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Medibank Private lifts profit, pays 11-cent FY16 dividend

Nicholas Grove  |  19 Aug 2016Text size  Decrease  Increase  |  

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Australia's biggest health insurer records a profit slightly ahead of Morningstar's forecast, driven by cost management and lower-than-expected growth in hospital utilisation rates.

 

Medibank Private Limited (ASX: MPL) on Friday announced a net profit of $417.6 million for fiscal 2016, up 46.4 per cent on the prior year and ahead of Morningstar's forecast for a profit of $402.2 million.

Australia's biggest private health insurer attributed the result to "finding efficiency in healthcare services and continued progress on management costs".

"Lower-than-expected growth this year in hospital utilisation rates across the industry has also contributed to the growth in profit," Medibank CEO Craig Drummond said in a statement to the ASX.

"However, revenue growth remained soft due to underperformance of the Medibank brand and a slowing market.

"While Medibank has paid $5.1 billion in claims this year on behalf of our customers, some challenges remain with the value we offer to our customers."

In order to address these challenges, Drummond said Medibank will need to increase investment in its customer service and product offering.

"We know that we need to do more, and that we need to be easier to deal with. Key to this is the implementation of our new core policy management system, Project DelPHI," he said.

"Despite initial implementation issues, we expect that in 2017 this system will be fully operational and will deliver a significant improvement to our customer experience."

Medibank announced a final dividend of 6 cents a share fully franked, which brought the full-year payment to 11.0 cents a share.

This represents a final payout ratio of 71.7 per cent of underlying net profit, in line with the full-year target payout ratio of 70-75 per cent of underlying net profit.

The company said it remains committed to an ongoing full-year target payout ratio between 70-80 per cent of annual underlying net profit.

The final dividend will be paid on 28 September 2016 to shareholders on record as of 7 September 2016.

Medibank's Health Insurance business increased in operating profit to $510.7 million for fiscal 2016.

Premium revenue grew 4.0 per cent to $6,172.5 million, while gross margin rose from 14.2 per cent to 16.6 per cent.

The management expense ratio (MER) stood at 8.4 per cent, broadly in line with Morningstar's expectations and company guidance.

Revenue from the Complementary Services division declined 11.2 per cent to $569.3 million, but operating profit rose 74.6 per cent primarily due to the divestment of underperforming businesses and a solid result from ongoing businesses, Medibank said.

Investment income fell to $59.3 million in fiscal 2016 due to relatively lower equity market returns, as well as lower interest rates, it said.

While not providing any specific forward earnings guidance, Medibank said it expects its Health Insurance operating result to be impacted by "a variety of factors".

Premium growth is expected to slow, reflecting slowing population growth but a relatively steady health insurance participation rate, while market share loss is expected to continue following a weak second half of fiscal 2016, the company said.

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Nicholas Grove is a Morningstar journalist.

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