DURBAN - Discovery's shares fell more than 4percent after the financial services group warned that its annual earnings were now expected to tumble by up to 100percent.
In a trading update on Friday, the group revised its earnings expectations for the year to the end of June.
It expected its headline earnings per share (HEPS) to slide by between 90and 100percent, to between 0 and 78.9cents a share, down from last year’s HEPS of 789c.
In a trading update released in June, Discovery had flagged that it expected HEPS to decline by between 70 and 90percent.
However, the company said continued volatility in long-term interest rates in South Africa and the UK had negatively effected its headline earnings.
“There were significant movements in long-term interest rates in South Africa and the UK during the period continuing from the last trading update to the end of the reporting period, with negative real rates of return in the UK and positive real rates of return in South Africa, both at historic levels,” Discovery said.
This volatility has had a significant impact on policy values and headline earnings, but no impact on cash flows, it said.
“The estimated impact of this provided in the previous trading statement was R3.5billion, but with continued volatility to the end of the reporting period, it is now estimated to have a further R1.3bn impact.”
Discovery said that it expected its performance to be resilient despite the effects of the Covid-19 pandemic during the period, and made a provision for future Covid-19 effects of R3.3bn, in line with the previous guidance.
“Taking emerging data into account, Discovery remains confident that the R3.3bn estimate is sufficient to provide for the effect of Covid-19 post the reporting period,” the group said.
Its core new business was expected to increase by 4percent. The group said it was likely its normalised operating profit growth would increase by between 5 and 15percent, before the establishment of provision for the impact of Covid-19. Discovery expects to release its full-year results on September 16.
Its shares fell 4.35 percent to close at R128.50 on the JSE on Friday.
BUSINESS REPORT