Discovery business initiatives sink profit but group remains upbeat
JOHANNESBURG – Listed financial services group Discovery on Thursday posted a 16 percent fall in its interim profit on the outlay in new business initiatives, particularly its banking offering, which saw its budget overshoot initial estimates, as well as huge claims in its insurance business.
However, the company said it was well placed for future growth through its “bold” new strategy for 2023 to be leading a global transformation of financial services.
This is as the group declared an interim dividend of 101 cents per share and 506c per share on preference shares in the period.
For the six months ended December, the company’s headline earnings decreased 18 percent to R2.2 billion, while its normalised headline earnings fell 16 percent to R2.3bn.
The group attributed the fall in profits to expenditure on new initiatives, which increased to 21 percent of its earnings in the period.
The group also said it saw a spike in claims in its Discovery Life unit.
Discovery chief executive Adrian Gore said there was a slight over-run in Discovery Bank’s budget compared with the original budget, but that the costs were largely in line with expectation.
“In addition, attention is currently on the card migration and retail funding strategies.
"A successful launch, with a great client experience, is reliant on these interdependent core factors and the take-on of client volumes will be carefully managed to limit risks,” Gore said.
“To end December 2018, a total of R6bn has been invested in the bank. This comprises R3.28bn paid to FirstRand Group, R1.31bn regulatory capital invested in the bank and R1.42bn incurred in Discovery Central Services on the build capital expenditure, test capital expenditure and hardware infrastructure.”
The company said in spite of some delays, the project to go live had been managed well.
Discovery Life experienced a spike in large mortality claims amounting to 8 percent of group earnings for the six-month under review.
The group said its Discovery Health business continued to grow its market share in both the open and restricted medical scheme markets increasing its profits 10 percent to R1.4bn.
The company’s asset management unit grew its operating profit by 9 percent to R455 million, while its Discovery Insure arm saw gross premium income surge 21 percent to more than R1.5bn.
Discovery said its Vitality1 business had grown to more than 800 000 users since it went live in August.
Gore said the group was well capitalised and that the established and emerging businesses were well positioned for growth.
Byron Lotter, a portfolio manager at Vestact Asset Management, said the distribution networks Discovery had achieved so far through various partnerships were taking shape.
“This is the exciting part of the business,” Lotter said.
Discovery shares gained 0.55 percent on the JSE yesterday to close at R145.95.