nib holdings limited t 13 14 63 Head Office f 02 4925 1999 22 Honeysuckle Drive Newcastle NSW 2300 e [email protected] abn 51 125 633 856 w nib.com.au 27 September 2012 The Manager Company Announcements ASX Limited Level 4, Bridge Street Sydney NSW 2000 2012 Shareholder Review – nib holdings limited Please find attached nib’s 2012 Shareholder Review which was distributed to nib shareholders today. The Shareholder Review can also be viewed online at nib.com.au/shareholders. Yours sincerely, Michelle McPherson Chief Financial Officer & Company Secretary For personal use only For personal use only Contents Performance Highlights 2 Chairman’s Report 4 Managing Director’s Report 6 Year in Review Growth 8 Customer Service 10 Effi ciencies 12 Profi tability and Shareholder Returns 14 Community 16 Board and Executive Profi les 18 Remuneration 20 Financial Summary Income Statement 22 Statement of Cash Flows 22 Balance Sheet 23 Five-Year Performance Summary 24 Information for Shareholders inside back For personal use only 1952 We’re celebrating being 60 years young 1952 1975 Newcastle Industrial Benefi ts (nib) nib amalgamates with South Hospital Fund established by workers Coast Medical Fund. The merger at BHP Steelworks, Mayfi eld, NSW. boosts membership by 10,000. 1986 First nib Eye Care Centre opens in Newcastle. 1962 1977 nib moves into its fi rst head nib embraces the technological offi ce at 366 Hunter Street, age with computers introduced Newcastle. into the workplace. 1953 1977 Newcastle Industrial Newcastle Industrial Benefi ts Medical Fund Benefi ts becomes 1984 established. nib health funds ltd. Medicare introduced. For personal use only 1952 1962 1976 Newcastle Industrial Benefi ts nib moves into its fi rst head nib’s membership triples (nib) Hospital Fund established offi ce at 366 Hunter Street, following the establishment by workers at BHP Steelworks, Newcastle. of Medibank Private. Mayfi eld, NSW. *Timeline images courtesy of Gail Noakes and The Newcastle Herald. 1999 nib Customer Care Centre awarded ‘Call Centre of the Year’ for outstanding tele-performance and customer service. 2006 nib negotiates sale of 1987 Newcastle Private Hospital to Healthscope. First nib Day Hospital opens in Newcastle. 1997 2003 nib launches its nib acquires Victorian- 1994 fi rst website. based health fund, IOOF Health Services. nib Private Hospital 2004 opens in Newcastle. 1998 1988 Prime Minister John First nib Dental Howard opens Newcastle Newcastle Knights enter Centre opens. Private Hospital, owned NSWRL with nib as a and developed by nib. founding sponsor. For personal use only 1982 1993 2000 nib opens its fi rst Sydney nib expands interstate with Introduction of Federal branch in the CBD. operations in Queensland, Government’s Lifetime Health Victoria, South Australia Cover considerably boosts and the ACT. memberships. 2008 nib relocates to its new head offi ce in Honeysuckle, Newcastle. 2010 As part of its expansion into Western Australia, nib secures naming rights to nib Stadium, Perth. 2007 nib policyholders vote in favour of demutualising and 2011 nib becomes Australia’s fi rst private health insurer to list nib opens its fi rst Western Australian on the ASX. retail centre at Booragoon, Perth. 2008 2011 Prime Minister In FY11, premium Kevin Rudd launches revenue reaches nib foundation. $1 billion for the 2007 fi rst time. 2012 nib becomes elite partner of 2010 AFL team, the Geelong Cats. nib foundation funding nib enters the International Workers support for health and Health Cover market with the wellbeing initiatives tops acquisition of IMAN. $10 million. For personal use only 2012 Performance Highlights Premium Revenue Net Claims Incurred* 1200 Up 11.5% 1000 Up 11.8% 1000 800 800 $949.2m $1,123.8m 600 $848.7m $1,007.8m $767.9m 600 $901.4m $829.5m $707.5m 400 $758.2m $647.0m 400 200 200 0 0 08 09 10 11 12 08 09 10 11 12 * Excluding claims handling costs. Management Expense Ratio Pre-tax Underwriting Result 12 Down 0.5% 80 Up 15.0% 70 10 60 9.9% 8 9.7% 10.3%* 9.6% 50 $70.7m 9.2% $61.5m 6 40 30 $47.1m 4 20 $40.2m 2 $33.0m* 10 For personal use only 0 0 08 09 10 11 12 08 09 10 11 12 * FY08 result was normalised to remove the impact of * FY08 result was normalised to remove the impact of costs associated with nib’s demutualisation and listing. costs associated with nib’s demutualisation and listing. 2 nib shareholder review 2012 Net Investment Return* Net Profit After Tax 12 Down 0.6% 80 Up 3.3% 10 70 60 8 10.5% 50 $65.5m 6 $67.6m 40 $61.5 m $61.5 4 6.6% 6.0% 30 2 20 0 1.6% 10 $26.7m* $23.8m -2 0 -0.4% 08 09 10 11 12 08 09 10 11 12 *Net of fees. * FY08 result was normalised to remove the impact of costs associated with nib’s demutualisation and listing, and ‘notional’ tax. Return On Equity Surplus Capital 25 Up 5.2% 150 Down $124.7m 20 120 $144.5m $138.0m 21.7% $131.6m 15 90 16.5% 16.3% $105.6m 10 60 5 30 $13.3m 6.6% 7.0%* For personal use only 0 0 08 09 10 11 12 0809 10 11 12 * FY08 result was normalised to remove the impact of costs associated with nib’s demutualisation and listing, and ‘notional’ tax. nib 60 years young 3 Chairman’s Report This year nib celebrates 60 years of operation. There is no doubt we have come a long way since our formation as a sickness and accident fund in 1952 by workers at Newcastle’s BHP Steelworks. Today, we are recognised as one of Australia’s leading private health insurers providing quality and affordable health cover. nib also continues to deliver underlying earnings growth, profi tability and strong returns for our shareholders. In the fi nancial year ending 30 June 2012, our underlying earnings were up 15% on the previous year to $70.7 million. nib provides health cover to almost 900,000 Australians through our domestic Health Insurance Business, which continues to be the main economic driver of our strong profi tability. Our investment in International Business operations also made a material contribution to our consolidated result this fi nancial year and we expect that these operations will continue to grow in future years. Capital management initiatives were a feature of the fi nancial year. We returned almost $140 million by way of a $75.4 million Capital Return, payment of special dividends totalling $23.3 million and an on-market share buy-back at a cost of $41.0 million. Our focus on capital management during the year makes good our promise to shareholders that in the absence of merger and acquisition prospects we would return surplus capital. Our strong fi nancial performance has allowed the Board to declare FY12 full year ordinary dividends of 9.25 cents per share, fully franked. This represents a payout ratio of 60% of NPAT. The Board decided to increase guidance for future ordinary dividend payments to refl ect a payout ratio of fully franked ordinary dividends of 60% to 70% of full year NPAT. Steve Crane For personal use only Chairman 4 nib shareholder review 2012 As at 30 June 2012, we had $13.3 million in surplus capital above our internal prudential requirements. This was down from $138.0 million for the previous corresponding period refl ecting the initiatives previously explained. The Board contemplated a fi nal nib continues to special dividend for FY12 equivalent to our surplus capital position deliver underlying but we believe there may be better near-term strategic investment opportunities for shareholders. earnings growth, profi tability and As at 30 June 2012, our total investment assets were $489.1 million. strong returns for During the year the Federal Government passed legislation to income test the Private Health Insurance Rebate. While unhelpful our shareholders. to our business, our analysis is that the income testing will have minimal impact. As part of this year’s Federal Budget, the Government also PRE-TAX UNDERWRITING RESULT announced the establishment of a Pricing and Competition Unit, which will provide the Government with more detailed advice on $70.7m industry pricing, cost drivers, insurance premiums and competition policy within the private health insurance industry. We fully support greater sophistication and transparency in the annual pricing FULL YEAR DIVIDEND approval process, so the initiative is welcome. Our regulator, the Private Health Insurance Administration Council, 9.25cps has released a draft of new capital standards for the industry, which are planned for implementation on 30 June 2013. We don’t expect these new standards will have a material impact on our capital requirements. It was also a landmark year for our charitable organisation, nib foundation, which marked a signifi cant milestone in reaching $10 million in committed funding since its establishment in 2008. We have taken pride in the efforts of the foundation in improving the health and wellbeing of our community. Overall, we like the investment thesis for private health insurance. The fi scal pressure on all levels of Government in Australia to continue to fund healthcare at current levels is unsustainable, and coupled with an unwillingness by Australians to rely on the public health system, there is little alternative other than for private health insurance to play a greater role. nib is well placed to capitalise on these opportunities and continue our good track record. I would like to thank my fellow Directors and our talented Executive Management team, who are supported by our many employees, for their dedication and contribution to another successful year for our business.For personal use only nib 60 years young 5 Managing Director’s Report This was always going to be a landmark year for nib.