Gore: NHI won’t shift our focus
Discovery CEO sees no big changes in strategic planning for local health business
● Discovery has managed to build itself into a global health-care giant, making it less reliant on its South African business. But CEO Adrian Gore has dismissed the idea it could shift focus from its local health business as plans to implement National Health Insurance (NHI) gain traction.
On Thursday, Gore said the company did not predict any dramatic change in its strategic planning for the medical scheme administration business. Discovery administrates 14 medical schemes, including Discovery Health Medical Scheme.
“I think the appropriate view is that medical schemes have a very important role to play in the broader national health-care system, therefore in our planning cycle we don’t predict any dramatic change in the future,” Gore said.
He was speaking at the company’s annual results for the year ended in June, which he presented on Wednesday.
Discovery’s share price declined by more than 8% in the week the NHI Bill was tabled last month, as the market reacted to the news. The government is aiming to fully implement NHI by 2026.
Gore said the role of the private sector is critical to the success of NHI and not including it would be counterproductive because SA does not have sufficient resources for it. He added that SA’s health-care issues are not unique and other countries are going through similar complex policy debates.
Discovery’s results show profits from its health business increased 10%, while the group’s profits rose 15% to R6.6bn.
In the 27 years since its inception in 1992, Discovery has built its business into a health, wellness, insurance and financial services group. Discovery is active in 21 countries through the Vitality Group.
At the core of its global business is Vitality Group, which offers shared-value insurance and incentivises people to make better life choices. But the health business is still a major part of the group, and therefore the NHI Bill will have an influence on its strategy.
Byron Lotter, a portfolio manager at Vestact, said that with the R3bn the health business had contributed in profits for the past year, it was unlikely Discovery would deviate from health. But if it had to, it would focus on making the other parts of the business more significant.
“In our view, the Vitality 1 [cloud-based] platform is very exciting because we believe that preventative health care is going to be a huge part of our future. So that part of the business becomes more significant again with more traction in China.” And if the UK business continues to grow, Lotter said, “the South African business will become less significant”.
He added that the health business will continue to be a big profit driver and Discovery will want to collaborate with the governBy
Vitality 1 is very exciting ... we believe preventative health care is going to be a huge part of our future
Byron Lotter
Portfolio manager at Vestact
ment to ensure that it continues to make money from it.
“But they are certainly going to focus hard on the rest of their businesses so they are not as reliant in six years’ time,” he said.
Warwick Bam, head of research at Avior Capital, said given the uncertainty around NHI, Discovery was likely to scrutinise the capital it invests in the administration business.
“I don’t think there’s any indication that they are going to be holding back, but I think it’s just the natural result of the regulatory uncertainty. So it could mean, because they are less committed to investing in the business, they might not necessarily get the same kind of operating return.
“They fund the benefit up front and they get reimbursed over time from the medical scheme through the admin fee per member. And so if you are not certain about your future admin fee per member, it naturally reduces your appetite to start capitalising on a bigger investment up front,” he said.
Meanwhile, Momentum Metropolitan also released its results on Wednesday, showing that profit rose more than 51% to R2.3bn.
CEO Hillie Meyer said the impact of the challenges in the health-care sector was limited because health contributes only 7% of the company’s earnings.
“Our earnings are R3.1bn. About R200m of our profit is from our health business. We are less vulnerable — if we lose R200m of our profit it’s not going to harm us as much as some of the other players that are much more focused on health.”
However, Meyer said the company was looking to grow its health business.