NIB Holdings Ltd · ASX:NHF
NIB — FY2010 Earnings Presentation
35 slides from NIB's earnings presentation, Aug 23, 2010
Slide 1: Full Year Results Announcement
nib FULL YEAR RESULTS ANNOUNCEMENT 23 AUGUST 2010
Slide 2: Overview
Overview Net underwriting result (pre-tax) of $47.1 million (net margin 5.2%) – up 17.2% Net investment return of $44.5 million (10.5% return pa) Net consolidated profit after tax of $61.5 million - up 158% Cash inflow from operating activities of $66.3m (FY09: $44.2m) Earnings per share o
Slide 3: Top-line growth remains strong
Top-line growth remains strong Net policyholder growth* of 5.9% (22,641) versus industry growth of 2.9% Premium revenue up $71.9m or 8.7% to $901.4m FY10 growth continues to reflect our business strategy: • 77.4% of new sales in “under 40s” age segment • 62.2% of new sales new to category • 42
Slide 4: Above system organic growth a familiar story
Above system organic growth a familiar story nib net policyholder growth versus Industry nib Industry 12.0% Net policyholder growth (%) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY05 FY06 FY07 FY08 FY09 FY10 CAGR since FY05 of 6.5% (industry 2.9%), since FY05 nib has represented 13.8% of total industry growt
Slide 5: Gross margin
Gross margin Change $m FY06 FY07 FY08 FY09 FY10 $m % Gross underwriting result 111.8 94.9 111.2 122.0 133.5 11.5 9.4 Gross underwriting margin (%) 18.3 14.3 14.7 14.7 14.8 FY10 gross margin of 14.8% in-line with target annual gross margin in order of 14-15% As previously indicated gross margin i
Slide 6: Gross margin drivers
Gross margin drivers 47.8 1.3 31.4 190.0 175.0 39.4 25.2 0.9 23.5 160.0 ($m) 145.0 20.6 14.0 133.5 130.0 122.0 115.0 100.0 Premium revenue up 8.7% (or $71.9m) reflecting policyholder growth, impact of 1 April 2009 and 2010 premium rate increases (5.18% and 5.95% respectively) and change in product
Slide 7: Operating expenses (underwriting)
Operating expenses (underwriting) Change ($m) FY06 FY07 FY08* FY09 FY10 $m % fav/(unfav) Employment 31.9 37.1 36.2 35.7 37.0 (1.3) (3.6) Marketing 7.4 13.8 18.9 17.2 19.4 (2.2) (12.8) IT 4.4 5.1 5.6 5.7 6.2 (0.5) (8.8) Occupancy 5.2 4.9 4.6 8.7 7.7 1.0 11.5 Other 11.5 10.3 12.9 14.5 16.1 (1.6) (11.0
Slide 8: Investment performance
Investment performance Change FY06 FY07 FY08 FY09 FY10 $m % Net investment return ($m) 17.9 31.3 7.5 (1.8) 44.5 46.3 2,572.2 Net percentage return* (%) 6.5 8.8 1.6 (0.4) 10.5 *Net percentage return pa Refer Appendix – Slide 34 for investment asset class allocation as at 30 June 2010 Portfolio retu
Slide 9: Other expenses
Other expenses Change ($m) FY08 FY09 FY10 $m % fav/(unfav) Share registry costs – ongoing 1.1 2.2 1.5 0.7 31.8 Share registry costs – one off 0.0 1.3 0.5 0.8 61.5 UMP Sale Facility – share registry - - 0.5 (0.5) - UMP Sale Facility – other - - 0.3 (0.3) - Due Diligence 1.4 1.3 0.6 0.7 53.8 Bid respo
Slide 10: NPAT
NPAT 90.0 2.2 17.7 46.3 75.0 61.5 60.0 ($m) 45.0 11.5 2.2 1.3 1.1 30.0 23.8 15.0 0.0 ($m) FY06 FY07 FY08* FY09 FY10 Pre-tax underwriting result 51.4 23.7 33.0 40.2 47.1 Net underwriting margin (%) 8.4 3.6 4.4 4.8 5.2 Net investment return 17.9 31.3 7.5 (1.8) 44.5 NPAT NA 37.2 26.7 23.8 61.5 * Result
Slide 11: Cash generation
Cash generation ($m) FY06 FY07 FY08 FY09 FY10 Net cash inflow/(outflow) from operations 79.7 67.9 53.2 44.2 66.3 Net cash inflow/(outflow) from investing (78.8) (60.7) 66.0 (11.0) (6.7) Net cash inflow/(outflow) from financing 0.1 0.1 0.1 (41.7) (32.5) Improved cash flow from operating activities
Slide 12: Capital management
Capital management ($m) Capital at 30 June 2009, above internal prudential target of 1.4X: 131.6 On-market share buy back (0.8) 2010 interim dividend and allowance for final dividend (payable in September 2010) (34.7) Changes in forecast, liabilities and reserves (13.1) Profit after tax 61.5 Capital
Slide 13: Number of shares
Overseas & unverified policyholders trust 120,000,000 Mailing to eligible policyholders at time of demutualisation 100,000,000 Mailing to eligible policyholders following first Number of shares dividend payment 80,000,000 Mailing to eligible 60,000,000 policyholders using updated addresses 40,000,00
Slide 14: Investment metrics
Investment metrics FY08* FY09 FY10 EPS (cps) 5.2 4.7 12.4 ROE (%) 7.0 6.6 16.3 ROE normalised (%) 11.3 11.2 11.9 Dividend (cps) 2.1 7.4 7.0 - Ordinary 2.1 2.4 7.0 - Special 0.0 5.0 0.0 * Result was normalised to remove the impact of costs associated with nib’s demutualisation and listing, and “notio
Slide 15: Business strategy
Business strategy Continue to invest in organic growth (Virgin Green) with emphasis upon: • Younger better risk policyholders • Interstate expansion • Online engagement Improve policyholder “buy-up” and retention Increased claims and operating efficiencies Continue to actively pursue merger
Slide 16: Key opportunities
Key opportunities Latent demand for private health insurance, wealth effect and public hospital crisis Globalisation of workforces and education (IMAN, overseas students) E-commerce and automation of work flow Inevitable consolidation of PHI sector Reduce weighted average cost of capital
Slide 17: PHI inevitably to play greater role in health care funding
PHI inevitably to play greater role in health care funding Government has no alternative but encourage people to take greater responsibility for lifetime health care via private funding mechanisms Source: The 2010 Intergenerational Report 17
Slide 18: Key enterprise risks
Key enterprise risks Economic growth Sovereign Claims inflation especially risk equalisation IMAN and overseas student’s business 18
Slide 19: FY11 outlook and guidance
FY11 outlook and guidance Australia’s future health care needs will inevitably require greater private funding and there remains latent demand for PHI - FY11 net policyholder growth of 5% – 6% (FY10: 5.9%) Margins under pressure but manageable, FY11 net underwriting margin of 4.9% – 5.4% with a
Slide 20: Appendix
Slide 21: Financial snapshot
Financial snapshot Change ($m) FY10 FY09 $m % Policyholder growth 5.9% 5.2% - - Premium revenue 901.4 829.5 71.9 8.7 133.5 122.0 Gross margin 11.5 9.4 14.8% 14.7% (86.4) (81.8) Management Expense (4.6) 5.6 9.6% 9.9% 47.1 40.2 Net margin 6.9 17.2 5.2% 4.8% 44.5 (1.8) Net investment return 46.3 2,572.
Slide 22: Policyholder growth, sales and lapse
Policyholder growth, sales and lapse nib FY06 FY07 FY08 FY09 FY10 Total policyholders 302,299 328,784 365,389 384,288 406,929 - Policyholder growth rate 3.9% 8.8% 11.1% 5.2% 5.9% Total sales 37,169 49,757 67,456 50,438 56,762 - Sales rate 12.8% 16.5% 20.5% 13.8% 14.8% Total lapses 25,810 23,272 30,8
Slide 23: Detailed income statement
Detailed income statement Change ($m) FY06 FY07 FY08 FY09 FY10 ($m) % Premium revenue 611.9 666.0 758.2 829.5 901.4 71.9 8.7 Claims expense (440.7) 503.4 (551.3) (599.9) (636.0) (36.1) 6.0 - Hospital benefits paid (295.2) (336.7) (357.7) (400.4) (428.5) (28.1) 7.0 - Ancillary benefits paid (133.2) (
Slide 24: Claims expense – hospital claims inflation
Claims expense – hospital claims inflation nib Industry nib service cost nib utilisation nib annual drawing rate inflation (per SEU) incl. RE 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Dec-01 Jun-02 Dec-03 Jun-05 Dec-05 Jun-07 Dec-08 Jun-10 Sep-01 Dec-02 Jun-03 Jun-04 Sep-04 Dec-04 Jun-06 Sep-06
Slide 25: Claims expense – Ancillary claims inflation
Claims expense – Ancillary claims inflation nib Industry nib service cost nib utilisation 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Jun-06 Jun-07 Jun-08 Jun-09 Jun-02 Jun-03 Jun-04 Jun-05 Jun-10 Mar-02 Mar-03 Mar-04 Mar-05 Mar-10 Mar-06 Mar-07 Mar-08 Mar-09 Sep-02 Sep-03 Sep-04 Dec-06 Dec-07 De
Slide 26: Gross margin variance 2H:1H
Gross margin variance 2H:1H FY09 FY10 63.6 71.2 Reported 1H Gross Profit 15.5% 16.0% Non-recurring seasonality adjustment 0.0 (2.0) 63.6 69.2 "Normalised" 1H Gross Profit 15.5% 15.6% Revenue 8.2 9.1 Hospital (0.9) (0.2) Ancillary (7.3) (12.3) Base Ancillary (13.0) (13.5) Loyalty 6.2 0.0 Higher annua
Slide 27: Investments
Investments Annualised Investment Return Investment Split (%) (%) FY09 FY10 FY09 FY10 Cash 5.0 4.6 38.7 39.8 Australian fixed interest 10.7 8.6 21.9 20.7 O/s fixed interest 1.2 22.4 15.6 16.5 Australian shares (18.7) 13.1 7.2 7.1 O/s shares (30.7) 25.5 5.9 6.2 Direct property 5.9 6.2 7.0 6.1 Listed
Slide 28: Target investment asset allocation
Target investment asset allocation The following table details the target asset allocation as part of nib’s transition to MLC products as its investment asset consultant (fully effective 15 October 2010) and provide a comparison to the position as at 30 June 2010 Investments covering internal prud
Slide 29: Capital adequacy
Capital adequacy 2.5 2.00 2.03 2.0 1.88 1.86 1.72 1.64 1.61 1.50 1.51 1.44 1.46 1.5 Current internal prudential target (1.4) 1.0 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 When nib calculates the internal target it takes a 12 month forward looking view that is bas
Slide 30: Regulatory capital requirements
Regulatory capital requirements $144.5m of surplus capital above internal target after allowing for 2010 final dividend Health fund capital Group capital allocation (at 30 June 2010) (at 30 June 2010) $24.8 $92.3 $6.4 $11.7 $132.8 $197.6 $11.7 $116.0 $412.3 Cap ad reserve health fund capital requi
Slide 31: Balance Sheet
Balance Sheet ($m) At 30 June 09 30 June 10 Current assets Cash and cash equivalents 167.1 197.4 Financial assets at fair value through p&l 230.3 264.4 Other current assets 32.8 61.8 Total current assets 430.2 523.6 Non-current assets Available-for-sale financial assets 1.5 1.5 Investment properties
Slide 32: Financial results – underlying results
Financial results – underlying results Net underwriting result of $47.1m, up $6.9m or 17.2% on FY09 Underlying results split out investment income between: • Normalised investment income for FY10 – calculated on the basis of a 5.5%* (FY09: 5.5%) assumed return over average investment assets for
Slide 33: Data sheet – nib
Data sheet – nib FY06 FY07 FY08 FY09 FY10 Total policyholders 302,299 328,784 365,389 384,288 406,929 - Policyholder growth 3.9% 8.8% 11.1% 5.2% 5.9% - Market share 6.3% 6.6% 7.0% 7.1% 7.3% Persons covered 640,178 681,013 732,930 761,753 797,144 Avg age of hospital persons covered (yrs) 36.2 36.1 36
Slide 34: Data sheet – PHI industry
Data sheet – PHI industry By financial year intervals FY06 FY07 FY08 FY09 FY10 PHI industry Total Policyholders 4,806,754 5,008,329 5,219,567 5,390,739 5,549,338 - Policyholder growth 2.1% 4.2% 4.2% 3.3% 2.9% Persons Covered 10,189,552 10,561,848 10,942,616 11,257,885 11,561,299 Average Age of Hospi
Slide 35: 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 2010 and an update on nib’s activities and is current at the date of preparation, 23 August 2010. Further details are provided in the Company’s FY10 full year accoun