The health insurance provider Medibank Private Limited (ASX:MPL) released a strong financial result for the six months ended December 2015. The report showed that profits for the period rose 58.3% to $227.6 million.
Strong Operating Profit
Group net profit after tax enlarged 58.3% to $227.6 million, driven by an increase in operating profit from the Health Insurance business. However, this result is inclusive of a $23.2 million one-off tax benefit due to an endorsement from the Australian Taxation Office.
Health Insurance Margins Expanded
The company generated 4.6% revenue growth from a rise in its health insurance premium. The revenue growth was underpinned by the government approved premium rate rise of 6.95%, partially offset by a 0.6% decline in the number of policyholders.
Health insurance operating profit increased 58.8% to $271.1 million, with a 5.8% expansion in operating margin. Gross margins improved 3.3% as the insurance company focused on cost leadership initiatives, which were assisted by a slowdown in the growth of hospital utilisation rates.
Management expenses increased 8.6% to $257.2 million, resulting in Medibank’s management expense ratio to rise from 8.1% to 8.4% during the 1H16 period.
Revenue from Complementary Services Declined
Although revenue from Complimentary Services declined 7.9% to $300.6 million, operating profit for the segment lifted 27.8% to $9.2 million. This growth was attributed to the company's successful implementation of strategic changes in its Workplace Health and Travel Doctor businesses.
Investment Income Halved
Medibank’s net investment income halved to $18.6 million, affected by the decline in equity markets and lower interest rates compared to the previous comparable period.
Medibank’s Managing Director George Savvides commented on the company’s strategies: “Medibank has been working hard to address private health insurance affordability at its source by working with hospitals and other providers to reduce waste and inefficiency in the healthcare system.”
The board reaffirmed its recently updated targets relating to the company’s health insurance business for FY16.
Medibank’s board expects to achieve premium growth between 4.5% to 5%, along with management expense ratio of 8.5% and operating profit above $470 million.
The insurer anticipates that the second half of the year will see a decline in operating profit due to increased marketing and brand investment along with a partial normalisation of growth in hospital utilisation rates.
Author: Simon Herrmann
Feb 19, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.