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Edited Transcript of MPL.AX earnings conference call or presentation 21-Aug-19 11:30pm GMT

Full Year 2019 Medibank Private Ltd Earnings Call

Melbourne, Victoria Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Medibank Private Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Wilson

Medibank Private Limited - Group Executive of Healthcare & Strategy

* Craig M. Drummond

Medibank Private Limited - CEO & Director

* David Koczkar

Medibank Private Limited - Group Chief Customer Officer

* Mark Rogers

Medibank Private Limited - CFO

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Conference Call Participants

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* Andrew Goodsall

MST Marquee - Healthcare analyst

* Andrew Buncombe

Macquarie Research - Insurance and Diversified Financials Analyst

* Ashley Dalziell

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Daniel P. Toohey

Morgan Stanley, Research Division - Executive Director

* David Ellis

Morningstar Inc., Research Division - Senior Equity Analyst

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Matthew Dunger

BofA Merrill Lynch, Research Division - Research Analyst

* Nigel Pittaway

Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst

* Siddharth Parameswaran

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by and welcome to the Medibank FY '19 results investor and analyst Briefing. (Operator Instructions)

I would now like to hand the conference over to Mr. Craig Drummond, Chief Executive Officer. Please go ahead.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [2]

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Good morning, and welcome to the Medibank full year 2018 financial results presentation. I'm joined today by our executive leadership team, including our CFO, Mark Rogers. This is a good quality result. The investment we've made to improve the value and service proposition for our customers is making our business stronger and more sustainable in a challenging market environment. For the first time in 4 years, we experienced policyholder growth at a group level in all 4 quarters of the financial year, despite the softer market. Furthermore, Medibank has grown market share over the full year for the first time in a decade. Concurrently, we have achieved a strong uplift in customer advocacy with record levels in our service NPS across both brands, with an increase of 9.5 points for Medibank and 10.5 points for ahm compared to FY '18. We have achieved these results as we continue to progress our transformation into a broader healthcare company. I will discuss the key highlights from the result, our strategic priorities and then hand to Mark for the more detailed financials.

Let me start with some financial highlights on Slide 4. I strongly believe having refocused on customer outcomes has enabled Medibank to deliver solid financial returns and sets us up well for the future. In 2019, Health Insurance operating profit increased 1.3% to $542.5 million. On a continuing basis, group operating profit of $528.5 million and group NPAT of $437.7 million were up 1.9% and 3.2%, respectively. This outcome reflected momentum in policyholder growth, driven by the success of our dual-brand strategy, cost discipline and critically, the ongoing strong recovery of the Medibank brand. Management expenses were essentially flat, and consequently, our MER decreased by 10 points to 8.7%. Health Insurance operating profit margin was down 10 basis points to 8.4%. The operating profit of Medibank Health on a continuing basis was $22.1 million. When adjusted for the recent Home Support Services acquisition, the result is in line with FY '18. The increase in net investment income was driven by stronger investment returns in the second half of the year, which were consistent with relevant benchmarks. Finally, I'm pleased to announce that we will pay an increased final dividend of $0.074 per share and a special dividend of $0.025 per share, both fully franked. The special dividend is reflective of a reduction in our capital range from 12% to 14% to 11% to 13% of premium revenue. We are well progressed in aligning our health insurance capital framework with life and general insurance capital standards.

Turning to Slide 5. We've made good progress with our FY '19 milestones. In order to realize our ambition, we have revised a number of our milestones for the next 3 years. Delivering for our customers and broadening the relationships we have with them through expanded offerings has been a key focus, and this has continued to strengthen the business. This has been demonstrated by the improvement in customer advocacy with record service-level Net Promoter Scores across both brands and considerably lower PHIO compliance, leading to noticeably stronger retention levels. We have exceeded our customer cover check-in goal, reaching 519,000 customers this financial year. Additionally, our customers had more than 1.5 million health interactions during the year, which was above our target for FY '20. With our recently launched Live Better rewards program, we can further leverage a range of proactive and personalized health promotions, which is why we've extended the FY '20 target to 1.8 million health interactions. The nature of the conversations we are having with our customers today is materially different to 3 years ago.

On customer NPS, both brands have shown strong improvement compared to 2018 and have continued to close the gap to our peer group for the full year. For 3 months of the year, the group customer NPS exceeded our peer group, but more needs to be done to make this a sustainable position. In FY '20, we will implement a range of measures to achieve this goal. APRA data released Tuesday showed we grew our market share 5 basis points over the past year, driven by solid performance across both brands. The highlight has been the Medibank brand retention rate, which is the best we've seen since 2014. With this trajectory, we aim to stabilize Medibank brand policyholder volumes by the end of FY '20 and grow in FY '21.

In 2019, we also exceeded our goal to double Medibank at Home Services with 2,144 customers receiving care at home. Following the acquisition of Home Support Services, we are now looking to accelerate the growth of our in-home care business across Australia for all private and public payers. A new milestone of more than 300 virtual hospital beds by the end of FY '22 will be a measure of this growth. These are beds where patients can choose treatment at home instead of hospital where appropriate. Scale is the critical enabler of sustainable change and disruption in the industry, and Medibank is well positioned to lead this change, but it will take time. Currently, Medibank has approximately 200 virtual hospital beds, of which 65% are benefiting Medibank customers. The savings in benefit outlays vary with rehab in the home, substitutive care, continuing to provide the highest level of savings. But in order for this to work to provide a meaningful benefit to the health system, we need to continue to accelerate the delivery of these services on behalf of other funders as well. Recognizing the importance of managing costs within the health system, we delivered $40.4 million of productivity savings over the last 2 years. We're also targeting a further $50 million in productivity across the next 3 years, including $20 million in FY '20. Finally, we achieved the milestones for Medibank Health segment growth and as previously advised, have reset the milestone to organically replace the $30 million of earnings lost from the Garrison contract by FY '22.

Referring to Slide 6. Pleasingly, our strategy remains unchanged. We are focused on growing our business through continuing to build our competitive advantage in PHI and transforming Medibank into a broader healthcare company. For FY '20, our priorities are clear and remain driven by the needs of our customers. It is imperative that we build even greater competitive differentiation across both brands as others retreat. We will continue to offer competitive products and services and maintain our focus on integrating proactive, personalized advice and support into our customers' experience. Our Live Better rewards program is just another way that we'll be responding to the needs of our customers, differentiating our offer, incentivizing health and well-being and promoting growth in the market. Driving reform in a collaborative way to promote affordability, increased participation and added choice is essential for the sustainability of the industry. Expect to see us remaining active and at the forefront of promoting reform and affordability initiatives.

In terms of our third strategic pillar, we do aspire for strong growth in our PHI business at a reasonable margin and see opportunities in the provision of health services and diversified insurance to our 3.8 million customers and beyond. Medibank is well placed to execute on this strategy, but we will remain disciplined.

Moving to Slide 7. Reflecting on the progress in the Medibank PHI business in 2019 gives us confidence looking ahead. Our people are highly engaged, 85% engagement actually. Our technology is current and flexible. Customer digital engagement has increased sharply, 65% of policies for Medibank bank and 92% for ahm. And we had a meaningful uplift as I've said in customer advocacy. Medibank's leading data analytics capability is helping us meet a growing customer demand for more personalized experience. It has allowed us to introduce a new 24/7 early intervention mental health line, target personalized health promotions and to expand programs such as Health Concierge. As I've just referenced, we have taken to market our Live Better rewards program that recognizes our customers for making healthy choices. Live Better is rewarding customers for taking actions across the pillars of eat, move and feel. At this stage, we have 9 leading health and well-being partners, including our core products and our offer of discounts on premiums is, we believe, a real differentiator. We expect Live Better to drive further improvement in customer retention for the Medibank brand.

We will also look to continue the momentum and retention improvements for ahm, including improving the way we welcome new customers to the brand. Moreover, brand awareness for ahm reached a record high this year, reinforcing its credentials as simple, easy and affordable, which should aid acquisition in a competitive market. Pursuing new dental and optical networks, (inaudible) will drive meaningful out-of-pocket savings for customers and offer a better experience. In the first 6 months alone, our new dental network saved customers $3 million in out-of-pocket costs. Expect a new optical network announcement in the first half of FY '20. There is no question that contracting with our broader service providers on terms and conditions that our customers can afford remains challenging, but we must continue to pursue this value-based approach as well as doctor-led alternative care settings. Additionally, our health and well-being offering to the corporate market is resonating. We delivered around 35,000 individual health and well-being interactions to our corporate customers during the year. It is this broader health investment and engagement that is really resonating with corporate Australia. Validating this broader capability, I'm delighted that Medibank has recently been selected by La Trobe University as their strategic health partner as part of their master plan vision. This includes a major health and well-being hub for students in the broader La Trobe community alongside training and development of health professionals.

Looking forward to 2020, the PHI business is positioned to grow. As detailed, our platform is in good shape. Our dual brands are working well together, and our expectation is that Medibank brand volumes will stabilize by the end of FY '20 and grow in FY '21.

Turning now to Slide 8. Medibank is playing a broader role in alternative ways of delivering health care, and we are uniquely placed to leverage our capability and to become a leader in the in-home care market. With the acquisition of HSS, our in-home care capability has been further strengthened, and we'll see more choice in the market for Medibank customers as well as for other funders, both public and private. This expansion will help us achieve our aspiration of more than 300 virtual hospital beds by the end of FY '22. Within home care, delivering excellent outcomes and lower costs, we want our customers and their doctors to have this choice. International trends demonstrate that this is a key aspect of the future of healthcare delivery. In Denmark, recent research suggested up to 54% of patients could be appropriate for discharge on the same day of hip and knee surgery, while such care is now becoming more commonplace in many international jurisdictions. Importantly, these benefits are not simply an opportunity for the private sector. Hospital substitution and avoidance are worthy of greater attention across the entire health system. This is why we are working collaboratively with government and other payers, aiming for the right care in the right setting to be more widely available. HSS and SA Health are currently co-designing an innovative rapid response model of care for mental health. Our clinicians are working with the Royal Adelaide Hospital Emergency Department to fast track support for mental health patients. The trial aims to reduce mental health hospital admissions and emergency department waits by connecting patients to long-term support by enabling services such as specialist telehealth consults. Our experience in reducing costs within the healthcare system has been recognized by government, demonstrated by our recent contract with the Department of Veterans' Affairs to assist them to identify incorrect claims using our payment integrity expertise. The 3-year program will focus on DVA spend across private hospitals, including mental health facilities and day hospital services. Programs like these can benefit other payers as well.

This leads me to a new pilot, which I'll outline on the next slide. We recently announced Medibank will fund a 2-year trial with Nexus Hospitals in overnight hip and knee replacements, shifting to an early-to-home care model where clinically appropriate. Orthopedic surgeons in Nexus Hospitals are focused on reduced length of stay in hospital and a greater emphasis on pre-habilitation prior to undergoing surgery. Recovery and rehabilitation programs are then delivered at home, which are funded by Medibank. In this doctor-led trial, participating surgeons retain full clinical autonomy and will decide with the patient the appropriate care setting for the procedure. Medibank is participating in this trial because it is expected to result in positive patient experiences and outcomes, a decrease in the cost of care, and importantly, NEXUS is offering a 0 out-of-pocket medical cost experience for our customers. We believe more opportunities like this will develop in the marketplace over the next 12 months.

I'll now hand over to Mark.

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Mark Rogers, Medibank Private Limited - CFO [3]

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Thanks, Craig, and good morning. (inaudible) confirms the result of the further improvement in the Medibank policyholder trajectory, the subdued claims environment and good cost control, all of which are important in an environment of low premium increases. Group operating profit was up 1.9% with Health Insurance operating profit up 1.3% and Medibank Health continuing operations up 27%. Continuing operations excludes the $30.2 million contribution from the Garrison contract, which we've disclosed separately.

Before I go into more detail on the operating performance, I'll make a few comments on the group's profit and loss statement. Profit before tax was up 3%, reflecting the increase in group operating profit and increase in other income and expenses and improved investment performance. Higher D&O insurance charges were the major driver of the increase in corporate costs, and the increase in other income and expenses reflects that there are a number of one-off costs in FY '18.

Reported EPS was up 3.1% to $0.167 per share. And underlying EPS, which adjusts for the normalization of investment returns, was up 2.6%.

Now I'll take you through our financial and operating results in more detail, starting with the Health Insurance result on Slide 12. Health Insurance gross profit was up 0.9% to $1.1 billion and operating profit was up 1.3% to $542.5 million, both underpinned by improving policyholder growth. This is a high-quality result with the increase in gross profit despite a significantly lower release from the 30 June claims provision. This was $9.7 million in this period compared to $42 million 12 months ago. Adjusting for these provision releases and the $20 million loyalty launch cost in FY '18, operating profit growth was 2.2%. Operating margin was down 10 basis points to 8.4% for the 20 basis point reduction in gross margin, partially offset by a 10 basis point improvement in the management expense ratio.

I'll now go through the drivers of the Health Insurance result in more detail. The implementation of the recent regulatory reform package has created uncertainty in the market, and this has resulted in the switching rate being more subdued, particularly in the June quarter. In this context, we are pleased to have grown resident policyholder numbers by more than 15,000 or 0.8%. This is approximately 3x of growth in the prior period and was driven by a stable acquisition rate and a 50 basis point improvement in retention. Importantly, the stabilization of Medibank policyholder numbers continues with the 1% decline materially lower than the 2.2% decline 12 months earlier. In the second half, Medibank policyholder numbers were down by less than 5,000, which is the lowest decline in any 6-month period in more than 5 years. Both Medibank acquisition and retention improved with the improvement in retention supported by the launch of our Live Better rewards program. We expect this program to drive further improvement in customer retention and growth in the corporate portfolio to increase acquisition. ahm policyholder numbers grew by 7.9%, whilst the acquisition rate reduced, in large part, reflecting the growth of the enforced book, the retention rate improved by 50 basis points, with further improvement targeted.

Pleasingly, ahm direct channels accounted for 45% of all new customers, up from 43% in FY '18. And you'll see the benefit of this coming through in management expenses. And finally, the level of downgrading, which is the difference between the average rate rise and revenue growth per policy unit reduced from 216 to 207 basis points. This reflects favorable mix impacts and yield management.

Slide 14 covers claims. Growth in net claims of 2.6% includes a 2.3% increase in claims expense and a 22% reduction in risk equalization receipts. The reduction in risk equalization receipts reflected our claims growth continues to be lower than industry growth. However, we expect this reduction to continue to slow as Medibank policyholder numbers stabilize.

Underlying claims growth, which adjusts for the impact of provision releases, was 2%. This is down from 2.6% in FY '18, with stable underlying hospital claims growth and a reduction in extras. Resident hospital utilization growth remains subdued and at 0.9%, was in line with FY '18. During the year, savings from our Medibank at Home program and improved hospital contracting outcomes were partially offset by case mix.

And finally, in line with expectations, extras claims growth reduced following the investment in additional product benefits and the introduction of live limits in FY '18. Both of these factors resulted in the claims growth in FY '18 being elevated.

Turning to Slide 15 and a few brief call-outs on the major drivers of claims growth. You can see that private hospital outlays, which are up 3%, was the major driver of claims inflation. Prostheses outlays were essentially flat, reflecting savings from the 2018 pricing reforms. In extras, claims growth is reduced in all modalities, particularly the more discretionary ones, such as physiotherapy and natural therapies. And growth in outlays in the overseas portfolio was largely driven by strong policy unit growth.

Moving to Slide 16 which covers management expenses. Whilst management expenses increased by $2.9 million or 0.5%, the management expense ratio fell 10 basis points to 8.7%. D&A was higher, in large part due to the commissioning of our ERP system during FY '18. However, the second half expense was in line with the first half. Satisfaction with our core SAP IT systems means we will invest in and extend the useful life of these assets from 7 to 10 years. As a result, we expect the D&A expense next year to be approximately $5 million lower than FY '19. The third acquisition cost amortization stabilized, reflecting the progressive shift in ahm customer acquisition towards direct channels. Pleasingly, operating expenses were lower, with expense inflation of 2.5% more than offset by $20.4 million of productivity savings.

And as you heard from Craig, we are targeting a further $50 million in productivity savings across the next 3 years, including $20 million in FY '20. These savings will increasingly result in business simplification, technology modernization and further process improvement.

Now turning to Slide 17, where we've shown Medibank Health's financial performance split between continuing and discontinuing operations. As of June 30, we ceased providing services to the Australian Defence Force under the Garrison contract. The reported operating profit of $30.2 million is net of all contract exit costs and the costs associated with restructuring the remaining Medibank Health businesses. This restructure was completed by 30 June and will deliver an $8 million cost benefit from the start of FY '20.

I will focus my remaining comments on the continuing businesses, noting that this result includes a 10-month revenue and operating profit contribution from Home Support Services, otherwise known as HSS, of $30 million and $4.8 million, respectively. Revenue growth of 28.9% includes 12% organic growth. Operating profit was up $4.7 million to $22.1 million, reflecting the contribution from HSS. In the second half, performance in the HealthStrong and Telehealth businesses were impacted by operational factors with HealthStrong also experiencing challenging market conditions in the residential aged care sector.

Operating margin was down slightly, with a reduction in the gross profit margin, offset by an improvement in the management expense ratio. This is a continuation of the pattern we saw in the first half and reflects a change in the business mix. With a combination of the expansion of HSS, growth in diversified insurance and the $8 million of cost savings I just mentioned, we are on track to achieve our $30 million operating profit growth milestone.

Looking now at our investment portfolio on Slide '18. Investment income of $102.8 million was $7.2 million above FY '18 with an $18.8 million increase in defensive portfolio, partially offset by an $11.4 million reduction in the growth portfolio. Income of the defensive portfolio was higher, principally due to a contraction in credit spreads and the favorable impact of falling interest rates on our offshore holdings. And the major driver of weaker performance in the growth portfolio was lower returns from property. With a large portion of the defensive portfolio invested in Australian dollar floating-rate exposures, recent RBA cash rate changes will reduce interest income, with a 25 basis point cap, resulting in a $5 million impact. Underlying investment income adjusts for equity returns relative to our long-term return expectation of 8% and for credit spread movements. The underlying investment return of 196 basis points above the cash rate is at the top end of our targeted range of 150 to 200 basis points above the benchmark.

A few brief comments on the cash flow statement on Slide 19. Capital investment continues to be lower than D&A, and importantly, our deferred acquisition cost balance reduced by more than $5 million. The change in other assets and liabilities reflects the one-off $20 million loyalty bonus in FY '18, and the movement in the purchase of investments line was driven by a rebalancing from short-dated investments into cash.

Slide 20 provides an update on capital settings. Last November, APRA announced its intention to harmonize the health insurance capital framework with LAGIC, the framework that applies to the life and general insurance industry. We are well placed to move out this framework as our capital management policy is already closely aligned with LAGIC, including a 1 in 200 loss event forming the basis of required capital and deducting all intangible assets from eligible capital. While some specific details of the new standard aren't yet known, we expect it will result in a modest reduction in the level of required capital. In line with this expectation, we reduced our target capital range from 12% to 14% of premium revenue to 11% to 13%, effective from FY '20. This will reduce required capital by approximately $66 million, and this will be returned to shareholders via a $0.025 per share fully franked special dividend.

The business continues to demonstrate strong capital generation, reflective of the runoff in intangible assets and lower premium increases. These factors and the revised capital range has enabled the target dividend payout ratio to be increased from 70% to 80% of underlying NPAT to 75% to 85%. Finally, our eligible capital currently comprises only shareholders' funds, and we are investigating the opportunity to diversify this, including through the potential issuance of subordinated debt.

Moving to Slide 21. We have shown our capital position on a pro forma basis, with a 13% Health Insurance capital ratio and allowing for the special dividend of $0.025 per share. The reduction in Health Insurance required capital reflects the change in the target capital range, partially offset by the additional capital required to support revenue growth. Whilst other required capital was essentially flat following the exit from the Garrison contract, it is expected to reduce by approximately $20 million. And finally, after funding the acquisition of HSS for $70 million, unallocated capital increased by $13.8 million. The acquisition also drove the increase in intangible and illiquid assets.

Moving on to the dividend on Slide 22. The board has declared a fully franked final dividend of $0.074 per share. This brings the full year dividend to $0.131 per share, which is an increase of 3.1%. This represents an 80% payout of underlying NPAT or approximately 84%, if you exclude the contribution from the Garrison contract. In line with the 84%, we expect the payout ratio for FY '20 to be towards the top end of the revised 75% to 80% -- 85% target range.

Finally, on to Slide 23. Our expectation is that the low premium rise environment will continue. And in the last 6 months, we've made good progress managing our response to this environment across 4 levers. Firstly, on claims management. We continue to actively agitate for further regulatory reform, investigate alternative care settings and invest in our payment integrity capabilities. Given low premium increases are a goal for the private health industry as a whole, we will also continue to manage price increases to our provider network. The second lever is increasing customer numbers, and we are aiming to grow Medibank policyholder numbers in FY '21, whilst maintaining robust growth in ahm. Management expenses is the third lever, where a key focus is the 3-year $50 million productivity program we announced today. The final lever is to pursue growth outside of our resident Health Insurance business. This includes our Medibank Health operating profit milestone, continuing to invest in our nonresident Health Insurance business and supported by our strong balance sheet, the option for further M&A. Whilst the external environment will be challenging and we will definitely need to respond further, I'm confident we have the right people, technology and most importantly, the customer mindset to win.

I will now pass back to Craig who'll make some comments on the future industry reform and the outlook for FY '23.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [4]

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Thanks, Mark, and referring to Slide 25. The challenge of affordability has been and remains paramount for our industry and our company. Over the past few years, we've worked hard to address this through our own substantive productivity savings, voluntary adoption of young adult discounts and saving customers out-of-pocket costs at the dentist, just to mention a few of the initiatives. And we've done this while improving the value we provide to customers. But the need for ongoing reform is real. This year, we have seen nearly a 7% rise in psychiatric claims, 12.5% in chemo and radiotherapy and 6.5% in interventional cardiology, while prostheses volumes have soared by 5.5%. Numbers like these demonstrate the ongoing challenge within the system to ensure that we continue to provide our customers with the support that they need while acknowledging the overarching challenge to reduce waste and hence, cost. Our view is that there are substantial opportunities to deliver even greater value for our customers through additional government reforms to take costs out of the health system. There is $500 million in added costs for the private health system that could and should be taken out of the prostheses list via international benchmark pricing as a start, and we are committed to returning every cent of that back to our customers. There is around $90 million that could be taken out by removing the more obvious instances of low-value care. There are opportunities to shift to additional out-of-hospital care, while more will need to be done to encourage industry participation. Furthermore, the approach in quantum of private funding of public hospitals will need to be addressed once and for all. Medibank will continue to be at the forefront of the push for meaningful government reforms, and we will continue to work proactively with both major political parties. While we focus on this work, we should not lose sight of the overall value of private health. Choice of doctor, care setting and time of procedure is increasingly valuable. As a reminder, the median waiting time for elective surgery is twice as long in public hospitals to -- compared to the private system, with some elective surgery wait times 4x as long in public hospitals, and that's once you're on the waitlist.

Private health care is worth preserving. And to achieve this, ongoing and imminent reform is an absolutely imperative to ensure the medium-term sustainability of the private system. We must continue to reduce the gap between premium increases and wages growth. However, the focus cannot simply be on private health insurers.

Let me conclude on Slide 26 with some comments on the outlook. We expect flat overall PHI market volumes. On the current policyholder trajectory, we expect Medibank brand volumes to stabilize by the end of FY '20 and grow into FY '21. We expect hospitals and extras utilization growth to remain around current levels for FY '20, with prostheses expenditure expected to add modestly to claims growth compared to FY '19. Management expenses for FY '20 are targeted to be below those recorded in FY '19, with modestly lower cash costs. Additionally, depreciation expense will be approximately $5 million lower. We expect our dividend payout ratio to be at the top end of the revised target ratio of 75% to 85%. Targeted inorganic growth for Medibank Health and PHI remains -- remain areas of focus. We will continue to optimize our capital settings. And in this flat environment, we see future reform is critical to promoting industry sustainability. Our intention remains to aspire for stronger growth in volumes at a reasonable margin while retaining ongoing tight control of our management expenses.

Finally, I'd like to take the opportunity, as we do every half and every full year, to thank the executives here today and everyone at Medibank for delivering another sound result. I'll now hand the call over to you for any questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Matt Dunger from Bank of America Merrill Lynch.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [2]

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If I would just ask on the acquisition rate dropping for ahm, are you able to take us through why that's happened, particularly in light of the discounts for under 30s that you've been implementing?

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Mark Rogers, Medibank Private Limited - CFO [3]

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Yes. And maybe the first point I'd make is the larger the book gets, the harder it is to actually maintain the same acquisition rate. So that's been one of the big drivers. But we did see, particularly, in the fourth quarter, a lower switching rate in the market. So obviously, ahm benefits from the lower switching rate. And so that's been one of the drivers also.

In terms of youth discounts, we've actually seen a bigger impact on retention and -- than we have on acquisition and particularly for the ahm brand, where a lot of the business is done through aggregators. Coming into 30 June, a lot of the aggregators didn't actually have the youth discounts booked into their pricing algorithm, which I suspect had caused a lower uplift than what would have otherwise been the case.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [4]

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I'll just make 2 other quick comments. What we have seen, it's very early, and I wouldn't extrapolate this, but we have seen, particularly in the Medibank book, we have seen the positive impact of young adult discounts on Medibank acquisition and we have seen a modest positive impact on retention rates. But as I said, I just caution, it's only the first quarter, but it has certainly been a positive. And I suppose, also, the other point I would note is we have seen in the first 7 weeks of the new financial year, we've seen a solid start to -- from a sales point of view. So the volumes are probably -- we -- there was a bit of softness around when reform was being implemented. The Gold/Silver/Bronze/Basic, there was a lot of questions from customers. But as that's evaporated, we've seen the softness probably of February, March, April, that's translated into slightly stronger sales than we normally see seasonally in the first 6 weeks post June 30.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [5]

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And on that stronger sales, do you put that down to the regulatory reforms? Are they having an impact? If I look at the -- the rate of decline seems to have slowed in terms of the number of insured persons from the APRA stats. Are these reforms having an effect yet?

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Craig M. Drummond, Medibank Private Limited - CEO & Director [6]

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I'm going to ask David Koczkar to comment on that. David?

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David Koczkar, Medibank Private Limited - Group Chief Customer Officer [7]

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Yes, thanks. Matt, look, I think there's a couple of factors. The reforms definitely is one. The implementation around April 1, there was quite a lot of market commentary around reassessing your cover the market on the margin waited to see what would happen. And now, generally, most players, although we were the first to more broadly implement the reforms, the major players now have been -- so now market is responding now to make sure they're on the right cover. The other is the election during that Q4. Generally, most retailers have a more subdued period in and around election as the community works out what life is going to be like. So those 2 factors were probably more stalling some of the switching market. Now we're resuming back to normal business we see.

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Operator [8]

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The next question comes from Andrew Buncombe from Macquarie.

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Andrew Buncombe, Macquarie Research - Insurance and Diversified Financials Analyst [9]

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Congratulations on the result. Two questions from me, please. Just the first one. I hadn't heard of the relationship that you now have with the Department of Veterans' Affairs in the past. Maybe you could give us a bit more color on what the financial impacts to your group may be.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [10]

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We probably can't, unfortunately, at this stage. It's a contract. It's a relatively new contract. We -- and I'm going to ask Andrew Wilson to talk about it in just a moment. It's something that we've just begun. We've -- as I said, it's a 3-year program. We actually think that the most important thing here is the validation of the capability that we have. And we've known we've had a good capability for some number of years. But it is now obviously being validated externally. And we see that as the most significant issue. But look, it's not a -- financially, it's not hugely significant, but it's certainly something that is not immaterial either. Andrew?

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Andrew Wilson, Medibank Private Limited - Group Executive of Healthcare & Strategy [11]

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Thanks, Craig. Yes, look, the only thing I'd add there is that, I guess, as Craig said, it's a validation of our expertise. But I think we see it as an opportunity, both our business to commercialize some of the payer-orientated services we've developed, like payment integrity and also an opportunity to assist the broader health system, really address some of the points Craig made around waste and cost containment. So I think that's a great opportunity for the system more broadly as well as for our business.

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Andrew Buncombe, Macquarie Research - Insurance and Diversified Financials Analyst [12]

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Excellent. And then my second question was around M&A. In the last few results, you've been pretty bullish on that angle, whether it was for the Medibank Health division or even just the core business. Are you able to provide us a bit of an update on that, please?

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Craig M. Drummond, Medibank Private Limited - CEO & Director [13]

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Sure. I'm not sure I'd say bullish. I think we've highlighted the opportunity. And given that the government didn't change, maybe some of the pressure in the very short term may have come out of that. But I don't think it has. By the way, I think we will remain in a low premium environment. Our expectation -- our understanding is that there are -- there's a chunk of the industry that is currently under reasonably significant financial pressure. So we would expect the current 37 PHI providers, that number is definitely going down on a 3-year view. And I think with the appropriate increase in governance standards that are being applied to our industry through the ongoing surveillance and the increasing surveillance of APRA, I would expect to see mergers. And yes, many of them will be in the smaller end of the market, but I expect to see mergers proceed. And without really substantive reform, I would expect to see a number of those smaller and midsized PHIs run into difficulty.

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Operator [14]

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The next question comes from Andrew Goodsall from MST Marquee.

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Andrew Goodsall, MST Marquee - Healthcare analyst [15]

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The first one, just -- I know you've said that your expectation is that claims profile is similar into FY '20, but your competitor -- one of your competitors at least called out growth in hospital claims into the fourth quarter. And just trying to get a sense of whether you're seeing this and how that compares with your actuarial sort of forecasting.

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Mark Rogers, Medibank Private Limited - CFO [16]

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Yes. So Andrew, our utilization growth was stable at 90 points across the first and the second half, and we didn't see any material change in our underlying hospital growing rate growth across the 2 halves. What I would say that in the fourth quarter, we also saw a slight uptick in benefit size -- average benefit size. The prostheses pricing reductions we had last year, they had effectively washed through after February. We have, as Craig said, had an increasing level of mental health treatments for our customers, they come at a higher cost. And a lot of the lower case mix work was actually shifting out of the acute hospital into alternative settings. So those 3 factors did drive a slight uptick in average benefit size. But there are a whole series of other factors that drive what's happening in drawing rate and based on how many customers you're attracting or what's happening in your own portfolio. I'd say, for example, for the -- with Medibank policyholder numbers stabilizing, we were typically losing lower-claiming cohort to other funds. So directionally, keeping more of the Medibank customers will be helpful for our claims growth relative to our competitors.

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Andrew Goodsall, MST Marquee - Healthcare analyst [17]

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And second question for me, just pretty interested in the Nexus development. Just trying to get a sense of what the sort of differential will look like between what you're paying, I guess, for a full inpatient hip versus the sort of Nexus process and how that would benefit your visibility or your negotiations going forward.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [18]

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Andrew, we're not going to -- we -- you'd appreciate, it's a trial. We're not going to go through the economics. Suffice to say, at a high level, it's clearly significantly beneficial for the consumer, taking that out-of-pocket expense away, other than, of course, if they've got an excess -- if they've got a hospital policy excess, they'll pay their excess, but they won't pay any out of -- otherwise, won't pay any other out-of-pocket cost. But you would expect in that sort of trial, we're looking at broad system -- we're looking to constrain broad system costs for the consumer, for us, for all -- for providers, for all parties. So we're trying -- that's a definition of a trial as well and a pilot to work through how you can do things differently to iterate where we need to iterate as we learn. But you would have to -- the overarching comment I'd leave you with is, this will be beneficial for the consumer and for the system.

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Andrew Goodsall, MST Marquee - Healthcare analyst [19]

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Got it. Yes, I've got a bit of a sense of the differential here. So obviously, I can appreciate that's a pretty worthwhile trial. And my final one, just quickly. You called out site growth, just wondering to what extent that was a reflection of the amnesty on the waiting period. Or -- yes. And then does that normalize into 2021?

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Mark Rogers, Medibank Private Limited - CFO [20]

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So we incurred around $10 million of additional costs as a result of the site waiver in the last 12 months. It's hard to tell whether that's now dealing to lighten demand or whether there's an ongoing growth rate at a similar level. What I'd say is the biggest quarter was the December quarter for additional claims. And then there has been a slight reduction in over -- in each of the last 2 quarters. But I would suspect there will be a permanent uplift in the level of demand, probably not at the same level as you've seen during 2019.

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Operator [21]

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The next question comes from Kieren Chidgey from UBS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [22]

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Kieren here. A couple of questions. Just coming back to the discounts for under 30s, can you provide some numbers around what the cost of that is likely to be on a full year basis in terms of giving that to your existing under 30s?

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Mark Rogers, Medibank Private Limited - CFO [23]

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Yes. We've got an average of approximately 150,000 customers assuming they get a 5% discount on around a $2,000 premium. You can kind of do the math, and that will give you a rough idea on what the full year impact is. And that, of course, is assuming that we don't acquire any -- over time, any customers that would've otherwise not joined us or left us.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [24]

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Okay. And interested in your thoughts on sort of downgrading from here sort of in a lower premium rate rise environment, what sort of you've seen through the course of the last quarter as we've moved into a low rate? And also with Gold/Silver/Bronze/Basic coming through, do you think that sort of flows further and you're able to get something closer to your approved rates?

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Mark Rogers, Medibank Private Limited - CFO [25]

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Yes. So directionally, lower premium increases are helpful for downgrading, the lower the gap between the average rate rise and salary inflation is a lead indicator for the level of downgrading. I'd probably say what's happening in our portfolio is equally as important. So improving Medibank policyholder trajectory will also be a positive for downgrading. So the Medibank -- average Medibank policy probably has 10% to 15% higher premium than an ahm policy. So retaining more Medibank policies will be helpful for the level of downgrading in the resident book. But I don't think you're ever going to get to a position where the level of downgrading approach is the right rise because that gap for our resident book is probably around 170 basis points at the moment. And I just can't see all of that ever being negotiated out.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [26]

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Okay. But sort of assuming we do get some further moderation just for the reasons you outlined, I mean, what -- why wouldn't we see utilization start to pick up? Sort of is that more sort of a mix impact coming through offsetting that in your view, keeping that guidance outlook pretty stable in utilization?

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Mark Rogers, Medibank Private Limited - CFO [27]

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Yes. I'm not sure I understand your question, but what I'd say is over each of the last 4, 6 monthly periods, we've had utilization growth at 90 basis points. The most recent period, we absorbed the increase in site claims and still published a 90 basis point utilization growth rate. So with what we're seeing, there's nothing on the horizon that would cause us to worry about there being a sharp uplift in utilization growth. There are always...

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [28]

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But the question is...

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Mark Rogers, Medibank Private Limited - CFO [29]

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Sorry.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [30]

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Yes. I was just saying -- the question sort of around the fact if downgrading does moderate, and in theory, I would assume that is -- adds to inflation at the margin.

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Mark Rogers, Medibank Private Limited - CFO [31]

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I think you've got to look at both sides of the equation. And so if we get less downgrading, we'll get more revenue. And then, I guess, if the youth discounts actually deliver for the industry what they're meant to, we will get a higher level of 24-, 30-year-olds joining or staying. They have a much lower claims propensity than a 65-year-old, and that should be a counter on utilization growth. I think, ultimately, where we end up will depend on what happens with mental health claims and whether the growth rate, which we saw almost 5% growth in mental health claims this year, whether that continues at this level or whether it subsides.

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Operator [32]

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The next question comes from Nigel Pittaway from Citigroup.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [33]

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Just first of all, a question on reserves. It looks like this period in the second half, you've had a very, very small reserve top-up compared to sort of releases in prior periods. Can you just sort of talk us through what's going on?

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Mark Rogers, Medibank Private Limited - CFO [34]

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So we've had around $10.5 million relating to the first half and then we put around $500,000 back into -- we added $500,000 back in the second half back to the 30 June claims region. I think, Nigel, that's just indicative of it being -- we're being in a flat utilization growth environment. So the more stable utilization growth is, the lower provision release you'd expect and particularly, coming out of the second half.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [35]

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All right. Okay. And then, obviously, you mentioned that you are sort of considering at some stage issuing sub debt. Can you just maybe run us through sort of what the timing sort of issues are there? Presumably it's all tied into the new APRA capital standards, is that correct? Or what are the sort of factors there influencing when we might see that?

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Mark Rogers, Medibank Private Limited - CFO [36]

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Sure. (inaudible) effect is what I'd say, Nigel, is it wouldn't be in the next 6 months and it's going to be driven by need as well. We would like to get a look at the initial draft standard, but I don't think we actually would need the standard to be implemented to actually go out to market. There currently is an ability to issue Tier 2 under the old HPS standard. And any issue, we would need to make sure that an instrument issued this year would still be compliant in 2 or 3 years' time. So I wouldn't see it being in the next 6 months.

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Operator [37]

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The next question comes from Ashley Dalziell from Goldman Sachs.

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Ashley Dalziell, Goldman Sachs Group Inc., Research Division - Equity Analyst [38]

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I just had a quick question with regards to your claims growth. Are you able to give us what the 2% per unit this year was adjusted for the prostheses savings?

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Mark Rogers, Medibank Private Limited - CFO [39]

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I'll do it. I'll answer the question a different way. Let me tell you where we should have expected prostheses savings to be and where they ended up landing. So purely based on the price increase -- price reductions, sorry, we would've expected around $30 million of prostheses savings in this calendar year. We got less than half of that, and that was driven by an uplift in utilization, almost doubling of utilization. So net-net, this year, we probably saw somewhere between $10 million to $15 million in terms of prostheses savings. Prostheses outlays were flat across the last 12 months. So that gives us a headwind going into next year. However, that'll be partially offset by the FY '20 -- February '20 reforms. We'd expect somewhere between $6 million to $8 million of savings coming through from February into the FY '20 calendar year -- reporting year.

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Operator [40]

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The next question comes from Daniel Toohey from Morgan Stanley.

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [41]

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Just 2 quick questions. First one, sort of follow-up to Nigel's on the sub-debt. Can you give some sort of indication whether you'd use a sort of full Tier 2, Tier 1 sort of allocation on that to complement your shareholder funds back in your capital needs? Just trying to get a sense of the size, I guess, of the -- a sub-debt issuance.

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Mark Rogers, Medibank Private Limited - CFO [42]

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So I think the starting expectation is the constraints on AT1 or T2 issuance for the PHI industry would be the same as life and general insurance industry. I think that's a starting premise and obviously, subject to your Board's risk appetite. And if you look at the current constraints, that is a size T2 for us at $150 to $175, in that range. And I guess, the AT1, we haven't really turned our minds to AT1. I think you'd go in order, T2 and get that landed before you even consider a Tier 1 instrument.

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [43]

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Okay. And just on the sort of momentum in the overall franchise. So if we go back to Slide 13, I guess, we go back to FY '18. We talked about the second half of '18, we've grown 5 basis points. It's the first time we've delivered in a decade. The story for '19 is we've grown 5 basis points (inaudible) delivered growth in a decade. So there's really no sort of change in the momentum. Does that surprise you, given where, I guess, the trajectory of the business was moving from and through in '18? Sort of seeing a little soft in '19.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [44]

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Well, no, I'm not sure I'd agree with that. We've almost tripled the number of the growth rate of our policyholder, that 15,000, and there are policies in policies. That's the other point I'd make, whether there's...

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [45]

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I just was talking market share, I guess.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [46]

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So -- well, that obviously feeds into market share. I think the issue is we need to be cognizant of what's actually happening in the market, the terms and conditions, the competitive landscape. And we're not going to be silly. You wouldn't expect us to be silly. We're going to grow -- we're aiming to grow volumes but at a reasonable margin rather than doing anything silly. So we've got to put in that against the context of what's actually happening in the underlying piece of that. But if you disaggregate our both brands, you're seeing quite significant change in momentum in the Medibank brand where we had a 0.3% of 1% reduction in Medibank policies in the second half of this year. So a very, very good performance in the Medibank brand. One, that is obviously good for revenue. Two, we think there is an underlying momentum in that Medibank brand. In terms of ahm, though, there was a bit of a disruption in the market, as we've talked about in -- for the 3- or 4-month period where the switching market did fall away. So look, I'm really delighted by the number. At the end of the day, simply focusing only on market share -- and this is why this is a balanced scorecard, simply focusing on market share is the wrong metric. You have to focus on market share with a range of other metrics to build a sustainable business. Of course, we would like to -- if the number was higher, that'd be great, but it's got to be balanced. But what we see in terms of our underlying trends in that disaggregation, we're pretty optimistic about what we can do from a growth point of view.

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Mark Rogers, Medibank Private Limited - CFO [47]

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So then maybe to put that in context, assume we achieve our aspiration of flat Medibank policyholder numbers and still maintain robust growth in ahm, 7.9% is a robust growth rate. ahm is 22% of the policies currently. If you do a pro forma number, that would gross up to about a 1.8% policyholder growth. I think even you, Dan, would say that's actually quite good momentum.

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [48]

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Yes. Even I would.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [49]

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Thanks. That's taken 3 years, Dan, finally. Don't take this...

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [50]

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Just maybe what the -- just finally, the 300 hospital beds, the virtual hospital beds, so I appreciate that's a very positive initiative. It's still -- I mean, it's less than 1% of the private beds in the system. Is it more the shift and the impact that you're driving around out of -- care out of the acute hospital setting and the potential structural benefits of that, that are going to drive change as opposed to, I guess, 300 beds is -- it's nice.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [51]

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Dan, let me -- I'll pass to Andrew Wilson to comment on that.

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Andrew Wilson, Medibank Private Limited - Group Executive of Healthcare & Strategy [52]

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Yes. Look, I think you've got to look at the -- it's the -- I think the key thing is the trajectory and the momentum it creates in terms of disruption. I mean, there needs to be, obviously, a significant shift towards out-of-hospital care. Virtual beds is one aspect of that. There's other aspects of out-of-hospital care that doesn't get wrapped up into that number that will be growing as well. But yes, I think it's the directional shift and the impact that has. Australia's lagged massively behind the rest of the world in terms of the development of that. I mean, if you looked just in context, the largest sort of virtual hospital is probably around -- in Australia at the moment, it's probably around 500 beds in Victoria in the public sector. So we'd say that we're making a material contribution to the overall scale of the sort of virtual hospital, if you like, across the country.

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Operator [53]

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The next question comes from Siddharth Parameswaran from JP Morgan.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [54]

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A few questions, if I can. Firstly, just on the growth. Craig, we have seen good increase in market share, which you've pointed out and has been pointed out in previous questions, at least in terms of policy numbers. But in terms of premiums, Medibank has always had premium growth that is weaker than the system. And I know it's been closing, but I was hoping you could just perhaps give us an idea of what the mix issues have been here. Is it basically Medibank brand versus the ahm brand? Or is it couples versus singles? Or is it ancillary versus hospital? What's the main driver of this?

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Craig M. Drummond, Medibank Private Limited - CEO & Director [55]

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Yes. Sure. Mark, why don't you -- that sounds like one up your alley.

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Mark Rogers, Medibank Private Limited - CFO [56]

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So I guess, Sid, the first point is, can't look at revenue growth versus industry and discount claims growth versus industry because they're 2 -- they're both linked. And then in terms of what's actually driving the downgrading, and you're going to see this with all portfolios that have a large portion of customers in a top hospital. You are seeing it drift from top hospital down into more mid and basic products. So that's kind of a phenomena across all of the providers with legacy books. And then we are -- we have been losing policies out of the Medibank brand and we've been gaining in ahm. Medibank's typically a top-to-mid coverage, whereas ahm is a mid to basic. And I think like the rest of the industry, we're seeing the same trend as the rest of the industry in terms of general treatment policies as a percentage of total policy, no different to the rest of the industry.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [57]

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Okay, great. Okay. I've got a question just on the gross margin trajectory from here? If -- I mean, correct me if I'm wrong, but reading your statements today, you basically seem to be suggesting -- you're saying utilization is flat but perhaps prosthetics claims inflation picking up. So effectively, you're suggesting that expecting a higher trajectory on claims inflation into FY '20. And obviously, we've had rate cuts coming through. So I mean, we've seen gross margins come back in '19, 17.3% to 17.1%. Are we in an environment where that gross margin trajectory is likely to continue to trend downwards? And if not, why not?

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Mark Rogers, Medibank Private Limited - CFO [58]

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Yes. So Sid, maybe to put in context, yes, the reported gross margin was 17.3% in 2018. But if you look through the provision releases and loyalty, the underlying margin -- gross margin was actually 17.1%. So effectively, on an underlying basis, we have kind of been relatively stable across the last 12 months. But you're right, we have been running negative draws. We ran negative 30 basis points of draws in the last 12 months, and it then comes down to what actions we take to try and mitigate both the reduction in premium increases this year versus last year and the challenge we have with draws. And that's where all the initiatives in the 4 buckets we're talking about that we originally set up to face into at 2-plus-2 world, but we'll need to continue going into a lower premium environment. But I also wouldn't look at gross margin without contemplating our management expense ratio line because we need to think about those 2 interchangeably. We will not defend our gross margin at all cost if it means we don't grow our policyholder numbers.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [59]

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Okay. And just one last question for me. Just the $8 million of savings that you're expecting in Medibank Health in FY '20, is that -- should we be expecting that as the uplift in the profit in that division? Or are there any revenue offsets that we -- that might be there? If you could just give us some idea of what we're likely to see.

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Mark Rogers, Medibank Private Limited - CFO [60]

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Sure. So we've got a 3-year operating profit growth target of $30 million. You should expect to see that relatively evenly spaced across each of the next 3 years. Initially, most of the profit uplift is going to come from the cost savings. We will need to reinvest some of those for growth. And then towards the back end of the 3-year period, you'd expect HSS gets its diversification and growth nationally that you'd get in more of the growth coming from revenue growth.

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Operator [61]

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The last question comes from David Ellis from Morningstar.

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David Ellis, Morningstar Inc., Research Division - Senior Equity Analyst [62]

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I have a question on capital and following up from Nigel and Daniel's question and on the sub -- the potential sub-debt issue. If there was a sub-debt issue in the future, would it be additional to or would it substitute the current high levels of equity capital?

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Mark Rogers, Medibank Private Limited - CFO [63]

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So it would be a substitution. So effectively, when LAGIC lands, we don't expect any material change from where we currently are now on our required capital, but our mix of capital is likely to change. So we would either issue sub-debt to fund growth or to the extent there isn't a growth opportunity and we can raise sub-debt, then capital management remains an option for us.

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David Ellis, Morningstar Inc., Research Division - Senior Equity Analyst [64]

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And the second question is on the investment returns. Slide 18, the reference made to weaker property sector returns in the 2019 financial year. I would've thought of the commercial property sector in Australia during the 2019 financial year, both listed and unlisted was pretty strong, so I'm not -- I'm surprised that there's a reduction in -- or a reference to weaker property sector returns.

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Mark Rogers, Medibank Private Limited - CFO [65]

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Maybe we should have said weaker retail property sector returns because we are invested in 2 trusts that are, by and large, invested in shopping center assets. So we're moving -- we're diversifying out of retail into commercial. But in the retail, you're right, retail property underperformed than broader property segment during the last 12 months.

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Operator [66]

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That was our last question. I'll hand the conference back to Mr. Drummond for closing remarks.

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Craig M. Drummond, Medibank Private Limited - CEO & Director [67]

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Fine. Thanks, everyone. Appreciate you joining the call. I know it's a busy day, lots of results. Thanks for your support and look forward to catching up over the next handful of days. Cheers.

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Operator [68]

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Thank you. That does conclude our event today. Thank you for your participation.