Slide 1: FY18 Results Presentation
Chief Executive Officer Chief Financial Officer Friday 24 August 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: Highlights
Slide 4: Group NPAT, Group operating profit, Full year dividend
Group NPAT Group operating profit Full year dividend • • – – – – • • •
Slide 5: Revised milestone scorecard
Revised milestone scorecard Focus of new milestones on real differentiation in our PHI offering and health services transformation Objectives . Customer advocacy Drive Service and Brand NPS for Medibank andahm to be best in class! . Health interactions By 2020 every Medibank customer’ has at least o
Slide 6: Strategy and FY19 priorities
Strategy and FY19 priorities medibank Medibank is now positioned for growth with a focus on leveraging our dual brands, building competitive advantage in PHI and transforming into a broader health services company Strategic Deliver differentiated Continue to improve Expand the offering ill products
Slide 7: Delivering differentiated products and services
Delivering differentiated products and services medibank Transforming our relationship with customers to a more personalised and proactive experience Personalising and integrating health into our customers’ experience * Providing healthcare services at the customers’ choice of location, including th
Slide 8: Continuing to improve healthcare value
Continuing to improve healthcare value medibank Deliver the triple aim of healthcare - enhance patient experience, health outcomes, and at a lower cost Delivering greater value to customers * Continuing to progress Medibank’s value-based purchasing to improve outcomes for customers * Working with pr
Slide 9: Expanding and growing the business
Expanding and growing the business medibank Growth agenda focused on broadening and creating real differentiation of our customer offering Broaden the health insurance business * Leveraging our dual brand strategy to grow the core PHI business remains our largest growth option * Strengthen relations
Slide 10: Chief Financial Officer
* * a medibank < AT inancial Officer
Slide 11: Group financial summary
Group financial summary Financial year ended 30 June ($m) 2018 2017 Change Health Insurance premium revenue 6,319.5 6,244.9 1.2% Medibank Health revenue! 586.9 552.1 6.3% Revenue 6,906.4 6,797.0 1.6% Health Insurance operating profit 535.6 497.5 7.7% Medibank Health operating profit 47.3 35.7 32.5%
Slide 12: Group NPAT - FY18 vs FY17
Group NPAT - FY18 vs FY17 medibank Solid financial performance - improved Health Insurance result and growth in Medibank Health FY18 NPAT result analysis ($m)" “to [Yt a 445.1 (30.6) (3.5) (4.1) NPAT FY17 — Health Insurance Medibank Health Corporate Net investment Other Income tax NPAT FY18 op profi
Slide 13: Health insurance result
Health insurance result medibank Increase in operating profit - driven by higher gross profit and improved management expenses Financial year ended 30 June ($m) 2018 2017 Change Premium revenue 6,319.5 6,244.9 1.2% Net claims expense [including risk equalisation] (5,226.7) (5,179.0) 0.9% Gross profi
Slide 14: Resident health insurance - market share
Resident health insurance - market share Market share growth achieved in the second half of FY18 1 2 Industry growth continues to slow 5 basis point improvement in overall market share compared to December 2017 Medibank brand loss slowing, driven by improved acquisition and retention Reduction in Me
Slide 15: Health insurance - policyholders
Health insurance - policyholders medibank Resident policyholders up 0.3% Financial year ended 30 June ($m) 2017 Change Policyholders' (thousand) Opening balance 1,776.1 1,800.3 (1.3%) Acquisitions 204.8 190.5 7.5% Lapses (200.0) (214.7) (6.8%) Closing balance 1,780.9 1,776.1 0.3% - Medibank 1,419.6
Slide 16: Health insurance - claims
Health insurance - claims medibank Average net claims expense per policy unit up 1.6%, or 2.6% adjusted for provision releases * Hospital Claims - flat, reflecting: — Lower resident hospital policy numbers — Favourable policy mix impacts — Lower resident hospital utilisation growth due to subdued un
Slide 17: Health insurance - claims
Health insurance - claims Modest growth in private hospital utilisation, higher usage across discretionary modalities medibank Net claims expense (including risk equalisation) HB Hospital m@ Extras $5,179.0m $5,226.7m $1,263.6m > flat $3,915.4m $3,914.3m, FY17 Extras Indicative composition and movem
Slide 18: Health insurance - management expenses
Health insurance — management expenses medibank Overall decrease in management expenses includes a 1.9% reduction in operating expenses * Productivity savings of approximately $20m driven by benefits in procurement, technology, automation and consulting spend, more than offsetting cost inflation * S
Slide 19: Medibank Health
Medibank Health medibank Increased revenue, profit and margin * Higher revenue reflects a 12 month contribution from HealthStrong, and growth in our Diversified business! * Gross margin improvement predominantly reflects the change in business mix + Management expense increase reflects additional co
Slide 20: Investment portfolio and investment income
Investment portfolio and investment income medibank Reduction in investment income driven by lower equity and credit market returns + Lower market returns, more conservative asset allocation strategy lead to a $43.7m decline in investment income * International equites portfolio transitioned to low
Slide 21: Cash flow
Cash flow Improved cash flow from operations Financial year ended 30 June ($m) 2018 2017 ange Profit before net investment income and income tax 532.7 489.4 43.3 Changes in working capital 32.3 (13.7) 46.0 Customer acquisition costs 2.5 (11.4) 13.9 Changes in other operating assets and liabilities 1
Slide 22: Capital
Capital Strong capital generation and a continuing focus on capital efficiency * Balance sheet remains debt free * Position adjusted for 100% of deferred acquisition costs, capitalised software and all other intangible assets in- line with the practice used in the life and general insurance industry
Slide 23: Dividend
Dividend Full year dividend increased by 0.7 cents to 12.7 cents, final dividend of 7.2 cents + Final dividend of 7.2 cents per ordinary share for the six month period ending 30 June 2018, bringing the full year FY18 dividend to 12.7 cents per share [fully franked) + Payment date of 27 September 201
Slide 24: Results summary & outlook
medibank Results summary & outlook Craig Drummond - Chief Executive Officer
Slide 25: Result summary
Result summary medibank Pleasing progress * Solid operating result for FY18: - The core health insurance business is back on track — We have grown our market share by 5 bps over the past six months, which is the first time we have grown market share over a half year in at least a decade - Medibank H
Slide 26: Regulatory update
Regulatory update medibank Sector reform required to drive sustainable change in affordability and increased participation Improving affordability through reform * The private health system has experienced more reform in the last 10 months than it has in the previous 18 years * We know reform can wo
Slide 27: Outlook
Outlook medibank * Expect flat overall PHI market volumes to persist * Targeting modest market share growth in FY19 * Expect hospital utilisation growth to remain subdued. Ancillary utilisation growth is expected to be slightly lower * Management expenses for FY19 are targeted to be modestly above t
Slide 28: Appendices
medibank Appendices
Slide 29: Existing milestone scorecard
Existing milestone scorecard Tangible indicators of progress - achieved or on track to meet milestones Customer 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 stabilised?
Slide 30: Leveraging the core enablers of the business
Leveraging the core enablers of the business Investment in core enablers over the last two years will support the execution of our strategy People * Significant improvement in stability and capability of our Senior Leader Group - Turnover 8.8% in FY18 vs average of 32.1% p.a. in prior three years -
Slide 31: Group financial summary - half by half
Group financial summary -— half by half Health Insurance premium revenue 3,144.4 3,175.1 3,127.0 3,117.9 0.6% (1.0%) 1.8% Medibank Health revenue 295.0 291.9 272.8 279.3 8.1% 1.1% 4.5% Revenue 3,439.4 3,467.0 3,399.8 3,397.2 1.2% (0.8%) 2.1% Health Insurance operating profit 258.3 277.3 248.1 249.4
Slide 32: Health insurance result - half by half
Health insurance result - half by half Premium revenue 3,144.4 3,175.1 3,127.0 3,117.9 0.6% (1.0%) 1.8% Net claims expense ltiavell. ils equalisation] (2,602.1) (2,624.6) (2,589.1) (2,589.9) 0.5% (0.9%) 1.3% Gross profit 542.3 550.5 537.9 528.0 0.8% 1.5%) 4.3% Management expenses (284.0) (273.2) (28
Slide 33: Health insurance policyholders - half by half
Health insurance policyholders — half by half Premium revenue ($m) 3,144.4 3,175.1 3,127.0 3,117.9 0.6% (1.0%) 1.8% Policyholders' (thousand): Opening balance 1,771.9 1,776.1 1,782.2 1,800.3 (0.6%) (0.2%) (1.3%) Acquisitions 116.5 88.3 113.7 76.8 2.5% 31.9% 15.0% Lapses (107.5) (92.5) (119.8) (94.9)
Slide 34: Underlying NPAT
Underlying NPAT medibank ($m) FY18 2H18 1H18 FY17 2H17 1H17 Group NPAT 445.1 199.5 245.6 449.5 217.6 231.9 Normalisation of equity returns (8.6) 0.4 (9.0) (18.8) (6.3) (12.5) Normalisation for credit spread movement (0.1) 2.1 (2.2) (12.0) (3.5) (8.5) Underlying NPAT 436.4 202.0 234.4 418.7 207.8 210
Slide 35: Balance sheet
Balance sheet medibank ($m) 30 June 2018 30 June 2017 ange Cash and cash equivalents 470.1 594.6 (20.9%) Financial assets at fair value through profit or loss 2,276.5 2,038.1 11.7% Trade and other receivables 292.2 317.0 (7.8%) Deferred acquisition costs 36.2 36.6 (1.1%) Other 16.0 14.1 13.5% Curren
Slide 36: Investment portfolio
Investment portfolio medibank As at 30 Jun 2018 Balance ($m) Portfolio composition Target asset allocation Australian Equities 143.2 5.6% 5.0% International Equities 168.8 6.6% 6.0% Property 158.4 6.2% 7.0% Infrastructure 49.8 2.0% 2.0% Growth 520.2 20.4% 20.0% Fixed income! 1,278.0 50.1% 52.0% Cash
Slide 37: Net investment income
Net investment income medibank Financial year ended 30 June ($m) 2018 2017 ge Average monthly balance: Growth 501.6 591.2 (15.2%) Defensive 2,059.6 1,794.8 14.8% Total average monthly balance 2,561.2 2,386.0 7.3% Net investment income: Growth 48.5 76.3 (36.4%) Defensive 51.5 67.0 (23.1%) Investment
Slide 38: Glossary
Glossary medibank 1H Six months ended/ending 31 December of the relevant financial year 2H Six months ended/ending 30 June of the relevant financial year APRA Australian Prudential Regulation Authority A measure of the likelihood of an existing customer to Brand NPS recommend the brand bps Basis poi