Discovery Bank reports R450 million loss – but moving in the right direction
Discovery has published strong financial results, with Discovery Bank’s losses decreasing substantially.
In its financial results for the year ended 30 June 2024, Discovery said that continued macroeconomic complexities characterised the year under review.
Global inflation rates also dropped from the prior year’s highs, but cumulative interest rate increase added to heightened consumer pressures in many regions, which constrained economic growth.
The uncertainty around South Africa also created further economic headwinds over the year. Still, the group noted that the formation of the Government of National Unity (GNU) resulted in significant shifts in confidence, with immediate relief seen with many market indicators.
“The National Health Insurance (NHI) Act, which was signed over the period, is not workable in its current form; however, the group is engaging at multiple levels to facilitate a viable journey to universal
healthcare coverage in SA.”
“In the United Kingdom (UK), fiscal challenges and the knock-on impact on the National Health Service (NHS) backlogs accelerated the demand for, and utilisation of, private medical insurance (PMI).”
“Many markets in Asia experienced post-COVID-19 recoveries; however, China continued to face significant macroeconomic and growth constraints.”
Looking at the financials, the IFRS 17 Insurance Contracts accounting standard became effective for the group on 1 July 2023.
The group said that normalised profit from operations increased by 17%, with strong contributions from Discovery SA and Vitality Global (VG), which increased by 16% and 57%, respectively.
Vitality UK, however, declined by 14% and was impacted by two specific issues: the claims experience in VitalityHealth and a basis strengthening for the back book under VitalityLife.
Normalised headline earnings per share grew by 15%, while headline earnings increased by 7%, with the difference due to considerable prior-period fair value gain from the UK interest rate swaption.
Overall, the group increased its final dividend per share by 38% to 152 cents per share.
Discovery Bank (DB) also improved its operating loss before the new business acquisition by 89%.
The overall normalised loss of R454 million was 41% better than the prior year.
Discovery Bank has been consistently narrowing its losses since its launch. It posted an operating loss of R1.2 billion in 2020, R1 billion in 2021, R990 million in 2022 and R767 million in 2023.
The operating loss of R454 million in 2024 represents an overall reduction of 60% over the last five years.
DB’s total client base grew 36% to June 2024, reaching the one million client target post-year-end, well ahead of its “by 2026” target.
“DB remained focused on high-quality growth and customer primacy, given challenging macroeconomic conditions, with deposits growing 29%,” said the group
“Advances grew steadily by 27%, and NII grew by 36%, as average interest-earning assets increased 30% and the net interest margin increased by 7%.”
“DB expanded its lending suite by launching a Revolving Credit Facility in December 2023, as well as home loans in May 2024, both of which have seen pleasing initial take-up.”
Non-interest revenue grew by 45% year-on-year to R7.9 billion due to growth in clients, product take-up, and the resulting fee income per client. Net interest income stood at R779 million.
“In line with DB’s growth trajectory, client engagement levels grew, with a 44% increase in payment
volumes and a 33% increase in spend values in June 2024 compared to the prior year,’ said the group.
Discovery Health (DH) increased its operating profit by 7% to R3.9 billion while continuing to invest in technology, innovation and artificial intelligence.
DH Medical Scheme remained robust despite a relatively flat open medical scheme market and challenging macroeconomic environment.
DHMS kept its market share of 57.9% in the open scheme market, and the projected 2024 solvency of 30% is far higher than the 25% regulatory requirement.
Discovery Life (DL) grew profits by 9% despite the elevated prior year group life results, as individual life increased 11%.
The claims experience was also better than expected, as elevated income disability claims in individual life were offset by favourable claims experience in group life.
Discovery Invest also increased its operating profit by 20% to R1.5 billion, while Assets under management expanded 11% to R155 billion. The higher growth in superior margin offshore and structured products drove the increase in fee income.
Discovery Insure’s (DI) personal lines business also saw strong profit growth, with it reaching R248 million in normalised profit. After severe weather events significantly impacted the first half, the business dramatically recovered in the second half of the year.
The group added that dynamics for the DI business have improved significantly due to several initiatives in previous periods aimed at improving operating margins through reduced claims costs and operating expenses.
Outlook
“Discovery’s growth strategy is based on the efficacy, repeatability and scalability of its model through organic growth and global partnerships.”
“Following rigorous focus over the past few years on emerging and new initiatives, as well as on cash generation and utilisation, the group firmly believes it has entered a new distinct phase, which it expects to have a material impact on profitability, cash generation, returns and leverage.”
“The group is well positioned for sustained growth through two powerful and focused structures, Discovery SA and Vitality Limited, with strong growth platforms in each.”
“The group expects the medium-term growth in profit from operations to exceed the longer-term target of CPI+10%, without recourse to further external capital.”
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