Discovery begins new era with a bang

Discovery has started its new growth phase very strongly, with the company beginning to reap the rewards of a period of significant investment. 

This was revealed by the financial services giant in its interim results for the six months to the end of December 2024, which was characterised by strong growth. 

The company’s profit grew 32% year-on-year as Discovery Bank neared profitability and lower claims boosted its insurance businesses. 

Discovery’s South African businesses drove this performance, growing its normalised profit by 27% compared to the same six-month period in 2023. 

Discovery Insure more than doubled its normalised profit in the period due to a reduction in claims value. A similar reduction boosted Discovery Life’s operating profit by 15%. 

Perhaps the most important driver of Discovery’s future growth is its banking offering, which cut its loss in half and has achieved monthly break-even ahead of schedule. 

Discovery Bank’s profitability is vital for the financial services firm to emerge from a period of significant investment in building out its capacity. 

Following its annual results last year, CEO Adrian Gore explained that the period of investment was vital to ensure the company could break out of its natural plateau. 

Discovery chose to do this by growing organically through expanding its offerings and implementing its shared-value model in new areas. 

In particular, the group pumped money into the formation of its own bank. So far, it has spent R14.5 billion building Discovery Bank, which is expected to achieve profitability in the current financial year.

These big investments significantly impacted Discovery’s financial performance, reducing its operating profit growth from an average of 22.3% in its first decade to 9.1%. 

Gore explained that Discovery’s debt levels rose and cash generation slowed slightly as the company realised that it could not grow organically by starting small businesses. It had to go big to fundamentally impact its bottom line.

Its latest interim results indicate that this strategy is paying off, with operating profit growth once again crossing 20% year-on-year. 

The key to whether Discovery achieves sustained organic growth is the profitability of its bank. Gore said this is central to the company’s future as it opens up tremendous growth opportunities. 

As the bank achieves profitability in the next financial year, it will require significantly less funding from the centre, resulting in much-improved cash generation. 

Another key focus area for Gore in this new phase is ensuring its established businesses grow at CPI + 2% to 5% annually. With less cash burn in its new ventures, this will again boost cash generation. 

Improved cash generation will enable it to pay down its debt, reduce its gearing, and invest strategically to tap into new growth opportunities.

Discovery’s international businesses also showed strong growth in the six months to the end of 2024, with Vitality UK growing its operating profit by 27%. 

The company’s investment in Chinese insurance giant Ping An also continues to reap the rewards, growing its operating profit for the period by 23% to R424 million.