Discovery shares fall on interim profit warning

DISCOVERY Group’s share price fell more than 6 percent on the JSE yesterday after the financial services group flagged that its interim profit would decline due to increased investments in new strategic initiatives and a poor performance from its VitalityLife business.

In a trading update, the group said that for the six months to end December, its normalised headline earnings per share were forecast to decline by between 10 and 15 percent to between 330 cents a share and 311c.

“The expected difference between normalised profit from operations and normalised headline earnings per share is predominantly due to an increase in finance costs in line with the longterm capital plan and a higher average effective tax rate,” the group said.

Its normalised profits from operations was foreseen to decline by between 5 and 10 percent, to be between R3.42 billion and R3.61bn, down from last year’s R3.8bn. But VitalityLife’s normalised profits from operations was expected to decline by 145 percent.

“VitalityLife was largely impacted by its previously announced strategic decision to mitigate its exposure to further interest rate declines in the UK. In addition, the group has continued its budgeted increased investment into new strategic initiatives,” Discovery said.

However Discovery Insure, Discovery Life, Vitality Health and Vitality Group were expected to report double-digit growth in normalised profits, while Discovery Health and Discovery Invest were expected to reflect a single-digit growth in normalised profits.

Its Ping An Health business in China was also likely to grow its normalised profits by 467 percent during the period.

The group has invested in strategic initiatives including Discovery Bank, VitalityInvest, Vitality1, Umbrella Funds and Discovery Business Insurance. It invested about R3bn launching its online bank offering, Discovery

Bank, last year. The group noted without increased investment and new strategic initiatives, normalised profit from operations would have increased by between 2 and 7 percent.

Investment spend was budgeted to be higher in the first six months of the year and to be lower in the remaining period of the year, further supported by these initiatives having gained traction during this period, Discovery said.

Discovery will release its results on Thursday.

The share price responded negatively to the trading update by declining to R112.20 a share in the afternoon, before closing at R110.24 yesterday. The group’s share has tumbled 9 percent in the past three months.