Discovery investments into new business is eating into profits

Financial services group Discovery says it expects to report a marked decline in profit for the six months ended December 2019, as it continues to budget increased investment into new strategic initiatives.

“All of Discovery’s established and emerging businesses, with the exception of VitalityLife, produced robust operating results,” the group said in a statement on Monday (17 February).

VitalityLife was largely impacted by its previously announced strategic decision to mitigate its exposure to further interest rate declines in the United Kingdom, it said.

“In addition, the group has continued its budgeted increased investment into new strategic initiatives,” Discovery said.

As a result, normalised profit from operations for the current period is expected to decrease by between 5% and 10% to between R3.6 billion and R3.4 billion compared to reported R3.8 billion in 2018.

Normalised headline earnings per share for the current period is expected to reduce by between 10% and 15% to between 330 cents and 311 cents compared to reported 366.4 cents for the prior period.

Cash, capital and financial leverage metrics remain well within guidance, the group said.

Normalised profit from operations before investment in new initiatives is expected to increase by between 2% and 7% compared to the prior period as per the following reconciliation to normalised profit from operations.

Discovery launched its commercial banking operation, Discovery Bank in March last year. The bank has ensured some teething problems, including around its reward system, and IT related issue, with in excess of R3 billion already invested in the digital only offering.

For the financial year ended June 2019, Discovery’s normalised profit from operations decreased by 3% to R7.75 billion, while headline earnings decreased by 11%. Profit from operations declined 9% to R7.54 billion, and headline earnings per share declined 12%.

Discovery said it expects to publish its financial interim results on Thursday, 20 February.

Read: Discovery says its bank has 22,000 clients and is gaining momentum

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Discovery investments into new business is eating into profits