Discovery warns of weaker profits, but says NHI could help it grow

Discovery has released a new trading update which shows its headline profit will be 10% and 15% lower than the previous year as it invests billions of rands into Discovery Bank and its Vitality business in the UK.

In addition, the group has seen an unusual spike in large death claims in Discovery Life in the first six months of its financial year.

But Discovery also reported that its new premium income grew by almost 13%, and that its debt situation is improving, although finance costs rose by R240 million over the past year.

Discover Health, which manages the medical schemes of 3.3 million beneficiaries and has a market share of more than 40% in South Africa, saw its normalised profit increase by 10%, with only 1% growth in new business. Its rewards programme Vitality struggled, and new business shrank, while its profit grew by 3%.

Its new VitalityHealth and VitalityLife businesses in the UK saw solid profit growth over the past financial year.

discovery

Discovery says it is currently spending around 20% of its profits on its new businesses, but that will fall to 10% in the next couple of years.

“Profit growth is expected to return to its stated goal of CPI plus 10% and the Group is well capitalised for its five-year planning horizon.”

NHI 

Discovery, which has lost a fifth of its market value after the publication of the National Health Insurance (NHI) Bill earlier this month, says the legislation is not expected to have a material long-term impact on its Discovery Health business.

The NHI foresees the creation of a fund that will be a massive state-run medical scheme, and all South Africans will be members. This cast doubt over the future of private medical schemes. 

But Discovery believes the NHI “”may in fact present new opportunities for growth and product innovation.”

Its share price gained more than 6% by early afternoon on Friday, following the trading update.

Discovery’s annual result will be released on 4 September.

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