Media releases

September 27, 2012

Profit down at Medibank, but members get more benefits and future outlook is positive

Medibank announced a 2011/12 net profit before tax today of $197.3 million, a result down on the previous year's record figure, but one that is consistent with average profit over a five year period.

Sales growth of 7% and health fund membership growth of 145,000 lifted total group revenue to $5.4 billion.

Managing Director George Savvides said the reality of a challenging and volatile operating environment affected earnings from the business and this was compounded by a downturn in investment income. The company was well positioned, however, to capitalise on future growth opportunities.

"The year's financial achievements have been impacted by higher than expected claims expenses and a lower rate of membership growth, whilst absorbing a sizeable investment to secure future business growth (in both our health solutions and health insurance businesses).

"The instability of global and local financial markets, including lower cash rates, although not in the same negative territory as 2009, led to an investment income this year of $43.4 million, which was $128 million down on the prior year," said Mr Savvides.

Medibank's operating margin contracted to 3% this year as the company funded three important sources of additional value for members:

"Firstly, Medibank was able to pass on the lowest premium rate change of the top six funds in the industry this year, with an average increase of 4.7%, the lowest in ten years. This is the fifth consecutive year of below industry average premium increases.

"Secondly, over three million members who are covered with a Medibank hospital plan were upgraded and received the benefits of Mi Health, which includes a new 24 hour 365 day a year nurse-operated health advice line, along with in-hospital liaison services.

"Finally, we funded an additional $340 million, or a 9% increase in our health plan benefits, as utilisation grew more rapidly than expected, which was concrete evidence of an ageing population. Our benefits paid are now over $4.3 billion a year. This directly contributed to our lower underwriting margin.

"Despite the increased costs in member benefits, the private health insurance memberships for both Medibank and ahm brands still grew by over 145,000. This brings total membership numbers across the Medibank Private and ahm brands to over 3.8 million people, retaining the group leadership position in the Australian Private Health Insurance sector," said Mr Savvides.

Medibank is now well positioned to benefit from its new operating structure as it moves progressively towards an integrated health insurance and health solutions company. The benefits of this were realised in June 2012 when the company leveraged its two divisions to secure a $1.3 billion contract to provide health services for the Australian Defence Force.

The key strategic achievement will see Medibank manage health services across 100 Australian barracks (Army, Navy, Air Force), supporting 80,000 eligible Armed Forces personnel for Joint Health Command.

"The capability to secure and deliver this exciting new business was formed over the past three years when we acquired four health services organisations to create a unique health services division, Medibank Health Solutions to complement our leading private health insurance business and contribute to more effectively manage the health benefit costs consumed by our ageing population.

"So while the past year has been challenging from a bottom line perspective, our customers have been the beneficiaries of our expanded capability as we have made significant progress in differentiating our services and transforming the company into a healthcare insurance company, offering both health insurance and health solutions.

"Medibank continues to be one of the best recognised brands in Australia. We are strongly committed to our private health insurance members, as well as the growing list of corporate and government clients we serve.

We value the position of trust we have established through the innovative ways we deliver health care services and insurance to Australians and New Zealanders," said Mr Savvides.

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