profitability-iconProfitability and Shareholder Returns

Diversifying our business and revenue streams, as well as maintaining disciplined cost control, will continue to be critical in driving future revenue growth and greater value for our shareholders.

For the nib Group, financial year 2014 saw strong top line growth, continued disciplined cost control and solid performance of our adjacent non-arhi business.

As previously explained, our Group results did however reflect a weak underwriting performance in our Australian Residents Health Insurance (arhi) measured against recent historical standards. Reduced profitability in our arhi business was more than offset by improved performance in other established business segments.

arhi remains at the core of our business and we expect future growth and improved profitability. We believe the private health insurance market as a whole will continue to grow at a rate ahead of GDP and that nib will grow above system as it has consistently in the past. Anticipating the weaker arhi profitability, in April 2014 we increased premiums on average by 7.99% and are undertaking a wide range of initiatives throughout the business designed to better control claims costs inflation. It is arguably our biggest challenge.

We are looking to grow future revenue and earnings across all business segments and actively exploring new opportunities that allow us to leverage our brand, distribution and other capabilities.

During the course of the 2014 financial year we launched nib Options, a business that facilitates customers receiving major dental and cosmetic surgery treatment in Australia and overseas. nib Options is seeking to ride the global trend of people crossing international borders for healthcare services and treatment. It is not an insurance or underwriting product, rather a single fee for bundled services. There is a heavy emphasis on quality, reliability and safety.

Other non-underwritten business lines, including life and travel insurance, continue to be popular with our customers, with commissions up 14.1% to $2.2 million.

During the reporting period our investment portfolio delivered returns above our annual internal benchmarks, primarily on the back of strong equity market performance. While our portfolio’s exposure to equities is only 9.7%, net investment return for the 12-month period was $29.7 million or 5.6%. As at 30 June 2014, our total investment assets were $581.7 million (including our head office building).

Group net profit after tax (NPAT) was $69.8 million, compared to $67.2 million last year, with earnings per share of 15.9 cents and return on equity of 20.8%.

This strong financial performance has allowed the Board to declare full year ordinary dividends for the 2014 financial year of 11.0 cents per share, fully franked (FY13: 10.0 cents per share). This represents a payout ratio of 69.2% of full year net profit after tax. This is consistent with our dividend policy of paying fully franked dividends representing 60% to 70% of full year net profit after tax. nib also declared a special dividend reflecting a $39.5 million capital management initiative of 9.0 cents per share (fully franked).

nib continues to deliver strong returns for shareholders. Since listing in 2007, nib’s Total Shareholder Return (TSR)* has been more than 475%, having substantially outperformed other accumulation indices, including S&P/ASX200 with a TSR for the same period of approximately 9%.

Total shareholder return (rebased to 100)*

TSR v2

* TSR rebased to 100 (assumes capital returns and dividends re-invested at the payout date).
Source: IRESS