growth is quite exceptional. Let me talk about the bank very briefly. I made the point that during the period at the end of the period, [indiscernible] to the bank is broken even operationally. Over the period, it in fact lost the ZAR 300 million or so, as you saw in the earlier slides. But if you break down the components into a very simple form, what it is operating income minus expenses, minus acquisition cost give you profitability. That's how it works. The operating income is driven by NII and NIR, the expense or the OpEx, but the expenses are critical because this is a digital bank. So to an extent, expenses don't grow. And then the acquisition costs are flat by a number of clients that we acquire. So a very, very controllable. The net effect of it is you get a geared effect. If you look at the February period, what you find is operating income is ZAR 172 million for the month, expenses are very similar. So then you see the breakeven, then you get the acquisition costs coming out, you get a small loss. But this is the thing. This is the thing. You can see that the operating income has been growing at 60% per compound. The expenses are almost flat in real terms and the acquisition costs are 0% to 5% growth as we go forward. So if you roll this forward, you get a massively geared effect, and hence, the numbers that we show you the projection of graphs we showed you that the banks should get profit very, very quick and start to grow. You get this kind of some growth rate from the mathematics of the bank. Similarly, in the case of Vitality network, you can see a very similar issue. If you actually look at how the jaws are opening up, the expense line is a function of a fixed base. A lot of it in rands, in fact, and the revenue line is growing in dollars and other currencies. So you should get those jaws opening, but in addition, have you over time, the currency effect. You can see the mathematics of that in just the last number of years is the 5x of profitability. So again, you're getting kind of mathematics of both. And then the final point to make, Ping An obviously won't grow at that level, but it's very well positioned in terms of -- it's capitalized very well. It's a considerable scale in the market. The quality is exceptional. So we expect that to continue to grow and very strong cash generation coming out Ping An health. And therefore, we believe it should add considerable value in terms of growth to the group, an extra 5% to 10% and cash generation. So let me come back to the 4 things we wanted to tell you. We think the growth over the period has been robust. Operating profit up 13%. As we've shown you, leverage has come down to 20%, cash conversion at 66%, strong new business growth. We've had a relatively smooth transition into IFRS 17. We've tried our best to show you the restatement of that previous period. It's made up of a number of different factors. But in fact, in terms of the crossover, we are very comfortable of warehouse crossing over. And then importantly, in terms of CSM, we go forward the ZAR 38.2 billion combined level of CSM. The group itself is well positioned. We know what we have to do in the areas of weakness we have to address and hope that we are clear and then areas of strength of growth potential from what we put together is very, very strong. So we are -- we know what our work is we are a lot cut out to do, but we felt we needed to give you a very for oversight of that. Let me end here by thanking you for time, spot on an hour. We're going to take questions now. I have Deon Viljoen, our CFO, who's with me. Our whole executive team is online. We're going to take questions. We have a number of rooting questions, and we have people on the call. So should I hand over to you, Deon?

Thanks, Adrian. Good morning, everybody. We received quite a few questions. We'll try to get through all of them and on time. First question from Michael Christelis from UBS. At first glance, your net CSM seemed to have declined since December. What does that mean for the growth prospects of the 2 life businesses. There's quite a bit of detailed analysis in the financials on the CSM. But maybe just in broad terms, the CSM for Discovery Life actually grew over the period. There was some negative impact from policy alterations taken to CSM but on the whole, actually growing CSM balance. For VLL the CSM did decrease mainly due to strain on CSM due to the VNB margin, as we discussed. But perhaps worth just mentioning that as part of that dynamic and the high interest -- our inflation rate in the U.K. that also gives you a very strong benefits of higher indexation on existing policies, which obviously goes through OCI. So a number of dynamics playing through on that side. The second question, also from Michael, how confident are you around turning U.K. Life margins positive and then to generate your targeted risk-free plus 10 ROE then you provide details of the plans here. And before I hand over to Neville, maybe just to mention that the risk-free rate plus 10%, that target at sort of at a high level group target. Obviously, in our capital allocation, we bring a lot more sophistication into that for each of the composites, given the markets that they operate in, and that's typically a weighted average cost of capital plus the margin target in each one of those areas. But maybe, Neville, if you want to take that question?

I think Adrian did gave a very good explanation of the dynamics. Maybe just to add, a lot of this is around volume related. The U.K. has been through a tough market in terms of cost of living prices high, mortgage rates, the mortgage market has dropped quite significantly, which has led to lower volumes. Having said that, we're very confident due to a number of initiatives and tools that we've developed. The most -- probably the most important one is our price optimization and understanding where to target business and especially in the profitable segments of severe illness cover income protection. We are seeing significant growth in that, and that is a highly profitable business. So it really is a combination of volume, that's been impacted over this period. The market shrunk slightly. We actually grew a little bit but we're starting to see that turn around -- inflator figures for the U.K. has come down on this morning. And also very importantly, the shared value model and our ability to actually influence behavioral change and the impact it has on [indiscernible], mobility and lapses. So it really is a functional volumes and that has an impact of [indiscernible] expenses as well. So there is a plan, Michael. I'm not going to share every detail with you on this call. Very happy to take it off-line. We absolutely are aware of it and feeling more confident.

Thanks, Neville. The next set of questions is from James Shuck at Citi. Quite a few, let's go through them. The interim dividend per share implies a full year EPS of 9.75. Is this where management expects to land at this point? The dividend range -- the ratio of interim dividend, final dividend is actually quite a wide range of 30% to 40%. And so I wouldn't necessarily read into that any forecast, we're also not in a position to provide forecast. But I wouldn't sort of directly relate that to a profit forecast. Question to the divisional organic growth expectations of CPI plus 5% due to the IFRS 17 should this be faster near term versus the new 2022 base. As we indicated at our year-end results last year as well as the discussion earlier with Adrian, we do expect, obviously, a steeper growth coming out of IFRS 17 because of the CSM and the transitional impact, and that plays out over time. We also made the point that, for instance, for VLL that's further away from that crossover point, that will still take some time to get to the crossover and you may expect a bit more volatility in that. But overall, your earnings momentum should be higher under IFRS 17, given that impact on transition. The third question, should we expect further earnings drag at Vitality Health. Maybe I can pass that one on to either Neville or [ Emil ].

Happy to take that. James, just to say that when we have a sharp increase in claims as we have last year, it does [indiscernible] run through. So we have to give roughly 2 to 3 months as of a premium increase. Then when it happens, remember, that's only 1 12-foot book more or less that reduced in that month. So when you're looking at the earnings on the year, you definitely see that it takes at least a year actually 15 to 18 months or the premium increase we have gone through in our numbers. So yes, you should expect some of that premium increase to come through in H2, but there will still be a de -- the important thing, of course, is that this is our valuation of the previous comment with claims. What we're saying at the moment is that we think that we can close to a level. Of course, there's still a bit of volatility in trans. That answers the question.

Thanks, Emil. The fourth question from James, expectations for further policy operations, EBIT charges in the second half. Riaan, maybe if you want to some thoughts on that?

Sure. I think it's important to consider policy durations in combination with very positive labs experience and premium experience that we've seen in this period as Adrian has shown on the slides. So when you combine the very positive labs experience, premium experience will the negative polycotton should actually get to quite a neutral position over this period. And then in addition to that, we are looking at implementing additional actions to specifically address policy alterations. And. Some of these would include, for example, to make sure that incentives of our advisers are fully aligned with the incentives of Discovery Life and thereby getting alignment in terms of experience. So I think there's lots to be done, but we're quite confident that once you consider the full impact of lapses and partial lapses together, the position is a lot on neutral and it looks in isolation.

Thanks, Riaan. We have a question from Tejkiran Magesh from WhiteOak Capital. Is the lower profitability in Vitality Life, a function of scale or function of challenging economics. The business is growing, but we don't see operating leverage kicking in, while VNB margins are negative. What is the path to VNB margin recovery, very similar to Michael's earlier question, Neville, I don't know if there's anything specific you would like to add to that.

Exactly same one.

Just to add one thing, Neville that you may have -- I think you did cover, I mean, 1 of the dynamics in IFRS 17 is the indexation of premiums going to OCI. There's a large value there that we're not seeing now in the P&L. It may be obvious, but just to make the point, I think, that is important.

I think, Deon, want to just answer the questions coming through on the CSM. Just maybe just on spin out gets to that question can just give a little bit more light on invitation I look at the culmination in terms of where you can understand dynamic is playing out.

And this has been an effort in the U.K. team for quite a long time to actually enhance the quality of the business written there. So a lot of these policies are index-linked. And what we saw during this period of very high inflation that clients actually accept this higher indexation adjustment to their policies. That adds a huge amount of value, obviously. There is a technical sort of guidance within IFRS 17 that intuitively, this indication will reflect in higher premiums going forward and higher benefits, obviously. And as I said, makes the policy much more valuable. And there's real cash. It actually resets a new watermark. But in terms of IFRS 17, we cause it is linked to a specific economic indicator of inflation, it is treated as an adjustment due to economics, and therefore, doesn't house itself in CSM. It actually routes then recycles from there to P&L. So the value is there, but you'll find it in the OCI rather than in CSF. Hope that helps. We've got a question from Francois Du Toit from Anchor. Sorry, there was a previous one. We've got equity accounted earnings -- sorry, here we go. Assets arising from insurance contracts increased by ZAR 4.9 billion, effectively explaining 100% of the pretax profits, how does this square with a cash conversion of 66% on net earnings. This is quite a technical question. I will give a very brief overview, but I'm very happy to engage with Francois on the site. So what you now see coming through in the P&L from an IFRS 17 perspective is not directly the increase in your insurance contracts that you see on the balance sheet because that is made up of a whole number of things. New business your present value of your future cash flows and against that, your risk adjustment and your CSM. And so what routes through to the P&L is largely the unwind of the discount of that of those future cash flows as well as the accretion of the CSM and the release of the CSM and then certain components that rooted through OCI because of economic changes now routing through to the P&L. So taking the balance sheet move and relating that to the P&L is technically not correct. And therefore, also from that perspective, the cash flows are then -- or the cash conversion is accounted for separately. And particularly in IFRS 17, you now account for that insurance revenue components and also in the P&L split between your underwriting result and your insurance finance income and expense result, and the combination of that effectively gives you your earnings from insurance. So Francois, I'm very happy to take that further. The next question from Francois, equity accounted earnings were ZAR 302 million. How does the earnings from these investments compared with dividends from these. Now the larger equity accounted entities, obviously, Ping An Health, a significant associates as well as entities such as CMT, et cetera. in Ping An Health at the moment, that is a growing business, still gaining market share, still investing in its operational capabilities. But -- and so up to this point, not yet any dividends received from that business. But as you can see from the results, we're on a very fast track and 1 would expect in the near future that there will be possibility. Adrian, I don't know if you wanted to add to that. And yes, therefore, these are -- a lot of these are start-ups. There are certain of the associates such as Quantium, et cetera, that are highly cash generative, and we do get some dividends from that. Tejkiran asked what is Ping An Health's market share in the Chinese health insurance market? Adrian, I don't know if you want to fill that?

I mean there's maybe allude to specialists versus others. It's quite a complicated question. It's a good question.

The special sales insurance market share is the Ping An Health Insurance is 22% of the special sales insurance market. you can include other insurance companies that also sell health insurance. You have Ping An lifestyles, a bit of health insurance, for example, and there are others that sell and health insurance, our market share is 10.8%. But pleasingly, our market share is actually growing 0.5% 2 years ago, with 2% a year before 1.2% last year. So our market share continues to grow, which is very pleasing for us.

Thanks, Barry. Another question for Warrick Bam from RMB -- Morgan Stanley. Can you elaborate on the bank's ability to contain operating expenses once it once it expands its lending capacity? Maybe Hylton, if you want to field that?

Sure. The expense base it's been fairly stable. And we've largely built the home loan capability within the existing expense base on the platform. So we don't expect any material change in the expense base as we start to roll out on loans and the and other than ending as we move forward that kind of all plays off the same platform.

And then I'm just waiting for that to come on the screen. We've got a question from Andrew McNulty, quite a long question. While normalized CSM replenishment, excluding variances, is reasonable on a combined basis, it looks like Vitality Life CSM facing meaningful pressure. Do you expect Vitality Life CSM to grow in the short to medium term? Or could it be facing declines? And is there a risk of weak or negative Vitality Life operating profit growth as a result? Neville, I don't know if you -- again, it sort of links to our previous discussion, but maybe you can add to that.

Maybe [indiscernible] it in terms of the dynamic between CSF and inflation increases. And also the profitability of the new business will grow the CSF in the period of time. So again, I'm not sure there is much more to add.

Okay, and Justin.

Just one other thing to add is as a question from Andrew from ARG. Just to note that as a GBP 15 million benefit going through to the OCI from indexation. So to the MB for life business is known where ideally it would be. It's not coming through to the CSMs. We're not going to CSM growth. We are in growth through the OCI acting the time will release through to the into the P&L.

Another question from Warrick. You disclosed the cash conversion for Discovery Life of 35% of normalized earnings? How do you expect the cash conversion to increase in future periods. Riaan, do you want to maybe take that one?

Yes. I think if we track the recent past of cash conversion in the Discovery Life Limited business, this includes Discovery Life as well as invest that's been reasonably stable and fairly in line with our expectations. So I don't expect that to change dramatically in the near future and kind of continue on this smooth trajectory that we're currently on.

Thank you. Danesh Ranchhod from Franklin Templeton asked how much of the OCI is linked to indexation? It is a very substantial part of it. If you recall, under IFRS 4 last year, there was that sort of impact on the U.K. Life business. between GBP 15 million and GBP 18 million odd. So it's at least that component on transition. I don't have the exact number, but it is a very substantial part of the that is there, we can always get back to you with the exact number. Then Andrew McNulty, ALG saying comment, your approach to IFRS 17 has been very helpful. is providing deeper insight into the business question, one, how meaningful are onerous contracts and unallocated expenses in the large restatement of Vitality Life and results and Discovery Life meaningful restatement. So maybe if I can hand that over to Justin.

Yes, the restatement the [indiscernible] contracts allocated expenses or pass to, I'd have to dig up the actual number of ore don't have them to hand as a business is never leaded to only there is a big strong focus when looking at 1 point. So we expect some pricing actions around.

Then Riaan, I don't know if you wanted to talk to Discovery Life.

Yes. I think that maybe the key thing to add is we do give very detailed disclosure of what is the component of onerous contracts within the income statement as well as the buildup in the CSM. So you can actually completely track within a period what that implication, what the implication is. So very happy to take you happy to take you through the details. In a nutshell, the impact of onerous contracts within the current period for recovery life is not that material. And it has not materially changed from 1 period to the next, but it is clearly shown on the income statement.

And maybe just to take everybody back to the session we had last year at our year-end results we did identify the 2 components that sort of caused most of the impact on transition was the definition of directly attributable expenses, which you now effectively write off and that thing creates on the counter of that larger CSM that will unwind over time and the granular cohorting. So that effect of cross subsidization across the portfolio, and that to an extent, will result in some onerous contracts, which then are written directly off into P&L. So those dynamics remain there. But obviously, that built up over that sort of fully retrospective. And we've seen a lot of improvement in that already over the past number of years. We need to look back at that retrospective. I think those are all the questions.

Okay. Thank you. Thank you to everyone attending the presentation. Thanks for the questions. Obviously, Deon will be interacting and engaging on detail of the issues. Thanks to the team, and thanks to all our Discovery people, a remarkable period a lot to do. Thank you for listening and hope to see you soon.