South African Narrative 'A Lot Worse Than Reality,' Discovery CEO Says
Summary
TLDRAdrian Gore, CEO of Discovery Ltd., discusses the company's half-year earnings, addressing concerns about negative cash flow and declining return on equity. He highlights the company's strong operating performance and growth potential, particularly in the UK and South Africa. Gore also comments on South Africa's economic situation and the challenges of implementing universal healthcare, emphasizing the need for private sector collaboration. He expresses optimism about Discovery's vitality model and its potential in the US market, focusing on demonstrating the model's effectiveness rather than acquisitions.
Takeaways
- 😎 Discovery Ltd. CEO Adrian Gore is confident in the company's business model, despite facing a challenging economic environment and complex accounting standard changes.
- 📈 Despite negative cash flow earnings and a slight decline in return on equity, Discovery saw a 28% growth in new business, indicating strong expansion and market acceptance.
- 🔥 Growth is being fueled globally, not just in South Africa, but also in the UK and other regions, leveraging the Vitality model across its business segments.
- 🛠️ Adrian Gore remains optimistic about South Africa's economic prospects despite concerns over inflation and economic growth, citing efforts to improve infrastructure and potential for growth.
- 🏆 The upcoming South African election could be pivotal, with the possibility of the ANC falling below 50% and leading to a new political dynamic through coalitions.
- 😷 Concerns around the universal health care bill highlight challenges in funding and the need for private sector collaboration to achieve universal coverage goals.
- 💻 Discovery is actively involved in health care discussions and collaborations, emphasizing the importance of private sector involvement in successful health care delivery.
- 🇪🇺 In the UK, the demand for private health insurance is rising amidst NHS challenges, suggesting potential growth for Discovery's private health insurance products.
- 👨💻 Adrian Gore discusses Discovery's focus on the US market, highlighting a strategy based on data and behavior change rather than acquisitions to penetrate the health care market.
- 💡 The interview concludes with Gore expressing optimism for Discovery's growth model and its ability to navigate complexity and ambiguity in the global market.
Q & A
What was the main concern raised about Discovery Ltd.'s financial performance?
-The main concern was the negative cash flow and the decline in return on equity from 14% to 12%, despite relatively positive half-year earnings.
How did Adrian Gore respond to concerns about Discovery's profitability?
-Adrian Gore expressed confidence in Discovery's business model, highlighting the 28% growth in new business and the strong underlying operating performance, including operating income and profit.
What accounting standard change did Adrian Gore mention, and how did it affect comparisons?
-Adrian Gore referred to a complex accounting standard change labeled as '17', which made comparisons difficult due to its impact on financial reporting.
Where is Discovery Ltd. seeing growth in its business?
-Discovery Ltd. is seeing growth across various regions, with strong performance in the UK and consistent growth worldwide using the Vitality model.
What is Adrian Gore's outlook on South Africa's economy and the upcoming election?
-Adrian Gore sees potential for growth due to improvements in energy, transport, and logistics infrastructure. He also mentions the possibility of the ANC falling below 50% for the first time, leading to coalition governments and a new political dynamic.
How does Adrian Gore view the universal health care bill in South Africa?
-While Adrian Gore acknowledges the laudable goal of universal health care coverage, he points out the lack of funding and the challenges in implementing such a large-scale program, suggesting it may take a decade or more to become fully funded.
Is the private sector involved in negotiations regarding the universal health care bill?
-Yes, the private sector, including Discovery Ltd., is involved in negotiations and is committed to making the universal health care system work, recognizing the need for collaboration and the lack of funding.
What is Discovery's strategy in the U.S. health care market?
-Discovery is focusing on offering its vitality shared value model to U.S. health plans, emphasizing personalized wellness and disease management. Adrian Gore does not foresee any acquisitions but believes in the potential of their model to create significant impact.
How does Adrian Gore address the competitive nature of the U.S. health care market?
-Adrian Gore plans to use Discovery's extensive data and sophisticated capabilities to demonstrate the benefits of their model to U.S. health plans and employers, focusing on the positive impact on health care costs.
What is Discovery's approach to dealing with premium inflation in the insurance market?
-Discovery's approach is to improve the efficiency of the insurance model by addressing behavioral issues that drive both deaths and sickness. They aim to offer lower premiums and cover more people, believing that their model will eventually lead to better financial results and less need for premium inflation.
How does Adrian Gore believe the market will react to Discovery's business model over time?
-Adrian Gore is confident that the market will recognize the value of Discovery's business model as it continues to demonstrate strong underlying earnings and global leadership in shared value creation.
What could potentially hinder Discovery's growth model in the future?
-Adrian Gore believes that the main challenge is not external barriers but rather revealing the strength and remarkable achievements of Discovery's business model to the market.
Outlines
📈 Adrian Gore on Discovery Ltd's Financial Performance and Market Confidence
Adrian Gore, CEO of Discovery Ltd, discusses the company's recent financial performance, addressing concerns about negative cash flow and a decline in return on equity. He emphasizes the effectiveness of their business model and the challenges posed by a complex accounting standard change. Gore highlights the 28% growth in new business and expresses confidence in the company's growth potential despite current market uncertainties.
🌍 Global Growth and South African Economic Outlook
Gore talks about the growth of Discovery's businesses across different regions, with a particular focus on the strong performance in the UK and the company's global health insurance model. He then shifts to discussing South Africa's economy, noting its underperformance and the potential for growth amidst infrastructure improvements and upcoming elections. Gore also shares his views on the universal health care bill in South Africa, acknowledging the challenges in funding and the need for private sector collaboration.
🏥 Comparisons with the NHS and Private Health Insurance Trends
The conversation turns to comparisons between South Africa's health care system and the UK's National Health Service (NHS), with Gore highlighting the differences in scale and funding. He discusses the increasing demand for private health insurance in the UK due to NHS challenges and suggests a similar trend could occur in South Africa. Gore also addresses the potential for Discovery in the US market, focusing on partnerships and the company's unique health and life insurance model.
💡 Discovery's Approach to the US Market and Future Growth
Gore outlines Discovery's strategy for entering the US market, emphasizing the company's data-driven approach and its focus on demonstrating the benefits of their health insurance model to health plans and employers. He rules out acquisitions in favor of showcasing the effectiveness of their wellness and disease management model. Gore expresses confidence in Discovery's ability to succeed in the competitive US market and mentions the company's strong performance in the life insurance space.
🚀 Optimism for Discovery's Growth Model and Future Challenges
Adrian Gore concludes the discussion by reaffirming his optimism for Discovery's growth model, highlighting the company's strong underlying earnings and global leadership in shared value insurance. He believes that over time, the market will recognize the value of Discovery's approach. Gore discusses potential barriers to success, suggesting that the company needs to better reveal its data and the effectiveness of its model to overcome any challenges and maintain its growth trajectory.
Mindmap
Keywords
💡Earnings
💡Cash Flow
💡Return on Equity (ROE)
💡Mortality Model
💡New Business Growth
💡Vitality Model
💡Accounting Standard Change
💡South African Economy
💡Universal Health Care
💡UK NHS
💡Healthcare Costs
💡Market Confidence
Highlights
Adrian Gore, CEO of Discovery Ltd, discusses the company's half-year earnings and addresses concerns about negative cash flow and declining return on equity.
Discovery has experienced a 28% growth in new business, indicating a strong expansion of their model.
The company has gone through a complex accounting standard change, making comparisons difficult.
Gore is confident in the underlying operating performance of the business, citing strong operating income and profit.
Growth at Discovery is stemming from various regions, including the U.K. and South Africa.
South Africa's economy is a concern, but Gore sees potential for growth amidst challenges.
The upcoming South African election is considered seminal, with expectations of significant political changes.
The narrative around South Africa's economy is often worse than the reality, according to Gore.
The universal health care bill in South Africa has a negative narrative, especially from the private sector.
Gore believes that the implementation of universal health care is possible but will require significant funding and private sector collaboration.
The private sector, including Discovery, is getting involved in negotiations to potentially partner with the government on health care.
Gore does not believe South Africa is currently equipped to have a health care system of the scale of the NHS in the UK.
In the UK, more Brits are turning to private insurance due to issues with the NHS, which Gore sees as a potential model for South Africa.
Discovery is not looking for acquisitions in the US but is focusing on offering its shared value model to health insurers.
Gore is confident in Discovery's ability to penetrate the US market by demonstrating the effect of behavior change on health care costs.
Discovery's model aims to improve financial results by incentivizing healthier behavior, leading to lower premiums and covering more people.
Gore believes that the market will eventually reflect the value of Discovery's unique approach and strong underlying performance.
The main challenge for Discovery's growth model is revealing the strength of its data and the remarkable impact of its wellness programs.
Transcripts
Adrian Gore, CEO of Discovery Ltd. Thank you so much, Adrian, for joining
us. So I was just going through the
earnings, relatively positive half year earnings, but I did notice cash flow
earnings were negative. And we also saw the return on equity
declined from 14% to 12% potentially. Why we're seeing the market price action
as it is right now. How do you give the market more
confidence that discovery can can actually generate profit sustainably?
I think our model is working incredibly well and hopefully that's evident to the
market. We've also gone through a very complex
accounting standard change that it was 17.
That makes a lot of comparisons difficult.
So this is a this is a complex time. I'm pretty comfortable.
The mortality model works so well, and it's so evident on the data that the
expansion and the growth. We had a 28% growth in new business.
So the actual expansion of the model and how it's playing out is so compelling.
So these are these are understandably complex times, but I think the actual
underlying operating performance of the business has been very strong, you know,
operating income, profit, I think. And so I'm feeling confident about our
growth potential. Where where are you seeing a growth
really stemming from? Because, you know, we were just seeing
South Africa core inflation came up higher.
Part of that is insurance costs. I mean, is it South Africa that is that
is fueling that growth? Is it the U.K.?
Where is it? It's it's intriguing.
It's all over. So our businesses have grown very
strongly. Our bank has been strongly in, say, we
growing last in the U.K. this complex dynamics with the NHS.
So as a private health insurer remain very strongly a part is growing strongly
around the world using the vitality model.
So truth be seeing growth pretty consistently across across the world.
What? Let's talk about South Africa.
Let's start here because you mentioned the bank.
There's a lot of concern about the economy and the trajectory of inflation.
Thus, you know what that means for the SARB.
What's your outlook right now based on what you're seeing?
I mean, this economy has tended to consistently underperform.
We've had very little economic growth, but ironically, it's actually very
seldom gets into recession. So it's kind of like it's kind of flat
lining the the cycle of interest and inflation seems to be coming off.
So there's some there's some potential for growth.
There's a lot of work going on on the energy and transport and logistics to
fix a lot of infrastructure. So there's there is a sense of growth
that we could achieve. We're coming up for an election that I
think is quite seminal. But we're looking past I think we will
be much more of the same. But I mean, I think a business like ours
has to look through that and grow regardless, which is to an extent is
what we've done. Where do you see the election being
seminal, though? I think the expectations are that is
this there could be a dramatic change. I think for the first time the ANC may
fall below 50%. So for the first time, the country may
see coalition coalitions in a different kind of dynamic in the in the politics.
I think that's probably likely and possible, but I think it won't make a
dramatic change. So there's a lot of expectations for the
election and the country is resilient. And often I would say the narrative is a
lot worse than the reality. Hmm.
The narrative is a lot worse than reality when we talk about the
narrative. I want to talk about the narrative
around this universal health care bill, because that is something that really
has a bit of a negative narrative, especially from the private sector.
What's your expectation for this? You think it's actually going to be
implemented? I think there's there's a very strong
push for the legislation. And it's a no it's a laudable goal to
have universal coverage for sure. We just don't have the funding for it.
So if you do the numbers, you find that that that people will have to pay
dramatically more taxes, would see cash, see their health care access go down.
So it's actually a very, very difficult process to make it work.
Having said that, I think all of us all are committed to trying to make it work.
But we've been pretty clear it cannot work without private sector
collaboration. We don't have the funding.
So I think it may pass into law. I think, in truth, if it does, it will
be, you know, a decade or so or more until we see the ability to fund
something of that scale. But the goals are laudable, and I think
all of us want to try to make that work. Is the private sector getting involved
in terms of negotiating how they could potentially be a partner?
Yes, we are. I mean, I think we've done a great job
with government on things like the vaccine.
And I view that those kinds of bridges built can be used in nature by the
private sector is quite unique in that it funds and delivers healthcare
entirely. You know, for most of the employed
sector. So it's a very, very powerful asset and
it has to be used appropriately. And without it, I do not believe the NHS
as workable. I do believe government knows it and
appreciates that there is a fantastic precedent of business working with
government on a whole lot of things, and I think this will be another one of the.
Is there something potentially to be learned from from what we're seeing with
the NHS in the UK, especially given your oversight of that?
I think our problems are different. I mean, I think the NHS has complexity
and underfunding and stock shortages, but the scale of the NHS and the amount
of money that is available is so different to what we have.
You know, so you're looking at probably five x the spend per person or more even
even in line for purchasing power parity.
But I think comparisons are actually not not necessarily helpful.
Our our challenge is simply one of just lack of funding and very poor delivery
systems in certain parts of the country. So work is required to get there.
I think we'll do better and I think we will call to achieve a workable process.
But I do think it will take a lot of time.
And I was actually speaking with the CEO from Sanlam not too long ago, and he was
saying in the long term, he thinks it actually will be beneficial for South
Africans. But if we take a look at, you know, in
particularly what's happening in the UK, there's more Britain, Brits that are
turning to private insurance. Given what we're seeing with the NHS, I
mean, do you see a similar model potentially playing out here?
I think that the look, I think the NHS is a remarkable system.
It is 30 times bigger than the private system in the UK as a private health
insurance is actually quite small. We were a private health insurer in the
UK and we are seeing much demand for our products.
But I do think the gearing is so high that if the NHS comes with a couple of
percentage points in terms of receiving of it in private, taking about the scale
of the private health insurance market is, you know, is likely to grow quickly.
So anecdotally now the growth rates are very high.
I do think ageing populations, increasing chronicity means that those
demands are going to get tougher. And so I see the spend in both the NHS
and private escalating. It kind of seems inevitable.
And you don't think South Africa is equipped at this point in time to be
able to to have something of that scale? No, I don't.
I don't. You know, we spend we have so much GDP,
an economy so much smaller, we spread it out across people.
It really is. That's our biggest challenge.
The funding of it, the nature of it, scale.
So I'm not I'm not downbeat at all. I think that we are remarkably creative
and there's a wonderful sense of good faith in South Africa, people working
together to solve problems. And I think we will.
But I think that the sense of creating a national health system of the scale of
the NHS is not is not possible. I think often those comparisons being
made create a very different set of expectations.
So it's a different system, different solutions.
But health care is a is a complicated thing to fund sustainably, whether you
are. Yeah.
And let's turn to the market. Maybe that has the biggest health care
market, and that is the U.S. And Discovery has talked a lot about
acquisitions, acquisitions, really helping the company.
Are you looking to the US potentially for more acquisitions, more
partnerships? You know, we have a vitality, shared
value model, effectively incentivize people to be healthier and then process
that and structures that into insurance, health and life insurance.
Our model is advancing so quickly. On top of personalization, we are now
building that in a way that we're offering it to certain U.S.
health plans, and we think that has potential.
I don't see us doing an acquisition. I think we have a massive a massive
capability. We've been in the U.S.
for a long time on the on the on the group side working with big employers.
So we think there is great potential to offer the model to health insurers.
It brings a very different dynamic of wellness, disease management into a
hyper personalized pathway. And we think this potentially I don't
see us doing acquisitions. No, but I think the potential is very,
very significant. What is the potential then, Adrian
Because it's also a very competitive market.
So. So how are you approaching this?
When you enter into what's a very complex market?
Well, I think I think the issue is that I think we have tremendous amounts of
data that illustrate just the incredible affect behavior change has on health
care costs in health. So we're using that data.
We're using really, really sophisticated capabilities to illustrate the benefits
to health plans and employers. And I don't think it's a shortcut to it.
We have to illustrate that and get it out on the road.
So we have a pretty big capability in the U.S.
that's taking it out there. The I think the the opportunities framed
by just our ability to demonstrate the effect on health care costs and have
come through. And we have a lot of data to do that.
So there's no shortcut here. I don't see it acquisition.
I see us demonstrating and trying to turn around the world very, very
successfully. We do it very well in the life insurance
space where you're dealing with mortality risk with companies like John
Hancock in the US. So there's great precedent for what
we've done. We've lit the space, we've created it in
a way, and I'm pretty confident we can penetrate in the US.
Do you think, Adrian? Because we are seeing a lot of insurance
companies having to increase their risk premium just given, you know, depending
on which type of insurance you're talking about having to increase,
especially because of declining profits? Is Discovery potentially looking at that
as well in the markets that you're in? Well, you know, quite the opposite.
I think the the the the model that we're using is for better financial results.
So quite the opposite. I think the quality and efficiency of
the model gets better results. Premiums are lower.
We cover more people. That's essentially the promise we make.
So I don't see us, I mean, are essential value propositions to make people either
live longer in a life insurance context or consume less health care and health
insurance context. And if you can achieve that, you will
always get premium inflation. There's underlying medical inflation,
etc.. But we all our basic hypothesis is the
market is inefficient in that it's not dealing with the behavioural issues,
which is a very, very big driver of both deaths and sickness.
So quite the opposite. We're trying to be a solution to a to a
market that I think is inefficient. And so you do think then the market will
catch up to that and have that reflected on the share price eventually?
I think that we have a huge amount to offer.
I think the progress of the group has been tremendous over the last five
years, and I think we have a global lead in the space of shared values showed the
country we created. And I think that over time it will it
will create value. The actual underlying performance of
earnings has been very, very strong, and that's what we need to watch.
So I think we feel good with where we've got to.
And finally, Adrian, I mean, just going forward, what gets in the way
potentially of this growth model that you have created for the business?
What would get in the way of that being successful come next year?
I actually think the opposite. I think we need to reveal more of the
data, the ability to use air to train some of the data in evidence.
And I actually don't think there should be any any barrier.
I think our issue is revealing the strength of what we're doing, which is
quite remarkable. So I'm actually feeling pretty confident
and we feel optimistic for the year ahead.
It's a complex environment globally, but I think good businesses manage
ambiguity, complexity. Adrian Gore, thank you so much for your
time. Really appreciate it.
Посмотреть больше похожих видео
David Shapiro back into ‘Raging Bull’ mode on SA stocks - and globally. Here’s why.
6th Shaw and Partners Uranium Conference, Sep 2024 – Alligator Energy (AGE)
Here's What No Else Tells You About Buying Palantir + NVDA
AI is the X factor of digital transformation in the energy industry, says SLB CEO Olivier Le Peuch
(※시청자댓글) 빚진 사람은 하나도 안 힘든 게 요즘 세상입니다. IMF 터지고 배째라 한 사람들은 정상적인 생활로 곧 복귀 했습니다.
The 'New' Motorola Solutions Is Taking On the Critical Need for Safety | At Barron's
5.0 / 5 (0 votes)