South Africa’s largest medical aid provider Discovery on Wednesday reported a 12% drop in headline earnings per share for the year ended June 2019, attributing the decline to large mortality claims within Discovery Life, along with the costs associated with opening a new digital bank.
Discovery cited a “period of considerable complexity, with a temporary decline in profits due to significant investment in new initiatives and large-claim volatility in Discovery Life”.
For its 2019 financial year, Discovery said it planned to increase investment into strategic initiatives significantly, most notably the build and launch of Discovery Bank, creating an expected reduction in group earnings.
“For the first six months to 31 December 2018, this planned increased investment together with an unexpected spike in large mortality claims within Discovery Life resulted in a substantial reduction in normalised headline earnings per share. Various actions were taken to address the large-claims volatility, which ameliorated in the second half of the year,” it said.
For the financial year ended June 2019, Discovery’s normalised profit from operations decreased by 3% to R7.747 billion, headline earnings decreased by 11% to R5.147 billion and normalised headline earnings decreased by 7% to R5.035 billion.
Spend on new initiatives increased by 114% to R1.311 billion over the period – 21% of group earnings – in line with budget and fully provided for in the capital plan.
Normalised headline earnings per share (undiluted) decreased by 8% to 771.9 cents and headline earnings per share (undiluted) decreased by 12% to 789.0 cents.
- Net asset value increased by R5 489 million
- Headline earnings per share decreased 12% to 789.0 cents per share
- Earnings per share increased 14% to 1 001.5 cents per share
- Total new business API increased 14% to R19 246 million
- Normalised profit from operations decreased 3% to R7 747 million
- Profit for the year increased 15% to R6 614 million
- Final ordinary share dividends remained unchanged at 114 cents per share
Discovery Bank (the bank) launched for beta testing in November 2018 with a public rollout in June 2019. “There has been a deliberate, phased rollout to ensure that the bank scales seamlessly,” it said.
It noted that the costs incurred in the build, test and run phases of the bank have largely been in line with expectation and the migration of existing Discovery Card clients from FirstRand Bank to Discovery Bank is gaining momentum. The bank currently has over 22,000 clients, with over 50,000 accounts.
“Although the public rollout of the bank was slightly delayed, it allowed for the refinement of key elements of the bank leading to a sophisticated architecture with a seamless user experience, and a compelling value proposition.
“Progress has been made in building the digital systems capabilities and infrastructure; 1.5 million hours have been spent building 120 interconnected systems and infrastructure, with a focus on ensuring that customer journeys are excellent and intuitive.
“The bank has gained traction since the public rollout, making considerable progress in a period of two months with over 22,000 clients on-boarded, and deposits and total credit limits approved exceeding R190 million and R900 million, respectively,” the group said.
For Discovery Health (DH), normalised operating profit increased by 10% to R3.044 billion, and new business API (excluding Vitality and the take-on of new closed medical schemes) grew by 1% to R6.64 billion, “a reflection of the challenging economic environment”. Lives under management exceeded 3.5 million, it said.
Shares in Discovery climbed more than 3% in trade on Monday (3 September), having struggled in recent sessions amid uncertainty around the impact of the recently published National Health Insurance (NHI) Bill.
Discovery says it is supportive of the aims of the bill, “and will work closely with the relevant policy makers and stakeholders to ensure an optimal outcome to the legislative process”.
“The bill is not expected to have a material long-term impact on the Discovery Health business and may in fact present new opportunities for growth and product innovation,” the group stressed.