Wrap Text
Discovery Reports On Successful Year That Provides Platform For Strong Growth
Discovery Holdings Limited
HIGHLIGHTS
Operating profit - up 23%
Headline earnings per share - up 14%
New business premium income - R2,3bn
Discovery Life profitable in first full year of operation
Discovery Life new business - R264m
Destiny Health new business - R206m
Embedded value per share - R8,48
In a year that Discovery CEO Adrian Gore describes as "complex, but particularly
successful", Discovery`s performance surpassed expectations, leaving the
businesses well-positioned for the year ahead.
"The year under review is a manifestation of our ability to execute our three
unique competencies: Vision, Innovation and Execution in each of our businesses
for the benefit of our clients and shareholders," says Gore.
"Our businesses are testimony to our ability to coalesce our three competencies:
Vision. - the ability to identify and predict significant social trends that
impact on our core purpose of making people healthier and enhancing and
protecting their lifestyles. In the context of healthcare, we`ve seen this with
the move toward consumerism, in Life Assurance we instigated the trend toward
the separation of risk from investment, and in the case of Vitality, we
identified a social trend toward prevention and fitness.
Innovation - the ability to understand these shifting trends and establish
companies and products that uniquely cater for them; and
Execution - the ability to execute on the innovation through efficient
businesses with strong management, sound financial principles and superior
operational infrastructure.
"The result of this business model is organically built mainstream businesses, a
generation ahead of their competitors, and growing rapidly. This growth is
supported by the fact that we operate in markets wherein demand is very strong -
private healthcare and life assurance.
Discovery Health
Discovery Health`s performance exceeded expectations in a particularly complex
year. The three-year long dispute with the Council for Medical Schemes - which
dealt with issues such as the demarcation between medical schemes and insurance
policies, the use of reinsurance, and the capitalisation of medical schemes -
came to an end. The resolution required Discovery Health to reduce
administration fees and reinsurance, and commit to achieving a stated level of
reserves within the Discovery Health Medical Scheme.
"Despite the financial effect of the resolution, the company`s pre-tax profits
grew by 10%, from R296m to R325m. Amid market negativity, the number of lives
covered grew from 960,000 to 1 180 000. This was driven by strong new business
of R1.8bn, which exceeded the target set but fell short of the 2001 figure,
which was largely boosted by the demise of competitors and the amnesty period`s
open enrolment."
Operating in a market characterised by continual increases and benefit
reductions, the Discovery Health Medical Scheme upheld its commitment to its
members not to increase contributions or reduce benefits. The performance from
the Discovery Health Plans was exceptional in every respect.
"Lapse rates were reduced to an effective 3,5%, the lowest in the company`s
history and a sure sign of the demand for and acceptance of our product
offerings."
Gore attributes the scheme`s ability to maintain its AA credit rating - the
industry`s highest, to this performance, the reinsurance structure and the
Discovery backing.
"Given the performance and strength of its products, the weakening position of
competitors and the increasing demand for private healthcare, we believe
Discovery Health is well-positioned to grow its 18% market share organically.
Furthermore, the company is poised to launch products into the employed but
uninsured low-income market.
Discovery Life
Discovery Life`s performance also exceeded expectations, with the company
generating a profit in its first full year of operation.
New business recurring premium grew to R264m from R94m in 2001. This take up of
the Life Plan, an advanced, efficient and flexible product range that meets the
risk needs of policyholders and their families, indicates the market`s
acceptance of our approach of separating risk from investment. It also reaffirms
our belief that this form of risk-only product will ultimately become the
mainstream product in the industry.
We continued to make good head way with the company`s distribution channel this
year and this will be enhanced again in the year ahead.
Looking forward, we expect strong growth as we believe the opportunities
afforded by the launch of the Discovery Integrator, a product which essentially
allows Discovery Health members the opportunity of obtaining considerable up
front price advantage for life cover with Discovery Life, in return for managing
their health, are significant. Since the launch in July 2002, considerable
market activity has seen applications increase to over 1 000 per week.
Destiny Health
On the back of a year which began with modest business on the books and the
considerable hurdles of a foreign Greenfield start-up - lack of established
brand and distribution, and uniqueness of product and message - the company grew
covered lives from 500 to the current 10,000, meeting the target set for the
year of new business production of R206m from R12m the previous year. As
budgeted, the year`s start-up costs were R110m, despite the depreciating Rand.
The year also saw Destiny establishing itself as one of the forerunners in the
shift towards consumer directed care as an alternative to managed care, which
has failed to keep healthcare costs under control. As a result, Destiny was
featured on CNBC, the Wall Street Journal, and the Harvard Review, amongst
others.
The acknowledgement of this trend has led to significant policy shifts, which
will make Destiny significantly more price competitive in a price sensitive
market. Tax code amendments in June 2002 will allow products like Destiny`s to
be significantly more tax efficient. In addition, the Illinois Department of
Insurance has granted Destiny a dispensation that will allow it to set its
premium rates more flexibly.
Destiny`s increasing presence in the Chicago marketplace has enabled the company
to grow its credibility and increase its distribution, with the number and
quality of brokers placing business with the company increasing dramatically
(150 from 32 in 2001).
The development of the technological capability to carry much of the back office
functionality for Destiny real time at Discovery in Johannesburg gave the
company access to the economies of scale and infrastructure of Discovery, and
the considerably lower costs of the South African environment.
The combination of these developments together with soon-to-be-launched more
flexible products, position the company for strong growth in the year ahead.
Vitality
The true embodiment of Discovery`s core purpose, Vitality continued to play a
pivotal role in underpinning Discovery`s other businesses through product
differentiation and improved health.
In the 2001/2002 financial year, Vitality generated significant growth with
covered lives now exceeding 850 000. Operating income grew 170% from R13m to
R36m, reflecting both substantial organic growth as well as the impact of the
Leisurenet write-off during the 2001 financial year.
Vitality`s particularly strong value proposition is borne out by the increased
rate at which members utilise current and newly introduced benefits. The
introduction of the Ster-Kinekor structure provided significant additional value
to members, with approximately 200 000 members activating this benefit in the
first six months of availability.
Through continued innovation and the ability to significantly enhance and enable
the other businesses, Vitality`s role is set to strengthen significantly.
"Operating as we do in industries of almost absolute demand, the year ahead
holds much promise for Discovery`s businesses. We expect to see strong growth
from Discovery Life and Destiny, further enhancements of our Vitality offering
and some exiting new initiatives in the Health business," says Gore.
ends
FOR FURTHER INFORMATION PLEASE CONTACT:
Roz McComb (082 925 8806) / Marina Smithers (082 556 2084)
Corporate Communications Consultants (Pty) Ltd
Tel: (011) 783-8926 Fax: (011) 783-7608
E-mail: roslinm@corpcom.co.za
On behalf of: Adrian Gore
Chief Executive Officer
Discovery
Contact: (011) 529 2800
Date: 28 August 2002
Date: 28/08/2002 10:56:00 AM Supplied by www.sharenet.co.za
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