Slide 1: 2018 Half Year Results
medibank 2018 Half Year Results Investor Presentation 16 February 2018
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: ss medibank
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Slide 4: 1H18 result summary
1H18 result summary Solid first half operating result. Focus remains on customer initiatives to grow our PHI and health services business Health Insurance Interim dividend Group NPAT operating profit $245.6m $277.3m 9.5cps 45.9% 411.2% 44.8% * Group net profit after tax (NPAT) $245.6m, up 5.9% ($231
Slide 5: Milestone scorecard
Milestone scorecard Tangible indicators of progress — achieved or on track to meet milestones Customer Objectives to reach by 2019 RON PHIO complaints less than market share (by December 2017 survey) Brand NPS best in class against major private health insurance peers! Market share stabilised2 Bupa,
Slide 6: Strategy and FY18 priorities
Strategy and FY18 priorities Major focus on reinvesting in our customer offer, improving market share and growing our health services business Better Health for Better Lives Strategic Deliver enhanced Continue to improve Expand the offering for ‘llan products and services healthcare value for custom
Slide 7: Delivering enhanced products & services
medibank Delivering enhanced products & services Improving customer engagement benefits retention and conversion. Building competitive advantage through loyalty recognition and a strong health agenda * Launch of Priority program - Recognise and thank Medibank members with 10+ years tenure - Access t
Slide 8: Continuing to improve healthcare value
medibank Continuing to improve healthcare value Reinvesting and advocating for our customers * Lowest average premium rise in 17 years - 100% prostheses savings passed directly to customers - Payment integrity program expansion to medical, ahm and non-resident claims ¢ Leader in value-based healthca
Slide 9: Expanding and growing the business
medibank Expanding and growing the business Leveraging our scale to grow the core business and transform into a broader health services company ¢ Further opportunities to grow the core business - Improving market share in corporate, non-resident and diversified portfolios - New distribution partners
Slide 10: Financial results
medibank Financial results Mark Rogers — Chief Financial Officer
Slide 11: Group financial summary
medibank Group financial summary Six months ended 31 Dec ($m) 1H18 1H17 ange Health Insurance premium revenue 3,175.1 3,117.9 1.8% Medibank Health revenue! 291.9 279.3 4.5% Revenue 3,467.0 3,397.2 2.1% Health Insurance operating profit 277.3 249.4 11.2% Medibank Health operating profit 25.2 17.3 45.
Slide 12: Group NPAT - 1H18 vs 1H17
Group NPAT - 1H18 vs 1H17 meatbanik 1H18 NPAT result analysis ($m)! 260 5 5.5 0.1 28 245.6 LS : 12.0 (2.2) 240 - 112.0} 231.9 220 - 200 | ~ ao xo o _— < foo} = E 5 23 5 3 2 E: i Se fe ge ge 5 £5 i a zo a) 5 90 o 52 of <x 2 2h 33 °8§ #2 §$ 2% & zo Be o i G @ Zz fo} x= = 2 1 For all items other than t
Slide 13: Health Insurance result
Health Insurance result Increase in operating margin - reported up 70 basis points and adjusted up 20 basis points Premium revenue 3,175.1 3,117.9 1.8% Net claims expense [including risk equalisation] (2,624.6) (2,589.9) 1.3% Gross profit 590.5 528.0 4.3% Management expenses (273.2) (278.6) (1.9%) O
Slide 14: Resident Health Insurance - market share
Resident Health Insurance - market share Encouraging improvement in market share trajectory Population growth, participation rate’ Change in market share’? (bps) * Brand loss slowing, driven by improved acquisition and retention * Reduction in Medibank policyholders slowed, from 4.1% in 1H17 to 3.5%
Slide 15: Health Insurance - policyholders
medibank Health Insurance - policyholders Continued improvement in trajectory despite continued slowing of market Six months ended 31 Dec ($m) 1H18 1H17 Change Policyholders' (thousand): Opening balance 1,776.1 1,800.3 (1.3%) Acquisitions 88.3 76.8 15.0% Lapses (92.5) (94.9) (2.5%) Closing balance 1
Slide 16: Health Insurance - claims
medibank Health Insurance - claims Average net claims expense per policy unit up 2.5%, or 3.2% net of provision releases * Hospital - up 0.5% — Realised benefits from prostheses pricing reform — Public hospital costs decrease reflects continued reductions in average length of stay — Continued utilis
Slide 17: Health Insurance - net claims expense
Health Insurance - Net claims expense (including risk equalisation) Hospital Extras $2,589.9m $2,624.6m 1H17 1H18 claims Indicative composition and movement in dollar value vs. 1H17 52% 21% 2% 3% 14% 61% Dental Optical Physiotherapy Chiropractic Alternative therapies Other modalities {including podi
Slide 18: Health Insurance - management expenses
medibank Health Insurance - management expenses Delivering on productivity agenda; on track to deliver $20m savings by year end * Productivity program a major driver of the 1.9% decrease in management expenses * Overall decrease in management expenses driven by a 3.4% reduction in operating expenses
Slide 19: Medibank Health
medibank Medibank Health Profit increase driven by improved operating performance * Strong operating performance across portfolio of health services business including: — HealthStrong performing in line with our expectations established at the time of acquisition — Increased contribution from Divers
Slide 20: Investment portfolio & investment income
Investment portfolio & investment income Asset allocation remains unchanged * Maintained 80% defensive, 20% growth target asset allocation that was implemented in June 2017 * Net investment income below very strong investment returns achieved in 1H17 as a result of lower equity and fixed interest re
Slide 21: Summary balance sheet
medibank Summary balance sheet Strong balance sheet Compared to the prior corresponding period: * Higher level of cash reflects new asset allocation * Trade and other receivables down partly due to a reduction in RE receivable * Intangibles increase reflects acquisition of HealthStrong * Strong grow
Slide 22: Cash flow
Cash flow medibank Increase in cash and cash equivalents — up 16.3% * Positive working capital driven by the reduction in receivables including risk equalisation * Operating assets and liabilities result in line with seasonal 1H/2H split driven by timing of premium prepayments * Income tax increased
Slide 23: Capital
medibank Capital Strong capital generation and disciplined approach to capital management * Health Insurance capital at the top end of 12-14% target range * Increase in intangible assets and other required capital driven by HealthStrong acquisition * Unallocated capital defined as: — Health Insuranc
Slide 24: Dividend
Dividend medibank Increase in interim dividend + Interim dividend up 0.25 cents to 5.5 cents (fully franked) Payable 28 March 2018 (ex-dividend date: 6 March 2018] * Interim dividend represents a payout ratio of 64.6% of Underlying NPAT!, normalising for investment market returns For FY18 we expect
Slide 25: Result summary & outlook
medibank Result summary & outlook Craig Drummond - Chief Executive Officer
Slide 26: Result summary
medibank Result summary Solid first half operating result, with Group NPAT up 5.9% versus pcp Milestones achieved or on track to be met Continuing to strengthen and grow the core business - Differentiation through launch of our Priority program and bringing health into the customer experience Expand
Slide 27: Outlook
0 ut loo k medibank * We expect similar underlying revenue trends to the first half, adjusted for the 3.88% rate change on April 1 * No material change is expected in hospital utilisation growth in the second half, while ancillary utilisation growth is expected to be moderately lower * Management ex
Slide 28: Q&A
medibank Q&A Medibank Executive Team 28
Slide 29: Appendices
medibank Appendices
Slide 30: Group financial summary - half by half
Group financial summary - half by half Health Insurance premium revenue 3,175.1 3,127.0 3,117.9 1.8% 1.5% Medibank Health revenue 291.9 272.8 279.3 4.5% 7.0% Revenue 3,467.0 3,399.8 3,397.2 2.1% 2.0% Health Insurance operating profit 277.3 248.1 249.4 11.2% 11.8% Medibank Health operating profit 25.
Slide 31: Group Health Insurance result - half by half
Group Health Insurance result - half by half Change Change 1H17 1H18 vs. 1H18 vs. 1H17 2H17 Premium revenue 3,175.1 3,127.0 3,117.9 1.8% 1.5% Net claims expense [incl. risk equalisation) (2,624.6) (2,589.1) (2,589.9) 1.3% 1.4% Gross profit 590.5 537.9 528.0 4.3% 2.3% Management expenses (273.2) (289
Slide 32: Health Insurance - policyholders
Health Insurance - policyholders Premium revenue ($m) 3,175.1 3,127.0 3,117.9 1.8% 1.5% Policyholders' (thousand): Opening balance 1,776.1 1,782.2 1,800.3 (1.3%) (0.3%) Acquisitions 88.3 113.7 76.8 15.0% (22.3%) Lapses (92.5) (119.8) (94.9) (2.5%) (22.8%) Closing balance 1,771.9 1,776.1 1,782.2 (0.6
Slide 33: Underlying NPAT
Underlying NPAT medibank Change Change 1H17. 1H18vs. 1H18 vs. 1H17 2H17 Group NPAT 245.6 217.6 231.9 5.9% 12.9% Normalisation of equity returns (9.0) (6.3) (12.5) (28.0%) 42.9% Normalisation for credit spread movement' (2.2) (3.5) (8.5) (74.1%) (37.1%) Underlying NPAT 234.4 207.8 210.9 11.1% 12.8% 1
Slide 34: Investment portfolio
medibank Investment portfolio As at 31 Dec 2017 Balance ($m) Portfolio composition Target asset alloca Australian Equities 137.2 5.9% 5.0% International Equities 160.1 6.9% 6.0% Property! 155.0 6.7% 7.0% Infrastructure 49.8 2.1% 2.0% Growth 502.1 21.6% 20.0% Fixed income2 1,257.1 54.0% 52.0% Cash? 5
Slide 35: Net investment income
Net investment income Six months ended 31 Dec ($m) 1H18 1H17 Average monthly balance: ge Growth 497.8 596.7 (16.6%) Defensive 1,961.3 1,764.3 11.2% Total average monthly balance 2,459.1 2,361.0 4.2% Net investment income: Growth 31.8 42.4 (25.0%) Defensive 30.0 36.1 (16.9%) Investment expenses (2.1)
Slide 36: Glossary
Glossary Six months ended/ending 31 December of 1H . : the relevant financial year 2H Six months ended/ending 30 June of the relevant financial year PHI Private Health Insurance PHIO Private Health Insurance Ombudsman The primary person who is insured under a private health insurance policy (other t