{"id":375431,"date":"2020-02-20T09:02:58","date_gmt":"2020-02-20T07:02:58","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=375431"},"modified":"2020-02-20T09:02:58","modified_gmt":"2020-02-20T07:02:58","slug":"discovery-plows-more-than-r500-million-into-its-commercial-bank-as-new-business-initiatives-eat-into-profits","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/banking\/375431\/discovery-plows-more-than-r500-million-into-its-commercial-bank-as-new-business-initiatives-eat-into-profits\/","title":{"rendered":"Discovery plows more than R500 million into its commercial bank as new business initiatives eat into profits"},"content":{"rendered":"<p><span class=\"st\">Financial services group<\/span> Discovery on Thursday (20 February), reported a big drop in earnings for the six months ended December 2019, as it continued to invest in new initiatives including Discovery Bank, which it said is &#8220;showing encouraging traction&#8221; following its launch into the market in mid 2019.<\/p>\n<p>Discovery said that over the interim period, all of its established and emerging businesses, with the exception of VitalityLife, produced robust operating results.<\/p>\n<p>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.<\/p>\n<p>Discovery said that normalised profit from operations decreased by 7% to R3.551 billion, headline earnings decreased by 9% to R2.047 billion and normalised headline earnings decreased by 11% to R2 117 million.<\/p>\n<p>The group said that new business annualised premium income (API) increased by 17% to R11.116 billion.<\/p>\n<p>In terms of the operating model, the established businesses delivered a robust performance, with profit of R4.301 billion, 3% higher than the prior period despite the loss in VitalityLife. The emerging businesses grew strongly, delivering a combined profit of R253 million, 50% higher than the prior period.<\/p>\n<p>Discovery said it invested R1.003 billion in new strategic initiatives, an increase of 81% over the prior period. Spend on new initiatives is weighted towards the first half of the year and expected to decrease in the second half, it said.<\/p>\n<p>&#8220;Of this spend, 53% was dedicated to Discovery Bank, which is expected to remain the dominant investment going forward,&#8221; it said.<\/p>\n<p>Discovery achieved the following results for the period ended 31 December 2019:<\/p>\n<ul>\n<li>Net asset value increased by R1.598 billion<\/li>\n<li>Headline earnings per share decreased 10% to 311.7 cents per share<\/li>\n<li>Earnings per share decreased 12% to 310.3 cents per share<\/li>\n<li>Total new business API increased 17% to R11.116 billion<\/li>\n<li>Normalised profit from operations decreased 7% to R3.551 billion<\/li>\n<li>Profit for the year decreased 11% to R2.078 billion<\/li>\n<li>Interim ordinary share dividends remains unchanged at 101 cents per share<\/li>\n<\/ul>\n<hr \/>\n<p><strong>Discovery Bank<\/strong><\/p>\n<p>As at 18 February 2020, Discovery Bank had 78,000 clients with 180,000 accounts, nearly half of which had never held a Discovery Card before. Discovery said that deposits had grown strongly to R1.2 billion; total credit card spend was R2.6 billion and total credit limits granted was R2.5 billion &#8211; with over R1 billion in credit facility used.<\/p>\n<p>&#8220;Growth potential is strong with over 200,000 accounts that still need to be migrated from the FNB Joint Venture; and the activation of Discovery&#8217;s advisor channels to sell bank accounts in the second half of the year,&#8221; it said.<\/p>\n<hr \/>\n<p><strong>Discovery Health<\/strong><\/p>\n<p>Discovery Health (DH) delivered a resilient performance, with normalised operating profit increasing by 8% to R1.575 billion.<\/p>\n<p>Total new business API (including take-on of new closed medical schemes) grew by 26% to R4.367 billion.<\/p>\n<hr \/>\n<p><strong>Discovery Life<\/strong><\/p>\n<p>Discovery Life (DL) grew earnings by 25% to R1.875 billion (off a low base) as a result of improving claims experience and pleasing all-round performance, the group said.<\/p>\n<p>New business grew 2% to R1.240 billion in a declining market, resulting in over 31% market share in the retail affluent risk market &#8211; more than double the next largest competitor.<\/p>\n<hr \/>\n<p><strong>VitalityHealth<\/strong><\/p>\n<p>Discovery said that VitalityHealth continued to deliver strong results. Operating profit grew by 9% to \u00a326.7 million (up 11% to R495 million), although new business declined by 2% to \u00a333.1 million (0.5% to R613 million) in a challenging sales environment, characterised by economic uncertainty and aggressive competitor activity, it said.<\/p>\n<p>Total lives reached 674,000, up 12%, while earned premiums grew 9% to \u00a3246.5 million (R4 569 million).<\/p>\n<p>&#8220;The results reflect continued strong performance across key business metrics: the lapse rate and claims performance was stable and costs remained well managed.&#8221;<\/p>\n<hr \/>\n<p><strong>Discovery Insure<\/strong><\/p>\n<p>Discovery Insure (DI) saw strong growth during the period, achieving R75 million operating profit \u2013 up 21% on the prior year.<\/p>\n<p>Gross Premium Income grew by 15% to R1.8 billion while gross new business API grew by 7% to R551 million.<\/p>\n<p>Gross Written Premium (personal lines only) market share was estimated at 6%(DI) saw strong growth during the period, achieving R75 million operating profit \u2013 up 21% on the prior year.<\/p>\n<p>Gross Premium Income grew by 15% to R1.8 billion while gross new business API grew by 7% to R551 million.<\/p>\n<hr \/>\n<p><strong>Priorities for growth<\/strong><\/p>\n<p>The group said it is well positioned for growth over its planning horizon to 2023, with the capital plan intact.<\/p>\n<p>Key priority areas are:<\/p>\n<ol>\n<li>Execute on VitalityLife&#8217;s stated plans to manage in the low interest rate environment, stabilise experience variances and return to robust profit in FY 2021;<\/li>\n<li>Achieve significant traction in new initiatives, most notably Discovery Bank, and ensure short-term new business thresholds are achieved for each initiative;<\/li>\n<li>Ensure the established businesses retain their insurgency;<\/li>\n<li>Capitalise on emerging businesses&#8217; unique attributes and positioning to achieve scale and materiality.<\/li>\n<\/ol>\n<p><a  data-lightbox=\"post-image\" href=\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2020\/02\/Discovery1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-375521\" src=\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2020\/02\/Discovery1.png\" alt=\"\" width=\"684\" height=\"371\" srcset=\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2020\/02\/Discovery1.png 684w, https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2020\/02\/Discovery1-300x163.png 300w\" sizes=\"auto, (max-width: 684px) 100vw, 684px\" \/><\/a><\/p>\n<hr \/>\n<p><strong>Read: <a href=\"https:\/\/businesstech.co.za\/news\/finance\/364864\/heres-how-discoverys-new-rewards-system-will-work-in-2020\/\" target=\"_blank\" rel=\"noopener noreferrer\">Here\u2019s how Discovery\u2019s new rewards system will work in 2020Here\u2019s how Discovery\u2019s new rewards system will work in 2020<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Financial services group Discovery on Thursday (20 February), reported a big drop in earnings for the six months ended December 2019, as it continued to invest in new initiatives including Discovery Bank, which it said, is &#8220;showing encouraging traction&#8221; following its launch into the market in mid 2019.<\/p>\n","protected":false},"author":10,"featured_media":284182,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[961],"tags":[4883,26],"class_list":["post-375431","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking","tag-discovery","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/375431","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=375431"}],"version-history":[{"count":5,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/375431\/revisions"}],"predecessor-version":[{"id":375553,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/375431\/revisions\/375553"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/284182"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=375431"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=375431"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=375431"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}