Medibank Private : FY21 Results - Appendix 4E and Financial Report

25 August 2021

Medibank Private Limited (MPL) - Financial results for year ended 30 June 2021

In accordance with the Listing Rules, Medibank releases the following documents to the market:

1. FY21 Results - Appendix 4E, Directors' Report (including Remuneration Report) and Financial
   Report;
2. FY21 Results - Media Release; and
3. FY21 Results - Investor Presentation.

These documents have been authorised for release by the Board.

Medibank Private Limited ABN 47 080 890 259 GPO Box 9999 Telephone 132 331 medibank.com.au

APPENDIX 4E

MEDIBANK PRIVATE LIMITED

ABN 47 080 890 259

RESULTS FOR ANNOUNCEMENT TO THE MARKET

				Medibank Private Limited Group
				Financial year ended 30 June
			2021	2020	Movement	Movement
			$m	$m	$m	%
Health Insurance premium revenue			6,691.1	6,554.7	136.4	2.1%
Medibank Health revenue			219.3	214.9	4.4	2.0%
Revenue (excluding net investment and
other income) from continuing operations	6,910.4	6,769.6	140.8	2.1%
Revenue from discontinued operations	(1)	-	6.0	(6.0)	(100.0%)
Total revenue from ordinary activities			6,910.4	6,775.6	134.8	2.0%
Net investment and other income			121.8	9.8	112.0	n.m
Total income from operations			7,032.2	6,785.4	246.8	3.6%
Profit from continuing operations after tax
attributable to shareholders			441.2	315.6	125.6	39.8%
Profit/(loss) from discontinued operations
after tax attributable to shareholders	(1)		-	(0.6)	0.6	(100.0%)
Net profit from ordinary activities			441.2	315.0	126.2	40.1%

(1) Discontinued operations relate to the Garrison Health Services contract, which ceased on 30 June 2019.

The results are summarised as follows:

• Health Insurance premium revenue increased 2.1% or $136.4 million to $6,691.1 million.
• Medibank Health revenue increased 2.0% or $4.4 million to $219.3 million.
• Net investment and other income increased $112.0 million to $121.8 million.
• Profit from continuing operations increased 39.8% or $125.6 million to $441.2 million.
• Net profit attributable to shareholders increased 40.1% or $126.2 million to $441.2 million.

For further information refer to the directors' report in the attached financial report of Medibank Private Limited for the year ended 30 June 2021.

Dividend information

A fully franked final ordinary dividend of 6.90 cents per ordinary share was determined on 25 August 2021 in respect of the six months ended 30 June 2021. This dividend is payable on 30 September 2021 to shareholders on the register at close of business on 9 September 2021.

A fully franked interim ordinary dividend of 5.80 cents per ordinary share was determined on 24 February 2021 in respect of the six months ended 31 December 2020, paid on 25 March 2021 to shareholders on the register at close of business on 4 March 2021.

Net tangible assets per ordinary share

Net tangible assets are defined as the net assets of the Medibank Private Limited Group less intangible assets. Right-of-use assets recognised under AASB 16 Leases are considered as intangible assets.

	30 June 2021	30 June 2020
	cents	cents
		(restated) (1)
Net tangible assets per ordinary share	54.4	49.5

1. Restatement reflects the change in accounting policy for Software as a Service (SaaS) intangible assets detailed in Note 20(a) of the Financial Statements.

This report should be read in conjunction with the Medibank Private Limited financial report for the year ended 30 June 2021, together with any public announcements made by Medibank Private Limited in accordance with its continuous disclosure obligations, and is lodged with the ASX under listing rule 4.3A. This report is based on the consolidated financial statements of the Group which have been audited by the Group's auditors, PricewaterhouseCoopers (PwC). A copy of PwC's unqualified audit report can be found in the financial report that follows.

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

Table of contents

Operating and financial review	1
Directors' report	10
Remuneration report	18
Auditor's independence declaration	52
Consolidated financial statements	53
Directors' declaration	110
Independent auditor's report	111

OPERATING AND FINANCIAL REVIEW

1. About Medibank

Medibank Private Limited (Medibank) is a leading private health insurer in Australia. Our core business is Health Insurance, whereby we underwrite and distribute private health insurance policies under the Medibank and ahm brands. Medibank Health complements our Health Insurance business by leveraging our experience and expertise to provide and coordinate health services to support our customers and the community. Medibank Health also includes diversified insurance products such as travel, life and pet. As we maintain assets to satisfy our regulatory reserves, we also generate investment income from our portfolio of investment assets.

Medibank was founded in 1976 as a private health insurer owned and operated by the Australian Government. We have operated on a for-profit basis since 2009, and on 25 November 2014, Medibank was sold by the Australian Government by way of an initial public offering (IPO) and listed on the Australian Securities Exchange. As at 30 June 2021, we had 3,409 full-time equivalent (FTE) employees, including 1,094 health professionals (excluding employees in associates and joint ventures).

2. Financial and operating performance

References to "2020", "2021" and "2022" are to the financial years ended on 30 June 2020, 30 June 2021 and 30 June 2022 respectively, unless otherwise stated. The "Group" refers to the consolidated entity, consisting of Medibank and its subsidiaries.

Despite the challenging environment of the last year, our business has proved resilient. Our people remain engaged, our balance sheet remains strong, we have made good progress in growing policyholder numbers, managing our own expenses and setting up Medibank Health for growth.

2.1 Group summary income statement

Year ended 30 June ($m)	2021	2020	Change
Group revenue from external customers1	6,910.4	6,769.6	2.1%
Health Insurance operating profit	538.6	470.6	14.4%
Medibank Health segment profit1	31.4	27.8	12.9%
Segment operating profit	570.0	498.4	14.4%
Corporate overheads	(41.7)	(37.4)	11.5%
Group operating profit - continuing operations	528.3	461.0	14.6%
Net investment income	120.0	2.4	n.m.
Amortisation of intangibles	(4.6)	(9.0)	(48.9%)
AASB 16 Leases transition adjustment	-	3.3	n.m.
Other income/(expenses)	(11.4)	(7.5)	52.0%
Profit before tax	632.3	450.2	40.4%
Income tax expense	(191.1)	(134.6)	42.0%
Group net profit after tax (NPAT) - continuing	441.2	315.6	39.8%
operations
Effective tax rate2	30.2%	29.9%	30bps
Earnings per share (EPS) (cents)2	16.0	11.4	39.8%
Underlying NPAT3	398.7	367.3	8.5%
Underlying EPS (cents)3	14.5	13.3	8.5%
Dividend per share (cents)	12.7	12.0	5.8%
Dividend payout ratio4	87.7%	90.1%	(2.7%)

1. Excludes discontinued operations
2. Calculated on total operations
3. Underlying NPAT, which adjusts for the normalisation of investment income, is from continuing operations
4. Dividend payout ratio based on underlying NPAT from total operations

Group operating profit from continuing operations increased by $67. 3 million or 14.6%, largely due to Health Insurance operating profit, which increased by $68.0 million.

Net investment income was significantly higher than 2020 when investment markets were impacted by COVID-19, increasing by $117.6 million to $120.0 million.

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OPERATING AND FINANCIAL REVIEW

The combination of the above factors resulted in a $125.6 million, or 39.8% increase in NPAT to $441.2 million on a continuing basis. Underlying NPAT, which adjusts for the normalisation of investment returns, increased 8.5% or $31.4 million to $398.7 million.

The key reasons for the movements in the Health Insurance and Medibank Health results, as well as net investment income, are outlined in this report.

Health Insurance

Year ended 30 June ($m)	2021	2020	Change
Premium revenue	6,680.3	6,545.6	2.1%
Net claims expense (including risk equalisation)	(5,610.8)	(5,531.6)	1.4%
Gross profit	1,069.5	1,014.0	5.5%
Management expenses	(530.9)	(543.4)	(2.3%)
Operating profit	538.6	470.6	14.4%
Gross margin	16.0%	15.5%	50bps
Management expense ratio	7.9%	8.3%	(40bps)
Operating margin	8.1%	7.2%	90bps

The solid result in our Health Insurance business demonstrates the benefit of the customer-led journey we have been on for the last five years. During the year we saw strong policyholder growth, improved retention, and we continued our focus on managing our costs.

Health Insurance revenue grew 2.1% to $6,680.3 million alongside strong policyholder growth. When adjusted for our COVID-19 customer support measures of $226.0 million in 2021 and $80.0 million in 2020, underlying revenue grew 4.2% to $6,906.3 million.

There has been encouraging hospital participation growth in the private health insurance market, with the Australian Prudential Regulation Authority (APRA) data for the 12 months ending 30 June 2021 indicating an increase of 95 basis points to 44.53%, and the number of people with hospital cover increasing by approximately 245,000. Customers are more focused on their health and wellbeing and are less likely to switch providers which has impacted favourably on our policyholder trajectory.

Reported net resident policyholder growth

4.6%

0.3% 0.8% 0.6%

FY18

FY19

FY20

FY21

Our reported net resident policyholders increased by 82,500 or 4.6%. Adjusting for COVID-19 related suspensions, policyholder growth was 3.5% with the Medibank and ahm brands growing 1.3% and 10.9% respectively. Our ahm brand continues to attract younger customers which will have positive impacts on the overall sustainability of the health system. The acquisition rate was up 110 basis points, largely driven by strong growth in the new to industry segment, particularly in the Medibank brand. There was a significant improvement in customer retention which improved 130 basis points, reflecting improving customer advocacy across both brands and the benefit of increasing product value and differentiation in the Medibank brand. Our market share grew by 37 basis points over the year and stands at 27.3% as at 30 June 2021.

Medibank's net claims increased 1.4% and gross claims expense increased 0.8%. This includes a $223.0 million reduction in claims expense due to lower than expected hospital and ancillary claims as a result of COVID-19, and a decrease in the COVID-19 deferred claims liability. Risk equalisation changed from a $7.9 million receivable in 2020 to a $24.6 million payable in 2021, reflecting our claims growth continuing to be below industry growth and strong policyholder growth in ahm which has a younger customer demographic. Underlying claims per policy unit which adjusts for both outstanding claims provision movements and COVID-19 impacts grew 3.1%. Resident underlying claims growth per policy unit was 2.5% with stable extras

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