Medibank Private Ltd. · ASX:MPL
Medibank Private — FY2017 Earnings Presentation
36 slides from Medibank Private's earnings presentation, Aug 25, 2017
Slide 1: 2017 Full Year Results Investor Presentation
medibank 2017 Full Year Results Investor Presentation 25 August 2017 Chief Executive Officer Chief Financial Officer
Slide 2: Important notice
Important notice The information contained in this presentation is for information purposes only. The information contained in this presentation is not investment or financial product advice and has been prepared without taking into account the investment objectives, financial situation or particula
Slide 3: Agenda
Agenda Highlights Financial results Outlook Q&A Craig Drummond Mark Rogers Craig Drummond Executive Leadership Team medibank
Slide 4: Highlights
medibank Highlights Craig Drummond - Chief Executive Officer
Slide 5: NPAT, Health Insurance operating profit, full year dividend
Group NPAT Health Insurance Full year dividend operating profit $449.5m $497.5m 12.0cps up 7.6% down 2.6% up 9.1% Health Insurance Operating Profit • • • – – – – • •
Slide 6: Milestone scorecard
Milestone scorecard Tangible indicators of progress; remain on track to meet milestones Customer RON Objectives to reach by 2019 PHIO complaints less than market share (by December 2017 survey) Brand NPS best in class against major private health insurance peers! Market share stabilised2 Bupa, HCF a
Slide 7: Customer initiatives: DelPHI, digital, service, transparency
DelPHI into BAU and digital accelerated Customer service overhauled Product development more customer-orientated Transparency agenda prioritised
Slide 8: Strategy and FY18 priorities
Strategy and FY18 priorities Major focus is to accelerate the improvement in market share trajectory and expand health services Strategic pillar FY18 priorities Enablers Strong purpose - Better Health for Better Lives Deliver enhanced Continue to improve Expand the offering for products and services
Slide 9: Health services expansion
medibank Health services expansion Integrating health into the customer experience is a key strategic element transforming Medibank into a broader health services company Medibank - Better Health for Better Lives Focus | Prevent avoidable hospital Support customers to Provide choice over how and ! |
Slide 10: Key points
medibank Key points * Pleasing financial result modestly ahead of guidance * Strong execution of meaningful customer experience improvement; more to be done ¢ — DelPHI now BAU and starting to deliver benefits for our customers ¢ Early but clear signs of improving market share trajectory * Increasing
Slide 11: Financial results
medibank Financial results Mark Rogers - Chief Financial Officer
Slide 12: Group financial summary
Group financial summary Financial year ended 30 June ($m) 2017 2016 Health Insurance premium revenue 6,244.9 6,172.5 1.2% Medibank Health revenue! 552.1 569.3 (3.0%) Revenue 6,797.0 6,741.8 0.8% Health Insurance operating profit 497.5 510.7 (2.6%) Medibank Health operating profit 39.7 24.8 44.0% Seg
Slide 13: Group NPAT - FY17 vs FY16
Group NPAT - FY17 vs FY16 medibanik Operating result reflects cost of increased investment in customer initiatives FY17 NPAT result analysis ($m)! 500 + 420 560 Oh 460 - | 449.5 440 - (23.2) (2.6) woo. 4178 16 J (1.9) 400 (9.2) 380 - 360 - 340 - 320 - 300 - ig g £ 28 ¢ s > Seg 5 2 2 8 53 E&o §8 &e S
Slide 14: Health Insurance result
medibank Health Insurance result Financial year ended 30 June ($m) 2017 2016 Change Premium revenue 6,244.9 6,172.5 1.2% Net claims expense (including risk equalisation) (5,179.0) (5,145.8) 0.6% Gross profit 1,065.9 1,026.7 3.8% Management expenses (568.4) (516.0) 10.2% Operating profit 497.5 510.7
Slide 15: Health Insurance - premium revenue
Health Insurance - premium revenue Encouraging improvement in trajectory despite continued slowing of market medibank Rw Industry volumes were relatively flat Medibank — Strong performance from new products helped drive stronger acquisition in 2H17 — Lapse up slightly in line with industry ahm — Str
Slide 16: Health Insurance - claims
medibank Health Insurance - claims Drawing rate increase continues to be driven by hospital utilisation growth * Hospital — Higher growth in hospital utilisation rate, coming off a low base in FY16 — Expected savings from prostheses pricing reform emerging — Public hospital costs decrease reflects c
Slide 17: Health Insurance - management expenses
medibank Health Insurance - management expenses Increase driven by investments in customer; significant future productivity savings expected * Reported cost growth of 10.2% reflects: — DelPHI amortisation commenced — Increase in Deferred Acquisition Costs (DAC) amortisation reflects first full 4-yea
Slide 18: Medibank Health
Medibank Health medibank (formerly Complementary Services) Reported profit increase due to divestments in FY16; ongoing business profit steady * Reported revenue decline due to divested businesses (Workplace Health, Travel Doctor] in latter part of 1H16 * Ongoing Medibank Health businesses delivered
Slide 19: Investment portfolio
medibank Investment portfolio Target asset allocation revised following continued strength of equity markets ° Target asset allocation revised in June 2017 to 80% defensive, 20% growth [from 75% defensive, 25% growth * More defensive portfolio positioning in response to elevated equity valuations an
Slide 20: Net investment income
medibank Net investment income Investment returns buoyed by higher equity market returns and stronger credit markets * Net investment income above FY16 due to higher investment market returns — Growth assets up due to above average equity market returns in FY17 and below average returns in FY16; ben
Slide 21: Financial summary - group
medibank Financial summary - group Corporate overheads, other expenses, tax * Corporate overheads increased by 9.0% due to project costs and costs associated with senior executive changes * Other income/lexpenses) — FY17: $2.8m in legal costs regarding ACCC court case — FY16: $14.0m one-off regardin
Slide 22: Balance sheet
medibank Balance sheet Strong, debt free balance sheet * Higher cash balance reflects new strategic asset allocation and funding for HealthStrong acquisition * Unearned premium liability increase reflects growth in overseas customers ° Deferred acquisition costs up due to continued growth of ahm * O
Slide 23: Cash flow
medibank Cash flow Improvement in operating cash flow driven by normalisation of key working capital movements ° Working capital in the prior year impacted by the timing of payments * Operating assets and liabilities movement reflects higher prepayments of premiums * Post Project DelPHI, capital exp
Slide 24: Capital
Capital Modest unallocated capital; some already used in HealthStrong acquisition * Health Insurance capital at the top end of 12-14% target range, supported by strong investment returns (normalisation adjustment of $30.8m) and reflective of level of revenue growth * Unallocated capital defined as:
Slide 25: Dividend
medibank Dividend Final dividend brings payout ratio to upper end of 70-80% target * Final dividend of 6.75 cents per ordinary share for the six month period ending 30 June 2017, bringing the full year FY17 dividend to 12.0 cents per share fully franked + Payable: 28 September 2017 {ex-dividend date
Slide 26: Outlook
medibank Outlook Craig Drummond - Chief Executive Officer 26
Slide 27: Regulatory landscape
medibank Regulatory landscape Significant reform needed to help address rising affordability challenge Broader regulatory landscape Medibank submission to senate inquiry Transparency Affordability Value * Reduce prosthesis prices paid by private health insurers Australian Government . . . SD * More
Slide 28: FY18 Health Insurance outlook
FY18 Health Insurance outlook ¢ Flat overall market volumes expected due to further declines in the participation rate * Continued improvement expected in market share trajectory (stabilisation targeted by the end of 2019) ¢ No material change expected in hospital utilisation growth rate from FY17 l
Slide 29: Q&A - Executive Leadership Team
medibank Q&A Executive Leadership Team 29
Slide 30: Appendices
medibank Appendices
Slide 31: Group financial summary - half by half
Group financial summary - half by half Health Insurance premium revenue 3,127.0 3,117.9 3,092.5 3,080.0 1.1% 0.3% 1.2% Medibank Health revenue 272.8 279.3 268.7 300.6 1.5% (2.3%) (7.1%) Revenue 3,399.8 3,397.2 3,361.2 3,380.6 1.1% 0.1% 0.5% Health Insurance operating profit 248.1 249.4 239.0 271.7 3
Slide 32: Health Insurance result - half by half
Health Insurance result - half by half Premium revenue 3,127.0 3,117.9 3,092.5 3,080.0 1.1% 0.3% 1.2% oc corel (2,589.1) (2,589.9) (2,594.7) (2,551.1) (0.2%) (0.0%) 1.5% Gross profit 537.9 528.0 497.8 528.9 8.1% 1.9% (0.2%) Management expenses (289.8) (278.6) (258.8) (257.2) 12.0% 4.0% 8.3% Operatin
Slide 33: Health Insurance premium revenue - half by half
Health Insurance premium revenue - half by half Premium revenue ($m) 3,127.0 3,117.9 3,092.5 3,080.0 1.1% 0.3% 1.2% Policyholders' (thousand): Opening balance 1,782.2 1,800.3 1,823.3 1,846.0 (2.3%) (1.0%) (2.5%) Acquisitions 113.7 76.8 98.2 81.6 15.7% 48.0% (5.9%) Lapses (119.8) (94.9) (121.2) (104.
Slide 34: Health Insurance - claims
Health Insurance - claims Net claims expense (including risk equalisation) @ Hospital Extras $5,145.8m $5,179.0m 20% $3,915.4m 14% FY16 FY17 Indicative composition and movement in dollar value vs. FY16 2% 3% 8% 52% 61% Dental Optical Physiotherapy Chiropractic Alternative therapies = Other modalitie
Slide 35: Underlying NPAT
medibank Underlying NPAT ($m) FY17 2H17 1H17 FY16 2H16 1H16 Group NPAT 449.5 217.6 231.9 417.6 190.0 227.6 Normalisation of equity returns (18.8) (6.3) (12.5) 18.2 7.1 11.1 Normalisation for credit spread movement! (12.0) (3.5) (8.5) : : : System migration adjustment : : : 9.8 9.8 - One-off tax bene
Slide 36: Glossary
Glossary Term Definition 1H Six months ended/ending 31 December of PHIO Private Health Insurance Ombudsman the relevant financial year —_ - . The primary person who is insured under a oH Six months ended/ending 30 June of the private health insurance policy (other than relevant financial year Policy