Discovery reported a robust operational performance during the Covid-19 environment in the year to June 30, despite a R2.4 billion hit to its operating profit from higher-than-expected Covid-19 mortality claims, as it also announced that it would make it a mandatory policy for its employees to be vaccinated.
Chief executive Adrian Gore said a capital raise was being considered specifically to fund the expansion of its investment in Ping An Health Insurance (PAH) in China, Discovery’s contribution to which would be R1.5bn.
The health- and wellness-focused financial services group on Thursday reported a 7 percent increase in normalised profit from operations to R6.49bn.
Gore said Discovery had posted a strong operating performance across all its businesses, despite the pandemic that had manifested in a far higher mortality than expected. The group estimated the mortality rate in South Africa was five times the level of that in its secondary market in the UK.
Gore said getting people vaccinated had the potential to prevent up to 30 000 deaths in South Africa during the fourth wave of Covid-19, which the group expected would hit in November, December and January.
Normalised headline earnings fell 9 percent to 518.7 cents per share. Excluding foreign currency losses, this figure was up 12 percent, he said in an online presentation yesterday.
Normalised headline earnings growth was impacted by R389 million pre-tax mark-to-market foreign currency losses (R578m gain in the prior year) because of a recovery of the rand in the year.
The group did not declare a final dividend for a second year because of the uncertainty and potentially volatile economic environment caused by the pandemic, he said.
Normalised profit from operations increased 7 percent to R6.49bn, notwithstanding a R2.4bn Covid-19-related impact for Discovery Life (R1.1bn in the prior year).
Discovery Life’s contribution to group operating profit fell 55 percent to R1.34bn. Discovery Bank reported a R1.09bn operating loss.
Gore said, however, the bank was seeing good growth in high-quality clients seeking full banking services — with 500 new accounts a day — deposits were growing well, and the bank was pursuing a deliberately prudent approach to granting credit.
At Discovery Life, new business annualised premium income increased 11 percent to R21.33bn, while retention levels were strong.
At the end of the previous year, Discovery Life established a R2bn provision for retail claims and lapses, which proved adequate for the retail business’s in-period claims.
Discovery was playing a leadership role in driving up the national vaccination rate, through its own employees, through its products, and by working closely with the Department of Health on the country’s vaccination roll-out.
The group spent R42m in the year on this, and anticipated spending R200m in the 2022 financial year.
It intended to move to a mandatory vaccination policy for employees from January 1 next year, and Gore hoped other companies would follow with similar policies. Arrangements would be made to accommodate employees as much as possible who did not want to be vaccinated, Gore said.
Each of the group businesses was strongly capitalised, and there was an excess of liquid assets above the minimum regulatory capital requirements of R13.4bn, held within the businesses, with excess liquidity of R2bn held at the centre in South Africa.
During the period, the group became aware that, because of the effect of the future growth prospects of PAH and its expanding product mix, with the evolving prudential regulatory requirements in China, PAH required additional capital of RMB2.6 billion (about R6bn).
Discovery’s contribution, amounting to some R1.5bn, would be required in the near future.
If Discovery were to raise equity capital, it would likely follow a similar strategy to the one it adopted in the final buy-out of First National Bank’s credit card book in 2018, for which it raised a specific quantum, ring-fenced for those purposes, to ensure that the discipline of capital allocation within the capital plan in the group remained intact, said Gore.
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