Am­bi­tious Bri­tish ad­ven­ture

Finweek English Edition - - Companies & markets - BRUCE WHIT­FIELD

DIS­COV­ERY IS SEEK­ING to repli­cate its suc­cess­ful South African busi­ness model in the highly com­pet­i­tive Bri­tish mar­ket, adding a suite of life prod­ucts to its ex­ist­ing health of­fer­ings. An­a­lysts say the deal, which will cre­ate a new en­tity – Pru-Pro­tec­tion – in a joint ven­ture with cur­rent part­ners Pru­den­tial, of­fers “plenty of blue sky” op­por­tu­nity. How­ever, it would mean that in­vestors would have to be pa­tient if they wanted to see a re­turn from the sub­stan­tial cap­i­tal in­vest­ment that would be re­quired to grow the unit to its full po­ten­tial.

Dis­cov­ery, via its ex­ist­ing Pru­den­tial re­la­tion­ship, al­ready has an im­pres­sive foothold in the Bri­tish mar­ket through Pru-Health, which has signed up 100 000 mem­bers since 2004. Though it made op­er­at­ing losses of R120m in the six months to June, it’s tar­geted to break even in 2008.

Now CEO Adrian Gore is tar­get­ing the life sec­tor, com­mit­ting up to R1bn over the next three years in an at­tempt to cap­ture 10% of Bri­tain’s R11bn in an­nual new life as­sur­ance busi­ness by 2012.

It’s not go­ing to be easy. Dis­cov­ery learned a num­ber of ex­pen­sive lessons in the United States, where com­peti­tors bat­tened down the hatches when Dis­cov­ery launched Des­tiny seven years ago. The Bri­tish mar­ket has had some warn­ing of Dis­cov­ery’s in­ten­tions through the rapid growth of its health busi­ness and will know of its am­bi­tious growth tar­gets in the life sec­tor.

While Bri­tain’s life in­dus­try is con­sid­er­ably more sat­u­rated with com­pe­ti­tion than SA’s, Dis­cov­ery does have the ben­e­fit of a long­stand­ing part­ner in Pru­den­tial. But profit mar­gins in the new life busi­ness are likely to be less than half the nearly 10% achieved in SA. Gore con­cedes that the project could con­sume up to R3bn over the next five years. Dis­cov­ery and Pru­den­tial will make equal cap­i­tal con­tri­bu­tions to the ven­ture, with fur­ther fund­ing be­ing pro­vided in the form of fi­nan­cial rein­sur­ance by Han­nover Re.

It plans to utilise its Vi­tal­ity re­wards pro­gramme to in­te­grate its life and health of­fer­ings through ex­tend­ing its ex­ist­ing joint ven­ture re­la­tion­ship with Pru­den­tial. Back of­fice func­tions for both the life and health busi­nesses will be run from Jo­han­nes­burg. De­spite its joint ven­ture sta­tus, Gore says Dis­cov­ery will have man­age­ment con­trol and will chair the ven­ture’s ex­ec­u­tive com­mit­tee. He says it’s a struc­ture that’s worked well at Pru-Health and will be ex­tended to the broader ven­ture.

The new com­mit­ment to the Bri­tish mar­ket comes as Dis­cov­ery strug­gles to turn a profit in its US busi­ness Des­tiny Health, which has con­sumed around R700m since it was founded seven years ago. It cut its first-half op­er­at­ing losses to De­cem­ber 2006 by 59% to R33m. But Gore warned in­vestors that the com­pany needed to “be re­al­is­tic” con­cern­ing the unit’s prospects, which had failed to de­liver on the group’s am­bi­tious ex­pec­ta­tions.


Source: I-Net Bridge

He’s fear­less. Adrian Gore

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