NIB Holdings Ltd · ASX:NHF
NIB — FY2008 Earnings Presentation
38 slides from NIB's earnings presentation, Aug 29, 2008
Slide 1: Results for the 12 months ended 30 June 2008
For personal use only nib holdings limited Results for the 12 months ended 30 June 2008 29 August 2008
Slide 2: Today's agenda
Today’s agenda For personal use only Overview Mark Fitzgibbon Year in review Mark Fitzgibbon Financial performance Michelle McPherson Outlook & strategy Mark Fitzgibbon Q&A 2
Slide 3: Overview
For personal use only Overview Mark Fitzgibbon, MD & CEO
Slide 4: Overview
Overview Very strong FY08 operating result For personal use only • normalised net underwriting profit up 39.2% to $33.0m (FY07 - $23.7m) • normalised net underwriting margin of 4.4% (FY07 – 3.6%) Normalised FY08 net profit after tax of $26.7m • small FY08 statutory accounting profit of $0.4m due
Slide 5: Year in review
For personal use only Year in review Mark Fitzgibbon, MD & CEO
Slide 6: We are pleased about… Strong policyholder and premium growth
We are pleased about… Strong policyholder and premium growth For personal use only nib continues to grow faster than its competitors Strong policyholder growth due to 70,000 4.5% continued success of organic growth 60,000 strategy 50,000 • nib growing faster than industry, up 11.1% 40,000 11.1% vs
Slide 7: The efficacy of our business strategy
We are pleased about… The efficacy of our business strategy For personal use only FY08 Prospectus FY05 FY06 FY07 FY08 Forecast Annualised growth in net 4.2% 3.9% 8.8% 11.1% 9.7% membership % of new sales new to category 68.7% 70.8% 74.4% 73.2% n/a % of new sales “under 40” 71.7% 73.6% 78.5% 78.8% n/
Slide 8: Strong operating performance – net margin up
We are pleased about… Strong operating performance – net margin up from 3.6% in FY07 to For personal use only 4.4% in FY08 Strong normalised net underwriting Lower normalised Management Expense margin Ratio (MER)... 12% 10% 8.4% FY08 Prospectus Fcst 8% 11% 6% 4.4% 2.9% 3.6% 10% 4% 2% 9% 0% 8% FY05 F
Slide 9: We are not so pleased about…
We are not so pleased about… Low investment earnings given volatile investment markets For personal use only Æ we are carefully managing our investment portfolio with the aim to reduce volatility of investment earnings and release or deploy excess capital Government’s proposed increase to the Me
Slide 10: Financial performance
For personal use only Financial performance Michelle McPherson, Deputy CEO & CFO
Slide 11: Financial results
Financial results Net underwriting result of $33.0m, up $9.3m or 39.2% on FY07 For personal use only FY08 FY07 % change ($m) Statutory Adjust Normalised Statutory Adjust Normalised FY08 vs FY07 Profit after tax 0.4 26.3 26.7 52.5 (15.3) 37.2 (28.2)% Significant one-off costs in FY08 re demutualisa
Slide 12: Financial results – normalised – key drivers
For personal use only ($m) 0 20 40 60 80 100 120 140 FY07 NPAT 37.2 Premium revenue – policyholder growth 66.9 Claims expense – policyholder growth (42.8) Premium revenue – product mix (8.5) Claims expense – product mix 27.9 Premium revenue – rate increase Claims expense – inflation 33.8 (33.7) Clai
Slide 13: Premium revenue
Premium revenue Strong growth in premium revenue – up 13.8% to $758.2m For personal use only Premium revenues continued to grow strongly $92.2m increase in premium revenue: • policyholder growth – $66.9m CAGR = 12.6% 800 758.2 666.0 • premium rate increases – $33.8m 611.9 530.7 600 • net product m
Slide 14: Claims expense and levies
Claims expense and levies Claims expense up 13.3%, but underlying inflation trends stable For personal use only Hospital claims inflation stabilised Claims expenses nib Industry nib service cost nib utilisation Normalised ($m) FY05 FY06 FY07 FY08 nib drawing rate (incl RE) 25% Claims expense 406.5 4
Slide 15: Management expenses
Management expenses Management expense ratio down to 10.3% For personal use only Controlled growth in management Increase in management expenses to $78.2m expenses Employment Marketing IT Occupancy Other largely reflects significant investment in growth 90 78.2 • spend on organic growth strategy o
Slide 16: Investment income
Investment income FY08 investment income affected by market volatility For personal use only Investment income inherently volatile Investment return Annualised return FY08 FY07 40 31.3 Cash 6.1% 6.4% 30 Australian shares (11.7)% 26.7% ($m) 17.0 17.9 20 Australian fixed interest 4.3% 3.5% 7.5 10 O/s
Slide 17: Investment assets
Investment assets Target split – over time moving to less volatile investment earnings For personal use only Investment assets – $453.0m (at 30 Jun 08) Externally managed portfolio – mix Listed infrastructure at 30 Jun 08 was 73%/27% 4% Unlisted O/s shares 8% security As announced on 19 May 2008
Slide 18: Regulatory capital requirements
Regulatory capital requirements $105.6m of excess capital above internal target For personal use only Health fund capital (at 30 Jun 08) During June 2008 excess capital of $95.5m was Excess capital transferred from nib health to nib holdings Seasonal variance 16.5 nib health fund total assets at
Slide 19: Capital management
Capital management For personal use only We have a strong capital position $105.6m excess capital above internal target ungeared balance sheet Our strong balance sheet and capital position enables us to pursue attractive acquisition opportunities as they arise and/or undertake capital manage
Slide 20: Outlook & strategy
For personal use only Outlook & strategy Mark Fitzgibbon, MD & CEO
Slide 21: Market outlook: potential for PHI growth is still significant
Market outlook The potential for PHI growth is still significant For personal use only Penetration1 has been increasing 52% <40 40+ Total Even after the Government’s 48% proposed changes to MLS, the 44% potential for PHI growth is still 40% significant: • considerable latent demand 36% Jun-04 Jun-
Slide 22: Market outlook: market fundamentals are sound
Market outlook Market fundamentals are sound For personal use only Government will remain supportive of PHI given increasing dependency ratio Claims inflation will be between 5%-10% (subject to MLS impact) More rational and certain premium setting policy likely to emerge Industry growth post
Slide 23: Business outlook
Business outlook nib continues to capture a large component of market growth For personal use only nib policyholder numbers consistently Second largest growth in number of total growing faster than top 5 funds policyholders over FY08... Medibank MBF BUPA HCF HBF nib 70,000 20% 60,000 15% 50,000 10%
Slide 24: Proposed changes to MLS
Proposed changes to MLS Proposed MLS changes are yet to be enacted, and may fail to become law or For personal use only may be amended FY09 policyholder growth forecast to be 2%-5% (subject to MLS impact) If passed as currently proposed, MLS changes will put increased pressure on claims inflat
Slide 25: We have a clear view of what will drive earnings
We have a clear view of what will drive earnings We continue to target a net underwriting margin of 5% and ROE of at least 15% For personal use only and expect to reach these targets in the near term Business strategy Earnings and ROE Organic growth with <40 skew Continue to target 5% net underw
Slide 26: Summary
Summary The Australian healthcare economy is forecast to continue to grow at >GDP For personal use only Even after the Government’s proposed changes to MLS, there is significant potential to grow the PHI category Our organic growth strategy has been very successful in growing market share, and
Slide 27: Q&A
For personal use only Q&A
Slide 28: Appendix
For personal use only Appendix
Slide 29: Data sheet – nib
Data sheet – nib FY03 / at FY04 / at FY05 / at FY06 / at FY07 / at FY08 / at 30 Jun 03 30 Jun 04 30 Jun 05 30 Jun 06 30 Jun 07 30 Jun 08 For personal use only nib Total policyholders 255,812 279,272 290,940 302,299 328,784 365,389 Policyholder growth 9.2% 9.2% 4.2% 3.9% 8.8% 11.1% Market share 5.5%
Slide 30: Data sheet – PHI industry
Data sheet – PHI industry For personal use only FY03 / at FY04 / at FY05 / at FY06 / at FY07 / at FY08 / at 30 Jun 03 30 Jun 04 30 Jun 05 30 Jun 06 30 Jun 07 30 Jun 08 PHI industry Total policyholders 4,649,268 4,671,430 4,708,420 4,806,754 5,008,329 5,219,567 Policyholder growth 1.2% 0.5% 0.8% 2.1%
Slide 31: Data sheet – nib normalised financials
Data sheet – nib normalised financials FY08 Prospectus For personal use only ($m) FY05 FY06 FY07 forecast FY08 PROFIT & LOSS Premium revenue 530.7 611.9 666.0 750.7 758.2 Gross underwriting result 71.7 111.8 94.9 102.0 111.2 Net underwriting result 15.4 51.4 23.7 18.7 33.0 Investment & other income
Slide 32: Normalised profit & loss reconciliation
Normalised profit & loss reconciliation Significant one-off costs in FY08 re demutualisation/listing result in $0.4m statutory profit For personal use only FY08 FY07 % change ($m) Statutory Adjust Pro forma Statutory Adjust Pro forma FY08 vs FY07 Premium revenue 758.2 - 758.2 666.0 - 666.0 13.8% N
Slide 33: Financial results – underlying results
Financial results – underlying results Net underwriting result up $9.3m or 39.2% on FY07 For personal use only Underlying results split out Investment income between: • Normalised investment income – calculated on the basis of a 7% assumed return over average investment assets for the period • Inv
Slide 34: Balance sheet
Balance sheet Robust balance sheet remains ungeared For personal use only Balance sheet ($m) At Jun 08 Jun 07 OSC is 9.6% of claims expenses for Health fund operating assets FY08 (FY07 – 9.5%) Current assets 32.1 26.6 Non-current assets 71.6 40.0 • 87% of benefits are paid within two months (FY07
Slide 35: Normalised cash flow reconciliation
Normalised cash flow reconciliation FY08 FY07 ($m) Statutory Adjust Pro forma Statutory Adjust Pro forma For personal use only Receipts from policyholders & customers 766.0 - 766.0 719.4 (47.9) 671.5 Payments to customers, suppliers, emp’ees (764.9) 45.2 (719.7) (673.8) 51.3 (622.5) Sub-total 1.1 45
Slide 36: Risk Equalisation Levy
Risk Equalisation Levy Risk Equalisation averages out the cost of hospital treatment across the PHI industry. The scheme For personal use only transfers money from those organisations that are demographically younger and healthier, with lower claims payments, to those with an older and less health
Slide 37: Disclaimer
Disclaimer The material in this presentation is a summary of the results of nib holdings limited (nib) for the 12 months ended 30 June 2008 and an For personal use only update on nib’s activities and is current at the date of preparation, 29 August 2008. Further details are provided in the Company’s
Slide 38: nib holdings limited – Results for the 12 months ended 30 June 2008
For personal use only nib holdings limited Results for the 12 months ended 30 June 2008 29 August 2008