RYK VAN NIEKERK: Health and insurance group Discovery is the first major South African company to announce a mandatory vaccination policy for its staff. The group said during its results announcement that all staff need to be vaccinated from January next year. Adrian Gore is on the line. He’s the chief executive of Discovery. Adrian, welcome to the show. Why are you making vaccinations mandatory?
ADRIAN GORE: Ryk, I think there’s a very strong moral issue here. Firstly, it’s about death. The amount of death that we’ve seen has been tremendous. We have passed 220 000 people. We’ve lost 14 000 of our customers and 20 of our staff. So we’re surrounded by death and the only way to stop that is vaccination.
The other point is that the vaccine is so effective. The data we’ve seen is compelling. It is safe, it’s available and, critically, if you’re not vaccinated you can transfer (the virus) to others. This is not just about private health, it’s about public health. We’ve been through this debate many times. I think Discovery’s position as a company is that it believes strongly in making people healthy.
We hold ourselves to a high standard. We need to make a difference on this issue. It’s critical.
So I think the logic and the morality is kind of unequivocal.
That’s the basis – that we are, I have to say, following a process, and we’ve spoken to our staff, we are consulting; it will be done with mutual understanding. This is not kind of a hard edge. It’s not that style, but we do need to move.
RYK VAN NIEKERK: What has the response been from the staff?
ADRIAN GORE: The response has been that we spoke to our leadership team of about 1 500 people yesterday, and we were speaking to staff today. It’s generally been very positive. Of course, people raise issues of concerns about vaccine safety. In the main I think staff not only are accepting, but there is strong support for it. We don’t think it’s a simple thing to do. We think there will be a lot of strong voices, and we’ll see other corporates respond as well. I’m sure many will have similar views and we’ll see how it plays out.
RYK VAN NIEKERK: How will you approach staff members who refuse to be vaccinated?
ADRIAN GORE: The entire process – I keep saying (there’s) this point of mutual respect – will be done on a basis where there are going to be clear processes for staff to apply. There may be religious grounds or health grounds and, if those are legitimate, the concept of reasonable accommodations of staff will be offered, ways of how we accommodate them in different ways, working in different areas, testing, and so on.
But ultimately if staff just have a view about it, then they can’t be at Discovery. That’s ultimately what the mandate will be.
RYK VAN NIEKERK: Interesting. I think you’ve drawn a pretty significant line in the sand and it will be interesting to see how other companies follow.
Let’s talk about your [annual] financial results. You earned a profit of R3.2 billion, which is nearly 20 times higher than the R180 million last year. But I’ve also looked at your 2019 profit of R6.6 billion, which is more than double your 2021 profit. How do you think stakeholders should look at the numbers?
ADRIAN GORE: I think they should look at the progression of the operating profit. Obviously during a Covid environment the volatility around, in particular, mortality claims creates all kinds of massive swings in profitability. And then I think last year’s numbers with rates of interest which really don’t affect any cashflow or solvency or anything at all are just kind of balance-sheet numbers.
The reality is I think that stakeholders should look at the progression of operating profit, up 7%.
If you take out the excess mortality claims that hopefully won’t occur, we are very pleased with the operating results. I think they’re strong. Every business has done well. The epicentre has been Discovery Life, where the amount of death claims has been absolutely tragic, beside the financial issues. But I think we’re very pleased with the performance.
RYK VAN NIEKERK: Definitely a significant bounce-back. Adrian, the market did not like the possibility of a rights issue you need to do for your Chinese business to recapitalise that business with around R1.5 billion. You have around R12 billion in the bank – why not fund it from internal sources?
ADRIAN GORE: Yes, it’s important. Ping An Health [Insurance] has given the most, I think, incredible performance. Over five years it has gone from virtually nothing to R40 billion of premium, 30 million clients. And now there’s quite a bit of profitability that’s coming through. So the business itself, the business case, is absolutely compelling because I think during this difficult Covid time we’ve been absolutely disciplined about every business being capitalised properly, about cash buffers in the sense to make sure we grade you.
We’re investing a lot in building a bank. So our approach has been like we did with Discovery Card, when we bought it from FNB in that process. If there’s new growth capital required for a specific initiative not in the plan, we raise specific capital for that purpose. We haven’t yet decided exactly what we will do, but that’s likely (to be) how we will do it.
I don’t see a general rights issue raising any more money. If we do an equity raise, it will be to the centre of what’s required for Ping An Health, so we keep discipline in the plan. I think it’s particularly important during a time of uncertainty, and you do need capital discipline.
RYK VAN NIEKERK: Yes. The Chinese business is interesting. It’s been regarded by many analysts as the potential Tencent of the health insurance sector in China. Are you concerned about the way the Chinese authorities are changing regulations on the fly? For example, on Tencent there’s a massive impact.
ADRIAN GORE: If you look in China, there’ve been a number of policy decisions made, but I think there is a level of consistency around what they’re doing. China has this concept now of ‘common prosperity’, and they’re focusing on areas where they see distortion – the education providers that have created massive demographic problems about educating kids. They see that in the tech industry certain companies have almost monopoly status, and they’ve tried to address that. So there are areas, whether we agree or not, that they see as distortions and are acting against them.
In our space around health insurance, health insurance has been well prescribed in the five-year plan, encouraging the private health-insurance market. And I’ll say to you critically, we are providing access to public healthcare, funding typically co-pays that appear when you are in the public healthcare system.
So our product is not elitism or anything like that. Quite the opposite, making sure that hundreds of millions of people get access to healthcare. Our view, and I think it concurs with that of many of our competitors, is that being a regulated industry already there’s unlikely to be massive policy change. I think there is complexity in China, but if you look at the scale of the market and the scale of how growth will appear in the health-insurance market, I think we’re pretty convicted about how powerful the business can be already, given its scale. There’s actually no doubt we will follow those rights into Ping An Health.
RYK VAN NIEKERK: Discovery Bank is an interesting business. You’ve invested a lot of money in this venture but during the period it lost around R1 billion. Is the bank performing according to plan?
ADRIAN GORE: I think it is. I think it’s tracking very much the business plan. The last year has been an excellent credit for the bank. The growth has been slightly above our expectation, and the quality of the clients in terms of kind of revenue-taking primary accounts, using the bank deposit levels, has been fantastic. All aspects have done well.
The only area where I think we are lagging – and that’s been a decision of ours – has been the advances book.
We’ve been very conservative in granting credit.
We remain concerned about a new bank being too frivolous on credit in an environment of uncertainty such as Covid. That will change all the time, hopefully, but the bank has been tremendous. I think, as a client of the bank, the usage, the functionality is remarkable. So I think we’re very excited about the bank.
RYK VAN NIEKERK: Adrian, thank you so much for your time. That was Adrian Gore, the CEO of Discovery.