Dis­cov­ery’s Adrian Gore :

Dis­cov­ery Group CEO Adrian Gore has been partof the busi­ness for more than 20 years, but there is no slow­ing him down as plans for global ex­pan­sion are in the works.

Finweek English Edition - - FRONT PAGE - BY Lamee z Omar­jee

“We are in­cred­i­bly well po­si­tioned for growth”

Dis­cov­ery Group is look­ing to build a war chest to fur­ther ex­pand its evo­lu­tion from South African health in­surer to a multi-fi­nan­cial ser­vice provider with a global foot­print

On 24 Fe­bru­ary, founder and CEO Adrian Gore said that the group plans a rights is­sue of R4bn to R5bn, mainly to fund its UK sub­sidiaries Vi­tal­i­tyHealth and Vi­tal­i­tyLife. Dis­cov­ery bought out the re­main­ing 25% of the busi­ness from Pru­den­tial for R2.8bn in Novem­ber last year. The UK op­er­a­tions, which suf­fered an op­er­at­ing loss of R13m in 2010, re­ported an op­er­at­ing profit of R432m last year.

The UK of fe r s a st a bl e a nd com­modi­tised mar­ket, with a high preva l ence of dis­ease, a n age­ing pop­u­la­tion and sub­stan­tial size (the third-largest in the pro­tec­tion mar­ket with over 12m peo­ple). “The UK of­fers great sub­stan­tial op­por­tu­nity,” Gore told Finweek. Dis­cov­ery sees the UK as its sec­ond pri­mary mar­ket, and it was there­fore “crit­i­cal” to take full own­er­ship of it, he says.

In the past Dis­cov­ery ex­panded op­por­tunis­ti­cally, says Gore. To­day, the group is more dis­ci­plined in its ex­pan­sion strat­egy. It con­sid­ers its pri­mary mar­kets (where it is the pri­mary in­surer), and then ex­pands into ad­ja­cent mar­kets, Gore says. “We make sure the [busi­ness] model keeps its in­tegrity.”

We do have the abil­ity to build a glob­ally

unique rel­e­vant, in­sur­ance model ap­pli­ca­ble for the times.”

Dis­cov­ery has been very suc­cess­ful with its be­havioural in­cen­tive model, which re­wards mem­bers for mak­ing bet­ter health and life­style choices. This model leads to f inan­cial benefits for both con­sumers and Dis­cov­ery, and lower lapse rates. It aims to earn $1bn (R11.4bn) in pre-tax earn­ings by 2018 (its pre-tax earn­ings for the six months to end De­cem­ber to­talled R4.2bn), gen­er­ate 20%-25% growth in op­er­at­ing earn­ings (com­pared with 9% in the in­terim pe­riod), and be a top two provider in the mar­kets in which it op­er­ates.

De­spite the ex­pen­sive fail­ure of its f irst US ex­pan­sion, Gore be­lieves Dis­cov­ery has the abil­ity to per­form well as a “dis­rup­tor” in de­vel­oped mar­kets. Its med­i­cal in­sur­ance busi­ness Des­tiny Health in the US, es­tab­lished in 2000, was closed in 2008 af­ter the com­pany strug­gled to win sub­stan­tial mar­ket share and con­tain costs. It in­vested more than R1bn into the ven­ture.

Its Vi­talit y busi­ness in t he US cur­rently cov­ers 700 000 mem­bers, while it is plan­ning a new ex­pan­sion into that coun­try through a part­ner­ship with a ma­jor life in­surer. The de­tails of this will be an­nounced soon.

Its part­ner­ship model, which sees Dis­cov­ery en­ter the life-in­sur­ance mar­ket through part­ner­ships with es­tab­lished com­pa­nies in coun­tries with large lifein­sur­ance in­dus­tries, a high preva­lence of non-com­mu­ni­ca­ble dis­eases, a strong in­ter­me­di­ary pres­ence and prod­uct com­modi­ti­sa­tion, has seen its foot­print ex­pand to Australia, the US, Europe, Sin­ga­pore and China.

“I think that the part­ner mar­kets where we’ve part­nered with larger firms, of­fers us the abil­ity to ex­pand into mar­kets we re­ally wouldn’t go into alone,” says Gore. Th­ese part­ner­ships in­clude AIA Group in Sin­ga­pore and Chi­nese in­surer Ping An.

Grow­ing con­sumer de­mand for pri­vate health­care ser­vices is one of the fac­tors driv­ing Dis­cov­ery’s ex­pan­sion into China, where it plans to grow its 17 ex­ist­ing branches to 36 by the end of 2015.

It is es­ti­mated that China’s pop­u­la­tion of el­derly peo­ple would ex­ceed the size of the en­tire US pop­u­la­tion by 2050, while its mid­dle class would reach 700m

by 2020, cre­at­ing de­mand for pri­vate health­care and in­sur­ance. The Chi­nese gov­ern­ment is also reg­u­lat­ing changes in tax to in­cen­tivise pri­vate health­care and health in­sur­ance, and tech­no­log­i­cal devel­op­ment is set to in­no­vate China’s in­sur­ance in­dus­try.

De­spite Dis­cov­ery’s ex­pan­sion, the group has re­mained true to the core value of mak­ing peo­ple health­ier, says Gore. The work done in pri­mary and part­ner mar­kets will make it pos­si­ble to glob­alise the model. “We do have the abil­ity to build a glob­ally rel­e­vant, unique in­sur­ance model ap­pli­ca­ble for the times,” he says.

Gore ex­plains t hat Dis­cover y’s ap­proach t o e x pan­sion i nvolves re­peat­ing the busi­ness model in var­i­ous mar­kets, as op­posed to grow­ing through ac­qui­si­tions, which is risky. He says that there are fu­ture growth prospects out­side of cur­rent busi­nesses ( Health, Life, In­sure, In­vest and Card), but says there is con­sid­er­able growth op­por­tu­nity as it is. As for t rans­for­ma­tion within t he busi­ness, Gore says: “I think we’re do­ing a rea­son­ably good job across the or­gan­i­sa­tion. The board it­self I think is pretty rep­re­sen­ta­tive by gen­der and by race.” He says that the new BBEEE codes pro­vide a clear roadmap of what has to be done in in­dus­try. “We can cer­tainly do bet­ter and we will.”

Dis­cov­ery is ranked as a level 3 BEE con­trib­u­tor, with black own­er­ship of 19.05%, ac­cord­ing to its Oc­to­ber 2013 verification, the lat­est avail­able. Its nine ex­ec­u­tive board mem­bers are all male, and only one is black. Of its 11 nonex­ec­u­tive di­rec­tors, four are black and only three are women.

Hav­ing founded the group in 1992, Gore says that he’s only half­way through the marathon. “If I don’t add value then I would cer­tainly think of step­ping down, but at the mo­ment I think I’m in my stride.”

Gore leads an ac­tive life­style and has sched­uled to ride the Ar­gus next week. “I’m not sure how well I’ll ride, prob­a­bly badly. I hope I f in­ish it.” He and his wife are di­a­mond Vi­tal­ity mem­bers and make use of the travel and food Vi­tal­ity benefits. “We are Vi­tal­ity junkies,” he ad­mits.

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