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Medibank warns on revenue growth miss

AAP logoAAP 8/11/2016 Lilly Vitorovich

Private health insurance giant Medibank says it faces a tough year with revenue growth in the first four months of fiscal 2017 missing its initial expectations because of affordability concerns, slowing population growth and low price increase.

Chief executive Craig Drummond will tell shareholders at the group's annual general meeting later on Wednesday that revenue has been "slightly below" the group's initial expectations with premium revenue growth coming in at 1.3 per cent.

However, Medibank still expects its 2017 health insurance operating profit to be broadly in line with last year's, excluding the 2016 claims provision release of $20 million. That equates to a health insurance operating profit of approximately $490 million, according to Mr Drummond's speech to shareholders.

Mr Drummond - who took the reins in July and subsequently revamped the senior management team - is expected to warn shareholders that the market environment will continue to be "challenging" in the year to June 30, 2017.

"On the revenue side, we expect market growth to slow in response to ongoing affordability concerns and slowing population growth. Our lowest average premium increase in four years, which we applied to premiums in April this year, will also have an impact," Mr Drummond will tell shareholders.

Medibank raised its premiums by 5.64 per cent for fiscal 2017, its lowest increase in four years.

On the cost side, Mr Drummond said industry conditions are likely to be more comparable to the second half of the 2016 financial year.

In August, Medibank reported a 46 per cent jump in annual net profit to $417.6 million, but conceded it was losing customers and needed to provide better value to stop its decline in market share.

Medibank attributed the strong result to benefits from buying healthcare services more efficiently than in the past, a sharp focus on management costs, and lower-than-expected hospital utilisation rates across the industry.

"My focus is on laying the foundation to build a sustainable and more customer-focused business. There is a lot of work to do, and the benefits will not be realised immediately," Mr Drummond will tell shareholders.

Medibank shares closed at $2.55 on Tuesday, giving the company a market capitalisation of $7.02 billion.

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