Discovery’s strategy for long-term growth delivers robust annual financial performance

Johannesburg, 19 September 2024 – Discovery today presented its full-year financial results to the investor community. Group Chief Executive, Adrian Gore, provided context to how the Group’s long-term strategy performed in a complex macro-economic environment. “The full-year reporting period continued to be characterised by complexities in the macro-economic environment, including heightened consumer pressure due to cumulative interest rate increases, constrained economic growth, and political uncertainties on many fronts. Within this context, Discovery remained focused on delivering strong growth in earnings, value, cash generation and capital resilience,” he said.

At a Group level, Discovery delivered increases in normalised operating profit (up 17% to R11 604 million), headline earnings (up 7% to R7 202 million), normalised headline earnings (up 15% to R7 329 million), and core new business annual premium income (API) (up 18% to R26 667 million).

The key financial highlights include:

• Discovery South Africa (Discovery Health, Discovery Bank, Discovery Life, Discovery Invest, Discovery Insure): normalised profit from operations increased by 16% to R9 717 million, and core new business API increased by 19%.
• Vitality UK: normalised profit from operations declined 14%, impacted by two specific issues: claims experience in VitalityHealth and a basis strengthening for the back book under VitalityLife. New business API grew strongly by 17% to R4 444 million.
• Vitality Global: normalised profit from operations increased by 57%. Core new business API for Ping An Health Insurance’s (PAHI) own licence increased by 14% to R2 486 million. Notably, PAHI achieved a key milestone over the period, paying its maiden shareholder dividend, with a payout ratio of 30% of the 2023 calendar year’s distributable profits. Discovery’s share, after withholding tax, was R255 million.

Gore provided an update on the Group’s long-term strategy as the Group enters a new phase in its lifecycle. “Over the past eight years, we have been through a cycle of significant investment, with a focus on globalising the Group’s capabilities, footprint, and scale, as well as building new ventures such as Discovery Bank. This investment cycle was aimed at creating new avenues for long-term growth and we are confident that the business is positioned well to capitalise on this investment,” he explained.

Discovery has rigorously intensified its focus on scaling the emerging businesses and the initiatives that can meaningfully impact the Group, while closing those with marginal benefits over the past two years.

Discovery’s banking business passed key milestones earlier than anticipated, with the Bank increasingly enabling all the South African businesses as a full-service digital bank. The Bank expanded its lending suite through launching a Revolving Credit Facility and a new Home Loans product. Operating losses before new business acquisition costs improved by 89%, with the total client base growing 36% and recently reaching the one million client mark.

The rest of the South African businesses delivered equally positive results, with Discovery Health increasing operating profit by 7% and promising growth in non-medical scheme products now representing 15% of total revenue. The life insurance arm, Discovery Life, grew profits by 9% with a better-than-expected overall claims experience and favourable trends in lapses and premium income.

Discovery Invest increased operating profit by 20% with assets under management expanding by 11%. A higher growth in margins offshore and structured products drove higher fee income. Discovery Insure delivered strong profit growth with a dramatic recovery in the second half of the year after the severe impact of extreme weather events in the first half of the year.

On the performance of its health insurance business in the UK, Gore commented, “VitalityHealth is delivering strong new business growth in the context of increased demand for private medical insurance, given the backlogs experienced by the National Health Service (NHS). Operating profit declined by 52% to £18.5 million as there was a concomitant increase in claims during the reporting period which negatively impacted earnings by £30 million. Given the lag of premium increases, Vitality Health corrected pricing in line with the market, with little impact on lapses. Claim levels are also adjusting with margins expected to recover strongly in the next reporting period.

Post the reporting period, Discovery announced a restructure in its international businesses, combining Vitality UK and Vitality Global into a single global business of scale with significant organic growth potential. Gore commented, “The scale of each of these underlying businesses, which have developed at different paces, given the prevailing considerations for each, underpin the creation of a powerful shared-value life and health insurance composite. Vitality Limited will leverage the opportunity for consistent IP and technology, centralise our product innovation and drive a unified product strategy to deliver value for, and grow, our global partner network.”

Discovery expects the medium-term growth in profit from operations to exceed the longer-term target of CPI+10%, without recourse to further external capital. In line with Discovery’s dividend policy, the Group has declared its final ordinary dividends for the period at 152 cents per share, representing an annual cover ratio of 5 times.

Gore concluded: “Over the past few years our focus has been on investing in emerging and new initiatives. Having entered a new distinct phase of capitalising on our long-term investment and growth strategy, we are now well positioned for sustained growth through two powerful and focused structures; Discovery SA and Vitality Limited.”

ENDS