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UK woes and new investments to weigh on Discovery's profits

Feb 17 2020 22:02
Londiwe Buthelezi

Financial services giant, Discovery, which is due to release its financial results on Thursday, has warned shareholders that its profits for the six months ended in December 2019 will likely shrink as a result of negative developments at UK-based Vitality Life as well as continued investments in new initiatives.

Discovery said in a statement published on the JSE Stock Exchange News Service on Monday that all its divisions except VitalityLife did well. For instance, Ping An Health, the specialist Chinese health insurer in which Discovery is a strategic partner, rose normalised profit by 467%.

In SA, normalised operating profits for its life business, Discovery Life, went up 25%, short-term business was up 21%, Discovery Health rose 8% and Discovery Invest increased its operating profits by 7%.

Further afield, the Vitality Group’s operating profits rose 16% and VitalityHealth in the UK rose 11%. VitalityLife, the only division whose operating profit tanked 145% suffered because of a strategic decision taken by the group to limit its exposure to low interest rate United Kingdom environment, taking out an interest rate hedge facility.

Discovery said this combined with a difficult operating environment in the UK as Brexit jitters persist, resulted in VitalityLife recording an operating loss in the six months to December.

The developments at VitalityLife and the 81% increase in Discovery’s expenditure on new initiatives will see the insurance group post normalised profit that is 5% to 10% lower than the R3.8bn reported for six months to December 2018.

The company added that its normalised headline earnings per share – which have been adjusted for onetime expenses and other abnormalities – will shrink by between 10% and 15% and stand between 311 and 330 cents.

Discovery continued to plough more money into several of its business units, including Discovery Bank, VitalityInvest and Umbrella Funds, as well as accelerating the Discovery Business Insurance, which the insurer launched in 2018. It also put money into building a new platform for the group’s international business, called Vitality1.



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