Shares in South Africa’s Discovery fell 3% on Wednesday after the insurer said it had spent R2.2bn ($134 million) on new initiatives despite a 94% full-year profit fall.
Shares in South Africa’s Discovery fell 3% on Wednesday after the insurer said it had spent R2.2bn ($134 million) on new initiatives despite a 94% full-year profit fall.

Shares in Discovery fall 3% as spending rises and profit falls

By Bloomberg Time of article published Sep 16, 2020

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JOHANNESBURG - Shares in South Africa’s Discovery fell 3% on Wednesday after the insurer said it had spent R2.2bn ($134 million) on new initiatives despite a 94% full-year profit fall.

The company, whose model ties premium rates to clients’ lifestyle choices, had already warned its full-year profit could be wiped out entirely by a 3.3 billion rand coronavirus-related provision and an even bigger impact from interest rate changes in key markets.

It said on Wednesday however its operating performance had been resilient and it had spent 2.2 billion rand on developing new business lines, namely a bank it launched in November 2019.

Such new initiatives have consistently dragged on profit in recent years, with shareholders nervous around how much was being ploughed back into the bank in particular.

Discovery said the bank, which adapts its insurance model to lending and savings by tying interest rates to customer behaviour, now had 489,000 accounts, deposits worth 3.7 billion rand and lending worth the same amount.

The insurer’s headline earnings per share - the main profit measure in South Africa - for the year to June 30 fell to 45 cents ($0.0274) from 789 cents a year earlier. The 94% decrease was in the middle of its forecast range for the decline.

REUTERS

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