Discovery Bank turned profitable for the first time in the first half with R1bn in start-up costs to spare in a milestone that gave the parent company, one of SA’s largest financial services conglomerates, and CEO Adrian Gore the confidence to aim for tripling its profits to R3bn in the next five years.
Inspired by a desire to branch out of insurance, Discovery’s digital-only full-fledged banking division entered the R7-trillion-plus banking industry in 2019, blending health and financial wellbeing and pitting it against established legacy banks that have been scrambling to adapt in a fast-changing financial ecosystem.
Discovery Bank swung to a R69m operating profit, excluding the cost of customer acquisitions, in the six months to end-December from a loss of R154m the same time a year earlier. Including these costs, the company narrowed losses by 57% to R145m.
The breakthrough came ahead of expectations, Gore said in an interview with Business Day shortly after the company issued an earnings report, which showed a one-third jump in overall profit.
“In fact, it cost us R1bn less to get to where we are now than we thought. It’s totally profitable now. Operating profit is emerging now this year in January, and it is cash profits, and we expect it to grow to R3bn by 2029,” Gore said.
“Importantly, virtually every aspect, every key performance indicator inside the bank has played out better than expected.”
Discovery Bank delivered R1.1bn in revenue for the period — the bulk of which came from banking fees and other commissions from a customer base of about just more than 1-million — about 42% higher than the same time a year earlier.
“We’re growing by about 1,200-1,400 customers per day and expect to reach 2-million” in the next few years, said Gore, who founded Discovery in 1992 on a behaviour tracking business model that has increasingly shaped the insurance industry worldwide.
“That’s actually not a large number of clients. If you look at the bigger banks, they’ve got 5-, 10-million customers. But the difference with us is the customers are heavily engaged in the product. So the extent of revenue they generate for us is dramatically higher than average and that drives up profitability.”
He said there is much runway to grow even as the expected rate of growth, at about 30%, will slow down in the coming years. “We’re seeing over 65% of people buying Discovery Bank now not Discovery members. So we extend beyond the traditional Discovery space.”
Gore was speaking to Business Day shortly after the company released its half-year financial statements, which showed higher earnings, with strong contributions across the group’s businesses.
Headline earnings for the six months ended December were up 34% at R4.27bn with normalised headline earnings per share (HEPS) 33% higher at 642.9c. The company declared an interim dividend of 87c per share.
The group delivered growth in normalised profit from operations of 27% to R7.02bn. Its embedded value increased to R120bn, which represents a 19% annualised return on embedded value.
Discovery said that in SA confidence increased after the positive election outcome, the programmes driving energy and logistics reforms, and the continued constructive engagement around the National Health Insurance Act.
The fiscal environment in the UK remained constrained with a knock-on effect on the National Health Service backlogs keeping the demand for, and use of, private medical insurance elevated.
Normalised operating profit for Discovery SA increased 27% to R5.52bn with new business increasing 6%, excluding the previous period take-on of the Sasolmed closed medical scheme.
Discovery Health increased new business by 9%, excluding the Sasolmed closed medical scheme take-on in the prior period. Discovery Life delivered strong earnings and cash generation with positive claims experience and maintained its retail market share and new business margins. However, group life new business, which is lumpy by nature, declined over the period.
Discovery Invest delivered earnings growth benefiting from strong market performance and some one-off gains for the period. Discovery Insure delivered an excellent recovery in operating margin, from diligently executed business actions and benign weather conditions.
The Vitality Composite’s normalised operating profit increased 27% to R1.5bn and new business API increased 8%.
VitalityHealth’s operating profit increased 15%. VitalityHealth has successfully raised prices significantly in the past 18 months to mitigate increased private medical insurance utilisation, with the strong retention of in-force business resulting in a 16% increase in earned premiums.
VitalityLife’s operating profit increased 8% to 14.1-million (8% to R327m). VitalityLife used its advanced price optimisation to deliver a 19% increase in new business API of high quality, despite a stagnant UK market.
Vitality Network’s operating profit increased by 20% and membership grew 26% to 6.2-million.
The group’s share of Ping An Health Insurance’s after-tax operating profit increased 23% to R424m after strong gains from Chinese bond and equity market movements in the period and continued operating delivery.
Update: March 4 2025
This story has been updated with new information.
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