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NIB delivers an underlying operating profit of $201.8 million in FY 2019

The NIB Holdings Limited (ASX: NHF) share price will be on watch this morning following the release of the private health insurer’s full year results.

How did NIB perform in FY 2019?

For the 12 months ended June 30, NIB reported an 8.3% increase in group underlying revenue to $2,421.6 million. This was driven by a 7.6% lift in Australian Residents Health Insurance (ARHI) revenue to $2,016 million, an 8.8% jump in New Zealand (NZ) revenue to $215.5 million, a 17% increase in International Inbound Health Insurance (IIHI) revenue to $110.8 million, and a 12.7% rise in NIB Travel revenue to $74.5 million.

With group claims expense rising just 6.9% to $1,800 million, NIB reported a group underlying operating profit (UOP) of $201.8 million. This was a 9.2% increase on the prior corresponding period and driven by strong UOP growth from the ARHI, IIHI, and NZ segments. The only disappointment was the NIB Travel segment which posted an 18.5% decline in UOP due to an increase in acquisition costs following the purchase of the QBE Insurance Group Ltd (ASX: QBE) travel insurance business.

This ultimately led to the company reporting an 11.8% increase in net profit after tax to $149.3 million, earnings per share of 32.9 cents, and a final dividend of 13 cents per share. The latter brought its full year dividend to 23 cents per share and represented a 70% payout ratio.

What were the drivers of the result?

One of the drivers of the company’s positive performance in FY 2019 was a rise in policyholders.

Although the rate of growth declined year on year, the key ARHI segment posted a 2.1% increase in net policyholders despite reports of a notable decline in participation rates.

Managing Director, Mark Fitzgibbon, said: “Market conditions have been challenging for a range of reasons. There’s broad weakness in consumer discretionary spending, fierce competition for that spending and private health insurance has some issues around cost and affordability, especially out-of-pocket expenses for members.”

“But we continue to work hard at redressing these issues, improving the value proposition and growing our business and market share. For the five years up until 30 June 2019 we estimate nib accounted for about 20% of total industry growth.”

However, Mr Fitzgibbon doesn’t appear confident that the company will be able to deliver the same level of growth in FY 2020.

He advised that NIB anticipates group UOP of at least $200 million in FY 2020, which is roughly flat on this year’s result.

How does this compare to expectations?

According to CommSec, the market was expecting NIB to deliver a net profit after tax of $145.4 million. And a note out of Morgans reveals that the market was looking for an UOP of approximately $203 million. This means that NIB has beaten on the bottom line but fallen a touch short on its UOP. 

The big question will be what does the market think of the company's guidance? We'll find out at the market open.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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