Discovery’s emerging businesses pay off
Discovery saw all of its emerging businesses turn profitable for the full year to June as the group positions itself as a global financial services player.
The emerging businesses, which comprise Discovery Insure, the global Vitality business and Chinese-based insurance provider Ping An, contributed operating earnings of R158m. The group’s total operating earnings increased 17% to R8.2bn.
Discovery was launched 25 years ago by Adrian Gore as a new entrant in SA’s medical scheme industry and has since mushroomed into a significant financial services business in SA, adding Discovery Life, Invest and Vitality to become a company with a market capitalisation of R110bn.
“The progression of the group across the board was good. Every business was positive and every business performed in line with expectations or beat them. All of our emerging businesses are profitable and present a much bigger opportunity than what we thought,” said Gore, Discovery’s CEO. He described one of the highlights being the performance of Ping An, which is delivering exponential growth.
Discovery owns 25% in Ping An, which increased new business 95% to $443m, while its written premiums increased 87% to $753m.
Gore said during the results presentation that Ping An’s revenue for the first seven months of 2017 had already exceeded the revenue generated during the whole of 2017.
Discovery’s normalised headline earnings per share of R8.36 and a dividend per share of R1.14 both rose 16% year on year.
The established local businesses will soon be bolstered by the entry of Discovery Bank.
Gore said Discovery would be purchasing the 25% that FirstRand owns in DiscoveryCard for R1.8bn, subject to regulatory approval. Discovery will issue new shares to fund the acquisition in due course.
What can clients and investors expect from the bank? Much of the same, encapsulated in Discovery’s “shared value” model in insurance.
“In health insurance, when you shift behaviour to healthier options, you realise economic value. We [Discovery] catch some of that directly in our claims when healthier people claim less often. People often don’t make rational decisions. So we use some of the value created to incentivise change and that creates a virtuous cycle,” Gore said.
“Banking is no different,” he explained. “Bad behaviour is behind much of the risk. So certain choices, like corrosive spending, creates default, which is loss-making for a bank. These poor choices can be altered through a system of incentives which can produce better economic outcomes for the clients and the institution.”