NIB Holdings Ltd · ASX:NHF
NIB — FY2013 Earnings Presentation
41 slides from NIB's earnings presentation, Aug 26, 2013
Slide 1: 2013 Full Year Results Investor Presentation
2013 FULL YEAR RESULTS Investor Presentation MONDAY 26 AUGUST 2013 2 ‘= © @ D S © ‘= O D — @ oe — © UL
Slide 2: Mark Fitzgibbon, CEO and Managing Director
MARK FITZGIBBON CEO and Managing Director 2 ‘= © @ D S © ‘= O D — @ oe — © UL
Slide 3: FY13 highlights
FY13 highlights • Group premium revenue of $1,290.4m (up 14.8% on FY12) with solid growth in all segments and For personal use only acquisition of New Zealand business (up 8.5% ex nib New Zealand) • Group underwriting profit was $73.8m (up 4.3%) and includes amortisation of acquisition intangibles o
Slide 4: Group key metrics
Group key metrics FY13 FY12 %* For personal use only Group premium revenue1 $1,290.4m $1,123.8m 14.8 - Australian Resident Health Insurance (arhi) $1,187.2m $1,095.6m 8.4 - International Workers Health Insurance (iwhi) 1 $27.6m $25.2m 9.9 - International Students Health Insurance (ishi) $4.4m $3.0m
Slide 5: Michelle McPherson, Chief Financial Officer and Deputy CEO
MICHELLE MCPHERSON Chief Financial Officer and Deputy CEO 2 ‘= © @ D S © ‘= O D — @ oe — © UL
Slide 6: Finance highlights
Finance highlights For personal use only • Group underwriting profit of $73.8m (Group underwriting margin of 5.7%) includes $2.4m of amortisation of acquisition intangibles • arhi gross margin pressure given high claims experience, one-off costs ($2.3m) and premium pricing constraints • arhi risk eq
Slide 7: Group income statement
Group income statement FY13 FY12 %* For personal use only Group premium revenue1 $1,290.4m $1,123.8m 14.8 Claims expense1 $(896.7)m $(765.4)m (17.1) Risk equalisation $(167.4)m $(160.0)m (4.7) State levies $(28.8)m $(23.8)m (20.9) Premium payback liability movement $3.3m - na Gross profit $200.8m $1
Slide 8: arhi key metrics
arhi key metrics FY13 FY12 %* For personal use only Total policyholders 472,264 451,647 4.6 - Net policyholder growth (%) 4.6% 4.7% (0.1) Net new policyholders 20,617 20,474 0.7 Total sales 66,379 62,047 7.0 - Sales rate (%) 14.7% 14.4% 0.3 - Sales new to category (%) 58.2% 61.9% (3.7) - Sales under
Slide 9: arhi key metrics
arhi key metrics ($m) FY13 FY12 %* For personal use only Premium revenue 1,187.2 1,095.6 8.4 - % of total Group 92.0% 97.5% (5.5) Claims (excluding risk equalisation) (862.6) (775.7) (11.2) Risk equalisation (167.4) (160.0) (4.7) Gross underwriting profit 157.2 159.9 (1.7) - Gross margin (%) 13.2% 1
Slide 10: arhi gross margin
arhi gross margin • Gross margin challenges for nib and industry driven by claims inflation For personal use only 15.5% 15.0% 14.5% Gross margin (%) 14.0% 13.5% 13.0% 12.5% 12.0% 11.5% FY07 FY08 FY09 FY10 FY11 FY12 FY13 nib gross margin industry gross margin Source: Private Health Insurance Administ
Slide 11: arhi management expenses
arhi management expenses For personal use only * Significant growth in broker distribution channels resulted in deferring commission costs in FY12 and FY13 • Continued focus on efficiencies and operating expense, with management expenses of $98.2m equating to a MER of 8.3%, lowest since listing • Si
Slide 12: iwhi key metrics
iwhi key metrics ($m) FY13 FY12 %* For personal use only Total policyholders 18,071 16,480 9.7 Premium revenue1 27.6 25.2 9.9 - % of total Group 2.2% 2.2% 0.0 Claims1 (11.8) (10.6) (11.0) Gross underwriting result 15.9 14.5 9.0 - Gross margin (%) 57.4% 57.5% (0.1) Management expenses (7.4) (7.1) (5.
Slide 13: ishi key metrics
ishi key metrics ($m) FY13 FY12 %* For personal use only Total policyholders 9,115 3,328 173.9 Premium revenue 4.4 3.0 45.7 - % of total Group 0.3% 0.3% 0.0 Claims (3.4) (2.9) (18.0) Gross underwriting result 1.0 0.1 641.8 - Gross margin (%) 22.7% 4.5% 18.2 Management expenses (1.1) (1.5) 27.8 - MER
Slide 14: nib New Zealand key metrics
nib New Zealand key metrics ($m)* FY13 – 7 month result For personal use only (acquisition completed in November 2012) Total policyholders 79,209 Premium revenue 71.1 - % of total Group 5.5% Claims (47.7) Decrease in premium payback liability 3.3 Gross underwriting result 26.7 - Gross margin (%) 37.
Slide 15: nib New Zealand highlights
nib New Zealand highlights • Full RBNZ licensing and QFE status achieved For personal use only meaning all regulatory requirements are no longer transitional • EPS accretive year one (excluding amortisation of acquired intangibles) • New Board and Management team in place • Separation and transition
Slide 16: Gross profit drivers
Gross profit drivers 260.0 $10.5m For personal use only 60.8 240.0 1.8 51.4 220.0 26.7 200.0 20.8 200.8 34.4 180.0 6.5 2.0 4.8 1.3 0.9 174.6 68.5 3.4 2.3 ($m) 160.0 18.8 2.7 140.0 $(15.2)m 120.0 100.0 80.0 60.0 arhi business • arhi claims and risk equalisation expenses not fully covered by rate incr
Slide 17: Investments
Investments For personal use only • Good investment return on back of growth asset performance • Consolidated defensive/growth split of 85%/15%, including nib New Zealand (FY12: 82%/18%) • Total net investment assets at 30/6/13 of $529.6m (including head office building of $36.4m) 17
Slide 18: NPAT summary
NPAT summary For personal use only 95.0 26.7 0.4 90.0 2.9 0.4 85.0 80.0 ($m) 75.0 3.2 0.5 70.0 1.3 20.3 3.3 0.9 1.4 67.6 1.5 67.2 65.0 2.7 60.0 • nib New Zealand included for the first time (acquisition completed November 2012), with amounts shown being a 7 month result • NPAT impacted by pre-tax co
Slide 19: Cash flow
Cash flow ($m) FY13 FY12 % For personal use only Net cash inflow/(outflow) from operating 20.0 134.6 (85.1) Net cash inflow/(outflow) from investing 24.0 (28.6) 183.9 Net cash inflow/(outflow) from financing 10.5 (179.1) 105.9 • Reduction in cash flow from operating activities mainly due to pre-paym
Slide 20: Available capital position
Available capital position FY13 FY12 For personal use only Opening available capital position above internal targets ($m) ($m) 13.3 138.0 On-market share buy back - (41.0) Capital Return - (75.4) Investment in TOWER Medical New Zealand (nib New Zealand) (19.7) - Interim dividend paid (22.0) (18.9) A
Slide 21: Key take outs & outlook
MARK FITZGIBBON CEO and Managing Director KEY TAKE OUTS & OUTLOOK 2 ‘= © @ D S © ‘= O D — @ oe — © UL
Slide 22: It's getting tougher within our arhi business
It’s getting tougher within our arhi business • After 5 years of very strong policyholder growth we are as predicted facing margin pressure and weaker For personal use only earnings within our arhi business, driven by: • Increasing hospital and healthcare utilisation • Public hospital costs (up 10.3
Slide 23: But we're not alone, growth continues and earnings remain attractive
But we’re not alone, growth continues and earnings remain attractive • We expect to be able to continue to grow arhi policyholder growth above system and earnings For personal use only by keeping net underwriting margins in the range 5% - 5.5% 7.0% 14.0% 6.0% 12.0% Net policyholder growth (%) 5.0% 1
Slide 24: We are as determined as ever to grow enterprise value
We are as determined as ever to grow enterprise value • We aim to further grow Group earnings through newer business ventures such as iwhi, ishi For personal use only and nib New Zealand with additional plans to launch businesses in medical travel (nib options) and international private medical insu
Slide 25: arhi underlying industry fundamentals
arhi underlying industry fundamentals • Real healthcare spending will continue to increase circa 5%-6% well ahead of GDP with For personal use only Government funding strained • PHI participation will continue to increase circa 3% notwithstanding the impact of policy changes especially the Australia
Slide 26: arhi underlying industry fundamentals
arhi underlying industry fundamentals • Favourable economic conditions (especially low interest rates), ongoing Government policy sticks/carrots, For personal use only population growth and the dire state of public hospital systems will continue to produce increased PHI participation Private health
Slide 27: Summary and FY14 guidance
Summary and FY14 guidance • arhi business expected to grow at a rate similar to FY13, notwithstanding detrimental changes to the For personal use only Australian Government Rebate and obvious signs of increased customer churn • Claims inflation easily remains the biggest challenge for nib and the pr
Slide 28: For personal use only
For personal use only 28
Slide 29: For personal use only
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Slide 30: nib policyholder & other data
nib policyholder & other data nib FY09 FY10 FY11 FY12 FY13 For personal use only Total policyholders 384,288 407,007 446,504 471,455 578,659 − arhi 384,288 406,929 431,173 451,647 472,264 − iwhi - - 13,899 16,480 18,071 − ishi - 78 1,432 3,328 9,115 − nib New Zealand - - - - 79,209 nib New Zealand (
Slide 31: PHI industry policyholder data
PHI industry policyholder data For personal use only FY09 FY10 FY11 FY12 FY13 Total policyholders 5,390,739 5,549,338 5,727,566 5,936,660 6,118,351 - Policyholder growth 3.3% 2.9% 3.2% 3.7% 3.1% Persons covered 11,257,885 11,561,299 11,901,915 12,321,848 12,680,337 Average age of hospital persons (y
Slide 32: Detailed income statement
Detailed income statement ($m) FY09 FY10 FY11 FY12 FY13 %* Premium revenue 829.5 901.4 1,007.8 1,123.8 1,290.4 14.8 For personal use only - arhi 829.5 901.4 991.3 1,095.6 1,187.2 8.4 - iwhi3 - - 16.01 25.2 27.6 9.9 - ishi - - 0.5 3.0 4.4 45.7 - nib New Zealand - - - - 71.12 - Claims expense (599.9)
Slide 33: Detailed management expenses
Detailed management expenses Total MER (%) Commissions Management Commisions Employment For personal use only Occupancy Marketing Marketing Marketing Expenses (deffered) (Direct) (Paid) Other Total ($m) IT arhi FY09 35.7 17.2 2.1 - 5.7 8.7 12.4 81.8 9.9 FY10 37.0 19.4 3.7 - 6.2 7.7 12.4 86.4 9.6 FY1
Slide 34: arhi claims
arhi claims For personal use only Overall claims inflation (hospital and ancillary) 15.0% nib Industry nib service cost nib utilisation nib annual drawing rate inflation (per SEU) incl. RE 10.0% 5.0% 0.0% -5.0% Source: Private Health Insurance Administration Council and nib All figures exclude ishi,
Slide 35: arhi claims
arhi claims Hospital claims inflation For personal use only nib Industry nib service cost nib utilisation nib annual drawing rate inflation (per SEU) incl. RE 25% 20% 15% 10% 5% 0% Sep-01 Dec-01 Sep-02 Dec-02 Sep-03 Dec-03 Sep-04 Dec-04 Sep-05 Dec-05 Sep-06 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09
Slide 36: Other income & expenses
Other income & expenses For personal use only ($m) FY13 FY12 %* Other income Life & funeral insurance commission 1.5 1.1 40.3 Travel and other commission 0.4 0.4 (16.8) Rental income 0.8 0.8 1.0 Other 0.4 1.3 (64.8) Total other income 3.1 3.6 (12.9) Other expenses Share registry 1.7 1.7 1.5 M&A (inc
Slide 37: Investments
Investments New Zealand Investment For personal use only Consolidated Australian Investment Portfolio Portfolio Net return ($m) Net return ($m) Balance ($m) Allocation (%) Allocation (%) 12 months to 7 months to at 30/6/13 at 30/6/13 at 30/6/13 30/6/13 30/6/13 Cash 178.4 7.8 36.1 0.6 22.1 All maturi
Slide 38: Balance sheet
Balance sheet For personal use only ($m) 30 June 2012 30 June 2013 ($m) (%)* Current assets Cash and cash equivalents 86.7 143.1 56.4 65.1 Financial assets at fair value through P&L 356.8 351.8 (5.0) (1.4) Other current assets 72.3 65.5 (6.8) (9.4) Total current assets 515.8 560.4 44.6 8.6 Non-curre
Slide 39: Capital adequacy
For personal use only 39 Capital adequacy
Slide 40: Regulatory capital requirements
Regulatory capital requirements For personal use only • $14.8m of available capital across the Group above internal targets after allowing for interim dividend and holding company funding requirements Australian fund capital allocation New Zealand fund capital allocation (at 30 June 2013) (at 30 Jun
Slide 41: Disclaimer
Disclaimer For personal use only The material in this presentation is a summary of the results of nib holdings limited (nib) for the 12 months ended 30 June 2013 and an update on nib’s activities and is current at the date of preparation, 26 August 2013. Further details are provided in nib’s full ye