Medibank Private Limited

Thank you for standing by and welcome to the Medibank Half Year Results 2026. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you would like to ask a question via the phone, you'll need to press the star key followed by the number one on your telephone keypad. I'd now like to hand the conference over to Mr David Koskar, Chief Executive Officer. Please go ahead.

Thanks and good morning everyone. Thanks for joining us today. I'm coming to you from NAMM. the home of the Wurundjeri Woiwurrung peoples, and I pay my respects to their elders past, present and emerging. I'm joined by our executive leadership team, including our CFO, Mark Rogers. This morning we'll talk to Medibank's results for half year 26. So first to the highlights on slide five. This is another good result for the Medibank group. Our performance reflects improving customer engagement and our progress in driving the health transition. We've delivered on our growth commitments. We've improved momentum in our health insurance business and strong growth in Medibank Health. Medibank Health's continued positive performance is enabling us to reinvest with confidence to support its future growth. And we recently took our next important step in health, finalising our acquisition of Better Medical, establishing one of the largest primary care networks in the country. So let's turn to slide six for customer highlights. As the cost of living remains challenging for many, we continue to provide more value to our 4.3 million customers. We saved our customers around $105 million in out-of-pocket costs, another $3.3 million by using our no-gap network, and $23 million in rewards was earned by Live Better members. And importantly, we're seeing our Medibank and AHM customers accessing more of the health services we deliver through Medibank Health. 55% of Medibank resident policyholders are now engaged with our health and wellbeing services, which reflects our differentiation, but also how we're able to bring the best of Medibank Group to support our customers' health. AmpliHealth delivered 70,000 virtual health interactions to Medibank customers, and saved 100,000 hospital bed days through its home care services. And as we meet more health needs of more customers, customer relationships strengthen, which further improves our retention performance and supports our growth in health. So now to slide seven, which shows an overview of our key financial outcomes. Look, I won't go through all of them, but a particular highlight for me is the resident policyholder growth of 1.9%, with growth in the last half more than double that of last year, including improving momentum in the Medibank brand. And while we're seeing slightly lower policyholder growth rates in our non-resident business from a few years ago, our performance remains better than market, especially in segments where we are focusing our efforts to grow. And it's very pleasing to see Medibank Health having another very strong half of growth. In line with our healthy capital position, we are delivering shareholders an interim fully franked ordinary dividend of 8.3 cents per share. So now to slide eight. As we progress our strategy, we continue to take important steps to deliver our 2030 aspirations. Our improving experiences are really resonating with our customers. patients and our people as we continue localising services and empowering our teams to better support our customers. We continue to build momentum in our health insurance business, growing both brands and expanding in our priority segments, including families, mid-tier covers and those new to the industry. This includes a 67% increase in corporate joins year on year and a record number of non-resident workers now as customers. The key to our strategy is to change the way people experience health and wellbeing, like our expansion of our 24 by 7 AmpliHealth online doctor service to our resident customers and our Detox at Home program in the community. And having now established a national network of 168 clinics, we've continued to prioritise our expansion in primary care, investing in the experience of GPs to support early intervention and multi-channel delivery. And we're improving how we work, embedding AI tools and processes throughout our business. And our adoption is accelerating. For example, in 2025, we had twice the rate of adoption of AI than we had in 2024. And next year, it might be more than five times that amount. We're able to drive value from this space due to our strong customer relationships, our data and our capabilities. And we continue to strengthen our foundations, maturing our risk culture and approach to support our people's decision making, enhancing security and our technology platforms and improving productivity. All so we can continue to deliver better outcomes for our customers. So now over to slide nine. We're very conscious that many consumers are doing it tough, including with the recent interest rate increase and recently announced increases to premiums. However, despite the challenging environment, the resident health insurance market remains buoyant, including continued strong growth in younger customers choosing to go private. Recent research showed that a continued increase in the number of people who see health insurance as offering value for money. And with increased waiting lists for elective surgery in the public system and the benefits of adult dependent reform to continue, we expect resident growth rates to remain well above pre-pandemic levels. Consumers continue to seek greater value and are switching brands and products to get it, including choosing lower levels of cover. With this changing mix and more people preferring treatment outside traditional settings, Growth in private hospital claims utilisation is decreasing. And while some of the unsustainable commercial behaviour from other funds has eased, pockets of heightened competition remain, including aggregated practices that could drive up the cost of insurance for consumers. In response to all this, our disciplined approach to growth and differentiation across our two brands remains unchanged. We are driving momentum by growing in our target segments, prioritising growth in direct channels and focusing on retention, which for us has improved by 21 basis points year on year this September, despite industry lapse rates actually going up by 70 basis points. We're continuing to work constructively with hospitals, shaping partnership agreements that incentivise shared outcomes to drive the health transition. which pleasingly is continuing to gain momentum. In FY25, we gave hospitals around $37 million to support this shift. And in the first half of this financial year, we've already provided around $20 million. The non-resident market has adjusted to recent migration reforms with worker numbers increasing. Student numbers have stabilised, but we expect the market to continue to grow. We're also seeing more students and workers become residents. Transitions we are well placed to support through our lifecycle management investments. And with the strength of the health and wellbeing support we offer and the extensive university partnerships we have, we remain an insurer of choice in the student market. Now to slide 10. Australia has never spent more on health care and yet in some parts the system is failing the community. As productivity in healthcare remains sluggish and healthcare costs continue to outpace inflation, the call to action for reform could not be more urgent. Out-of-pocket costs are rising, patients are waiting longer for care, clinicians are under pressure and avoidable hospitalisations are around 30% above the OECD average. Not only does this impact the quality of life of millions of people, the recent data also shows it drained around $7.7 billion from the system. Governments, operators, clinicians and patients know the system is under strain. But despite the shared understanding, the pace of reform is far too slow. So we will continue to advocate for change because it is in the national interest. But advocacy alone won't fix a system that is deteriorating faster than many decision makers are responding. International experience shows us that when this happens, the private sector must lead. And in the absence of meaningful system-wide reform, as we have done for several years, we will continue to take the lead in driving the health transition that is needed to sustain our system. And in the last few months, pleasingly, others are recognising the need for this action too. For example, St Vincent's has committed to delivering half its care in homes or through virtual and digital platforms by 2030. Our work with the South Australian Government has seen their continued commitment to expand care options for public patients outside traditional hospital settings. And we are seeing many others now embracing the change that's needed. And in the private system, The federal government is supporting this approach, given their ask of the sector to design, lead and implement the changes needed through the CEO forum. So we will keep working with hospitals, health professionals, corporates and other funders to accelerate the change needed. Investing in wellbeing, in prevention, in primary care and accelerating the shift to virtual community and home based treatment settings. And as you know, this is not new for us. It's out of this desire to change the system to keep it one of the best in the world that we are growing our health business. And now to slide 11. Primary care is one of the most critical areas that need change. As the front door to Australia's health system, it needs to adapt to the changing health needs of the country. Patients are waiting longer. paying more and too often entering the system once health problems are already entrenched. These outcomes are the result of a traditional model designed around reactive, episodic care rather than proactive, connected and comprehensive support. The sector is just not set up to support the future health needs of the community. Through our majority interest in My Health and recent acquisition of Better Medical, Combined with our existing AmpliHealth GP nursing and our health offerings, we now bring together one of the largest primary care networks in the country. And working with our partners, we provide the tools, the technology and the time clinicians need to focus on prevention, reduce low-value activities and better support their patients. We are investing to grow virtual channels to improve access, to support better continuity of care and to meet the changing expectations and preferences of patients. And these investments matter for patients and they matter for clinicians. And as we have seen in other countries around the world, a focus on proactive and planned care supported by technology and an integrated care team is a more sustainable business model and one that can better address the challenges of the health system under strain. Now I'll turn it back to ask him to run through the details of the result.

Thanks, David. Good morning, everyone. This result demonstrates how we're balancing resident policyholder growth and gross margin. It shows continued earnings diversification and includes reinvestment for growth. The key financial highlights include group operating profit up 6% to $381.7 million with solid growth in resident health insurance an important contribution from non-resident and continued strong momentum in Medibank Health. Investment income was impacted by the lower RBA cash rate, and the increase in other income and expenses includes higher M&A costs. Non-recurring cyber costs were lower, and we expect FY26 costs to be around $35 million, and that the IT security program will largely be embedded. And underlying EPS, which normalises investment returns was 10.8 cents per share, which is in line with last year. Slide 14 covers the health insurance results. Despite the challenging economic environment, the business remained resilient. We continue to see benefits from our disciplined approach to running a business, including lower hospital utilisation growth and an improved risk equalisation outcome. We are also seeing policyholder growth skewed to lower tier products with impacts to revenue and claims largely offsetting. Gross profit was 4.4% higher with 4.3% revenue growth and gross margin stable at 16.2%. Operating profit increased 3.5% to $361.5 million and the operating margin remains at 8.5%. Our expenses were up 5.4% to $329.4 million and the expense ratio is 10 basis points higher at 7.7%. The increase in operating expenses reflects inflation, volume impacts and ongoing investment partially offset by $3 million of productivity savings. And non-resident commissions were up in line with premium increases with the resident commissions broadly in line with last year, despite higher AHM agri-badge amounts. We expect expense in FY26 of between 690 and 695 million, including 10 million of productivity savings. We continue to target a stable to modestly improving expense ratio, but balance this with investing in growth where this makes commercial sense. Moving to slide 15. The recent health insurance market remains buoyant, with policyholder growth in the 12 months to 31 December expected to be slightly lower than the 2.1% growth we saw in the 12 months to 30 September. Cost of living pressures continue to impact the industry, with switching rates remaining elevated, customer growth skewed to lower tier products and aggregators increasing their share of industry joins. Whilst the unsustainable competitive environment is moderating, pockets of heightened competition remain. Pleasingly, we're seeing increasing momentum in the business. Over the last 12 months, policyholder numbers increased 1.9%, with Medibank and AHM growing 0.8% and 4.9% respectively. This includes 0.9% growth in the last six months, which is more than double the growth in the prior period. The acquisition rate of 5.6% is 40 basis points higher, with improvement in the Medibank brand from investing in differentiation and an enhanced digital experience in AHM. Despite the higher industry switching rate, retention improved 10 basis points, with the improvement in AHM particularly important. Key areas of focus for the remainder of FY26 include further improving retention, deepening brand differentiation and increasing focus on acquisition in priority segments and channels. Now turning to slide 16. Resident claims expense increased 4.9%, and risk equalisation provided a 50 basis point benefit to net claims growth, with some of this benefit expected to be timing-related. Resident claims growth per policy unit increased 20 basis points to 2.5%, with the 310 basis point increase in extras partially offset by 120 basis point decrease in hospital. In hospital, the increase in inflation reflects private hospital indexation, investment in product benefits and the increase in New South Wales private room charges. The negative hospital utilisation growth reflects prior period claims favourability due to COVID impacts and customer growth due to lower tier products. And the increase in extras includes the AHM limit rollover and utilisation and inflation increasing, following a period of subdued demand due to economic and COVID impacts. And in the second half, we expect private hospital indexation to remain elevated and negative hospital utilisation growth continue. Whilst the risk equalisation timing benefit will unwind, we expect this to be largely offset by higher NSW private room charges now being fully embedded. Slide 17 details health insurance performance, which shows continued growth in both resident and non-resident. In resident, our disciplined approach to growth resulted in gross margin being maintained at 15.5%, with revenue and claims growth per policy unit of 2.5%. Growth in revenue per policy unit was down 30 basis points, with a high average premium increase offset by higher revenue mix impacts. The revenue mix impact of 150 basis points is similar to 2H25 and reflects increased investment in the better customer growth due to lower tier products and strong growth in AHM policies. And subject to no material change in the economic environment, we expect revenue mix impacts for the full year to be better than 1H26. Solid non-resident revenue growth has continued with average policy units 1.4% higher and revenue per policy increasing 3.1%. Policy unit growth was lower than in the prior period with lower student visa approvals and modestly higher lapse. However, we expect the recently announced increase to student visa approvals and new opportunities in the worker segment to support acquisition into the second half. Gross profit increased 6.9% to $55.6 million and gross margin was up 80 basis points to 35.6% with an improved worker margin partially offset by tenure impacts on the student margin. Non-resident remains an attractive market and in the second half will build on emerging opportunities in the student and worker segments and continue to invest and differentiate our offering to grow market share. Turning to slide 18. Medibank held segment profit increased 28.5% to 48.3 million and operating margin was up 10 basis points to 17.7%. Revenue grew 27.5% with the increase in community and acute, reflecting strong funding growth and increased ownership of Ample Health Home Hospital and good strong customer growth in wellbeing. Gross profit was up 21.6% with the reduction in gross margin due to additional investment in Live Better and mixed impacts, partially offset by efficiency benefits in community and acute. And whilst expenses increased with growing scale, the expense ratio was 250 basis points lower with improvement across all three segments. We continue to see strong organic growth potential in the business with focus areas for the remainder of FY26, including meeting more health needs of more customers, starting existing services with a broader set of payers and realising synergy benefits across our primary care network. We aim to augment this organic growth with further M&A that scales and expands geographic coverage in primary care and adds capability in wellbeing and virtual care. Now, on slide 19, we've shown a more granular breakdown of the financial results for our three Medibank Health segments and the key customer metrics driving performance. In the wellbeing segment, Live Better members increased 13.6%, following investment in the proposition and reward points give back offer. In primary care, consultations increased by 2.8%, with an increased proportion of these being undertaken virtually. And in community and acute, acute home admissions were supported by strong volume growth in publicly funded programs and increased capacity in our transition care service. Moving to slide 20. Investment income was down $19.6 million with a $5.7 and $5.8 million reduction in the growth and defensive portfolios respectively. The decrease in the growth portfolio reflects lower income from all asset classes other than property and the lower RBA cash rate was the driver of the reduction in the defensive portfolio. Other investment income was also lower following the payment of the final customer gift back in September last year. We expect further impact in the second half with lower cash holdings due to funding to better medical acquisition. We'll adjust credit duration and liquidity settings in the defensive portfolio to help offset this impact. And of course, the recent increase in the RBA's cash rate will also be helpful. With lower earnings on cash, underlying net investment income was down 11 million. The underlying net investment return decreased 26 basis points to 2.74%. and the annualised spread to the average RBA cash rate increased to 184 basis points. Moving to slide 21. The health insurance business continues to be well capitalised. Capital is at 1.9 times the PCA and the capital ratio is 13.8% of premium revenue. We continue to hold additional capital to offset the $250 million APRA supervisor adjustment This is why the capital ratio is above the target range of 10% to 12%. The better medical acquisition was the main driver of the change in the capital position this period. The increase in Medibank health capital employed includes a $163.5 billion cost of this acquisition. The acquisition was funded from unallocated capital, with this partially offset by strong capital generation. We are also well-placed to fund further inorganic growth. The unallocated capital position supports our FY30 Medibank health earnings aspiration of at least $200 million, and we have capacity to raise Tier 2 debt to support growth above this level if further attractive opportunities arise. And given the strong capital position, the Board has declared an interim dividend of $0.083 per share, which is a 6.4% increase, and 76.8% payout of underlying net profit after tax. And to finish, a few comments on our outlook for FY26. Our resident health insurance outlook is unchanged. We aim to grow resident market share in a disciplined way, including further growth in the Medibank brand. We continue to expect growth in resident claims per policy unit of between 2.6% and 2.9%, We expect that our proactive approach to claims management will differentiate us from the rest of the industry. Our non-resident outlook is also unchanged. And finally, we've updated our Medibank health outlook. We expect FY26 organic operating profit growth to be similar to 1H26, plus an additional circa $6 million contribution from Better Medical in the second half. and our M&A pipeline remains strong and we have both the appetite and financial capacity to pursue further strategic opportunities. I'll pass back to David to make some closing remarks. Thanks Mark.