Slide 1: For Better Health - 17 February 2017
v For Better Health
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: Highlights, Financial Results, Outlook
1. Highlights Craig Drummond 2. Financial Results Mark Rogers 3. Outlook Craig Drummond medibank For Better Health 3
Slide 4: Highlights
i For Better Health Highlights Craig Drummond - Chief Executive Officer
Slide 5: 1H17 Result Summary
1H17 Result Summary Operating result reflects increased investment in customer initiatives * Group net profit after tax (NPAT) $231.9m, up 1.9% from $227.6m in 1H16 * Underlying NPAT! of $219.4m, up 1.8% from $215.5m in 1H16 $231 .9m * Health Insurance: 8.2% decrease in operating profit to $249.4m f
Slide 6: Milestone Scorecard
Milestone Scorecard Some early indicators of progress 1 2 3 Customer Objectives to reach by 2019 1. PHIO complaints less than market share (by December 2017 survey) 2. NPS best in class against major private health insurance peers! 3. Market share stabilised Bupa, HCF and nib Australian residents on
Slide 7: Making Medibank easier to deal with
SU © Fixed 85% of the original highest REDUCTION IN priority {top 50) and the majority of all ek aan identified customer pain points * Upgraded customer website and mobile app STEP UP IN * New ‘using extras’ experience that includes live limits and notifications THE QUALITY OF eNeU esis Early stage
Slide 8: Customer Value
Customer Value Providing more value, better outcomes and improved * 100% back offers - annual dental check up * New Medibank top and basic hospital products - Complete Hospital and Core Hospital * Medibank 2017 premium rate rise 24bps below industry average * Collaborative value-based purchasing DRI
Slide 9: Technology Improvement
Technology Improvement Continued progress embedding new IT system * Clearer priorities and stronger governance across business — Implementation of a Priority Projects Office — Strengthening relationships with key suppliers to expedite progress * Embedding of new IT system (DelPHI) remains on track —
Slide 10: Strategic Priorities for FY17
Strategic Priorities for FY17 Near term objectives remain unchanged Strong Purpose - For Better Health STRENGTHEN THE CORE CONTINUE TO IMPROVE HEALTHCARE VALUE EXPAND OUR TOMER OFFERING * Settle DelPHI * Pursue value-based * Out of hospital support . purchasing agreements, * Re-design customer * Hea
Slide 11: Financial Results
Financial Results Mark Rogers - Chief Financial Officer
Slide 12: Group Financial Summary
Group Financial Summary Health Insurance premium revenue 3,117.9 3,080.0 1.2% Complementary Services revenue 279.3 300.6 (7.1%) Revenue 3,397.2 3,380.6 0.5% Health Insurance operating profit 249.4 271.7 (8.2%) Complementary Services operating profit 17.3 9.2 88.0% Segment operating profit 266.7 280.
Slide 13: NPAT bridge
40.7 231.9 227.6 (23.2) (1.3) 5.7 (2.0) (15.6)
Slide 14: Health Insurance Result
Health Insurance Result Six months ended 31 Dec ($ 1H17 1H16 Premium revenue 3,117.9 3,080.0 1.2% NELGEIS EAE. (2,589.9) (2,551.1) 1.5% (including risk equalisation) Gross profit 528.0 528.9 (0.2%) Management expenses (278.6) (257.2) 8.3% Operating profit 249.4 271.7 (8.2%) Gross margin’ 16.9% 17.2%
Slide 15: Health Insurance - Premium Revenue
Health Insurance - Premium Revenue Growth trajectory continued to decline due to challenging industry conditions, impact of IT and service issues * Private health insurance industry piximonthslendedsiDed ua | tris | change | volume growth continued to slow Premium revenue ($m) 3,117.9 3,080.0 1.2% .
Slide 16: Health Insurance - Claims
Health Insurance - Claims Increased investment in customer initiatives mitigated by ongoing health claims management ¢ Investment in customer initiatives Six months ended 31 Dec [ 1H17 1H16 — Dental incentive: c.$40m over 3 years. 1H17: $5m Claims expense (2,642.0) (2,570.9) 2.8% — Continued growth
Slide 17: Health Insurance - Management Expenses
Health Insurance - Management Expenses MER increase due to investment in customer initiatives and DelPHI amortisation * MER up 50bps to 8.9% ¢ DelPHI amortisation commenced * Increase in Deferred Acquisition Costs (DAC) reflects first full 4-year run rate of amortisation following the relaunch of ah
Slide 18: Complementary Services
Complementary Services Profit improvement reflects solid performance from ongoing businesses and divestments in 1H16 * Revenue decline due to divested Six months ended 31 Dec ($m) 1H17 | 1H16] change | businesses (Workplace Health, Travel Doctor] in latter part of 1H16 EvEnINE aR 300.6 | (7.1%) * On
Slide 19: Target asset allocation unchanged: 75% defensive, 25% growth
Target asset allocation unchanged: 75% defensive, 25% growth International equities moved to a fund free of tobacco investments Entire portfolio now tobacco free Foreign currency exposures fully hedged [except for international equities - 50% hedged) Australian Equities 161.1 International Equities
Slide 20: Net Investment Income
Net Investment Income Investment returns buoyed by higher equity market returns and stronger credit markets ¢ Net investment income above Six months ended 31 Dec ($ 1H17 | tH16| 1H16 due to higher investment market returns Average monthly balance: 0, — Growth assets up due to above Chama Biel eee Ba
Slide 21: Financial Summary
Financial Summar Corporate overheads, other ex * Corporate overheads increased Six ended 31 Dec [ 1H17 | 1H16 | Change | by 21.3% due to project and legal Segment operating profit 266.7 280.9 (5.1%) costs, and costs associated with senior executive changes Corporate overheads (16.5) (13.6) 21.3% . j
Slide 22: Balance Sheet
Balance Sheet Strong, debt free balance sheet * Seasonal premium prepayments mean that for current assets and liabilities the most comparable balance sheet is generally 31 December 2015 * Higher cash balance reflects shortening of maturity profile of money market securities within the investment por
Slide 23: Cash Flow
Cash Flow Operating cash flow impacted by working capital movements * Change in operating assets and liabilities typically negative in first half and positive in second half due to premium prepayments * Lower change in working capital for current period due to: — Timing of claims payments — Realisat
Slide 24: Capital
Capital Health Insurance capital within Medibank target range of 12% to 14% Total equity 1,643.6 1,578.7 Less: Intangible and illiquid assets (438.1) (437.5) Total tangible and liquid assets 1,205.5 1,141.2 Less: Allowance for declared but unpaid dividends (144.6) (165.2) Less: Allowance for approxi
Slide 25: Dividend
Dividend Interim payout ratio of 65.9% of Underlying NPAT * Interim dividend of 5.25 cents per ordinary share fully franked * Payable: 29 March 2017 (ex-dividend date: 7 March 2017) * Interim payout ratio of 65.9% of Underlying NPAT! — Lower than full year target ratio due to expectations of lower p
Slide 26: Outlook
medibank Outlook Craig Drummond - Chief Executive Officer
Slide 27: Outlook
Outlook Full year operating profit reaffirmed ¢ Health Insurance operating profit for FY17 expected to be approximately $490 million ¢ Short term focus remains to further strengthen the core. Investment in the customer will continue, funded from internal productivity gains where possible ¢ Customer
Slide 28: Q&A
Q&A
Slide 29: Appendices
Appendices
Slide 30: Group Financial Summary - Half by Half
Group Financial Summary - Half by Half ge ita Health Insurance premium revenue 3,117.9 3,092.5 3,080.0 1.2% Complementary Services revenue 279.3 268.7 300.6 (7.1%) Revenue 3,397.2 3,361.2 3,380.6 0.5% Health Insurance operating profit 249.4 239.0 271.7 (8.2%) Complementary Services operating profit
Slide 31: Health Insurance Result - Half by Half
Health Insurance Result - Half by Half ge 1H17 Premium revenue 3,117.9 3,092.5 3,080.0 1.2% Net claims expense (incl. risk equalisation) (2,589.9) (2,594.7) (2,551.1) es Gross profit 528.0 497.8 528.9 (0.2%) Management expenses (278.6) (258.8) (257.2) 8.3% Operating profit 249.4 239.0 271.7 (8.2%) T
Slide 32: Health Insurance - Claims
Health Insurance - Claims Net claims expense [incl. risk equalisation) Indicative composition and movement in dollar value vs. 1H16 = Dental +2% 8% = Optical +2% 7% = Physiotherapy -3% = Chiropractic -5% = Alternative Therapies 42% = Other Modalities +2% 2% 2% Hospital m Extras $2,551.1m $2,589.9m $
Slide 33: Underlying NPAT
Underlying NPAT nge 1H17 s ended 31 Dec ($ 1H17 AnliKs farts vs. 1H16 Group NPAT 231.9 190.0 227.6 1.9% Normalisation of equity returns (12.5) 7.1 11.1 n.m. System migration adjustment = 9.8 - - One-off tax benefit relating to prior years 2 2 (23.2) nm. Underlying NPAT 219.4 206.9 215.5 1.8% mediban
Slide 34: Glossary
PHIO Policyholder PSEUs or Policy Units RE ROE Underlying NPAT NPS