Financial services group Discovery has resumed dividend payouts, with its local and international businesses performing well.

In its summarised audited results for the year ended 30 June 2023, normalised operating profit jumped 24% to R11.6 billion, while headline earnings jumped by 5% to R5.49 billion.

“The headline earnings volatility caused by economic assumption changes is the rationale behind Discovery’s stated policy of normalising for the impact of long-term interest rate movements in the presentation of normalised headline earnings. Although the interest rate changes impact,” the group said.

“Although the interest rate changes impact headline earnings, they have no impact on the operations of the group, with little impact on the Group’s liquidity, cash flows, and solvency.”

The increase in interest rates across Discovery’s main insurance markets – South Africa and the UK – impacted headline growth, which it said was the main reason for the difference in the 5% growth in headline earnings compared to the 32% growth in normalised headline earnings.

The groups said that the effects of the interest rate hikes were more pronounced in South Africa as Discovery Life economic assumptions adjustments amounted to R2.8 billion, gross of tax.

It added that the impact of interest rate hikes in the UK was more muted as the group’s hedging strategy proved sufficient, with some gains leading to improved discretionary margins.

In addition, despite a R600 million reduction in debt and the financial leverage ratio improving to 20%, the group said that its central liquidity remained strong, reflecting its continued financial resilience.

The group added that the significant recovery in Discovery Life’s cash generation following the Covid-19 pandemic and a reduction in the cost of new initiatives helped boost organic cash generation.

It said that the strong balance sheet and cash positions supported the recommencement of dividends, with the group declaring a dividend per share of 110 cents per share.

This is the first time that the group has declared a dividend since the start of the Covid-19 pandemic.

South Africa and Discovery Bank

Looking at South Africa, the group said that normalised operating profit increased by 22% to R9 billion and new business by 11% to R16 billion.

Discovery Health showed strong growth across all metrics, with prior technological investments improving efficiency.

With Group Life returning to profit, Discovery Life also showed a resilient performance, while Discovery Insure succeeded in its profit turnaround.

Discovery said that its banking subsidiary – Discovery Bank – has been adding 1,000 customers a day since the start of the 2023, with the bank now just over 700,000 active clients – and the target of 1 million by 2026 in sight.

The bank has also managed to narrow its losses, recording a loss of R767 million for the year – a 23% improvement from the nearly R1 billion loss recorded in 2022.

While the bank is still running at an operational loss, it has been narrowing this loss consistently, showing that it is moving in the right direction.

In 2020, it reported an operational loss of R1.17 billion – this narrowed to just over R1 billion in 2021, then to R990 million in 2022. It has now narrowed further to R767 million.

“Further investment in product innovation and digital capabilities continues to evolve the Bank into a composite-maker in the Discovery retail ecosystem,” the group said.

The group added that investment into other initiatives increased over the year, as Discovery Business Insurance and Umbrella Funds saw some growth, whilst Vitality Health International (Africa) grew from a low prior base.

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