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Another stellar half-year performance from Discovery

23 February 2007 Gareth Stokes

Discovery Holdings reported results for the six months ending 31 December 2006 in Johannesburg on Thursday. Group CEO Adrian Gore announced a 29% rise in the diluted headline earnings per share to 70.1 cents a share. (Click on the article heading to re

Discovery is listed on the JSE and consists of Discovery Health, Discovery Life and Discovery Vitality in South Africa; Destiny Health in the US; and a 50% stake in PRUHEALTH in the UK.

The South African business units have once again contributed strongly to group earnings, while the international operations recorded further losses.

Gore is extremely happy with the progress of the international businesses and discounts the losses as part of the cost of establishing new businesses in tough international markets. As an example he sited PRUHEALTH, which grew membership by a massive 277% in the period under review, breaking the 100, 000 member mark in February 2007.

2 million members at Discovery Health

Discovery health has a significant presence in the local health market and outstrips its nearest competitor in both size and growth. The company added its 2 millionth member early in 2007. Growth in membership numbers has slowed considerably in recent years and Discovery has focussed on improving the business by lowering administration costs and developing health systems.

After attending Discovery's result presentation one would be excused for thinking it is in the business of 'knowledge' mining. Data extracted from member activities enables Discovery to compile numbers on industry trends and individual health expenditure.

A summary of the major cost drivers in the medical industry over the last five years revealed an interesting picture. Hospitals and medical specialists were growing at a rate greater than inflation, while general practitioners, medicines and medical scheme administrations fees showed slower price rises...

Another benefit of the huge membership base is the ability to bargain with various parties for better prices on healthcare services and medicines.

Better measures of risk for life insurance

Discovery already has 35% to 40% of the broker market share for new life insurance products. The group will continue to focus on obtaining new clients through the broker network.

Gore illustrated how product innovation has contributed to the growth in number of life policyholders. The sales curve improved after the launch of Discoverys Health Integrator, and again after the launch of Discovery's Card Integrator.

These integrators allow Discovery policyholders to benefit from significant premium discounts. A pleasing feature of the initiatives is that most policyholders chose to maintain premium payments in favour of higher life cover.

Gore expects the group to continue growing as more life services are linked to client wellbeing. Such initiative will boost the companys business in years to come. The group is also concentrating on its agency business, with 30 'tied' agents already identified. The number will grow slowly over the coming period as suitably skilled individuals are sought.

Moving up a gear

Discovery uses the motto "wellness and consumer engagement" to underpin all aspects of its health, life and financial services businesses.

Many studies have shown that individuals place more value on immediate pleasures than future health issues. For this reason, products like Discovery Vitality focus on rewarding consumers for sensible health activities today.

A recent product released to the business market (called WellPoint) has been well received, and a new Prosperity programme is currently being trialled on Discoverys staff. The company continues to strive to be a market leader through product innovation.

Shareholders can expect the 5-year trend of more than 30% compound annual growth to continue in the foreseeable future.

Editor's thoughts:
The picture painted by CEO Adrian Gore is an extremely positive one. There is no doubt that Discovery is making money. We'd like to know more about your experiences as a broker or financial adviser selling Discovery products. Send your comments to
gareth@fanews.co.za.


 

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