Discovery Group announced on 10 March 2015 that the R5bn rights issue it will raise will be directed to investments in its UK business, VitalityLife and towards extending financial services of DiscoveryCard in South Africa.
About R3-4bn will be allocated to drive growth in VitalityLife and R2-2.5bn will be allocated to DiscoveryCard to build a substantial financial services platform, says group chief executive Adrian Gore. The balance will be contributed from resources and funding generated from Discovery itself, he explained.
DiscoveryCard, which operates on a banking licence with FirstRand Bank Ltd, will increase its economic interest from 20% to 74.999% by a share purchase of R1.35bn on 1 July. About R800m will be spent on developing products around the card, Gore told Finweek. “The purpose is to actually build significant business, both growth in the card and other products,” he says.
Gore says details about the products being developed will be announced at a later stage. According to a statement, DiscoveryCard has shown “strong growth” in the market since its establishment in 2004, with a customer base of over 250 000 primary cardholders with 315 000 cards issued and an annual before-tax profit of R300m.
Compared to competitor card products in the market that have not been issued by banking brands, they have not grown as much, explains Gore. “The discovery card captures about 10% market share. It’s pretty substantial. It’s proof of Discovery’s ability to play in the traditional banking and financial services space really well,” he says.
People who tend to manage things for the future in terms of their health, tend to do similar things in terms of their credit and money.
As for VitalityLife, Gore says there us a lot of potential for growth. There are plans to integrate life and health insurance in the UK, as the company did in South Africa. Gore told Finweek that although there is potential to extend the VitalityLife offering to other financial services, it is unlikely to happen within the next year. “We’ve got a lot to do and a lot of growth in existing lines.”
The growth in new business in the UK is at 7% to R915m and operating profit grew by 20% to R432m. Gore says the growth is attributed to the fact that the distribution channels and products are “strong”. Despite their concerns about changing the brand from Prudential to Vitality, he says the transition played out well in the UK market. “Growth of Vitality has accelerated in the market. We can’t declare victory yet, but directionally it looks very good.”
The group aims to encourage and reward healthy living and consumer behaviour by developing innovative products, based on the link between health and financial behaviour. “People who tend to manage things for the future in terms of their health, tend to do similar things in terms of their credit and money,” he says.
*This article was featured on Finweek.com.