A robust performance, combined with strong organic growth and increased efficiencies across all its businesses, saw health and life group Discovery lift operating profits by a whopping 102% to R708-million for the year ended June 30.
Despite a 29% increase in the weighted number of shares in issue, diluted headline earnings per share before abnormal items increased by 18% to 77,4 cents from 65,7 cents previously.
Discovery Life increased profits by 138% to R27-million, while United States subsidiary Destiny Health achieved profitability in its core Illinois business and solid growth was achieved in the core Discovery Health business.
Embedded value grew by 40% from R4,9-billion to almost R6,9-billion, but the change in the number of shares in issue also affected the per-share calculation, putting embedded value per share on a diluted basis at R12,89 (2003: R12,20).
According to Discovery CEO Adrian Gore, Discovery’s businesses are built on the foundation of innovation and engaging people in the managing of their health in order to achieve better social and financial outcomes.
“This has enabled Discovery to take a leadership position in the markets wherein it operates by offering life and health-insurance products that are competitive, efficient and sustainable. This has led to strong organic growth and a competitive position going forward,” he said.
Discovery Life exceeds expectations
The Life business, which now constitutes almost 40% of operating profits, has exceeded all expectations since its launch less than four years ago, with its unique risk assurance offering.
Discovery Life’s annualised new business premium increased to R554-million (2003: R423-million). The number of policy-holders increased by 91% to 119 884 (2003: 62 914). The company’s market share of new business of the entire life assurance market now exceeds 6,1%.
Product innovation and the integration of the offering with Discovery Health and Vitality have enabled Discovery Life to remain highly competitive. Innovations in the year included the launch of the PayBack Benefit, which allows Discovery Health members who are Discovery Life policy-holders to receive back a substantial percentage of their life-assurance premiums, based on how they manage their health.
Discovery Life is now an established leader in the life-assurance market, a position reinforced by its rating as the lead risk assurer by its peers in a recent industry survey conducted by PriceWaterhouseCoopers, among South Africa’s leading insurance companies.
Discovery Health continues to grow
Discovery Health continued to grow market share in the period under review, rising to 22,8% (2003: 20,8%), and membership now stands at more than 1,6-million members. This growth and improved administration efficiencies helped grow operating profits 40% to R522-million (2003: R372-million).
Discovery Health’s product structures and sound risk management helped grow the Discovery Health Medical Scheme surplus by a healthy R1,52-billion over the financial year to more than R2,5-billion at June 30 2004. The scheme is on track to meet the 25% statutory reserve level required by December 31 2004.
Progress in meeting these reserve levels has meant that Discovery Health and the Discovery Health Medical Scheme were able to announce a 5,4% contribution increase for 2005, its lowest since inception. At the same time member benefits were significantly enhanced and remuneration for specialists and general practitioners increased by about 40%.
KeyCare, which is aimed at employees earning less than R5 000 per month, continues to grow in line with projections, with approximately 67 000 members.
US subsidiary makes small profit
Destiny Health, Discovery’s health-care insurance subsidiary in the US, turned a small profit in the flagship Illinois business. The Illinois business made an operating profit of $190 000 during the second half of the year, while Destiny also rolled out joint ventures with Guardian Life Assurance Company of America and the Tufts Health Plan of Boston, Massachusetts.
Destiny Health membership grew by 66% to 36 189 (2003: 21 858) as a result of a 70% increase in new business to $73-million (2003: $43-million).
Operating losses decreased by 37% to R106-million (2003: R169-million), reflecting a combination of membership growth, improved quality of business and focused expense management.
The joint venture with Guardian has already produced pleasing results although the roll out of the Tufts Health Plan venture has been slower than initially anticipated. Destiny will aim to leverage the distribution capability and scale of its joint venture partners to grow its membership base.
Significant elements of the back-office functionality of Destiny have been moved into Discovery to achieve the benefits of scale and a lower cost environment. An important by-product of this has been the creation of job opportunities for South Africans of nearly 100 jobs in the past 12 months.
It is anticipated that this will continue and grow as the business expands.
New initiatives
Discovery is also involved in two new initiatives, set to roll out in the coming financial year. This includes PruHealth, a joint venture between Discovery and Prudential plc. The PruHealth product range will be built on Discovery’s consumer-driven health-care experience and, as with Destiny Health, the company’s administrative and service support functions will reside in South Africa.
PruHealth is ahead of schedule, with the infrastructure approaching operational readiness and the Vitality product offering largely completed, having secured deals with two leading British gym networks. Approval was recently obtained from the United Kingdom’s Financial Services Authority, paving the way for the consumer product launch, the next key milestone in PruHealth’s development.
DiscoveryCard is a credit-card initiative set to roll out in the coming months. The DiscoveryCard is a “next generation” credit card offering full Visa functionality, automatic savings at a network of leading stores, interest-free finance for healthcare and operates as a Discovery Health and Vitality membership card, giving savings benefits for cardholders who manage their health.
Looking ahead, Gore said the capital raised in the period should provide sufficient capital to fund Discovery’s current growth aspirations. The strong operating performances, increased efficiencies achieved across all the businesses and new initiatives position the company well for future growth. — I-Net Bridge