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Discovery delivers solid growth in interim earnings despite high Covid claims paid out

DISCOVERY lifted normalised headline earnings per share by 26 percent to 437.7 cents for the six months to December 31 after it grew through the pandemic. | Karen Sandison/African News Agency/ANA

DISCOVERY lifted normalised headline earnings per share by 26 percent to 437.7 cents for the six months to December 31 after it grew through the pandemic. | Karen Sandison/African News Agency/ANA

Published Feb 25, 2022

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DISCOVERY lifted normalised headline earnings per share by 26 percent to 437.7 cents for the six months to December 31 after it grew through the pandemic, with a strong performance from Discovery Bank and the establishment of Amplify Health.

Despite the good performance though, no interim dividend was declared, which saw its share price slide in intraday trade, down 4.35 percent R153.61.

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Management said that over the period, their strategy remained three-pronged: navigating the pandemic; building on the business model, with good traction in Discovery Bank; and the conclusion of the Amplify Health transaction with AIA Group on February 15, 2022 and focusing on cash and capital management.

Discovery is injecting its Vitality and Health capabilities into a new health InsurTech joint venture with the AIA Group in Asia, called Amplify Health, which the group said was a “powerful endorsement of the platform that has been built, and an opportunity for further expansion and growth”.

Discovery Bank’s performance had “exceeded expectation” in the six months, with excellent performance across all metrics.

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The bank’s normalised operating loss was better than planned at R498 million, 18 percent lower than the prior period. The bank continued to gain traction with 385 200 clients (287 182 clients in December 2020) and 793 215 accounts (540 252 accounts in December 2020).

Discovery Life paid R3.4 billion in Covid-19 claims, gross of reinsurance, during the six months – the highest throughout the pandemic – but the impact on earnings was limited given the strong reinsurance arrangements and previously raised provisions proving adequate.

The group’s management believes its remaining provisions are sufficient to withstand a potential fifth wave of Covid, supported by high levels of vaccination among clients and high levels of immunity in South Africa.

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Group profit increased 76 percent to R3.31bn. Normalised profit from operations advanced 8 percent to R4.87bn. Embedded value per share rose 14 percent to R126.23 a share.

Core new business annualised premium income was up 6 percent to R10.48bn, as new business trends in SA and the UK improved while persistency continued to exceed expectations.

Normalised headline earnings were positively impacted by a weakening of the rand during the period compared with losses due to the rand strengthening in the previous period.

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This gain was partly offset by support for the national mass vaccination programme.

The third wave of the pandemic led to a significant number of deaths in South Africa while the fourth wave has seen a sharp increase in new infections, but with less severe clinical outcomes compared with the other waves of infections.

Liquidity and solvency remained strong across the group.

Discovery Health (DH) contributed to the global research agenda with its Covid-19 analysis and research, releasing an at-scale, real-world analysis of the Omicron outbreak in December, 2021 to analyse vaccine effectiveness.

Discovery Health grew normalised operating profit by 5 percent to R1.75bn, while gross income increased by 4 percent to R4.48bn.

Non-medical scheme revenue continued to grow, with this revenue exceeding R550m and it now represents 13 percent of Discovery Health revenue.

BUSINESS REPORT

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