Rights is­sue to gen­er­ate more cap­i­tal for growth

Finweek English Edition - - SPOTLIGHT -

De­spite the 4% drop in the share price af­ter the an­nounce­ment of the rights is­sue, Gore says share­hold­ers were re­cep­tive to the de­ci­sion. The group is com­fort­able with its cur­rent po­si­tion, but there are two op­por­tu­ni­ties that re­quire the rights is­sue, ex­plains Gore. One per­tains to the re­cent ac­qui­si­tion of the out­stand­ing 25% of Pru­den­tial in the UK and the other to an ex­pan­sion in South Africa, for which de­tails will be fi­nalised by 10 March.

In 2007, Dis­cov­ery ac­quired 50% of Pru­den­tial, and by 2010 the group owned 75%. The tran­si­tion to full own­er­ship was an “in­cred­i­ble amount of work”, says Gore. The Bank of Eng­land had to serve as reg­u­la­tor. Still much more work needs to be done and fund­ing is nec­es­sary to sus­tain the ac­qui­si­tion.

Busi­ness in the UK is promis­ing. Vi­tal­i­tyHealth shows a tight mar­gin of busi­ness with op­er­at­ing profit grow­ing by 24%. New busi­ness shows growth in the last few years but re­cently re­duced by 4%. This is re­lated to the in­crease in prices, which Gore says is nec­es­sary to be well po­si­tioned in the mar­ket. Vi­tal­i­tyLife is do­ing con­sid­er­ably well, too, with op­er­at­ing profit ris­ing at 8% and new busi­ness at 2%. But like any life in­sur­ance busi­ness, there’s an up­front ac­qui­si­tion cost to be met, says Gore.

The UK is an ex­cit­ing mar­ket to ex­pand to, pre­mi­ums are flat and in­sur­ance is low, says Gore. Cap­i­tal re­turns are at 13% and neg­a­tive re­serves runs over quickly (over a pe­riod of seven to eight years), match­ing cash flows in a short space of time.

Re­spond­ing to a ques­tion whether in­vest­ment in South Africa will be re­duced in favour of in­ter­na­tional op­por­tu­ni­ties, Gore says cap­i­tal al­lo­ca­tion to date has mostly been in SA. Its South African health and life in­sur­ance di­vi­sions re­main the bulk of the busi­ness, con­tribut­ing nearly 86% of nor­malised profit from op­er­a­tions, down slightly from 89% in 2013.

Gore says the South African busi­ness, and its busi­ness units, are well in­te­grated and are “in­cred­i­bly well po­si­tioned for growth. All of them I think have been dis­rup­tive and are in lead­er­ship po­si­tions”.

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