PruHealth plc: a Healthy Expansion for Discovery?

Abstract

It was June 2006 and Shaun Matisonn, CEO of PruHealth plc – a 50/50 joint venture formed in late 2004 between Discovery Holdings in South Africa and Prudential plc in the United Kingdom (UK) – was about to relocate his office from Johannesburg to London. As he contemplated his move, Matisonn wondered how he was going to make the joint venture work. While PruHealth was showing early signs of success, Matisonn knew that joint ventures were notoriously difficult to manage, especially across two different continents. He had the backing of two very substantial shareholders, but with that came the challenge of two sets of equally substantial expectations. Matisonn thought about what had to be done to ensure that the business remained on track.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1 Market Shares of the Top Five UK PMI Insurers from 1992 to 2002

Source: Discovery Investor Briefing, 30 April 2004. Available www.discovery.co.za, investor relations link (accessed 8 May 2006).

Figure

Exhibit 2 Projected UK Health Spending

Source: Health Insurance in association with PruHealth, UK PMI Snapshot, October 2005. Available www.hi-mag.com/healthinsurance, supplements link (accessed 18 July 2006).

Figure

Exhibit 3 Prudential Brand Credibility and Public Trust

Source: Discovery Investor Briefing, 30 April 2004. Available www.discovery.co.za, investor relations link (accessed 8 May 2006).

Figure

Exhibit 4 Prudential Group Financial Highlights for 2003

RESULTS SUMMARY

2003

£m

2002

£m

Achieved Profits Basis Results

UK and Europe Insurance Operations

359

516

M&G

83

71

Egg

(34)

(20)

UK and Europe Operations

408

567

US Operations

216

265

Prudential Asia

378

516

Other Income and Expenditure (including Asia development expenses)

(208)

(215)

Operating profit before amortisation of goodwill and exceptional items†

794

1,133

Amortisation of goodwill

(98)

(98)

Short-term fluctuations in investment returns

682

(1,406)

Effect of changes in economic assumptions

(540)

(467)

Profit on sale of UK general business operations

355

Profit (loss) on ordinary activities before tax

838

(483)

Operating earnings per share†

26.4p

42.8p

Shareholders' funds

£7.0bn

£7.2bn

2003

£m

Restated*

2002

£m

Statutory Basis Results

Operating profit before amortisation of goodwill and exceptional items +

357

449

Profit on ordinary activities before tax

350

501

Operating earnings per share +

12.9p

16.7p

Basic earnings per share

10.4p

23.5p

Shareholders' funds

£3.3bn

£3.6bn

2003

£m

2002

£m

Dividend Per Share

16.0p

26.0p

Insurance and Investment Funds under Management

£168bn

£155bn

+ Operating profit and operating earnings per share include investment returns at the expected long-term rate of return but exclude amortisation of goodwill and exceptional items. The directors believe that operating profit, as adjusted for these items, better reflects underlying performance. Profit on ordinary activities and basic earnings per share include these items together with actual investment returns. This basis of presentation has been adopted consistently throughout these financial statements.

* Statutory basis results for 2002 have been restated for altered accounting policy for certain reinsurance contracts on the adoption of the revised Statement of Recommended Practice on accounting for insurance business, issued by the Association of British Insurers in November 2003.

Source: Prudential Annual Report 2003, available www.prudential.co.uk (accessed 18 July 2006).

Exhibit 5 Discovery Group Financial Highlights 1999-2003

Source: www.discovery.co.za, investor relations link (accessed 25 September 2006).

Figure

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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