Gore’s Destiny warning
A better performance but uncertainty prevails
DISCOVERY CEO Adrian Gore has delivered his most cautious prognosis yet on the future of loss-making US health subsidiary, Destiny Health. His warnings about the future of the business come despite longawaited signs of a turnaround in the fortunes of the US unit that cut its first half operating losses to December by 59% to R33m.
Gore said while the group remained optimistic about the prospects for the business internally, he cautioned that the group had to be “realistic” about its prospects.
“We have had a very difficult time, we have not delivered, we have missed our numbers, we have missed our targets,” Gore said. Investors, however, remain vigilant about the mounting losses in that market. The unit has consumed about R700m since its inception seven years ago.
Gore said the business had undergone a significant re-engineering under its third CEO in seven years, with a new management team that had succeeded in stabilising the business. New business grew 10% to $65m (R460m) in the US, but membership reduced by 7% to fewer than 60 000.
It’s not all doom and gloom however; the new management team has aggressively cut operating costs and has restructured its non-performing strategic partnerships, the Guardian Life Insurance Company of America and Tufts Health Plan. It means that Destiny will be able to sell its own products in new markets from the beginning of April, rather than be restricted by the partnership agreements it initially signed.
FirstRand CEO Paul Harris, recently appointed non-executive director at Discovery, said: “Destiny enjoys too much airtime relative to its importance to the group, but we do see light at the end of the tunnel there.”
Discovery’s early expectations for the Destiny business have not been met by delivery in the highly competitive US market. At the time of its launch, Gore heralded the timing of the entry as “ideal” to capitalise on the US consumer backlash against managed healthcare companies in the US. But Destiny’s competitors have not stood still and the group has found the environment considerably more challenging than South Africa, where it controls about 30% of the private healthcare market, and in the UK arena where, although it’s still losing money, it’s making significant progress in its partnership with Prudential.
So much so, that it’s considering launching life products in that market. The group said it was testing Discovery Life products in the UK protection market and said it could create a future platform to further penetrate the British market.
THE RERATING OF DISCOVERYSource: I-Net Bridge
Cautiously optimistic. Adrian