NIB Holdings Ltd · ASX:NHF
NIB — IPO Roadshow (October 2007)
49 slides from NIB's IPO roadshow presentation, October 2007
Slide 1: NIB Holdings Limited Management Presentation ASX Listing
NIB Holdings Limited Management Presentation ASX Listing October 2007
Slide 2: Disclaimer
Disclaimer This presentation was prepared by NIB Holdings Limited (“NIB”) and contains information regarding NIB’s business and proposed ASX Listing (“Proposal”). This presentation is being provided to you as, and by receiving this document you will be deemed to have represented and warranted that y
Slide 3: Agenda
1. NIB overview 2. Business highlights and key risks 3. Financial overview 4. Details of the Institutional Offer 5. Appendix
Slide 4: Presenters
Presenters Mark Fitzgibbon — Managing Director and CEO Michelle McPherson — CFO and Deputy CEO Mark joined NIB in October 2002 as Michelle joined NIB in March 2003 as CEO. Mark was previously CEO of CFO. She was previously at Caltex both the national and NSW peak Australia for 10 years in a rang
Slide 5: NIB business snapshot
NIB business snapshot Australia’s 6th largest health insurer Incorporated in 1953 by workers at Newcastle’s BHP Steelworks Head office in Newcastle, NSW Approximately 340,000 policyholders, providing cover for approximately 700,000 people (as at 30 August 2007) 6.6% national market share b
Slide 6: The NIB proposition
The NIB proposition NIB provides value for money and easy to understand private health insurance (PHI) PHI allows access to private hospitals (avoiding public hospital waiting times), choice of specialist and provides cover for ancillary services, e.g. dental and optical NIB’s product design,
Slide 7: NIB financial snapshot
NIB financial snapshot Summary normalised income statement Very strong capital position and ungeared balance sheet 05-08 NIB Solvency Multiple June year end (A$m) 2005 2006 2007 2008F CAGR Premium revenue 530.7 611.9 666.0 750.7 12.3% Net claims incurred (incl. levies) (459.0) (500.1) (571.1) (648.7
Slide 8: ASX Listing overview
ASX Listing overview Indicative market cap A$371m - $463m post A$50m raising Institutional placement of A$50m of new capital (A$25m to fund listing/demutualisation costs and initial working capital for NIB Holdings and A$25m for a donation to establish the NIB Foundation) Additional shares to
Slide 9: Business highlights and key risks
1. NIB overview 2. Business highlights and key risks 3. Financial overview 4. Details of the Institutional Offer 5. Appendix
Slide 10: Key business highlights
Key business highlights Clear and successful strategy to capture significant latent demand especially in the under 40 segment Strong focus on customer acquisition and retention - product innovation, competitive pricing, contemporary distribution and brand positioning Strong track record of growth si
Slide 11: Significant latent demand exists for PHI especially in the under 40 target market
Significant latent demand exists for PHI especially in the under 40 target market PHI market penetration is less than 50% Hospital cover by state – 30 June 2007 Approximately 44% of Australians have private hospital cover — Potential organic growth opportunity of nearly 12 million people — Potenti
Slide 12: NIB has a focused strategy to capture this demand
NIB has a focused strategy to capture this demand NIB’s organic growth strategy is centred on profitable expansion in the medium term Product design Product pricing NIB carves out benefits that younger people are not likely to need (e.g. hip Carve outs and deductibles keep premiums lower replace
Slide 13: The key metrics of NIB's organic growth strategy
The key metrics of NIB’s organic growth strategy NIB’s organic growth strategy is centred on profitable expansion in the medium term Product design Product pricing Strong focus on ancillary benefits: NIB’s product pricing is consistent with its target market and brand positioning as offering Anc
Slide 14: The initial results are very promising
The initial results are very promising Key metrics 2005A 2006A 1H07A 2H07A YTD to 30/9 2008 Target Annualised growth in net membership 4.2% 3.9% 6.6% 10.5% 18.2% 9.7% % of new sales new to PHI 68.7% 70.8% 75.9% 74.4% 81.7% n/a % of new sales <40 71.7% 73.6% 78.1% 78.8% 78.4% n/a % of new sales onlin
Slide 15: NIB has also strengthened its focus on customer retention
NIB has also strengthened its focus on customer retention Key retention initiatives Introduced IntroducedininJune June2006, 2006,the theNIB NIBLoyalty LoyaltyBonus Bonusallows allowsNIB NIBcustomers customerstotoaccrue accrueloyalty loyaltydollars dollarsbased basedon on NIB Loyalty continuous co
Slide 16: NIB's management team have grown policyholder numbers significantly
NIB’s management team have grown policyholder numbers significantly since arriving … NIB policyholder growth since September 2000 Jun-06: Loyalty Bonus 325,000 implemented 2004/5: Focus on claims inflation control Jan 03 – Dec 03: 300,000 Focused customer acquisition Jan-07: Number of Policyholders
Slide 17: Growth well above the industry and NIB's main competitors since Dec 2002
… resulting in growth well above the industry and NIB’s main competitors since Dec 2002 NIB’s market share has grown steadily since 2002 Increase in persons between 20-39 with hospital coverage 7.0% Dec 02 – Jun 07 6.0% 50,000 5.0% 35,000 2002 2003 2004 2005 2006 20,000 5,000 BUPA has maintained mar
Slide 18: Senior Management
NIB’s management team has driven the robust growth since 2002… Mark commenced with NIB in October 2002 as CEO Prior to joining NIB, Mark was CEO of both the national and NSW peak industry bodies for licensed clubs Mark Fitzgibbon Prior to that, Mark held several CEO positions in local governme
Slide 19: Board of Directors
… and is overseen by a Board with a balance of health insurance and medical experience Keith Lynch Keith has been a Director of NIB health since 1982 and was appointed Chairman of NIB Health in November 2001 Keith is currently Chairman of ASX-listed Kip McGrath Education Centres Limited and prev
Slide 20: Regulated by PHIAC and ASX Corporate Governance compliance regime
Regulated by PHIAC and supported by a stringent ASX Corporate Governance compliance regime Board of Directors PHIAC 6 Independents (including 2 new appointees post ASX Listing) 1 Executive (CEO) Nomination and Remuneration Audit Committee Risk Committee Committee CEO Senior Executives Whilst not r
Slide 21: Significant potential for operating and capital efficiencies as a listed company
Significant potential for operating and capital efficiencies as a listed company NIB expects improved cost performance as a “for-profit” NIB remains well capitalised and debt free post- company demutualisation . . . Solvency multiple (x) Profit motive to drive improved operating performance Impr
Slide 22: ASX Listing will provide a platform to drive industry consolidation
ASX Listing will provide NIB with a platform to drive industry consolidation Key points Desirable acquisition criteria Ideally Ideallyany anypotential potentialopportunity opportunitywill willhave haveaayoung young The Australian private health insurance industry is riskpool risk poolsimilar si
Slide 23: NIB has experience in acquiring and integrating health funds
NIB has experience in acquiring and integrating health funds having acquired IOOF Health in 2003 Key transaction metrics Acquisition achievements The cost synergies estimated at the time of the acquisition were met within the budgeted timeframe and exceeded original forecasts Key acquisition metri
Slide 24: Key risks
Key risks Change in the regulatory environment Investment market performance Economic slowdown Pricing risk Operation of the new Risk Equalisation Trust arrangements Increased competition from current competitors and potential new entrants Failure to recover investment in organic growt
Slide 25: Financial overview
1. NIB overview 2. Business highlights and key risks 3. Financial overview 4. Details of the Institutional Offer 5. Appendix
Slide 26: Financial snapshot
Financial snapshot Summary normalised financials Commentary 05-08 Premium revenue is forecast to grow at a CAGR of 12.3% 05-08 June year end (A$m) 2005 2006 2007 2008E CAGR driven by a 7.4% CAGR in policyholders, and contribution rate Premium revenue 530.7 611.9 666.0 750.7 12.3% increases Claims
Slide 27: NIB has grown premium revenue at a CAGR well above the industry
NIB has grown premium revenue at a CAGR well above the industry and its major competitors Premium revenue growth FY05 FY06 FY07 CAGR 05-07 NIB 15.4% 15.3% 8.8% 12.0% Medibank 7.6% 7.7% n/a n/a MBF 7.9% 8.6% n/a n/a BUPA 8.5% 9.4% n/a n/a Industry 8.7% 9.3% n/a n/a Commentary Three key drivers of p
Slide 28: Premium revenue – pricing regime
Premium revenue – pricing regime Historical premium rate increases Average annual premium rate 1-Apr-03 1-Apr-04 1-Apr-05 1-Apr-06 1-Apr-07 increases NIB 3.20% 9.10% 13.86% 4.85% 4.65% Medibank 4.90% 8.95% 7.94% 5.88% 4.94% MBF 7.40% 5.79% 7.74% 5.77% 4.39% BUPA 6.30% 5.92% 7.40% 4.90% 4.50% Industr
Slide 29: NIB's claims expenses are lower than its key competitors and the industry
NIB’s claims expenses (including risk equalisation) are lower than its key competitors and the industry Claims ratio (including risk equalisation levy) Claims ratio 2005A 2006A 2007A NIB 86.5% 81.7% 85.7% Medibank 88.4% 86.4% n/a MBF 87.9% 86.3% n/a BUPA 86.5% 83.2% n/a Industry av. 87.8% 85.3% n/a
Slide 30: Claims expenses – key drivers and levers
Claims expenses – key drivers and levers Attracting Attractingnew newlow lowrisk riskpolicy policyholders holderslowers lowersrelative relativeutilisation utilisation Utilisation Wellness Wellnessand anddisease diseasemanagement managementprograms programscan canmitigate mitigateillness illnes
Slide 31: Risk Equalisation levy and State levies
Risk Equalisation levy and State levies Risk Equalisation levy Risk Equalisation averages out the cost of hospital treatment across the PHI industry. The scheme transfers money from those organisations that are demographically younger and healthier, with lower claims payments, to those with an old
Slide 32: Management expenses
Management expenses NIB Health Fund normalised management expense components A$m Employment Advertising Other expenses IT expenses Occupancy 5.0 75 7.3 5.0 5.1 13.6 60 5.2 5.0 4.4 11.3 4.3 17.9 45 11.3 13.8 11.1 7.4 5.8 30 36.0 39.5 15 30.1 32.2 0 FY05 FY06 FY07 FY08 Given the investment in growth,
Slide 33: Management expenses – key drivers and levers
Management expenses – key drivers and levers Processimprovement Process improvementand andautomation automation Ongoing Ongoingwork workprocess processreengineering reengineering Electronic Electronicautomation automationofofmanual manualprocesses processes(e.g. (e.g.imaging imagingand andwork
Slide 34: Investment portfolio and income
Investment portfolio and income NIB has a diversified investment portfolio Comments Property trusts 1% NIB has ~A$400m of investment assets (excluding direct Listed infrastructure 5% property of A$31.3m) as at 31 August 2007 Australian shares 11% Overseas shares 10% No direct exposure to sub-pri
Slide 35: Underwriting margins
Underwriting margins Underwriting margins Gross margin Net margin 18.3% 20% 13.5% 14.3% 13.6% 15% 8.4% 10% 2.9% 3.6% 2.5% 5% 0% 2005A 2006A 2007A 2008F Commentary Gross underwriting margin and net underwriting margins for FY06 were above targeted levels due to high claims inflation leading to high
Slide 36: Capital management and dividends
Capital management and dividends Capital management Strong balance sheet with no gearing, positions NIB for potential acquisitions In the absence of any strategic initiatives, the Board intends reviewing NIB’s capital position and gearing at or around the time of release of the June 2008 results
Slide 37: Drivers of future earnings growth
Drivers of future earnings growth Volume — Organic (focus on the <40 market given low penetration and interstate growth) — M&A (listed platform provides an opportunity to participate in any industry consolidation) Product value “buy-up” — Life stage migration Efficiency, lower running costs an
Slide 38: Details of the Institutional Offer
1. NIB overview 2. Business highlights and key risks 3. Financial overview 4. Details of the Institutional Offer 5. Appendix
Slide 39: Key Institutional Offer information
Key Institutional Offer information Key offer statistics Indicative offer price range $0.70 - $0.90 Total number of Shares outstanding pre ASX Listing/Institutional Offer 459.0m Shares to be issued under the Institutional Offer 55.6m-71.4m Cash proceeds – Institutional Offer A$50m Total number of Sh
Slide 40: Indicative sources and uses – Institutional Offer
Indicative sources and uses – Institutional Offer Sources A$m Uses A$m Proceeds from Institutional Offer of new shares 50.0 Donation to the NIB Foundation 25.0 Estimated fees and costs associated with the Offer and 25.0 initial working capital for NIB Holdings Total Sources 50.0 Total Uses 50.0 40
Slide 41: Indicative timetable
Indicative timetable Indicative key dates (subject to change) Last date for receipt of existing NIB shareholders Sale Facility Election Form 19 October 2007 Institutional Bookbuild opens 25 October 2007 Institutional Bookbuild closes 26 October 2007 Facility Price confirmed 26 October 2007 Instituti
Slide 42: Appendix
1. NIB overview 2. Business highlights and key risks 3. Financial overview 4. Details of the Institutional Offer 5. Appendix
Slide 43: The healthcare market is big, and getting bigger
The healthcare market is big, and getting bigger, growing at more than twice the rate of GDP Industry snapshot Total Australian healthcare expenditure During 2005, Australians spent approx. A$87bn on 100 Total spending ($bn) (LHS) % GDP (RHS) 10.0% healthcare through public and private systems 90
Slide 44: PHI plays a relatively small but important role in the healthcare economy
PHI plays a relatively small but important role in the healthcare economy PHI represents only 7% of healthcare spending Industry landscape Private health Other At 30 June 2006 there were 39 registered health insurers, 37 of which insurers 6% conducted a health benefits fund, 23 of which were open
Slide 45: The potential for growth in PHI is significant
The potential for growth in PHI is significant Key points Individual out-of-pocket spending is a significant opportunity PHI represents only 7% of the health economy All other medications 20% Dental services 20% Almost 12 million Australians do not have hospital cover Under 40s which are a bet
Slide 46: PHI profitability has stabilised and is now growing
Importantly, PHI profitability has stabilised and is now growing Premium growth has been consistently above GDP Claims inflation has subsided 20% June 2002 = 19.8%. Represents lag effect on 8.0% 7.4% 7.6% claims of LHC introduction in 2000, following lapse 6.9% of initial 12 month waiting period for
Slide 47: Government policy is very supportive
Government policy is very supportive Key PHI regulations PHIs PHIsmust mustcharge chargeallallpolicyholders policyholdersthe thesame sameprice pricefor foraapolicy policyregardless regardlessofofrisk risk Community rating Designed Designedtotoprevent preventprice pricediscrimination discrimina
Slide 48: Support for PHI is bipartisan
Support for PHI is bipartisan Both sides of federal politics have expressed unequivocal support for the Government Rebate "I think it's a good thing we are starting to see "It is frightening that health costs have to compete these old mutuals contemplating floating and with grocery costs, mortgage c
Slide 49: nib holdings
nib holdings