• Discovery Vitality turned a big profit when it sold a credit card business as its parent group reorganises to go into banking.
  • But even without that windfall, Vitality was a profit machine in 2018.
  • Here is what its not-quite-public numbers show.

In its last full financial year Discovery Vitality’s profits increased by nearly 13 times to R603 million, its financial statements show.

It credits people who failed to use their perks for part of that profit. Its healthy bottom line was also bolstered by a R491 million profit from Vitality’s sale of a joint interest in DiscoveryCard, as the group reorganised in preparation for the launch of Discovery’s own bank.

The listed Discovery publishes only limited numbers around Vitality in its regular group results. However, because the wholly-owned Discovery Vitality subsidiary underwrites debt for its parent company, its numbers are available for inspection.

Vitality is considered an enabler for the rest of the group rather than a profit driver*, but the 2018 numbers seen by Business Insider South Africa show big profits nonetheless.

Compared to 2017, Vitality’s profit from operations increased by 131% to R156 million, as Vitality members paid their dues, plus penalties for not meeting fitness goals, while Vitality also earned  “marketing fees” based on how many Apple watches its members bought.

Such “Vitality income” increased by 10.5% to just under R3.1 billion.

The company, which shares the directors and auditors of its parent company, said its profit was “primarily due to favourable commercial structures with partners and lower take up of certain key benefits by members.”

It did not provide details of either the commercial deals or the perks members failed to use, but a revenue breakdown showed an 85% increase in “benefit sales”, to R375 million, making for a revenue stream bigger than the access fees it charged its sibling companies.

A provision for Discovery Miles, a travel benefit linked to Vitality, also shows that each such mile is now accounted for at a cost 8.68 cents, down slightly from a previous value.

In its annual report released in late October, Discovery said that Vitality had detected “possible fraudulent behaviour among a small number of Vitality members”, such as multiple people using the same fitness tracker to claim points.

“Vitality has now set up a dedicated team... which identifies potential fraudulent actions,” the group said.

* UPDATE: Discovery Vitality says, despite the extraordinary bottom line it reported in 2018, it is intended to operate at a profit margin of between 1% and 2%.
Of its R156 million operational profit (excluding the sale of DiscoveryCard), executives say, R30 million came from investment income and another R68 million was from profits from the credit card business, which is now sold.
That leaves a R58 million normalised profit – which Vitality considers a better indication of its health than the R603 million total profit reflected in its internal books.

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Also from Business Insider South Africa