NIB Holdings Ltd · ASX:NHF
NIB — FY2010 Earnings Presentation
35 slides from NIB's earnings presentation, Aug 23, 2010
Slide 1: For personal use only
For personal use only
Slide 2: Overview
Overview For personal use only Net underwriting result (pre-tax) of $47.1 million (net margin 5.2%) – up p 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
Slide 3: Top-line growth remains strong
Top-line growth remains strong For personal use only Net policyholder growth* of 5.9% (22,641) versus industry growth of 2 2.9% 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% 62 2%
Slide 4: Above system organic growth a familiar story
Above system organic growth a familiar story For personal use only nib net policyholder growth versus Industry nib Industry %) older growth (% 12.0% 10.0% 8.0% 6.0% Net policyho 4.0% 2.0% 0 0% 0.0% FY05 FY06 FY07 FY08 FY09 FY10 CAGR since FY05 of 6.5% (industry 2.9%), since FY05 nib has represente
Slide 5: Gross margin
Gross margin For personal use only Change $m FY06 FY07 FY08 FY09 FY10 $m % Gross underwriting result 111.8 111 8 94.9 94 9 111.2 111 2 122.0 122 0 133.5 133 5 11 5 11.5 94 9.4 Gross underwriting margin (%) 18.3 14.3 14.7 14.7 14.8 FY100g gross oss margin ag o of 14.8% 8% in-line e with t target ta
Slide 6: Gross margin drivers
Gross margin drivers For personal use only 47.8 1.3 31.4 190.0 175.0 39.4 25.2 0.9 23.5 160.0 ($m) 145.0 20.6 14.0 133.5 130.0 122.0 115.0 100.0 Premium revenue up 8.7% (or $71.9m) reflecting policyholder growth, impact of 1 April 2009 and 2010 premium rate increases (5.18% and 5.95% respectively)
Slide 7: Operating expenses (underwriting)
Operating expenses (underwriting) Change For personal use only ($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
Slide 8: Investment performance
Investment performance For personal use only 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
Slide 9: Other expenses
Other expenses p For personal use only 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.
Slide 10: NPAT
NPAT For personal use only 90.0 2.2 17.7 46 3 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 ($m) FY06 FY07 FY08* FY09 FY10 Pre-tax underwriting result 51.4 23.7 33.0 40.2 47.1 Net underwriting margin (%) 8.4 3.6 4.4 4.8 5.2 Net investment return 17 9 17.9 31 3 31.3 75 7.5 (1 8)
Slide 11: Cash generation
Cash generation For personal use only ($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 g 0.1 0.1 0.1 ((41.7)) ((32.5)) Improved cash
Slide 12: Capital management
Capital management For personal use only ($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
Slide 13: Overseas & unverified policyholders trust
Overseas & unverified policyholders trust For personal use only 120,000,000 Mailing to eligible policyholders at time of demutualisation 100,000,000 Mailing to eligible policyholders following first ber of shares dividend payment 80,000,000 Mailing to eligible 60,000,000 policyholders using updated
Slide 14: Investment metrics
Investment metrics For personal use only FY08* FY09 FY10 EPS ((cps) p ) 5.2 4.7 12.4 ROE (%) 7.0 6.6 16.3 ROE normalised (%) 11.3 11.2 11.9 Dividend ((cps) p ) 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 demutua
Slide 15: Business strategy
Business strategy For personal use only Continue to invest in organic growth (Virgin Green) with emphasis upon: p • Younger better risk policyholders • Interstate expansion • Online engagement Improve policyholder “buy-up” and retention Increased I d claims l i and d operating ti efficiencies
Slide 16: Key opportunities
Key opportunities For personal use only 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 ave
Slide 17: PHI inevitably to play greater role in health care funding
PHI inevitably to play greater role in health care funding For personal use only 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 For personal use only 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 For personal use only 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
Slide 20: For personal use only
For personal use only
Slide 21: Financial snapshot
Financial snapshot Change ($m) FY10 FY09 For personal use only $m % Policyholder growth 5.9% 5.2% - - Premium revenue 901.4 829.5 71.9 8.7 133.5 122.0 Gross margin 11.5 9.4 14.8% 14.7% (86.4) (81.8) Management Expense (4 6) (4.6) 56 5.6 9.6% 9.9% 47.1 40.2 Net margin 6.9 17.2 5.2% 4.8% 44.5 (1.8) Ne
Slide 22: Policyholder growth, sales and lapse
Policyholder growth, sales and lapse For personal use only nib FY06 FY07 FY08 FY09 FY10 Total T t l policyholders li h ld 302,299 302 299 328,784 328 784 365,389 365 389 384,288 384 288 406,929 406 929 - Policyholder growth rate 3.9% 8.8% 11.1% 5.2% 5.9% Total sales 37,169 49,757 67,456 50,438 56,76
Slide 23: Detailed income statement
Detailed income statement For personal use only Change ($m) FY06 FY07 FY08 FY09 FY10 ($m) % Premium revenue 611.9 666.0 758.2 829.5 901.4 71.9 8.7 Cl i Claims expense (440 7) (440.7) 503 4 503.4 (551 3) (551.3) (599 9) (599.9) (636 0) (636.0) (36.1) 60 6.0 - Hospital benefits paid (295.2) (336.7) (3
Slide 24: Claims expense – hospital claims inflation
Claims expense – hospital claims inflation For personal use only 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% Sep-01 Dec-01 Jun-02 Sep-02 Dec-02 Jun-03 Sep-03 Dec-03 Jun-04 Sep-04 Dec-04 Jun-05 Sep-0
Slide 25: Claims expense – Ancillary claims inflation
Claims expense – Ancillary claims inflation For personal use only nib Industry nib service cost nib utilisation 25 0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% % Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Sep-01
Slide 26: Gross margin variance 2H:1H
Gross margin variance 2H:1H FY09 FY10 For personal use only 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) Loyalt
Slide 27: Investments
Investments For personal use only 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
Slide 28: Target investment asset allocation
Target investment asset allocation For personal use only 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
Slide 29: Capital adequacy
Capital adequacy For personal use only 25 2.5 2.00 2.03 2.0 1.88 86 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 De c‐05 De c‐06 De c‐07 De c‐08 De c‐09 n‐05 n‐06 n‐07 n‐08 n‐09 n‐10 Jun Jun Jun Jun Jun Jun When nib calculates the internal target it take
Slide 30: Regulatory capital requirements
Regulatory capital requirements For personal use only $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 $24.8 $92.3 $6.4 $11.7 $132.8 $197.6 $11.7 $116.0 $412.3 $ Cap ad res
Slide 31: Balance Sheet
Balance Sheet ($m) At 30 June 09 30 June 10 Current assets For personal use only 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 T t l currentt assets Total t 430 2 430.2 523 6 523.6 Non-current assets Available-for-sale fin
Slide 32: Financial results – underlying results
Financial results – underlying results Net underwriting result of $47.1m, up $6.9m or 17.2% on FY09 For personal use only 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
Slide 33: Data sheet – nib
Data sheet – nib For personal use only FY06 FY07 FY08 FY09 FY10 Total p policyholders y 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 pers
Slide 34: Data sheet – PHI industry
Data sheet – PHI industry By financial year intervals For personal use only 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 11,561,29
Slide 35: Disclaimer
Disclaimer For personal use only 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