Life, Health and UK operations continue to drive growth at Discovery
Maiden dividend of 27 cents a share
Strong growth in Life, Health
Strong growth at PruHealth
Action taken to address losses in Destiny Health
Discovery Holdings enjoyed another year of excellent growth, characterised by another solid performance by Discovery Health, and above-expected growth in new business at Discovery Life and PruHealth.
The results further endorse Discoveryâ€™s business model of creating value for shareholders through making people healthier and enhancing and protecting their lives. This has allowed Discovery to grow strongly in profitability, and become cash flow positive.
As a result, for the first time Discovery will pay a dividend of 27 cents a share, a dividend cover of a conservative 4.5 times. The dividend marks a key point in Discoveryâ€™s growth â€“ showing that it can continue to pay a dividend on a sustainable basis while still generating sufficient cash flow to meet its expansion needs.
â€œThese results show a cash-generative company, built on organic growth and able to fund its future business expansion plans,â€ says CEO Adrian Gore.
In the year to June 30, new business annualised premium income grew 3% to R4,5 billion, while operating profit grew by 37% to R1,3 billion.
Net profit after tax rose 51% to R827 million. Diluted headline earnings a share rose 34% to 126,4 cents a share.
The figures for operating profit, pre-tax profit and headline earnings per share are all before taking into account the impact of the BEE transaction entered into earlier in the year.
Discovery Lifeâ€™s operating profit grew by 31% to R545 million (R417 million), largely thanks to its market leadership in the protection market. This model has led not only to increased growth and profitability â€“ mostly in the form of mortality and morbidity improvements â€“ but has also helped lower the cost of cover for South African consumers.
Discovery Life continues to use its innovative skills to design products that meet consumer needs. Its latest product offering, the Discovery Life Card Integrator, integrates the DiscoveryCard with the Discovery Life Plan, helping consumers enjoy lower premiums in the process.
In August 2005, Discovery Life entered the retirement funding market with the retirement Optimiser, a unique product that utilises unused life cover to enhance retirement income, while also addressing policyholdersâ€™ real health needs during their retirement.
â€œThe Optimiser has been on the market for approximately a year, but already we estimate that it has achieved about 17% of new business market share in the recurring premium retirement annuity market,â€ says Gore.
â€œAs a result of this success, we are evaluating a broader entry into the long-term savings market.â€
Discovery Life continues to build on the relationship with Prudential in the UK, to roll out a joint initiative in the protection market, as from July 2006.
Discovery Health continues to exhibit strong growth, with operating profit rising by 20% to R655 million (2005: R548 million) and of the lives covered on the Discovery Health Medical Scheme and other medical schemes under management increased by 8% to 1.94 million from 1.78 million people.
Gore says Discovery Healthâ€™s scale and size â€“ the Discovery Health Medical Scheme is now 3,8 times larger than its nearest competitor â€“ position it ideally to help create more affordable access to quality healthcare on a sustainable basis for all members.
To this end, Discovery Health made considerable progress in discussions with hospital and other provider groups toward the managing of healthcare costs, which continue to increase at stubbornly high medical inflation rates, despite a lower price inflation environment.
In addition, the company is close to launching a series of initiatives with healthcare providers aimed at ensuring quality care at affordable and sustainable rates, while ensuring membersâ€™ service experience is positive and effortless. It is anticipated that these developments will benefit members directly and will further serve to entrench Discovery Healthâ€™s competitive position, enabling future growth.
KeyCare, Discovery Healthâ€™s lower income market product, continues to grow strongly. Some
130 000 people are covered by KeyCare, making it the largest provider in this market segment. Of these, some 80 000 are people who have never belonged to a medical scheme before.
Gore says a combination of organic growth and expense efficiencies drove the increase in operating profit for Discovery Health. â€œThanks to a number of initiatives launched during the year, we have not only realised a number of efficiencies, but also pushed our service levels to their highest points yet,â€ says Gore.
Destiny Health had a disappointing year, with operating losses increased by 68% to R151 million (2005: R90 million) and recurring premium new business reduced by 2% to R796 million (2005: R809 million). However, its performance for the six-month period was in line with the expectations set at the interim results stage.
Destinyâ€™s poor performance reflects an over-reliance on the Illinois market â€“ in which Destinyâ€™s competitors enjoy significant pricing advantage â€“ and a sluggish roll-out into new markets.
Destiny has now embarked on a number of steps designed to address the problems. This include the appointment of a new CEO in Arthur Carlos, a slimming down in operations to reflect new business levels, the deployment of new senior resources, re-pricing of premium rates and a focus on obtaining significant network discounts.
Furthermore, Destiny came to an arrangement to unwind its joint venture with Tufts Health Plan in Massachusetts, and focus on more promising markets in, for instance, Texas.
Discovery and Destiny are also in discussions with Guardian Life, and one arrangement being considered is for Destiny and Discovery to provide back office support for Guardianâ€™s plans. This will limit Destinyâ€™s downside potential in that market.
However, PruHealth, Discoveryâ€™s 50% joint venture with the Prudential plc, had an excellent year. Members covered increased 696% to 58 912 (2005: 7 400), while new business increased by 706% to R282 million (2005: R35 million).
â€œPruHealthâ€™s offering has been extremely well received in the UK market,â€ says Gore. â€œThe central Vitality philosophy of incentivising better health has found resonance in the marketplace and with policymakers.â€
PruHealth has taken a leadership position intellectually in the private medical insurance market, and execution has been â€œrobust and thoroughâ€ says Gore.
Gore says PruHealth enjoys enthusiastic support from both independent financial advisers and through direct to consumer channels.
Vitality, which underpins the philosophy of Discoveryâ€™s core business, had a good year, with operating profit increasing by 11% to R41 million (2005: R37 million), Vitality membership increasing by 7% to 522 516 members (2005: 486 416 members), and the number of primary DiscoveryCard-holders increased by 120% to 307 688 (2005: 139 563).
Gore points out that Vitalityâ€™s main function is to ensure high levels of engagement by members and policyholders in their health. â€œIts performance in this regard, and in creating a competitive advantage for all of Discoveryâ€™s businesses, has been remarkable,â€ says Gore.
New benefit structures were established or improved, the most notable being the introduction of kulula.com as an air travel partner in addition to British Airways.
DiscoveryCard continues to grow apace in an increasingly competitive and exciting market space. DiscoveryCardâ€™s key differentiator lies in the value proposition it offers for Discovery Health and Discovery Life, in the way it rewards consumers for measures taken to improve their health.
DiscoveryCardâ€™s advances portfolio of in excess of R1.1 billion is testimony to its success, says Gore.
In conclusion, Gore says: â€œThe last year has demonstrated the strength of the Discovery strategy of meeting clientsâ€™ needs first and foremost, and through this attaining superior growth and profitability.â€
Beachhead Media & Investor Relations
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| The restoration of cover under an excess of loss treaty after its exhaustion, wholly or partly, following payment of claims. Where reinstatements are applicable, usually for fire catastrophe business, the number of reinstatements and the method of calculation of the extra premium payable are specified.|
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