Discovery sees positive Covid signs for South Africa on the back of strong results

Discovery has published its interim financial results for the period 31 December 2021, with the financial services group seeing continued growth in its health business, while banking losses were lower than expected.

Group operating profit increased 8% to R4.6 billion over the period, while headline earnings increased by 26% to R2.8 billion.

Normalised headline earnings per share (basic) increased by 26% to 437.7 cents and headline earnings per share (basic) increased by 78% to 499.1 cents.

“Normalised headline earnings were positively impacted by mark-to-market foreign currency gains arising from a weakening of the rand during the reporting period, compared with losses due to the rand strengthening in the previous period,” Discovery said in a shareholder statement on Thursday (24 February).

“This gain was partly offset by substantial support provided to the national mass vaccination campaign in South Africa, for which Discovery spent R137 million over the reporting period.”

The key financial figures show:

  • Net asset value increased by R5.75 billion
  • Profit for the period increased by 76% to R3.3 billion
  • Normalised profit from operations increased by 8% to R4.87 billion
  • Earnings per share increased by 78% to 498.8 cents per share
  • Headline earnings per share increased by 78% to 499.1 cents per share
  • Normalised headline earnings per share increased by 26% to 437.7 cents per share
  • Embedded value per share increased by 14% to R126.23 per share

The period under review has been one of most significant for Discovery, said group chief executive Adrian Gore.

“While the past two years have been testing due to the Covid-19 pandemic, our shared-value insurance model has enabled us to navigate challenges and ensure the resilience of our business – to the benefit of all our stakeholders.

“At the same time, we remain committed to our long-term business strategy of pursuing a growth trajectory, accelerating our pace on a number of initiatives that position us well for the future,” he said.

Discovery Health

Discovery Health saw normalised operating profit increase by 5% to R1.7 billion, while gross income increased by 4% to R4.4 billion million for H1 FY22

In addition to the Discovery Health Medical Scheme (DHMS), the group administers 18 closed medical schemes, all of which showed strong performance across the board, it said,

DHMS has continued to perform strongly: new business levels showed signs of post-Covid-19 recovery and the Scheme showed net growth of 17,835 lives for the six months, while lapse rates remained below pre-Covid-19 levels. Consequently, DHMS’s share of the open medical scheme market has grown to 57.5% by the end of Q3 2021.

“Discovery has navigated the Covid-19 pandemic across all global operations, with mortality risk in South Africa having the largest impact financially,” said Gore.

“This period was characterised by the Delta variant and towards the latter part of 2021, the highly infectious Omicron variant, which has been shown to be less clinically severe than the Delta variant.”

Gore said that the group is now seeing four important healthcare insights emerging from its data, which will require ongoing monitoring and analysis.

“We are now seeing that healthcare utilisation is returning to pre-pandemic levels, which was expected as countries emerge from lockdown measures. Early data on the long-term impact of Covid-19 on population health and overall disease burden will still feature prominently in the immediate future and more work is needed to understand this trend.”

“Our Covid-19 provision, which we announced last year, has proven more than sufficient to buffer the business against the financial impact of the pandemic. Combined with high vaccination levels and previous infection immunity among our client base, our assessment was to not raise additional provisions.”

The significant reduction in fatality rates during the fourth Omicron wave also gives some comfort, he said.

“The group believes the remaining provisions are sufficient to withstand a potential fifth wave. Liquidity and solvency remained strong across the Group and the financial leverage ratio improved to 23.9%, well below the internally set guidance threshold of 28%.”

Discovery Bank

Discovery Bank’s normalised operating loss for the period under review was better than planned at R498 million, 18% lower than the prior period.

The bank continued to gain traction with 385,200 clients (compared to 287,182 clients in December 2020) and 793,215 accounts, expanding its existing Discovery and non-Discovery client base and achieving more than 750 average daily new-to-Bank sales in January, higher than the current plan.

Retail deposits grew by 69% to R9.5 billion and advances grew at 10% to R4.1 billion at 31 December 2021.

“The bank continues to innovate and has just launched its comprehensive, real-time forex capability on the Discovery Bank app that gives access to immediate foreign currency transactions , Gore said.

“The bank’s travel platform and Discovery Pay accounts are also expected to launch in the coming months, establishing the Bank as the platform for the South African composite.”

Read: Discovery Bank operating loss ‘reducing faster than planned’

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Discovery sees positive Covid signs for South Africa on the back of strong results