Medibank Private Stock

Thank you for standing by, and welcome to the Medibank Full Year Results 2026. [Operator Instructions] I would now like to hand the conference over to Mr. David Koczkar, Chief Executive Officer. Please go ahead.

Thanks, and good morning, everyone. It's great to be here with you today. I'm coming to you from Nam, the home of the Wurundjeri Wurrung peoples, and I pay my respects to their elders, past and present. I'm joined today by our executive leadership team, including our CFO, Mark Rogers. This morning, we'll talk to Medibank's results for FY '26. The first opening thoughts from me.

We continue to deliver value to the 6 million people who trust us with their health and well-being. Despite cost of living pressures, people continue to prioritize their health and private health cover has remained nondiscretionary. People are looking for greater value and better access to care. And the health system is increasingly struggling to meet those expectations. 1 in 4 people in Australia say they have delayed or avoided seeing a GP because of costs. while at the same time, public hospitals are dealing with growing elective surgery waiting list. So that's why accelerating the health transition has never been more important.

Now turning to our results. What stands out to me is the strong growth across the business with improved momentum in the Medibank brand, AHM continuing to grow above the market and Medibank Health delivering another record result. This combination sets us apart, helping us build a more resilient and growing health company. As you'd expect, given our strategy and the external environment, we're controlling the controllables and managing for the long term, balancing customer growth and profitability while investing for the future.

Now let's turn to Slide 6. Aside from our financial outcomes, we think about our impact in 3 areas: First, customer value. Customers saved around $250 million through our Members' Choice and NGA networks and claimed nearly $49 million in Live Better rewards. Second, customer health. More customers are using our health services. Amplar Health alone supported more than 5.3 million patient interactions. We also know that engaged Live Better members are more active and report healthier behaviors. It's also a reason 1 in 3 people choose Medibank. And third, system innovation. We expanded care in the home and provided private hospitals with a further $40 million to help accelerate the health transition. So these are practical examples of how we're creating value for customers and patients, supporting their health outcomes and helping improve the sustainability of the health system.

Now to Slide 7. I won't go through all of these areas of results, but for me, the highlights are resident policyholder growth of 1.1%, with Medibank growth doubling to 0.6% and AHM growing 2.4%, including strong growth in our priority segments. This is a pleasing outcome given an increasingly competitive environment and reflects our disciplined approach to growth. In PHI, we continue to balance margin and costs as we grew and importantly, achieved a stable PHI gross margin and expense ratio. Medibank Health had another record result, up 31.3%. And in line with our healthy capital position, we are delivering shareholders a fully franked final ordinary dividend of $0.109 per share.

To Slide 8 now. Our strategy is driven by the needs of our customers and patients and the greater role Medibank is playing in supporting their health and well-being. As you know, our growth focus remains across 5 segments in health from insurance to care delivery. In each segment, we have built strong foundations, and they all provide attractive growth opportunities. And together, importantly, they are driving our growth and diversification, creating long-term value and allowing us to make a positive impact to the health system.

Now turn to Slide 9. This year, we made some important steps in building a stronger, more diversified health company. And again, some highlights for me were customer advocacy remains strong, health engagement improved and our teams remained highly engaged, supported by investment in technology and AI. Across Medibank and AM, we broadened our product offering, we strengthened our primary care footprint and achieved strong growth in our community and acute business. And we also further strengthened our foundation through risk fit and technology modernization while delivering another year of productivity improvements.

Now to Slide 10. Growth in the resident health insurance market continues at healthy levels, including strong growth in customers under 30. We did see an increasingly competitive environment, especially in Q4 with some competitors using aggressive growth tactics alongside increased aggregator marketing. These tactics are not in line with our strategy. And across both brands, we remain disciplined in our approach with a focus on our target segments and deepening customer engagement. Pleasingly, 57% of Medibank policyholders are now engaging with our health and well-being offerings, up on last year. But with consumers looking to us for more value and for the rest of the industry, we will continue to tackle unnecessary costs across the health system, including the growing cost of aggregators.

Upfront commissions paid to aggregators by insurers are opaque to the consumer. In just 2 years, aggregator sales have grown by 44% and industry commissions have almost doubled, reaching about $200 million. So the numbers for the industry are significant. In FY '25, about 3/4 of aggregator sales involved switching from one fund to the other and only 1/4 of these sales were new entrants to the private health system. Aggregators do play a role, especially when consumers are looking for a good deal, but they don't represent every fund or every product. The only generally comprehensive comparison is available through the government's website, and there is a risk of commission-driven churn.

In December, we removed AHM from one of the aggregator panels rather than signing up to terms that were unacceptable. While we expect this decision to have some volume impact in the short term, we cannot support channels that add cost without a corresponding uplift in customer value and industry participation. Escalating commissions and lack of transparency are not in the long-term interest of consumers or the industry. And that's why we've also championed reform on this issue through the CEO forum.

In nonresident PHI, the market growth remains strong with growth in workers accelerating and student numbers normalizing with lower visa approvals than expected in the last quarter. But pleasingly, we saw a strong improvement in our life cycle approach with students, workers and visitors contributing meaningfully to our resident policyholder growth. To support our nonresident growth into next year, we launched 3 new visitor health covers with average daily joins doubling since launch. And in the workers sector, we were appointed as 1 of 2 preferred health insurance providers for the Pacific Australia Labor Mobility scheme, creating a new growth pathway. In FY '27, we expect the student portfolio to stabilize and the nonresident business to deliver solid gross profit growth.

Now to Slide 11. In the resident business, our disciplined approach to growth has seen us prioritize quality over quantity, focusing acquisition in our target segments, strengthening direct relationships and building customer loyalty. This has seen our retention outperform the industry. Our join mix continue to skew towards customers new to the industry rather than switches and growth in our direct channels. We've also continued to deliver productivity savings with around $130 million delivered in under a decade. The results of these actions are clear with our cost per policy remaining materially lower than the industry average and our stable margins supporting a claims payout ratio above the industry average. These outcomes are increasingly important as insurers are asked each year during the premium review process to meet the minister's statement of expectations.

Now on to Slide 12. The health transition remains central to both our growth strategy and system sustainability. Having invested more than $500 million over the past decade, we are seeing increased momentum across prevention, primary care and care in the home. We're seeing a significant shift towards preventative health with individuals and employers increasingly investing in physical, mental and financial well-being. We remain very well positioned to grow in this sector through our leading Live Better program, our breadth of financial well-being products and our corporate health and well-being programs. Primary care reform remains critical to a sustainable health system. And that's why with our acquisition of Better Medical, we have now created one of Australia's largest multidisciplinary primary care networks.

We delivered more than 4 million GP consults through 169 GP and medical clinics and have ambitious plans to bring more care to more people. And the number of these clinics charging no out-of-pockets jumped 56% following the government's bulk billing reforms, a win for patients access and affordability. With growth in virtual GP consults outpacing face-to-face consults in the market and in support of our multichannel differentiation, we recently launched the My Amplar Health app, giving patients one place to book and manage appointments. And as health and aging needs increase, more care will shift into home and communities.

In FY '26, our community-based services supported more than 27,000 acute home health visits and saved 194,000 hospital bed days. And our virtual nursing pilot is now operating in 25 aged care homes. Our contract to run My Home Hospital in South Australia was also extended for a further 3 years, and our transition care services has just recently doubled in capacity to around 100 beds. Together, these initiatives demonstrate our role across the care continuum whilst advancing the health transition. I'll now hand over to Mark to take you through the financials and outlook.

Well, good morning, everyone. This result demonstrates our ability to manage through the cycle, balance growth and profitability and invest to build a more sustainable and diverse business.

Key financial highlights include group operating profit up 6.7% to $813.5 million with solid growth in resident health insurance, continued strong momentum in Medibank Health and well-controlled corporate costs. Investment income was impacted by the lower RBA cash rate and the increase in other income and expenses includes costs associated with acquiring Better Medical. Nonrecurring cyber costs were lower and with the IT security uplift program now largely embedded, we expect FY '27 costs to be less than $20 million and primarily related to ongoing litigation. And underlying EPS, which normalizes investment returns, was $0.231 per share, which is up 2.9% on last year.

Now moving to Slide 15. Despite the challenging economic environment, the business remained resilient, reflecting our disciplined approach to managing growth, margins and expenses. Revenue grew 4.6% and gross profit increased to $1.46 billion. Gross margin was stable at 17% with a 10 basis point increase in resident gross margin and 210 basis point decrease in nonresident. Operating profit increased 3.8% to $769.8 million and the operating margin remains at 9%. Expenses were up 5.4% to $690.2 million, and the expense ratio was stable at 8%. D&A increased in line with higher investment in digital assets. Resident commissions reduced due to lower AM aggregator joins. The increase in operating expenses includes inflation of approximately 4%, volume-related increases and investment in our foundations.

There was also additional marketing investment, including reinvesting $5 million of the lower spend on resident commissions. And these were partially offset by $10 million of productivity savings. The major drivers of expense growth in FY '27 will be inflation and volume-related increases, additional investment to support resident policyholder growth, including AI uplift, and we are targeting a further $10 million of productivity savings. We continue to target a stable to modestly improving expense ratio over time through disciplined cost management and productivity initiatives, but balance this with investing in growth where this makes commercial sense.

Now moving to Slide 16. The resident PHI industry continues to grow with the nondiscretionary nature of health care underpinning future demand. Cost of living pressures have impacted the industry with policyholder growth skewed to lower-tier products, higher switching and aggregators increasing their share of joins. As a result, the competitive environment intensified in the fourth quarter with some competitors pursuing aggressive growth tactics alongside increased aggregator marketing. We have chosen to prioritize the quality of growth over quantity.

And pleasingly, we've grown in our priority segments, maintained the revenue mix impact at the 1H '26 level and increased the percentage of AHN joins through our direct channels. number of policyholders increased 1.1%, with Medibank growth doubling to 0.6% and AHM growing 2.4% despite lower aggregator joints. The acquisition rate was 10 basis points higher with the increase in Medibank reflecting continued investment in brand, customer value and differentiation and direct sales in AHM partially offsetting lower aggregator activity.

Whilst LAPS increased 40 basis points, we expect that we performed better than the industry, reflecting the value customers place on our differentiated products and broader health proposition. In FY '27, we aim to increase growth in a disciplined way through continued brand and proposition differentiation, targeted investment in priority segments, and building stronger direct customer relationships that support retention.

Now moving to Slide 17. Resident claims expense increased 4.6% and risk equalization provided a 20 basis point benefit to net claims growth with the timing benefit we saw in the first half unwinding as expected. Resident claims growth for poles unit increased 40 basis points to 2.6%. In hospital, the decrease in inflation reflects higher private hospital indexation, offset by reduced additional investment in product benefits and lower public and medical indexation. Hospital utilization growth remained negative, reflecting prior period COVID impacts and policyholder growth skewed to lower tier products and extras utilization increased as demand normalized following a period of subdued activity.

In FY '27, we expect hospital claims growth per policy unit to increase, reflecting the $74.8 million COVID utilization benefit in FY '26 not recurring, continued negative utilization growth driven by mix impacts, broadly stable private hospital indexation and benefit from more procedures happening outside of traditional higher cost settings. We expect extras claims growth per policy unit to reduce, reflecting lower indexation and benefit investment. We are also monitoring utilization trends given historic customer behavior and current economic conditions.

Slide 18 details health insurance performance, which shows continued solid gross profit growth of 4.6%. In resident, our disciplined approach to growth resulted in gross margin increasing 10 basis points to 16.3%, with revenue and claims growth per policy unit of 2.7% and 2.6%, respectively. Policyholder growth was skewed to lower tier products with largely offsetting impacts to review and claims. Growth in revenue per policy unit was up 10 basis points with the higher average premium increase, partially offset by a higher revenue mix impact. This higher revenue mix impact reflects customer growth skewed to lower tier products, an increase in office spend and investment in Live Better and we expect a similar impact in FY '27.

In nonresident, policy units declined 2.3%, with student policy units declining due to tighter migration settings and natural runoff of large cohorts acquired following borders reopening. This was largely offset by continued strong growth in worker policies. Gross profit reduced 1.2% to $110.3 million, and gross margin was down 210 basis points to 34.8%, largely due to tenure and mix impacts in the student portfolio. However, we expect nonresident to deliver solid gross profit growth in FY '27, supported by a stabilizing student portfolio, continued momentum in workers and growth in visitors following the launch of new products.

Moving to Slide 19, which covers Medibank Health. Medibank Health segment profit increased 31.3% to $100.7 million, with strong organic growth in all 3 segments and a $6.2 million contribution from Better Medical. Operating margin was down 50 basis points to 16.9%, with the 180 basis point reduction in gross margin, partially offset by an improving expense ratio. Revenue grew 30.8%, supported by strong customer and patient growth, higher consult fees in primary care and a full year contribution from 100% ownership of Amplar Health Home Hospital. Gross profit was up 26.5%, with the reduction in gross margin due to additional investment in Live Better and business mix impacts, partially offset by efficiency benefits in community and acute and primary care. And whilst expenses increased, including $10 million of additional investment to support future growth, with growing scale, the expense ratio was 140 basis points lower.

We continue to see strong organic growth potential in the business with focus areas for FY '27, including meeting more health needs of more customers, scaling existing services with a broader set of payers, realizing synergy benefits across our primary care network and further performance uplift in the JV hospital portfolio. We aim to augment this organic growth with further M&A that scales and expands geographic coverage in primary care and adds capability in well-being and virtual care.

On Slide 20, we show a more granular breakdown of the financial results for our 3 Medibank Health segments and the key customer metrics driving performance. In well-being, Live Better members increased 11.6% following investment in the proposition and rewards giveback offer last year and financial well-being policies increased despite subdued travel demand. In primary care, consultations increased 26.7%, reflecting a 6-month contribution from Better Medical. And pleasingly, Community and acute delivered a significant improvement in profitability, supported by ongoing growth in publicly funded programs and increased capacity within transition care services.

Now moving to Slide 21. Investment income was down $28.9 million, including a $7 million reduction in both the growth and defensive portfolios. The decrease in the growth portfolio reflects lower income from equities, partially offset by improved returns in both property and infrastructure. Income in the defensive portfolio was impacted by the lower RBA cash rate and widening credit spreads with this partially offset by a higher asset balance. And other investment income was also impacted by the RBA cash rate and lower cash holdings.

With the lower earnings on cash, underlying net investment income was down $17.2 million. The underlying net investment return reduced 24 basis points to 5.62% and the spread to the average RBA cash rate increased to 177 basis points. And in FY '27, we expect underlying net investment income to benefit from growth in asset balances, the higher RBA cash rate and opportunities to increase liquidity and credit margins.

Moving to Slide 22 and capital. The business continues to be well capitalized with $182.9 million of unallocated capital. This has reduced by $69 million over the last 12 months due to funding the Better Medical acquisition, which is partially offset by strong capital generation. Health insurance capital was stable with reduced insurance and asset risk charges offset by additional capital to support growth. The PCA coverage ratio increased to 1.9x and the capital ratio is 13.3% of premium revenue. We continue to hold additional capital to offset the $260 million APRA supervisory adjustment, and this is why the capital ratio is above the target range of 10% to 12%. The $163.5 million cost of acquiring Better Medical drove the increase in Medibank Health capital with this partially offset by lower required capital.

Our strong balance sheet supports our FY '30 Medibank Health earnings aspiration of at least $200 million, and we have capacity to raise Tier 2 debt to support growth beyond this if further attractive opportunities arise. And given the strong capital position, the Board has declared a final dividend of $0.109 per share, bringing FY '26 dividends to $0.192 per share. This is a 6.7% increase and 83% payout of underlying net profit after tax.

And to finish, a few comments on our FY '27 outlook. In resident health insurance, we continue to aim to grow market share in a disciplined way, including improved volume momentum in the Medibank brand. We expect resident health insurance gross margin to be broadly consistent with FY '26 as we continue to manage revenue mix and claims growth in line with premium increases. In nonresident, we expect to deliver solid gross profit growth as the student portfolio stabilizes and growth in worker and visitor policy units continues. In Medibank Health, we expect segment profit growth of circa 25%, including a full year contribution from Better Medical. And our M&A pipeline remains strong, and we have both the appetite and financial capacity to pursue further strategic opportunities. I'll pass back to Dave to make some final comments.

Thanks, Mark. And just now moving to Slide 25. The opportunities ahead of us require us to stay focused on what matters most, building customer trust, supporting better health, growing our business sustainably and ensuring our organization is fit for the future. And these priorities guide us where we invest and how we measure success. AI is becoming an important part of how we strengthen decision-making, simplify work, enhance customer outcomes and unlock new growth opportunities. It's also becoming the front door to health.

Increasingly, people are turning to AI first for answers about their health, their care and the cover that's right for them. Used well, AI could be one of the biggest advances in access to care we have seen. But we're very aware that the risks are real. In health, AI cannot just be fast and convenient. It has to be safe, accountable and designed around people. And being trusted by more than 6 million people with their health and well-being gives us a responsibility to shape this world.

Now briefly to Slide 26. As we grow across our 5 segments, we're also focused on realizing value between our health and PHI businesses. As part of our 2030 vision, we have an ambition to deliver incremental value of around 5% to our PHI operating profit growth between FY '25 and FY '30 by increasing our role in customers' health. And for example, we're already seeing this value through Live Better, which supports PHI growth, home care by reducing hospital bed days and prevention programs, helping reduce the burden of chronic disease.

So now Slide 27 to wrap up. FY '26 demonstrated the benefits of staying disciplined while continuing to invest for the future with strong customer advocacy, deeper health engagement and growth across insurance and health, strengthening the resilience of the business. With strong foundations in health, we are well positioned to continue to create long-term value for customers and shareholders. And on 1 October, Medibank marks 50 years of supporting the health and well-being of people in Australia. Few companies have the privilege of playing such an important role in people's lives.

We are proud of the contribution we've made to the Australian health system. But most of all, we're proud of the trust generations of people have placed in us and the role we've played alongside our partners in helping people live healthier lives. And finally, to our people, thank you for the care, commitment and passion you brought to Medibank over the last 50 years. So now it's over to you for any questions you might have.

[Operator Instructions] Your first question today comes from Kieren Chidgey with UBS.

Two questions, if I can. The first on sort of policy growth and sort of the outlook into '27. Obviously, second half, you pulled back due to competition, very little resident growth. Just on your outlook statement, sort of the aim to grow market share in a disciplined way. I just want to confirm if that is in aggregate across sort of both brands and sort of in totality or if that is sort of more alluding to particular segments where you're happy to grow. But maybe still below system in an aggregate level? And sort of related to that, how are you thinking about the cost base expenses for next year, you've alluded to additional reinvestment to sort of help from a growth point of view. Can you just unpack what you're talking about in terms of quantum?

I'll start just with performance and then momentum and then maybe Mark, on that last part of the question. So if we look to the full year, we're very pleased with the doubling of growth for Medibank and 2.4% growth in AHM despite taking AHM off one of the aggregator panels in December and that what was quite a significant uptick in competitive environment in Q4. Pleasingly, acquisition was up year-on-year. We saw growth in key segments. I think the corporate growth has been very strong. Growth in families, you can see that in the presentation and also in our growth in lives.

So I think where we've focused, we've done very well. And you can see the benefits through our margin and cost position of that disciplined approach which is particularly important as we look forward as all insurers are asked to meet the statement of expectations. So that's enabled us to keep our claims payout ratio higher than the industry average. I think what gives us confidence, particularly in the Medibank and HM brands, brand health is at very strong positions. And as you say, we are investing in growth in those markets and particularly AI, which is showing some very promising improvements in both retention and acquisition performance. I think something will play out, and we have to be mindful of what happens with competition. We have to -- it will depend on what we do with aggregators, but our aim is to continue to grow at a total level where it makes sense, but particularly calling out some strong confidence in Medibank momentum increasing.

And Kieren, at the expense line, we wouldn't expect expense growth to be too dissimilar to the 5.4% growth we had in FY '26. The buildup of that will be slightly different. I wouldn't expect the D&A to increase. We're expecting it to be broadly stable in '27 and wouldn't expect the same reduction in resident commissions. We invested in round numbers, about $10 million incremental in marketing during the course of the year, including redeploying $5 million of resident commission savings into the marketing line. I wouldn't expect the reinvestment next year to be too dissimilar to that $10 million number. And really from an expense ratio perspective, it's going to largely where we land will depend on the revenue growth equally.

Second question on claims inflation sort of second half and out, in my view, a little bit better than anticipated. The incurred inflation probably only 2.8% in second half. And I guess more interestingly, the cash payments up only 1% on PCP in the second half of the year. Mark, maybe you can just unpack why that was sort of a better result through the second half and how you're thinking -- I guess you've provided a bit of detail, but in aggregate for next year, are we talking sort of 3.6%, 3.7% type levels?

Thanks. Let me start with the first part of the question. So you need to go back to the first half of '26, where I think the industry saw quite a significant increase in processing speeds and payment speeds. And so cash claims paid were significantly higher across the industry than incurred claims. Whilst the payment patterns remain elevated, they weren't as fast as they were last half. So as a consequence, our actual cash claims paid in the second half were less than our incurred claims. I'd expect looking forward now through the COVID regime, subject to be no further change in payment patterns that incurred and cash are going to align much more closely going forward.

On inflation, which is the second part of your question, on hospital inflation, I think the most important thing to call out is we did have New South Wales private rate increase in the first half. And so that elevated the claims inflation in the first half, and we know that is now fully embedded in our claims line. As I think about FY '27 on the hospital product, by far, the most material impact is that $74.8 million COVID utilization benefit unwinding. So that's 150 basis points of utilization. So that would take the kind of underlying momentum in hospital claims inflation from 2.1% to 3.6%. And that by far is the most notable item looking into FY '27 for hospital claims. And then we've called out clearly in the presentation, we expect extra claims growth to be less than the 3.4% that we reported in '26. I think all other factors, which there will be a whole series of other factors, Kieren, all other factors in terms of FY '27 claims trajectory will be second or third order.

Your next question comes from Andrew Buncombe with Macquarie.

Just the first one, just interested whether you think you need to step up any of your CapEx to achieve your Medibank Health earnings targets over the medium term?

This year, we invested an incremental $10 million in the future growth prospects of that business. So I feel pretty comfortable that we've invested in the OpEx base, and I wouldn't expect there to be too significant increase in the CapEx line either, Andrew. So I think we're pretty well placed. FY '26 has been a big year of investment in the Medibank Health segment. And so I don't see that impacting the P&L going forward. Probably the area I'd get you to focus on would be the M&A investment. So our FY '30 earnings aspiration, $200 million, $700 million capital base. We've invested $560 million of capital employed now. So we've probably got another $140-odd million to invest in support of our FY '30 ambitions.

Great. And then the next one, how long -- or how much longer are you expecting to have to wait before APRA starts unwinding your additional capital charge related to the cyber incident?

Look, as we say every 6 months or so when we get asked, we remain in very close contact with APRA. We've made great progress on our with program. In fact, as Mark alluded to or mentioned, the costs for FY '27 now largely embedded. So we are entering into an embed phase of the program. I think we both recognize the momentum, the progress and the milestones achieving. So we're moving forward at great pace. And I think the -- but the final decision really is with APRA about that capital charge. I think there's instances where they have recognized a partial relief based on milestone achievements or instances where they have waited to the very end of the program, including embedment. So we'll keep in close contact as you would expect us to do, and that decision will remain with APRA.

Great. And then the final one from me, please. Just interested whether your gross margin targets for FY '27 actually assume any actuarial assumption changes or any changes to the behavior of risk equalization.

Andrew, thanks for your question. You asked that one it's the third year in a row. So first, the first part of your question, no change to actuarial assumptions. So we haven't assumed the probability of adequacy reduces on the current 9%. And sorry, what was the second part of your question?

It was whether you're assuming any change in the risk equalization scheme inside that margin guidance.

So looking -- no, if you look across the whole 12 months of FY '26, we were a modest beneficiary from the pool over the 12 months on average, and I expect the 12-month average to be a good indicator of what will happen in FY '27. That's obviously subject to competitor behavior and the like, Andrew. If a competitor has a commercial price on a product that has adverse selection that takes high claiming younger customers from us and our competitors that could support our reciliation position equally. We saw that in FY '25.

Your next question comes from Julian Braganza with Goldman Sachs.

Just a quick one. So you have a comment in there saying stable PHI indexation to FY '27. It sounds a bit contentious there, but how do you get comfortable with that sort of outlook?

So we've got a very good view of what the current contracted arrangements provide for going into next year, and we've had a large proportion of our hospital contracts that have been recontracted in the recent times. So we've got a very good view on that, Julian.

Yes. Well, just to add to that, for us through this whole last cycle, whilst there have been some challenges, we have ongoing conversations with hospitals and contracting has been an ongoing sort of conversations about inflation indexation, but also partnership investment. I'd say very much back to BAU. And you can see through our partnership payments we are working very constructively with hospitals to not just support them to support our customers, but also to help them support the health transition. As Mark said, we've got a lot of certainty given the percentage of benefit outlays that are yet to be contracted. And for hospitals, there's less unknown unknowns. So we have a high degree of confidence that our partnership agreements will support our business going forward and support the health transition.

And Julian, where you are in the contracting cycles with the larger hospitals will change between different providers. You'll see in FY '26, we've called out that there was higher private hospital indexation. So maybe your assumption on what others will pay in FY '27 we've already bought forward and paid in.

Okay. Got it. No, that's clear. And then just on the Medibank Health business, I want to be very clear what sort of organic growth that you're seeing -- organic growth that you're seeing there in FY '26. And also just -- I mean, if I look at your accounts in terms of impairment testing for goodwill, you're kind of assuming about 2.5% growth there for Medibank Health across the divisions. I just want to get comfortable, one, what are you seeing in the numbers on an underlying basis ex the acquisitions? And then two, the reason for the difference there in terms of the accounts.

Okay. So let me start with the first, Julian. If you look at the 31.3% reported segment profit growth, I just subtract $6.2 million from that and you'll get organic growth. So you'll see that's still somewhere in the 20% to 25% range. And I think you're referring to the impairment testing table. I think it's pretty standard industry practice to use -- conservatively use an inflation-led capitalized -- inflation-led 2.5% or 3% number in your cap multiple. That doesn't indicate your earnings prospects over the next few years. That's more just applying a capitalization multiple for the terminal value calculation.

Okay. Got it. So that's clear. And then just a last question in terms of just the outlook for the nonresident business, just in terms of pricing and inflation and margins from here. I'm just wondering if you kind of unpack that framework into FY '27.

So firstly, on pricing, depend on which segment you're talking about, given there are different claims growth and competitive dynamics. But you should assume that the higher claims growth that we saw during the second half of FY '26 has been factored into our go-forward premium increases those went through in May.

From a margin perspective, just the way we think about FY '26 is across the 2 halves of '26, we had broadly flat gross profit and gross margin. While we had profit decline and margin decline really relates back to the performance in the second half of '25. We had a really strong outcome in the second half of '25. We had a 39% gross margin. So the trajectory in '26 is more about what happened in the second half of '25 rather than what happened across the 2 halves of '26. And that's why we're comfortable the solid profit growth guidance that we've given you. And I'd hope that gross margin will be more stable in '26 compared to '25.

I would just qualify all those states, Julian. We have 3 different segments in nonresident workers, students and business. They have different premium increase characteristics and different gross margins. So I'll qualify my statement I'm saying it will depend, however, on where we see growth across those 3 segments.

Your next question comes from Nigel with Citi.

Just first of all, on the resident claims inflation. I mean I appreciate you've given gross profit guidance, but it's the first time you sort of haven't given specific resident claims inflation guidance. And it doesn't sound from what you've said about the indexation that you have any less confidence in being able to predict it. So just first of all, wondering why that is. And secondly, given what you've said, obviously, and you said it before on COVID in New South Wales, it still sounds like you're sort of batting for that 350, 360 basis point range, so -- which I think was mentioned at the half year. So just checking that's still where you're expecting it to land.

Yes. So let me start with your second question. So consistent with the conversation at the half year, really the go-forward inflation, particularly for hospital is going to be impacted, as you say, by the utilization benefit unwind. And so the numbers -- the math you talked about, Nigel, We, I think they're pretty accurate in terms of how you've come up with those numbers. I think there are 2 factors I'd just call out that we're watching most quite closely. So in the hospital product, it's how acuity and the shift in the model of care impact inflation in the hospital product going forward. And then on extras, it's the economic -- potential economic impact on utilization of extras services and particularly more discretionary services.

To your first question and why we've gone to gross margin outlook rather than claims. It's the way we're managing our business. So we look to generate a flat to flattish gross margin, and we manage our revenue mix impact and our claims inflation, including how much we reinvest in benefits to try and achieve that. we've tried to give you sufficient information to form a view on claims. And we indicated that we expect revenue mix impact for FY '27 to be similar to FY '26, 150 basis points.

Fair enough. And just on utilization, presumably that's pointing towards favorable. Is it with what you're saying on the economics. Is that what you're saying there?

Yes... Downside utilization rather than the upside in utilization.

Yes. Fair enough. And then just on -- back to sort of the revenue growth and more sort of a broad question, I guess, because I mean, you've talked about the competitive behavior in the market. You thought it was temporary a while back, and yet it seems to have gone on a lot longer than you anticipated. I mean are you still -- have you sort of got any sight now that you think that could actually alleviate at some point? Is there a trigger point? Or is this just a new normal where this kind of competitive activities are likely to persist for some time?

Yes. It's obviously the important thing we look at. But for the first 9 months of the financial year, we had seen the competitive intensity reduce back to a sort of more normal level. But with what was happening, the backdrop of the economy, cost of living and other insurers, and you can see that from our presentation, the industry average margin reducing. -- there are actions taken in that quarter that are just not consistent with our strategy of managing the business for the long term.

So that was coupled with increased aggregated marketing, which we're talking to you about before, which is a more systemic change and particularly those costs of commissions almost doubling in the last 2 years. That really came together in that Q4. So that's a cycle that we do see, and we would expect that to unwind over the long term. So our settings won't change. We'll continue to manage the business over the long term, being careful to balance volume with margin. And our individual half yearly outcomes will depend a little bit on what happens in the market. But if you look at the overall trajectory of the industry, we expect that, that competitive environment won't sustain at that high level of intensity for every quarter going forward. But it does come in and out. And so the important thing for us is to manage the business over the long term.

And I think, Nigel, that's the most important point. When you see that particular competitor behavior, you've got to maintain your discipline. We saw this 12 months ago when one not-for-profit fund mispriced the Silver Plus product, won a lot of market share, then they've significantly changed the price at the most recent premium round. And we're trying to run the business on a flat to flattish gross margin. I think that discipline is one of the major drivers that's allowed our gross margin in resident to increase 10 basis points and the probability of our margin sustainability is reinforced by that discipline approach.

Okay. And then maybe just quickly and finally, I mean, is there any more clarity about the likely timing on litigation? Or is that still pretty unclear?

Look, all activities and litigation still are at preliminary stages. There are -- we published some court order dates that will signpost momentum in some of the proceedings during the next financial year. But there's nothing much more to say on that.

Your next question comes from Siddharth Parameswaran with JP Morgan.

My first question was just on the lapse rates. They increased quite sharply in the second half. I was just keen to understand what actually happened there? I know you flagged that there was some competitive intensity, but particularly how that -- how you think that actually led to your own lapse rates worsening? And just what you're assuming in terms of your outlook on that going forward?

Well, then I'll hand over to Mark. We have seen lapse rates increase in the industry over the last few years. You can see in our presentation the industry lapse rate has increased by 180 basis points over the last 3 or 4 years. Ours have also increased by a significantly less amount. And I think for FY '26, we believe that will still be the case. Lapse rates can be driven by competitor intensity in a short-term basis as well as aggregator marketing where there is a risk of commission-driven churn. And that's why it's important for us as we balance volume and margin to manage for the long term. So it's a relative lapse rate that we pay most attention to and Medibank still as at March, had one of the lowest or has the lowest lapse rate of the majors.

Thanks, David. I think as David mentioned, it's a combination of the aggregator market and the industry premium increases and the more challenged economic environment, just driven the switching rate across the industry to be elevated. When we look through the most recent APRA data and looking at our own data, it's more about switching than exits. So what would have been slightly more concerning is if the exit rates in the industry have gone up materially because that's a loss of the customer versus this is an increase in the cost of doing business through the commissions that we're paying. But generally, I think it's driven by the premium increase, the economic environment and the aggregators becoming more aggressive.

Okay. My second question is just around the nonresidents guidance that you have for into '27. You're expecting some solid growth to return. We saw some pressure in the second half. I think you flagged tenure and mix impacts. My understanding of the accounting of this is that you often -- particularly on the students, you write long-term contracts and you can't change pricing and there are these tenure-related impacts. I'm just wondering the turnaround that you're expecting in momentum into next year, what will drive that? Usually, when I've seen it before, it usually takes a little bit -- quite a bit of effort to turn around trends. If I think back to COVID, et cetera, there's a bit of pressure on these lines. Just keen to understand how you're expecting this to turn around quickly.

Sure. I might start with the momentum in the second half versus the first half. So it was -- the first and second half performance were broadly in line, Sid, around $55 million of gross profit across each of the 2 halves. The decline in earnings this year reflected the fact that the gross margin was so high in the second half of last year. So last year, in the second half, we had stronger visa approvals, so positive tenure and mix impact that unwound in the second half of this year. But probably the biggest driver on performance was the exit rate in the student portfolio this year. So going -- when borders reopened after COVID, we had a very big visa intake -- those students would have joined us for 2 or 3 years. So that's the graduating year this year. So the majority of the impact in that student portfolio, particularly in terms of volume was driven by those students leaving after graduation rather than being solely driven by visa numbers. So we'd expect the policy units to be more stable next year, and we wouldn't expect the tenure and mix impacts to be as significant, and we have taken some pricing and portfolio actions.

What gives us further confidence is we're growing really strongly in the workers portfolio. The worker portfolio would have grown policy units north of 20% in the last 12 months, and that is the actual higher-margin business. And you're right on students, you can't reprice the back book and you can only reprice the front book, but we're probably 12 months through that repricing cycle already.

And when we look at the total market, we have seen the overall visa market remain very strong. The growth has been very strong in the last year in workers and students have sort of stabilized back from where it was a couple of years ago. But the total visa market remains actually very strong. And the mix is changing, which really suits our strategy moving to higher education services where we're stronger in the student market and skilled workers, which are driving significant growth in that visa approval. I think we're also excited by our launch of our new products in the visitor market where we've been waiting for that investment, and that market also continues to grow.

So the total market remains very attractive and the mix is shifting towards areas of our strength. I think the other point that we shared in the presentations around our work on life cycle where nonresident policyholders form a material part of our acquisition pathway for resident, and we saw a 15% improvement in acquisition there year-on-year. So that's all part of our growth story, not just for nonresident, but also how we drive value across the enterprise.

That's great color. And just my last question is just on the reform agenda with the minister. I think he's talked -- I think he's shifting his attention now to trying to make some of the elevated -- the higher product tiering products like gold, et cetera, sustainable. Just keen to hear whether this could have any impact on margins for yourselves? What are the kind of things that they're considering? Are they considering maybe putting obstetrics, et cetera, into the risk equalization pool? And is there a risk for for-profit providers who generally are underweight those categories?

Well, just generally on reform, I think the large focus -- well, I'm not the minister, I can't second guess but appears to be the NIS aged care and then the rebate that was part of the budget for over 65. I think then the second main focus is on the public sector, particularly on primary care and driving the health transition, particularly to support a more sustainable growth in the public sector on hospital funding. So I think that becomes -- they are the top priorities. I think on the private sector, yes, the department has issued a consultation paper, which looks at a variety of things, including driving out-of-hospital care, better matching hospital supply and demand and then some other areas around product review.

I mean the gold product question has been discussed at the CEO forum. It is part of that consultation paper. It has become a catchall of lots of problems in the sector, I would say. But there is some potential for some reform to make it more affordable. You'd have to look at the risk equalization settings to make sure that they become sustainable for the system.

And Sid, I can comment on whether it would impact profit or not-for-profit. I think the ownership status is irrelevant. It's whether you've got on sale gold products and the size of your gold back book, which for us, we're a strong player in the gold market through both of our brands. I think it's -- some of our competitors have effectively taken gold off sale and don't participate in that market. So I'm not seeing that as being a threat for us, but it will be for others.

And I think the question on risk equalization is not just what happens with obstetrics and mental health and whether that's part of the risk equalization pool for a gold product. It's more to be moved to prospective risk equalization, and that's what we really hope for. I think for us as an organization, we manage our claims well. We're sharing a lot of the benefit with our competitors because of the risk equalization basis. We'd love the risk equalization pool to move to a prospective basis. And I think it will over time, probably not in one go or move progressively. But I think that's the area of risk equalization form that the industry really needs.

The next question comes from Andre with RBC.

Can I ask my first question just around the mix of your distribution on health care policies. So you mentioned that you were running about 74% for several periods, and that's picked up now from 74% up towards 81%. So can you talk a little bit about some of the flow and benefits from that in terms of potentially lower commission acquisition costs? And also, how hard do you think you can sustainably drive that?

Well, it is a stated strategy that we are very focused on the markets we're acquiring within, focusing on giving more value and better health engagement to existing members and then driving direct distribution. As you may know, Medibank, 100% of acquisition is direct and using direct channels. And for -- it depends on our aggregator strategy, and you see that, that has increased the direct share of AHM acquisition in the second half in part because we removed AHM from one of the aggregator panels, but also we saw a stronger growth in direct acquisition for AHM.

The reason we do that is to help us manage the business for the long term. We see a lower cost to acquire through direct channels. We see stronger customer relationships developed and that leads to lower lapse. And so those 3 factors are the reasons in the majority why we focus on direct channels, where it can get to. It will depend on other channels in the market and how we make sure we balance short- and long-term economics around those. But I think at 80%, that's a very, very strong result. And I would suspect, although it's not published, I think that will be the strongest result of the majors across the sector.

Andre, I think David's point on lapse is actually really, really important. So particularly customers that switch through an aggregator in May or June after the premium increase will typically have a much higher lapse rate or switching rate in the following 12-month period. And so the benefit of this disciplined approach to growth doesn't just impact you in the current period. It will have a benefit -- or we expect to have a benefit to our retention rates in FY'27.

For my second question, can I ask around your corporate growth strategy? You mentioned in the health segment, you'd like to do more in corporate. And you also mentioned, I think, the Pacific Australia Labor Mobility. So can you talk a little bit about maybe some of the -- another dollar or the profit growth benefits that can come from those?

I think the corporate strategy is both across the resident, nonresident and health businesses. We've talked about the -- in nonresident, we talked about the strong growth in visa approvals for nonresident workers, particularly skilled workers and the Palm contract is a great win for the business to broaden our growth. On the resident business, we have 2,500 corporate accounts, and they are looking for more support for their employees in health and well-being, particularly mental health. And it's not just the sales of resident PHI that form part of the relationship where we have grown almost double the size of the market growth rate in corporate accounts this year. It is also the ability for us to provide more of those health services. And that health and well-being market for corporates is growing rapidly.

We think it's about $1 billion in market size by the end of the decade. And with our accounts that we have and with our proposition that we can offer through Live Better and other things, we're very confident about growth. And that's one of the planks of growth for Medibank Health, particularly in that well-being sector.

Your next question comes from Vanessa Thomson with Jefferies.

I just wondered if you could talk a little bit more about that private health sector reform paper in relation to the hospital in the home services and the minimum insurer payment. I just I'm curious, wanting to understand how that impacts Medibank...

Well, as you know, we've been championing for some time the move to support more care being done in the community. So that's great, and it's fantastic to see general alignment on that as an aspiration. We're seeing many of our hospital partners embrace that. It reduces length of stay in expensive settings and is better for patients. So the direction of travel is now not just us talking about it. I think it's now very much an aligned objective. I think the reform paper talks about the how and the way that might happen.

I think there's some trials we want to do with particular procedure types, but there's a bit to play out there on exactly how that works. It would be premature to speculate any further on how the policy may shape up. But we're very happy by the approach and the alignment on this move to embrace community care, which we've been championing, as you know, for many, many years.

So, sorry, in relation to that, it's 4 registered hospitals, would you guys fall into that basket in terms of receiving those payments? Would you be -- I just couldn't understand would that be you paying yourselves or.

We already do. So Amplar provides services to the health fund to our health insurance business already. So we're already doing that. It's probably more a conversation about if a patient is admitted as an inpatient and then is there a default benefit for them to be treated at home on discharge.

Right. Okay. And then I also wondered, I acknowledge that the COVID benefit ending is the biggest contributor to the lower expectation for hospital claims. I just wondered if you could give us any more color on hospital claims. I think you had seen some lower surgical claims in previous period. Just some color there.

So the trends we spoke about coming out of COVID, which is softer claims growth in totality but largely in nonsurgical, I'd say they're all now fully embedded. However, the utilization growth on an underlying basis, underlying, so looking through all the COVID impact is still negative. So we're probably 60 or 70 basis points negative utilization growth, excluding the COVID benefit. So within that, it's slightly more negative in nonsurgical than it is surgical, but probably not surprising because a lot of those specialties such as mental health and obstetrics are covering gold policies, and there's a shift away from gold policies.

A couple of big call-outs I'd make on surgical, and it's really important Vanessa because the model of care is shifting. So we're seeing obstetrics -- because of the shift in the model of care to short stay, that's having a real benefit in the cost per procedure in sorry, in orthopedics, obstetrics in orthopedics, just having a real impact on the short-stay care is having an impact on the cost per procedure. Similarly, in rehab, we're seeing more rehab episodes of care moving into out of hospital from in hospital, and that has a deflationary impact as well. So you're seeing 3 impacts in hospital claims. You're seeing the skew towards younger customers joining the industry, lower claims intensity. You're seeing a shift from gold to more silver and R policies, which have lower utilization, lower acuity, and you're definitely seeing the shift in the model of care having a deflationary impact on the inflation component of the hospital...

[Operator Instructions] Your next question comes from Andrew Goodsall with MST Marquee.

Actually, my question is on exactly what Mark just spoke to, which is I saw that you had your hospital claims per patient unit down 110 basis points. So it sounds like it's pretty much a mix of those events. So maybe just to modify my question. I guess with the rebate reforms, are you getting any sense -- any early sense that you might see some more downgrading that obviously would then play into that into hospital claims.

The final form of the reform is still to be confirmed. But you said 6 months ago, though, there are -- we think about the cohort of customers that we're discussing, they are over 65. I break them into 65 to 70 and above 70s. Above 70 customers, particularly are the most sticky customers we have and the least likely to change their cover. So I think it's a starting cohort, they are very resilient cohort.

There are 2 impacts that could occur as a consequence of the reform. You could have customers leaving the industry. That on the public health system, but that would be a benefit to all of the private insurers because those 70 customers as a cohort are loss-making customers. You may around the edges have some of those customers downgrading. If you've got a Silver Plus product, then more likely downgrade to Silver Plus. If you don't have a Silver Plus product, they are probably going to leave and go to someone who has product. We have Silver Plus product.

So Andrew, there's been a lot of noise about this reform. I think for us, it's a second or third order conversation for FY '28. And if the reform ends up being narrowed to reduce the impact on customers that are least able to play increased premiums, I think the reform impact will be even less. We get asked a lot as to whether this is a particular business opportunity. I'm not sure where that question comes from and what would drive that. given how sticky the customer cohort is, and we're already a big player in the gold market. So if we're talking about this at the full year '27, then a lot else has gone. If this is the major theme, if this reform is a major thing for our FY '27 result, then a lot has gone right for us and the industry.

And I would just say on the reform itself, I mean there's -- if you observe in the market, there's pretty universal opposition to the reform and to sort of change the goalpost for people who've spent their working life planning for their future. it's a really tough ask for those customers.

And if anything, to Mark's point, it might put further stress on the public system. So I think we think that the better version of reform is one where you look at the underlying cost of the system to drive productivity and quality and growth and not sort of think around the edges. But as Mark said, there's a bit to play out on the actual form of this reform.

And from that, I guess I take it that it's not 100% done deal, although we are sort of hearing it probably is. But I mean, maybe just to extend this a little further, just I guess, is there any sort of early signals you're getting about whether this breach of trust, if you like, has had an effect on the way in which the marketplace is thinking about insurance as sort of creating any sort of collateral damage in terms of the industry outlook, do you think?

Look, we haven't seen anything in our business today. But if you just listen to the community sentiment on this issue, that's reflective of how particularly over 65s are viewing this change, and we'll do everything we can to support them depending where this reform gets to. It's an interesting question on breach of trust. We're lobbing against that on behalf of our customers, Andrew. So if there is a breach of trust, I'm not sure necessarily it's pointed in our direction.

Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to the Medibank Half Year Results 2026. [Operator Instructions] I would now like to hand the conference over to Mr. David Koczkar, Chief Executive Officer. Please go ahead.

Thanks, and good morning, everyone. Thanks for joining us today. I'm coming to you from Naarm, the home of the Wurundjeri Wurrung peoples, and I pay my respects to their elders, past, present and emerging.

I'm joined by our executive leadership team, including our CFO, Mark Rogers. This morning, we'll talk to Medibank's results for half year '26.

So first to the highlights on Slide 5. This is another good result for the Medibank Group. Our performance reflects improving customer engagement and our progress in driving the health transition. We've delivered on our growth commitments, with improved momentum in our health insurance business and strong growth in Medibank Health. Medibank Health's continued positive performance is enabling us to reinvest with confidence to support its future growth. And we recently took our next important step in health, finalizing our acquisition at Better Medical, establishing one of the largest primary care networks in the country.

So let's turn to Slide 6 for customer highlights. As the cost of living remains challenging for many, we've continued to provide more value to our 4.3 million customers. We saved our customers around $105 million in out-of-pocket costs, another $3.3 million by using our no gap network and $23 million in rewards was earned by Live Better members. And importantly, we're seeing our Medibank and ahm customers accessing more of the health services we deliver through Medibank Health. 55% of Medibank resident policyholders are now engaged with our health and well-being services, which reflects our differentiation, but also how we're able to bring the best of Medibank Group to support our customers' health.

Amplar Health delivered 70,000 virtual health interactions to Medibank customers and saved 100,000 hospital bed days through its home care services. And as we meet more health needs of more customers, customer relationships strengthen, which further improves our retention performance and supports our growth in health.

So now to Slide 7, which shows an overview of our key financial outcomes. Look, I won't go through all of them, but a particular highlight for me is the resident policyholder growth of 1.9%, with growth in the last half, more than double that of last year, including improving momentum in the Medibank brand. And while we've seen slightly lower policyholder growth rates in our nonresident business for a few years ago, our performance remains better than market, especially in segments where we are focusing our efforts to grow. And it's very pleasing to see Medibank Health having another very strong half of growth.

In line with our healthy capital position, we are delivering to shareholders an interim fully franked ordinary dividend of $0.083 per share.

So now to Slide 8. As we progress our strategy, we continue to take important steps to deliver our 2030 aspirations. Our improving experiences are really resonating with our customers, patients and our people as we continue localizing services and empowering our teams to better support our customers. We've continued to build momentum in our health insurance business, growing both brands and expanding in our priority segments, including families, mid-tier, covers and those new to the industry. This includes a 67% increase in corporate joins year-on-year and a record number of nonresident workers now as customers.

Key to our strategy is to change the way people experience health and wellbeing, like our expansion of our 24/7 Amplar Health Online Doctor service to our resident customers and our Detox at Home program in the community. And having now established a national network of 168 clinics, we've continued to prioritize our expansion in primary care, investing in the experience of GPs to support early intervention and multichannel delivery.

And we're improving how we work, embedding AI tools and processes throughout our business. And our adoption is accelerating. For example, in 2025, we had twice the rate of adoption of AI that we had in '24. And next year, it might be more than 5x that amount. We're able to drive value from this space due to our strong customer relationships, our data and our capabilities. And we continue to strengthen our foundations, maturing our risk culture and approach to support our people's decision-making, enhancing security and our technology platforms and improving productivity. Also we can continue to deliver better outcomes for our customers.

So now over to Slide 9. We're very conscious that many consumers are doing it tough, including with the recent interest rate increase and recently announced increases to premiums. However, despite the challenging environment, the resident health insurance market remains buoyant, including continued strong growth in younger customers choosing to go private.

Recent research showed a continued increase in the number of people who see health insurance as offering value for money. And we've increased waiting list for elective surgery in the public system and the benefits of our dependant reform to continue, we expect resident growth rates to remain well above pre-pandemic levels. Consumers continue to seek greater value and are switching brands and products together, including choosing lower levels of cover. With this changing mix and more people preferring treatment outside traditional settings. Growth in private hospital claims utilization is decreasing. And while some of the unsustainable commercial behavior from other funds has eased, pockets of heightened competition remains, including aggregator practices that could drive up the cost of insurance for consumers.

In response to all this, our disciplined approach to growth and differentiation across our 2 brands remains unchanged. We are driving momentum by growing in our target segments, prioritizing growth in direct channels and focusing on retention, which for us has improved by 21 basis points year-on-year to September despite industry lapse rates actually going up by 70 basis points. We're continuing to work constructively with hospitals, shaping partnership agreements to incentivize shared outcomes to drive the health transition, which pleasingly is continuing to gain momentum.

In FY '25, we gave hospitals around $37 million to support this shift. And in the first half of this financial year, we've already provided around $20 million. The nonresident market has adjusted to recent migration reforms with worker numbers increasing. Student numbers have stabilized, but we expect the market to continue to grow. We're also seeing more students and workers become residents. Transitions, we are well placed to support through our life cycle management investments. And with the strength of the health and well-being support we offer and the extensive university partnerships we have, we remain an insurer of choice in the student market.

Now to Slide 10. Australia has never spent more on health care, and yet in some parts, the system is failing the community. As productivity in health care remains sluggish, and health care costs continue to outpace inflation, the call to action for reform could not be more urgent. Out-of-pocket costs are rising, patients are waiting longer for care, clinicians are under pressure and avoidable hospitalizations are around 30% above the OECD average. Not only does this impact the quality of life of millions of people, the recent data also shows it drained around $7.7 billion from the system. Governments, operators, clinicians and patients know the system is under strain. But despite the shared understanding, the pace of reform is far too slow. So we will continue to advocate the change because it is in the national interest.

And efficacy alone won't fix a system that is deteriorating faster than many decision makers are responding. International experience shows us that when this happens, the private sector must lead. And in the absence of meaningful system-wide reform, as we have done for several years, we will continue to take the lead in driving the health transition that is needed to sustain our system.

And in the last few months, pleasingly, others are recognizing the needs of this action, too. For example, [ Sementis ] is committed to delivering half its care in homes or through virtual and digital platforms by 2030. Our work with the South Australian government has seen their continued commitment to expand care options for public patients outside traditional hospital settings. And we are seeing many others now embracing the change that's needed. And in the private system, the federal government is supporting this approach given their ask of the sector to design, lead and implement the changes needed through the CEO Forum.

So we will keep working with hospitals, health professionals, corporates and other funders to accelerate the change needed. Investing in well-being, in prevention, in primary care and accelerating the shift to virtual community and home-based treatment settings. And as you know, this is not new for us. It's out of this desire to change the system to keep it one of the best in the world, but we are growing our health business.

And now Slide 11. Private care is one of the most critical areas that need change. As the front door to Australia's health system, it needs to adapt to the changing health needs of the country. Patients are waiting longer, paying more and too often entering the system once health problems are already entrenched. These outcomes are the result of a traditional [ molt ] designed around reactive, episodic care rather than proactive, connected and comprehensive support. The sector is just not set up to support the future health needs of the community.

Through our majority interest in Myhealth and recent acquisition of Better Medical, combined with our existing Amplar Health GP nursing and our health offerings, we now bring together one of the largest primary care networks in the country. And working with our partners, we provide the tools, the technology and the time clinicians need to focus on prevention, reduce low-value activities and better support their patients. We are investing to grow virtual channels to improve access, to support better continuity care and to meet the changing expectations and preferences of patients. And these investments matter for patients and they matter for clinicians. And as we have seen in other countries around the world, a focus on proactive and planned care supported by technology and an integrated care team is a more sustainable business model and one that can better address the challenges of the health system under strain.

I'll now turn to Mark to ask him to run through the details of the results.

Thanks, Dave. Good morning, everyone. This result demonstrates how we're balancing resident policyholder growth and gross margin. It shows continued earnings diversification and includes reinvestment for growth. The key financial highlights include group operating profit up 6% to $381.7 million, with solid growth in resident health insurance an important contribution from nonresident and continued strong momentum in Medibank Health.

Investment income was impacted by the lower RBA cash rate and the increase in other income and expenses includes higher M&A costs. Nonrecurring [ fiber ] costs were lower, and we expect FY '26 costs to be around $35 million and that the IT security program will largely be embedded. And underlying EPS, which normalizes investment returns was $0.108 per share, which is in line with last year.

Slide 14 covers the health insurance results. Despite the challenging economic environment, the business remained resilient, we continue to see benefits from our disciplined approach to running our business, including lower hospital utilization growth and an improved risk equalization outcome. We are also seeing policyholder growth skewed to lower tier products with impacts to revenue and claims largely offsetting. Gross profit was 4.4% higher with 4.3% revenue growth and gross margin stable at 16.2%. Operating profit increased 3.5% to $361.5 million and the operating margin remains at 8.5%.

Our expenses were up 5.4% to $329.4 million and the expense ratio was 10 basis points higher at 7.7%. The increase in operating expenses reflects inflation, volume impacts and ongoing investment partially offset by $3 million of productivity savings. And nonresident commissions were up in line with premium increases with the resident commissions broadly in line with last year despite higher ahm aggregated [ joints ].

We expect expenses in FY '26 of between $690 million and $695 million, including $10 million of productivity savings. We continue to target a stable to modestly improving expense ratio, but balances with investing in growth where this makes commercial sense.

Moving to Slide 15. The resident health insurance market remains buoyant, with policy shareholder growth in the 12 months to 31 December is expected to be slightly lower than the 2.1% growth we saw in the 12 months to 30 September. Cost of living pressures continue to impact the industry, with switching rates remaining elevated, customer growth skewed to lower tier products and aggregators increasing their share of industry joints. Whilst the unsustainable competitive environment is moderating, pockets of heightened competition remain.

Pleasingly, we're seeing increasing momentum in the business. Over the last 12 months, policyholder numbers increased 1.9% with Medibank and ahm growing 0.8% and 4.9%, respectively. This includes 0.9% growth in the last 6 months which is more than double the growth in the prior period. The acquisition rate of 5.6% is 40 basis points higher, with improvement in the Medibank brand from investing in differentiation and an enhanced digital experience in ahm.

Despite the higher industry switching rate, retention improved 10 basis points with the improvement in ahm particularly important. Key areas of focus for the remainder of FY '26 include further improving retention, deepening brand differentiation and increasing focus on acquisition in priority segments and channels.

Now turning to Slide 16. Resident claims expense increased 4.9%, and risk equalization provided a 50 basis point benefit to net claims growth, with some of this benefit expected to be timing related. Resident claims growth per policy unit increased 20 basis points to 2.5%, with the 310 basis point increase in [ interest ] partially offset by a 120 basis point decrease in hospital.

In hospital, the increase in inflation reflects private hospital indexation investment in product benefits and the increase in New South Wales private room charges. The negative hospital utilization growth reflects prior period claims favorability due to COVID impacts and customer growth due to lower tier products. And the increase in extras includes the ahm limit rollover and utilization and inflation increasing following a period of subdued demand due to economic and COVID impacts. And in the second half, we expect private hospital indexation to remain elevated and negative hospital utilization growth to continue. Whilst the risk equalization timing benefit will unwind, we expect this to be largely offset by higher New South Wales private room charges now being fully embedded.

Slide 17 details health insurance performance, which shows continued growth in both resident and nonresident. In resident, our disciplined approach to growth resulted in gross margin being maintained at 15.5% with revenue and claims growth per policy unit of 2.5%. Growth in revenue per policy unit was down 30 basis points, with a high average premium increase offset by higher revenue mix impacts. The revenue mix impact of 150 basis points is similar to 2H '25 and reflects increased investment in the [ Better ], customer growth skewed to lower tier products and strong growth in ahm policies. And subject to no material change in the economic environment, we expect revenue mix impact for the full year to be better than 1H '26.

Solid nonresident revenue growth has continued with average policy units 1.4% higher and revenue per policy increasing 3.1%. Policy unit growth was lower than in the prior period, with lower student visa approvals and modestly higher lapse. However, we expect the recently announced increased student visa approvals and new opportunities in the workers segment support acquisition into the second half. Gross profit increased 6.9% to $55.6 million, and gross margin was up 80 basis points to 35.6%, with an improved worker margin, partially offset by [ tenure ] impacts on student margin. Nonresident remains an attractive market and in the second half, we'll build on emerging opportunities in the student and worker segments and continue to invest and differentiate our offering to grow market share.

Turning to Slide 18. Medibank Health segment profit increased 28.5% to $48.3 million and operating margin was up 10 basis points to 17.7%. Revenue grew 27.5% with the increase in community and acute, reflecting strong volume growth and increased ownership of Amplar Health Home Hospital and good strong customer growth in wellbeing. Gross profit was up 21.6%, with the reduction in gross margin due to additional investment in Live Better and mix impacts, partially offset by efficiency benefits in community and acute. And whilst expenses increased with growing scale, the expense ratio was 250 basis points lower with improvement across all 3 segments.

We continue to see strong organic growth potential in the business. with focus areas for the remainder of FY '26, including meeting more health needs at more customers, scaling existing services with a broader set of payers and realizing synergy benefits across our primary care network. We aim to augment this organic growth with further M&A that scales and expand geographic coverage in primary care and adds capability in well-being and virtual care.

Now on Slide 19, we've shown a more granular breakdown with the financial results for our 3 Medibank Health segments and the key customer metrics driving performance. In the well-being segment, Live Better members increased 13.6% following investment in the proposition and reward points give back offer. In primary care, consultations increased by 2.8%, with an increased proportion of these being undertaken virtually. And in community and acute, the [ 2 home emissions ] were supported by strong volume growth in publicly funded programs and increased capacity in our transition care service.

Moving to Slide 20. Investment income was down $19.6 million, [ with a ] $5.7 million and $5.8 million reduction in the growth and defensive portfolios, respectively. The decrease in the growth portfolio reflects lower income from all asset classes other than property and the lower RBA cash rate was a driver of the reduction in the defensive portfolio. Other investment income was also lower, following the payment of the final customer giveback in September last year. We expect further impact in the second half with lower cash holdings due to funding the Better Medical acquisition. We'll adjust credit duration and liquidity settings in the defensive portfolio to help offset this impact. And of course, the recent increase in the RBA cash rate will also be helpful.

With lower earnings on cash, underlying net investment income was down $11 million. The underlying net investment return decreased 26 basis points to 2.74%. And the annualized spread to the average RBA cash rate increased to 184 basis points.

Moving to Slide 21. The health insurance business continues to be well capitalized. Capital is at 1.9x the PCA and the capital ratio is 13.8% of premium revenue. We continue to hold additional capital to offset the $250 million APRA supervisory adjustment, and this is why the capital ratio is above the target range of 10% to 12%. The Better Medical acquisition was the main driver of the change in the capital position in this period. The increase in Medibank Health capital employed includes $163.5 million cost of this acquisition. The acquisition was funded from our unallocated capital, with this partially offset by strong capital generation.

We are also well placed to fund further inorganic growth. The unallocated capital position supports our FY '30 Medibank Health earnings aspiration of at least $200 million. And we have capacity to raise Tier 2 debt to support growth above this level if further attractive opportunities arise. And given the strong capital position, the Board has declared an interim dividend of $0.083 per share, which is a 6.4% increase and 76.8% payout of underlying net profit after tax.

And to finish, a few comments on our outlook for FY '26. Our resident health insurance outlook is unchanged. We aim to grow resident market share in a disciplined way, including further growth in the Medibank brand. We continue to expect growth in resident claims per policy unit of between 2.6% and 2.9%, and expected our proactive approach to claims management will differentiate us from the rest of the industry. Our nonresident outlook is also unchanged.

And finally, we've updated our Medibank Health outlook. We expect FY '26 organic operating profit growth to be similar to 1H '26 plus an additional circa $6 million contribution from Better Medical in the second half. And our M&A pipeline remains strong, and we have both the appetite and financial capacity to pursue further strategic opportunities.

I'll pass back to David to make some closing remarks.

Thanks, Mark. Now over to Slide 24, just for us to wrap up.

We're a resilient company, and we're a growing company with strong customer relationships, positive momentum and a clear vision for the future. We remain focused on the needs of our customers and patients. This shapes our strategy and drives our performance. As we continue to strengthen our foundations and deliver greater value, choice and control in health. We are seeing this reflected in our growing health insurance momentum and Medibank Health going from strength to strength.

Despite the economic challenges, the health insurance market remains buoyant. And through our work across both private and public systems, investing in prevention and delivering more innovative care models, we are driving the health transition. While this change is emerging more broadly, more must be done to accelerate it. So we will continue to champion this and work with governments to advocate for the reform needed to keep health care in Australia affordable, accessible and among the world's best.

We are on track to meet our FY '26 outlook and continue delivering value for customers and shareholders. And finally, our achievements are only possible because of the amazing people at Medibank. And I thank them for their ongoing commitment to creating the best health and wellbeing for Australia.

So now it's -- over to you for any questions you may have.

Your first question today comes from Nigel Pittaway from Citi.

I just wanted to ask about sort of what you expect for claims inflation maybe a bit beyond second half? I mean, obviously, at face value, the rate increase that was announced this week does seem quite a lot ahead of your sort of $2.6 billion to $2.9 billion you're guiding to in the shorter term. So I was just wondering if we could get maybe a little bit more color as to what was the basis behind that level of rate increase and whether or not that is actually related to what you expect for claims moving beyond this year?

Yes. Thanks for your question, Nigel. At a 10,000 feet view in terms of '26 versus '27 are probably 2 major factors to call out. The first one is -- we know we'll have a COVID tailwind this period, reflecting the fact that FY '25 claims were $74.8 million below expectations. So we've had a utilization tailwind in this year. That's worth about a 100 basis points on claims. We also know New South Wales private room rate will cost us 20 basis points this year, and that would then be fully embedded in our claims line. So the net of those 2 impacts, Nigel, is about 80 basis points, and that will be the single biggest difference between '27 and 26.

Okay. And then I mean, obviously, you're saying the revenue mix, as we're now meant to call it, will improve in second half. I mean is that sort of your ongoing assumption beyond that as well? Or...

So Nigel, the revenue mix -- the trend in revenue mix is going to depend on how fast we're growing and where we see growth. So provided we don't see any further deterioration in the economic environment or our growth rate doesn't increase significantly and the mix of that growth either, that's a reasonable assumption looking forward.

Okay. And then maybe just -- I mean, maybe further to that, I mean, obviously, you've been prepared in this period to pick up some, as you described, the lower-tier products. And I will see most of your growth is still coming through ahm. So I mean, is that sort of what we would expect moving forward? I mean you are still saying you want to grow the Medibank brand, but it seems although that's still reasonably tough to do in the sort of areas that you desire to grow in. Can you make just a few comments about how you're feeling about that sort of revenue growth mix moving forward.

I actually have a slightly more positive spin on the policyholder growth trajectory for the half, Nigel, Medibank growing at 80 basis points, which is well from what we've seen in the prior period. In fact, Nigel, for the full year, I'd probably expect the Medibank growth rate to be slightly higher than the half and ahm to be slightly lower. So actually, we're really happy with the Medibank trajectory.

Yes. I think the notion that Medibank or ahm plays in a certain tiering is not quite correct, both Medibank and ahm support a very, very different set of customers who choose -- yes, slightly different mixes. But in the current environment, people are looking for more value and particularly looking for more value in their health, and that's part and parcel of the Medibank proposition. So that's really what's driving the growth and in particular, our focus on our target segments, which are also growing and we are growing in like corporates like families, those new to the industry.

As we know, the second half is always a bigger, [ new industry part ] in the first half. So actually, with the core brand metrics of Medibank, very strong, I think despite the economic conditions, I think the Medibank brand momentum, we feel very confident about continuing.

Okay. And then maybe just finally, I mean, obviously, the government in its sort of PHI premium rate increase announcement is still talking about this hospital benefits ratio climbing to sort of closer to 90%. I mean are you expecting to have to do anything moving forward to sort of encourage that development?

There's a lot of talk about the ratio. We -- our benefit -- our hospital benefit ratio is higher than the industry average and is likely to slightly improve. But look, I think -- the ratio is just -- is one way of looking at [ health ]. Actually, the real question we should be asking is the absolute cost of delivering health to the 14-or-so million people that have private health insurance. We still have to ask ourselves the question, why is it 30% more expensive to have a [ new ] replacement in the private system than the public system? Why is it twice as expensive in Australia to have a hip replacement in Northern Europe? Why is the pacemaker 4x the price in the private system than in the public system? I think they are the questions that probably occupy more of our mines as we think about sustainability system than the ratio itself.

Yes. Okay. I mean, obviously, you've made those points for some time and the government is still focusing on it, but yes.

Your next question comes from Julian Braganza from Goldman Sachs.

Just a further question on downgrading. I just want to be super clear on the composition of the number. just how material is the investment in Live Better versus growth in lower-tier products, just in that 1.5%? And also, what gives you confidence that, that downgrading will be better in the second half of '26, just given the higher premium rate increase that's coming through. I just want to understand that a little bit better.

Julian, we [ must ] just rephrase that there's revenue mix because it is important. It is important, because there are 3 components that make up revenue mix. The first component is what you call downgrading, which is existing customers changing the cover. The second component is where we see policyholder growth. So the mix difference between customers that leave us and customers that join us and the third component is where we invest. And that investment could be in Live Better, it could be in discounts, it could be [ in offers ].

If we point you to the second half of '25 and the movement in revenue mix in the second half, you will see that coincide with us increasing our policyholder growth number, and that was the major driver of that movement. If you go to the first half of '26, revenue mix impact was 150 basis points, and it was 130 in the second half. The majority of that increase was as a result of it better investment and offers. So you can see the bigger impact within the second half, and that related to where we saw growth. And less significant impact was relating to investment in [ better offers ].

Why do we get comfortable? So the investment we've made is now fully embedded in our revenue line. And so unless we look to invest more to grow even more, it's unlikely that will repeat. And the impact we saw on the sales and lapse mix in the second half, again, we don't increase our growth rate significantly. All the market doesn't shift significantly. We're not expecting that number to deteriorate significantly.

I [ would ] call out, it's important you can't just look at revenue mix, you got to look at revenue mix and claims mix because those lower-tier products where we're seeing growth, they come at a lower revenue per policy and lower claims per policy. So really, going forward, it's about the [ jaws ] in the business, Julian, not just the revenue mix.

Got it. That's super clear. And then just to unpack just that hospital inflation number of 4.6%. Just to be super clear, just what component of that is investment in product benefits. Is it the flip of the benefit on utilization from the claims favorability? Or is it less than that? So I just want to -- just trying to be very clear on what is that underlying inflation number ex the product benefits that you're making -- investments you're making?

[ Public ] [indiscernible] to the New South Wales private room rate cost because that had a 50 basis point inflation impact in that 4.6%, Julian. The investment in product benefits was less than that. Investment in product benefits is ongoing. Obviously, we can increase it or decrease it given where the claims trajectory is, but the New South Wales private room rate impact was the single biggest uplift that we saw [ over ] the 12 months.

Okay. Got it. That's clear. And then just the last question on hospital utilization. Even after adjusting from the claims favorability as you sort of flagged utilization is still quite benign and negative. Just want to be clear what's driving that? And how sustainable given it's consistently surprised quite positively.

Thanks for calling that out, Julian, because it's a really important feature of the result. Utilization growth was 2.8% negative. And you rightfully called out that around half of that is -- reflects the COVID tailwind that we had from the prior year, which is a one-off, but the remaining 50%. So almost 1.4% contraction in utilization is ongoing. And that's linked to a couple of factors in addition to the skew to policyholder growth in lower-tier products.

We're also seeing the benefit of our risk selection. So where we grow and how we grow, through which channel at which time I think we're getting favorable selection bias in our claims, and we're seeing that come through in restabilization. And I wouldn't underestimate the impact that hospital partnership agreements are having. So we're paying higher indexation in exchange for where we've got lower utilization growth with our partners, and that's contributing. So I wouldn't expect anything other than the COVID one-off impact to be significantly varied going into '27.

Your next question comes from Andrei Stadnik from Morgan Stanley.

Can I ask around the comment around resident commissions remaining in line despite the increasing aggregator presence. Can you explain a little bit about how you manage to do that?

So the commission depend on which aggregator that you're selling through, and it also is dependent on the premium per policy. So as we've seen growth due to lower tier products in bronze and silver, the revenue that we get for that policy is lower and the commission we pay as a consequence is lower, Andrei.

Slightly dry question. But just in terms of the tax rate, should that normalize going forward towards 30%?

That's not a dry question. I live for questions on tax, Andrei. So thank you. Probably 2 components on the tax rate this half. I think one of those we've mentioned before, so the losses from our joint venture hospitals are actually after tax losses, so we don't get a tax shield on that. And then a number of the M&A expenses are nontax deductible. So you saw an uplift in M&A expenses this year in the first half. And as a consequence of that, that's at a higher nondeductible component expenses.

Your next question comes from Siddharth Parameswaran from JPMorgan.

A few questions, if I can. Firstly, Mark, I just wanted to be clear on where you're expecting that revenue mix downgrading figures to come in the second half. I mean you say it should be lower. But the first half was materially higher than my assumption, [ I don't presume ] consensus as well -- whilst the claims inflation was broadly in line with what you had. I was just keen if you could help us understand both those 2 metrics, the claims inflation per policy where you've held the guidance, first half is slightly better than that guidance range. Where do you think you'll end up for the second half and for the full year within that range? And also just the same for the revenue mix downgrading impact because it makes quite a difference to the trajectory of margins.

Yes, sure. I probably won't look to narrow that [ 2.6% to 2.9% ] guidance for you. But what I'd say is where we land in the range will depend on 2 [ fact consumer claims ] perspective. Firstly, the [indiscernible] realization timing benefit that we saw in the first half. How much of that unwinds into the second half. And then secondly, where we see policyholder growth. So if we see policyholder growth toward -- in the higher-tier products, you'd expect claims inflation to be towards the top end of the range and then your revenue mix impact would be lower. And if you see it at the lower, [ if you say ] growth, in the lower-tier products, [ then you'd ] expect claims to be lower and revenue mix impact would be higher.

What we're [ thinking ] is provided -- we don't see any deterioration in revenue mix impact, which is not our expectation. A flat jaws outcome in the business is very plausible. And to the extent there's any variation in that during the course of the second half, we obviously have opportunity to reinvest if claims are lower than we expect or other contingency options if claims are higher than what we expect.

Yes. Sorry. So to be clear, flat jaws is what you're saying is a reasonable possibility in terms of the second half versus the first half?

Very plausible outcome, Sid.

Yes. For the gross margin because there's a step-up in expenses, right? So just want to be clear what we're saying.

I didn't make any comment on expenses, but I'm happy to. So...

No. Yes. But I mean your guidance second -- yes, I just want to be clear that the jaws comment was on gross margin.

Yes. The jaws is on revenue claims per policy. Maybe a few comments on expenses movement in a range of $690 million to $695 million. The uncertainty within that range is where nonresident policyholder growth lands and therefore, the commissions we paid. So if it remains at the top end of that range, you'd expect stronger, particularly student [ joints ] during the course of the second half and [ if ] at the lower end than probably a lower growth rate and the uncertainty is how does the opportunity on Visa approval increases actually land in the portfolio in the second half.

Yes. Okay. Great. Okay. Just a second question, just on the claims inflation. I just wanted to make sure, were there any contributions from reserve adjustments or anything from the past? And also, if you can just comment on just the risk equalization benefit and what you are expecting, what happened in the period, what you're expecting going forward?

There was a modest release out of reserve for both resident and nonresidents. Some of that's actually been reinvested into the business during the course of the year. So I think sit outside of the cover benefit of $43.6 million. The result is effectively a cash claims result. So I'd just add that $43.6 million back to your claims trajectory and that should give you a pretty good view of the cash result.

Wasn't there a $19 million reserve release, I mean I thought there was...

Yes, that's what I just called out. That was spread across resident and nonresident. But we've been -- [ reinvested ] during the course of the year. We also can see the release on the [indiscernible] 31 December claims [indiscernible].

Yes. Okay. So that will impact second half versus first half on claims inflation. You've reinvested so that will...

That we reinvested during the half. So Siddharth, I'd look through that. And when you consider the accounting versus the cash, you should be focusing on the $43.6 million COVID benefit from the prior period is the difference between cash and accounting.

Okay.

Did you want to comment on -- I think you asked on risk equalization.

Yes, yes, yes.

Sure. So really, that's linked to the Medibank brand rather than ahm. What we're seeing is a better net recovery for Medibank. So Medibank received out of the pool. Ahm pays into the pool. So what we're seeing is some of our younger and higher claiming customers being more prone to lapse. So we end up saving the risk equalization charge that accrues every policyholder but those customers aren't [indiscernible] [ flags ] aren't typically risk stabilizable because of their age. And so that's driving that positive skew for the Medibank recovery rate. And that's a trend we've seen -- we saw it in the second half of last year and to a lesser extent the first half of last year as well.

Yes. Okay. And just a final question for me. So if I take your 5.1% rate increase that you've got, and if I'm to look forward, I mean, you're basically saying that you don't think the downgrading should get any worse. And what I'm interpreting as well is that the inflation shouldn't get any worse either. So if I just take that 5.1% subtract let's say, 1.5%. I mean are you basically saying you can tolerate inflation per policy of -- what is that? So 3.5%, is that the [indiscernible] total margin is the same?

That's probably not a bad way to look at it, Siddharth. I guess the way I think about it is, we had 2.5% claims growth. We know that the COVID benefit is about 1%. And so that's the difference between cash and accounting is 1%. So that's a cash claims growth. So everything else being -- which is obviously why provided your revenue mix impact is [ not ] about 150 basis points, then again, a stable gross margin outcome, it's very plausible. The big question is where do you land in the range for FY '26 because obviously, that sets the foundation for '27.

Yes. Okay. Got it. So yes, COVID benefit plus the -- if the inflation holds at that level, you can hold gross margins, but...

Your next question comes from Andrew Goodsall from MST Marquee.

Sorry, it's Dan Hurren. Andrew has been pulled on another call. Look, can I ask the question, just I guess going back to around Nigel's question and the [ healthiest ] comments around the premium increase. And I know you talked about the cost of the unit -- cost of care. But I mean, specifically the minister wants to stop hospital closures as we understand it. So what do you think is actually -- what can you do to execute them [ as to happy ] there?

Well, I think the statement of expectations that was published last year was very helpful to guide the market in terms of setting their settings to meet those expectations. I think we were very happy with that clarity. In fact, I think we met all of those expectations in getting our premium proposal approved I think through the CEO Forum, which I'm an active member of, we are talking about how do we set up a sustainable system where the system can thrive.

What's very important that principle in those discussions is that it's not about any single player, it's about the system. We also know that the shift of care from acute hospitals to more fit-for-purpose settings, both [ shortest stay of ] day in the community we are further on other countries. And a lot of the focus is on how do we encourage that health transition. There's a recognition of that means that hospitals will need to change. There will need to be some either reconfigurations of current assets or growth in other regions or sectors.

A part of our partnership approach that we have led the industry on is to share and incentivize that shift, which we've talked about today with increasing number of hospitals participating in those partnership agreements. It covers about 80-plus percent of our benefit outliers, and it's an increasing investment that we're making to make that shift. So that was part of the expectations set, and that's what we're delivering against, and that's really the conversations at the CEO Forum. I mean the fact is, right now, we have too many beds in the system in the wrong spot and not enough in some spots.

Utilization is too low and the Australian consumer shouldn't be paying for that. So everyone is completely aware that -- this is why it's called a transition. It's not going to happen in one day. It needs to happen more quickly. But I think, as I said before, there are many in the system who have brought fresh thinking and a more longer-term view that are saying and recognizing this change happening and now they're changing their business models to deliver against it.

David, that's helpful. Can I just ask one follow-up. Sorry, one different question, in fact. Looking at the trend in aggregators, not just in your results today, but right across the industry. And your comment that you can grow the Medibank brand in the second half. Could you just talk about the relative impact of aggregators across your 2 brands? Does it -- is it skewed to one [ and not the ] other?

Yes, very much so because we don't have Medibank on the aggregate. So it's 100% only applicable to the ahm brand. Medibank, we've been very conscious to focus growth on our direct channels. And in fact, as a total group around 70%, 75% of our joins our -- for those joining are direct. So that's a real strength of ours. And we are continually investing in both retention. We've shown today our improving retention rates versus the market that is deteriorating. So that's the best way to grow is to keep the customers you've got. It's a third cheaper to do that than acquiring in the open market. And the second is to work selectively where it makes sense to grow via aggregators.

Aggregator share in the market has slightly increased. So we're always thinking about how we grow in a disciplined way. We'll always work with aggregators, but not where their terms and conditions are unsustainable for the long term for both us and the system.

So Medibank is more about retention in that second half. Your comment to explain more about retention...

So I mean, Medibank has the best retention rate of the major brands and one of the leading retention rates in the market. But Medibank is also about growing in the segments we've talked about today, those new to the industry, particularly families and particularly corporate. I think I shared our very strong momentum, for example, in the corporate market with a [ 6% to 7% ] growth year-on-year in [ join ]. So plenty of headroom for growth for Medibank, but the retention as a company is a very important source of growth that we pay much more attention to perhaps than others.

Your next question comes from Freya Kong from Bank of America.

Your next question is from Vanessa Thomson from Jefferies.

I wanted to ask a little bit more about the hospital situation as well. I think you called out that $37 million was paid to hospitals in addition last year and $20 million in the first half, if I heard that correctly. I just wondered what your expectations were for FY '26.

Yes. So just to clarify, those comments, and I might maybe had to Mars to also explain sort of our partnership agreements working. But we have 3 almost of our partnership agreements. There's the base indexation, there's partnership investment, and there has been historically one-off hardship payments that were really designed to support hospitals need through the COVID period. So the $37 million last year is the amount we're paying in the partnership elements, which are incentives that when we sit down in these agreements, we set objectives jointly with our hospital partners. And if they're achieved, then we pay that at-risk element. And that payment was $20 million in the first half on top of $37 million last year. I think when you look at the total -- that total amount versus the total claims line, it's quite a material part of our claims line. And so we are really putting a lot of emphasis on this transition through these partnerships, and they are working well for us.

So I might hand over to [ Milosh ] just on the general hospital partnerships and how we're seeing those partnerships evolve.

Yes. Thanks, David. Vanessa. The partnerships, as David said, covering over 80% of our benefit outlays and they're growing in number and scale. So the proportion, as you can tell, is going in how much of that indexation and payment to hospitals is coming through funding for partnership initiatives. And we're obviously doing it for a number of years now, and we're starting to see those benefits come through our claims line, but also customer health outcomes.

And to give you an idea, they range from shifting care models to lower length of stay and short stay, growing our no-gap network that also addresses cost to customers. It creates a proposition that's very compelling, maximizing prosthesis savings from the more recent prosthesis reform that reduces low-value care utilization in the system and also accelerating new care settings like home care, virtual care that help avoid complications and readmissions. So all of those are part of that $20 million, and it's growing in absolute terms, but also in relative terms compared to the total indexation number.

Okay. And just following through then, we've seen the significant challenges for the hospitals, labor availability, wage inflation, clinical care costs. I just wondered what sort of color you're getting from the private hospital ventures that you have. David mentioned before, too many beds in the wrong place. Given that you've been able to be more strategic, I just wondered how that looked from your perspective with respect to your hospitals.

Yes. I think we've probably set a very different sort of relationship paradigm with hospitals over the last well, the last 10 years. And there are challenges in the system. There's challenges in our business. We've all had to think differently about how we take pressure off premiums and how we drive the transition. So I think our conversations are data-driven. They're looking to the future, and they're all about preserving access now in the future for our customers. So really, it's enabled us to have these more forward-thinking conversations. There are some pressures in the system, and we are paying indexation rates as an industry, the highest we've paid in more than 10 years. So the industry has responded, us included. to pay more to hospitals than indexation, but we're requiring change as well. And so that's a bit of difference. And when we sit down with hospitals, it's a constructive set of conversations based -- driven on data.

Thanks very much. Thank you. Your next question comes from Freya Kong from Bank of America.

I hope this works now. I just wanted to ask about the 2026 price rise again. So your 2025 adjusted cash claims inflation is around 3.5%. How do I bridge this to the 5.1% price rise you're going to get? I guess what I'm trying to ask is if utilization benefits will be shared even more with the private hospitals going forward and the claims inflation outlook is a bit higher.

Freya, so the bridge between the cash claims number and the premium increase is the revenue mix impact. And so it was 150 basis points for the half. So that's the simple bridge between the cash claims and the headline premium.

Okay. Great. That's helpful. And then on growth in nonresidence business, which went backwards in the period. Is there anything that you're concerned about there? Where did the lapses come from? Or has competition picked up?

Yes. So let me start on the lapse. That was in the student portfolio, and this reflects the fact that we had coming out of COVID, 2 very high origination years. And most student courses are 3 years. So we're just seeing that natural graduation of those students. Probably the focus in the second half is really around the students' visa approval numbers and [ that it ] may increase in the expense the policy unit growth to increase. In fact, I think over the last 12 months, we probably went backwards in student policy somewhere between 3% or 4%. Still winning share, but that overall market has been contracting. So we've got opportunities in the workers segment, which is already growing pretty strongly. We had double-digit growth in the last 12 months, and then we've got the opportunity to kick off the growth again in the second half of students subject to the visa approvals.

Okay. Great. And just finally on your thoughts around medium-term uses of unallocated capital. I think based on your Medibank Health plans, you've got around $140 million additional capital to deploy in the next couple of years. Your unallocated capital is already sitting at around $190 million and likely to keep growing. So I'm just wondering what you think or thoughts are around that?

We spoke about Medibank Health in the presentation and the focus was on primary care and both scaling and expanding geographic coverage. I think that is the most likely in the short [indiscernible] use of capital. Obviously, there'll be opportunities in the broader virtual care space and in wellbeing. But following the success in the Better Medical acquisition, so the probability is that the next investment will be in primary care again.

Okay. I guess my question is just beyond what you've allocated for Medibank Health up to 2030. What other uses of capital do you see?

Well, I'll start with that current aspiration, which is to grow earnings to $200 million. And that would require us, as you said, to invest capital up to that $700 million level. And then that would effectively expand the unallocated capital. Then we've got opportunities to further grow our [indiscernible] or invest in the well-being space as well and then you can't discount that if there's capital that we can't invest and we return it to shareholders.

And look, I think in the very long term, but all these 3 segments in health, well-being, primary care, community and acute care, all of those 3 in terms of absolute revenue of the market potential are larger than private health insurance. So when we get there, well, we are already a meaningful share of those markets, but there'll be more headroom for potential growth where it makes sense.

And the one that Dave and I've been talking about quite a lot with Milosh is what happens to the PHI industry in FY '30. So we've seen one -- a reduction of one player in the PHI market, which is consolidation and the [indiscernible] in New South Wales and [ Quantech ] fund consolidation. That's the first we've had since we've come out of COVID. When you -- consolidation would be most [ health funds ] are now who had been running in an environment with low claims and high capital. We know that's starting to unwind. We know we've got the new financial standard of CPS 230 that comes in on 1 July , formalized, 1 July next year. So I think the thing we're discussing is that what does the industry look like in FY '30. How do we play as [indiscernible]. What happens in the industry through a shift in market share organically versus is there a consolidation opportunity at the right cost. And that would be a use of capital long term, Freya.

[Operator Instructions] Your next question comes from Kieren Chidgey from UBS.

Most of my questions have been covered. But the one was -- can you just circle back on was sort of this view of cash claims inflation, Mark, you're sort of talking around the 3.5% number. But when I look in your financial statements at your cash flow, the payments on a per unit basis seem to be up around 4.8% on PCP. So it seems like we're sort of more trending in that 4% to 5% range on a payment per policy basis. Can you just help me reconcile why that's not a better guide to sort of how claims growth is going to move going forward?

Cash flow can be heavily impacted by processing speeds on claims, and we've seen a marked speed-up of lodgement of claims, and we -- as the best we can increase the speed in which we pay those claims, Kieren. So I think that's probably a better view to look at the 3.5% and just go through the cash flow. You can look at what the outstanding claims liability is at 31% versus the prior period, and you will see the claims on [ and ] it's quite a lot lower. That's a phenomena we're seeing across the whole, I mean most PHIs have seen that. And sure if you listen to the [ Ramsey ] call, they will talk about that in their cash flow conversation as well.

Also just on the claims numbers, there seems to be some sort of risk margin sort of release in the period. Can you talk to that? And on the risk equalization, I just want to be clear on the $17 million benefit from first half. When you say that may unwind in the second half, are you talking about a neutral outcome? Or are you talking about sort of a full sort of unwind? Is it in a negative $17 million, so you're flat over the year?

Thanks, Kieren. You've gone through the financial statements very quickly, well done. The risk margin point, we haven't changed the probability of efficiency. What's happened is as the claims in hand has dropped and there's a consequential impact to the risk margin in hold. So claims on hand down whatever that reduction is, multiply that by 12.2%, and that's why you've had a reduction.

Look, I would still expect to be a modest receiver on restabilization for the full year. Obviously, it depends on what the other [ 34 ] funds do and how much we vary relative to market, but I'd still expect to be a modest receiver.

Your next question comes from Andrew Buncombe from Macquarie.

Just one for me, dovetailing with that question that was just asked, you've retained your probability of adequacy then, I know I ask this question every half, but all of your peers have unwound that already. What do you need to state to drop that number going forward?

Yes, it's a great question, Andrew. And look, there's no basis -- there's no need to change it. It's just whether or not the claims experience supports changing it. We are seeing and why we didn't change it this half. We are seeing, I think I mentioned to one of the other questions, I think with Kieren's question, we are seeing slightly more volatility in monthly cash payments in claims because of payment speeds. And whilst that persists, I think we'll take a prudent and conservative approach to maintain the current percentile.

Your next question is a follow-up from Andrei Stadnik from Morgan Stanley.

Can I just ask around the health segment. So some of the bulk billing GP changes came through November last year. How are those going to be impacting the health segment given your focus on GP clinics?

Good question. So if you think about billing, we're typically receiving a higher payment on MBS and likely charging a customer a lower cap. So at a consultation level, don't expect a material impact, and we didn't see a material change in our average fee per contract during the half. It's probably more where you've got clinics to go to total bulk billing. You expect to get a practice incentive, and we should see some benefit of that during the course of the second half.

Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.

Good morning, everyone. My name is Mike Wilkins. And on behalf of Medibank's Board of Directors, I'm pleased to welcome you to our Annual General Meeting for 2025 here in Melbourne.

Before we begin, I want to acknowledge the traditional custodians of the land we gather on today, the Wurundjeri Woi Wurrung people and pay my respects to their elders past and present. I also extend that respect to all aboriginal and Torres Strait Island of peoples across the many nations where Medibank's customers, people and communities live and work. At Medibank, we recognize that of cultural knowledge, care and custodianship that First Nations peoples have carried for tens of thousands of years.

Their enduring connection to country continues to shape how we think about health and well-being, community responsibility. We're committed to building trusted relationships with First Nations peoples by listening deeply partnering with respect and taking meaningful action that strengthens cultural safety, advances health equity, improves health and well-being and support self-determination.

May this meeting be guided by respect, openness and a shared commitment to creating a healthy future all people who call our great country home.

Today's meeting is being held in a hybrid format. So I'd like to thank all shareholders for joining us today, both those of you in the room and those joining virtually through our live stream. Welcome.

A quorum of members is present, and I now formally declare the meeting open. The Notice of Meeting has been sent to members, and I'll take it as read.

Joining me on the stage today is the Medibank Board of Directors, and I'd like to introduce them to you. On your far left, my far right, is Linda Nicholls, who is Chair of the Investment and Capital Committee seated next to Jay Weatherill. Jay is sitting next to Kathryn Fagg, who's standing for reelection today. And of course, sitting next to Kathryn is our Chief Executive Officer, David Koczkar.

On your far right, my far left is David Fagan, who is Chair of the Risk Management Committee; and he's sitting next to Gerard Dalbosco, who's Chair of the Audit Committee. Sitting next to Gerard is Tracey Batten, who is Chair of the Board's People and Remuneration Committee. And sitting next to Tracey is Peter Everingham, who is also standing for reelection today.

Finally, to your immediate right of me is our Company Secretary, Mei Ramsay. Also joining us today in the front row of the auditorium seating are the 2 Board-endorsed candidates standing for election as Directors today, namely Lisa McIntyre and Jacqueline Hey.

At this stage of the meeting, I'd like to briefly run through some procedural details. For those attending virtually, if you experience any technical difficulties during the meeting, please call the number on the screen. A recording will be also available on our website after the meeting.

If the AGM needs to be adjourned at any time due to technical or other reasons, we'll provide further instructions for the information on our website and the ASX. To provide shareholders the greatest possible opportunity to vote, I now formally open the polls on all resolutions. I also now formally cast all votes for proxies I hold on all resolutions in accordance with the directions by shareholders or as set out in the Notice of Meeting.

Medibank's share registry, Computershare, has given me a report of the proxy voting instructions received for Items 2 to 7. As advised in the proxy form, open proxy votes held by me as Chair of the meeting on all resolutions have been cast in favor of each resolution and the indicative results of the proxies received on Items 2 to 7 are now displayed on the screen behind me.

I'll provide more detailed instructions regarding voting and the asking of questions later in the meeting. What I'd like to do now is to begin with some reflections on our 2025 financial performance, and I'll then ask David for his comments.

The past decade has been one of great transition for Medibank from government-owned to publicly listed from traditional services to more digital solutions and from health insurer to health company. What's remained constant, however, has been our work to deliver on our purpose, helping Australians live healthier, better lives. This purpose came into sharper focus this financial year, as many people continued to face daily cost of living pressures and economic uncertainty, while still choosing to prioritize their health and well-being.

We've maintained our focus on delivering more value to our customers through our products and services. This year, the Board oversaw the finalization of our COVID customer giveback program with a final cash give back to customers of $228 million. This brings our total COVID support package to $1.71 billion, the largest of any health insurer in Australia, and it fulfills our promise made 5 years ago that would not profit from COVID.

We did that because it was the right thing to do and because our customers deserve a health partner that supports their well-being, both physically and mentally. We've kept premium increases below inflation and well below those of our major competitors. We've made every day health services more affordable and accessible for our customers through our members choice advantage and no-gap networks, 24/7 online health support services and our Live Better rewards program.

Customers have recognized our commitment to deliver what they want most with more people be they families, students or workers choosing Medibank or AHM to support their health. We saw continued growth in both the resident and nonresident health insurance businesses with health insurance operating profit up 7.1% to $741.5 million.

Our Medibank Health business is now contributing around 10% of our earnings, with segment profit up 27% to $76.7 million. Medibank Group continues to be a resilient business with a strong capital position, and this year's shareholder received dividends of $0.18 per share fully franked, and that was an 8.4% increase on the 2024 financial year.

Ladies and gentlemen, Australia's health system is one of the best in the world, but it's under a great deal of pressure from an aging population, the prevalence of chronic disease and ongoing workforce challenges. It must change if it's to continue to support our community both now and into the future. The Board is proud that Medibank is helping lead the health transition.

We're investing $50 million over 5 years to improve mental health prevention, access and innovation. We've expanded our range of prevention programs designed to help our customers both be better and stay better. And this year, have seen double across our clinician-led and everyday well-being programs.

A no-gap program has grown to 41 sites nationally, helping more than 10,000 Medibank customers save over $7 million in out-of-pocket costs to date. And this year, we partnered with doctors to open Australia's first no-gap private hospital in Melbourne, Ade Private Hospital. We've also been reinventing health care delivery in South Australia through Amplar Health's innovative programs for SA Health, providing hospital care in hotel and home environments, which have supported 22,000 public patients since it started 4 years ago.

These aren't isolated initiatives. They're part of a broader shift that we're driving in health from a system built around treatment to one focused on prevention, a transition from care delivered only in hospitals to being provided in homes and communities, a move to virtual health and personalized care options that give patients more choice and a focus on care built around people and their individual needs.

The needs of our customers and patients are driving our strategy to grow as a health company. We've made targeted investments in well-being, primary care and hospital and acute care services, including our most recent announcement earlier this month about the agreement to acquire the better medical network of GP clinics and medical centers.

This complements our majority interest in MyHealth Medical Group, which has a network of 105 primary care clinics across Eastern Australia. We've now received clearance from the ACCC for the Better Medical acquisition and subject to the usual conditions, completion is expected by early 2026.

By meeting more of the health and well-being needs of our customers, we're strengthening our business, delivering meaningful change to our health system and creating greater value for shareholders. In addition to the ongoing investments to innovate and implement change that we've made within our business, Medibank continues to work closely with governments and health stakeholders to influence health policy reform in support both the public and private systems and to drive the health transition.

To better enable our people to lead this change, we've continued to challenge traditional ways of working to support better decision-making for our customers, giving our people greater autonomy, flexibility and accountability. More than 500 people from across the business are now participating in our 4-day work week trial.

To date, independent research by Macquarie University into the trial shows significant and sustained improvements in employee engagement, job satisfaction and participant health and well-being whilst also maintaining business performance and customer outcomes.

Throughout the year, the Board continued to work closely with David and the executive leadership team on Medibank's strategic priorities and programs, customer focus and governance, including overseeing the group's updated risk management strategy and its refreshed risk culture framework.

As well, the Board remained focused on our environmental, social and governance strategy, including preparation for reporting against the Australian sustainability reporting standards in 2026. Our commitment to sustainability is embedded in our 2030 vision to deliver the best health and well-being for Australia, and it's implied throughout the day-to-day decisions we make across Medibank, AHM and Amplar Health.

In June 2025, we marked the achievement of reaching our net 0 emissions targets for our Scope 1 and Scope 2 operations that we set in the 2021 financial year. However, given the changes in our business since that target was set, we've now developed an updated baseline for greenhouse gas emissions, and we're reassessing our targets and pathway to account for this.

We also remain very committed to advancing diversity and inclusion across the business, as we believe that Medibank is a stronger business and a better business when it reflects the Australian communities and the customers that we support. As part of that commitment, we continue targeting at least 40% female representation across the group and senior executive teams and on our Board.

Ladies and gentlemen, today marks the final meeting for 2 of our long-standing Board directors, Linda Nicholls and David Fagan, both of whom will retire at the end of this meeting. Linda and David played an integral role in Medibank's history over past decade, helping to guide the company's transition from government ownership to the health company that it is today. And I want to recognize the important contributions that they've made to Medibank and I thank them sincerely for their service to our company. We wish both of them well for their future endeavors.

As well, last week, Jay Weatherill was appointed as Australia's next High Commissioner to the United Kingdom; and as a consequence, he will retire the Board on the 31st of December of this year. With his deep expertise in public policy and reform, Jay has brought meaningful insight and impact to our work, and he's made a valuable contribution to Medibank. And on behalf of the Board and on behalf of, you, our shareholders, I'd like to congratulate Jay on his appointment.

Well done, Jay.

We continue to strengthen the Board to support the future needs of the business with experienced leadership and the right mix of skills. And so I'm very pleased that the Board is recommending shareholders vote for the election of 2 highly credentialed and experienced Directors, Dr. Lisa McIntyre and Jacqueline Hey, both of whom bring a wealth of experience across financial services, consumer businesses, technology and health. Details of how to vote be provided later in the meeting.

Next year, Medibank turns 50. This is a milestone that invites reflection and ambition. We began as a government-owned insurer. Today, we're a health company helping millions of Australians live healthier lives. As we look ahead, our focus is clear: to continue supporting our customers, expanding our role in health and accelerating the health transition to a sustainable, inclusive and personalized health care system.

On behalf of the Board, I want to thank our people for their ongoing work in support of our vision and to recognize the leadership of David Koczkar and his executive team. And to you, our shareholders, thank you for your continued support. Together, we're building a stronger Medibank and a healthy Australia.

I'll now ask David to give us an update on Medibank's strategy, directions and insights into our current performance. David.

Thank you, Mike, and good morning to everyone joining us in Melbourne and on the live stream. I'll begin by also acknowledging the traditional owners and custodians of country throughout Australia and their connections to land, sea and community and pay my respects to their elders past, present and emerging.

This morning, I'll share a few highlights from the past year, comment on the market and then talk about our strategy and our recent performance.

We know many people continue to worry about the day-to-day cost of living pressures they face and feel more uncertain about the broader economy and what it might mean for their future. We see it as our essential role to drive the change required so health care can remain affordable and accessible for our customers, for our patients, and the wider community we serve.

It's why we are leading the health transition. First and foremost, we have continued to deliver where it matters most for our customers. We stayed focused on improving value, meeting more of their health needs and supporting our health systems future. Our customers earned around $33 million in Live Better Rewards and save more than $28 million in out-of-pocket costs through our Members' Choice Advantage and no-gap networks. And as Mike said, our premium increase was significantly lower than our major competitors. And we kept our promise to not profit from COVID.

We've worked hard to support everyday well-being by giving customers access to a wider array of prevention programs and virtual services. Now more than ever, we are playing an even greater role in our customers' health with more than half of Medibank policyholders engaging with us in their health and well-being. And because we're giving customers more of the support they want, engagement with these services is rising and customer efficacy is at a 3-year high.

This is reflected in our better retention rates, which have outperformed the market this year. Our credibility as a trusted health partner to millions of customers is evident. And we have an exciting ambition to support even more people across Australia with the health and well-being as we accelerate our growth.

Last month, we hosted our first health immersion showcasing Medibank as a health leader and detailing our new FY '30 aspirations. This includes our aim to double the number of people we engage with in the health and well-being to around 10 million. It's a tangible marker for our 2030 vision to deliver the best health and well-being for Australia.

Our unwavering focus on our customers and disciplined approach to running our business is driving continued strong growth momentum. While the economic environment remains challenging, resident market growth continues to be buoyant. Those new to the industry and younger people are driving sector growth, which is important for long-term sustainability.

However, the industry is still seeing consequences of unsustainable competitive activity over the past 2 years. Switching rates are up with many funds acquiring customers through high-cost aggregated channels and lapse rates have increased. These higher cost tactics have pushed up operating expenses and premium increases for many funds. Unlike others, we've stayed disciplined in how we've grown, and we have positive momentum in our core business.

In FY '25, we grew net resident policyholders by 27,900 or 1.4%, double last year's rate. And in nonresident, we added 10,500 policy units, up 3.1%. And we've continued to improve how we operate. Over the past 8 years, taking out more than $122 million in expenses to keep our costs down.

This has kept our management expense ratio among the lowest in the market for a decade. As Mike referenced, we saw strong momentum in our Medibank Health business this year. Given the growth and the importance of this segment, the time is right to set new aspirations for our next phase. By FY '30, we aim to significantly increase Medibank Health segment earnings to at least $200 million. And through this growth, we aim to grow policyholder market share each year in a disciplined way to at least 26.8% in FY '30.

And we are prepared to invest further in our health insurance business to increase this aspiration where this makes commercial in. Integral to our strategy is continuing to strengthen our foundations, so we can grow fast and safe. We are continuing to uplift our approach to risk management, investing in more flexible technology platforms and scalable resilient security capabilities.

For our people, 2025 has been a year of transformation, as we continue to reinvent work. Our Medibank customer service teams embedded our approach to supporting customers locally across the country. These 34 teams aren't just local, they are empowered to support customers through their whole experience, driving change and improvements for their communities.

AHM has also transformed its customer service, so team members are more able to resolve queries and managed follow-up, which has seen a very positive impact on our people and customers. And we launched our Amplar Health Locals program bringing together clinical, nursing and allied health professionals into community-based teams. These self-managed teams are providing greater continuity of care for our patients.

And lastly, we're proudly driving the change needed to support the health system for the long term through our ongoing investment in the health transition. We all agree Australia has one of the best health systems in the world, but it's under pressure. People are expecting more and are needing more support in their health and change can't come fast enough.

Over the past decade, we've invested more than $300 million in health services to drive the health transition and deliver more value for customers. As one of Australia's largest health companies, we recognize prevention is key to improving outcomes and reducing costs over time. It's why our investment in prevention accounts for nearly half the industry's total spend.

In FY '25, we expanded our primary care business and enhanced our virtual health capabilities and scaled our proactive care. Earlier this month, we announced we entered into an agreement to acquire Better Medical, a network of 61 GP and medical clinics in Victoria, Queensland, South Australia and Tasmania.

It marks the next stage in Medibank's almost 20-year journey of investing in health services. It builds upon the work we've been doing with MyHealth to enable GPs and their teams to provide more proactive and connected care to their patients, including the new model of primary care, we're trialing across 3 MyHealth clinics in Western Sydney.

With strong early results, we believe this model could be scaled nationally under the My Medicare Reform agenda. While hospitals will remain essential for acute care within the next decade, home and community will become the center of health. We are well placed to support this shift through our Amplar Health Network, already delivering local care at national scale.

This year, Amplar saved around 177,000 hospital bed days through homecare equivalent to nearly 3 average sized private hospitals. And we continued supporting hospital partners to deliver more value and choice for customers. Our financial investment in hospital partnerships more than doubled from last year.

In addition, we paid our partners almost $37 million during the year to fund strategic initiatives, to drive the health transition and enable more personalized models of care.

Mike mentioned our work supporting the public system in Adelaide. As part of this, we began delivering an innovative out-of-hospital transition care service at a hotel on behalf of the South Australian government. Having visited the service last month, I can say it's not just a waiting room, it's a place where people get the care they need to get better and return to their home.

And it's another example of how Medibank is driving the health transition and taking pressure off critical resources needed to support people with acute needs. And we are doing this because it's what our customers and partners want and it's what our health system needs. We are not just expanding in health, we're driving change within it across both private and public systems. And we are continuing to partner with others who share our commitment to driving the health transition.

I will now share some insights into current market dynamics and our recent performance. Health care costs have continued to outstrip inflation and productivity in health care, like many sectors across the country, is sluggish, with Australia slow to adopt many of the health trends we see across the world. This reinforces the need to continue to work together to drive the health transition so we can keep private health affordable and accessible.

Despite cost of living pressures, the private health insurance industry has remained resilient, and we continue to anticipate moderating industry growth in FY '26 relative to FY '25.

While there are signs of competitor intensity easing in some segments, switching levels remain elevated, and aggregator volumes have increased across the industry. In the first quarter of FY '26, we have maintained our disciplined approach to growth and delivered strong resident policyholder growth in line with expectations, as we aim to grow market share in a disciplined way, including further volume growth in the Medibank brand.

Retention across both brands has remained strong, reflecting our continued focus on meeting the needs of our customers. As expected, hospital claims growth for this quarter has been impacted by private hospital arrangements that were negotiated in FY '25. Our FY '26 claims per policy unit growth outlook of 2.6% to 2.9% remains unchanged.

Our nonresident business continues to perform well, with sustained customer growth in the first quarter of FY '26, and we are on track to deliver solid gross profit growth in FY '26. Medibank Health, which includes our well-being primary care and community and acute care segments remains on track to deliver low double-digit organic operating profit growth in FY '26. These services are well positioned in growing sectors with strong potential to serve more of our existing health insurance customers.

And finally, we expect to complete the acquisition of Better Medical by early 2026. This will take our total M&A investment between FY '24 and FY '26 to $218 million, which is towards the top end of our stated $150 million to $250 million target range. We continue to explore further opportunities in our target segments where this creates long-term value.

I'll end by restating what makes us different and how we create value. We support our customers across their whole journey in health, helping them be better, stay better and get better. But it's not just what we do, it's how we do it. By connecting the parts of our business, we deliver more than the sum of those parts, providing what customers want, building trust and growing as a health company. This has delivered long-term value for customers and shareholders, diversified earnings and built a more resilient business. This approach continues to drive our strategy.

In summary, we are a strong, growing business, and we are excited about the future. Our insurance and health businesses offer clear pathways for future growth and value. And we will continue advocating for our customers and driving the health transition this country needs to improve productivity and keep our health system one of the best in the world. But we can't do this without our people. Together, we're aiming to be Australia's healthiest workplace.

Our people are the backbone of Medibank, of AHM and Amplar Health. Our teams work incredibly hard every day with energy and commitment for our customers and our purpose, and I thank them for their dedication. And of course, thank you to our shareholders for your ongoing support. Our passion to serve our customers is unwavering, and our commitment to the Medibank 2030 vision to create the best health and well-being for Australia continues to drive us forward.

I'll now hand back to Mike. Thank you.

Well, thank you, David. We've now reached the formal business of our meeting. As today's meeting is being held both in person and virtually, I'll first run through the meeting procedures. As this is a shareholder meeting, only shareholders, their attorneys, proxies and corporate representatives may vote and ask questions.

I'll now firstly go through the voting procedures. Those of you present in person who are entitled to vote have been provided a handheld device to cast your vote. Instructions on how to vote using the devices are on the screen behind me. Your smart card should already be in the device and a list of resolutions should be displayed on your pad screen.

Use the blue trackball to highlight the resolution you wish to vote on. To vote for the resolution, press the green square button. to vote against, press the red triangle or if you wish to abstain from voting, press the blue trackball. Once you've selected your voting option, you can move to the next resolution by scrolling with the blue trackball. If you need any assistance, please raise your device and a Lumi representative will assist you.

Now for those attending virtually. If you're eligible to vote, a voting icon will appear on your screens navigation menu. Once you click on this icon, you'll see the resolutions on your screen. To cast your vote, select one of the options For, Against or Abstain, for each resolution. The selection will be highlighted and the vote is automatically recorded. There's no need to press a submit or enter button. But you do have the ability to change your vote at any time until I declare voting closed.

There are 7 items of business before the company's meeting this morning, and these are set out in the Notice of Meeting, which you would have received. Items 2 to 7 are to be voted on and determined by a poll. As indicated earlier, the polls are open, and I would encourage you to vote early. The indicative results proxies received on items 2 to 7 are again displayed on the screen behind me.

The polls will close shortly before the end of this meeting, and I'll give you advance notice ahead of the closing of voting. Later in the meeting, eligible persons attending in person and virtually will be given the opportunity to ask questions. For those attending in person today, you'll be entitled to ask a question if you hold a Lumi handheld device or a red card or a blue card provided by Computershare.

If you'd like to ask a question later in the meeting, I'll invite you to move one of the microphones around the meeting room. However, for now, please remain in your seats.

Now for those attending virtually, if you wish to submit a written question, click the messaging icon, which can be found on the navigation menu on your screen. At the top, there will be an area to type in your question. Once you finish typing your question, press send. A copy of the submitted questions, along with any written responses from the Medibank AGM team can be viewed by selecting My Messages.

I'll endeavor to address as many of the frequently raised questions and comments as possible during the course of the meeting, and I'll either answer or pass the question to the person most appropriate to answer. In the interest of time, we may need to summarize questions that are particularly lengthy or moderate questions to avoid duplication. If you wish to ask an audio question, click the Request to Speak icon at the top right-hand corner of the broadcast window. You'll be redirected to a new page on which you can -- will be able to confirm your name and enter the topic of your question.

Click submit request and then click join queue to be connected and follow the audio prompts. If prompted, select allow in the pop-up to grant access to your microphone. You'll be introduced by the operator before ask your question. While waiting in the Q, you'll still be able to hear the meeting.

If you have a question about the virtual meeting technology, please contact the help line that's now displayed on your screen. For those attending in person today to have a personal matters to discuss about your health insurance, please visit the information booth in the foyer and discuss this with a specialist adviser from either Medibank or AHM. And if you have a health-related question, members of our Amplar Health team are here also to help.

Now let's move to the formal items of business. I'll now present all items of business and then provide an opportunity for questions after all items of business have been introduced.

The first item of business is consideration of the financial statement reports. This item isn't subject to a vote, and therefore, doesn't require you to cast a vote. The Medibank financial statements for the year ended 30 June 2025, the Director's report and the auditor's report were released to the ASX and published in the annual report and on the company's website.

We'll take questions on this item following the introduction of all items of business. As usual, the company's auditor, PricewaterhouseCoopers, is represented today in the meeting Marcus Laithwaite, who is available to respond to questions about the conduct of the audit of the accounts.

We'll now move on to items 2 through 5, which are the reelection of Kathryn Fagg and Peter Everingham, and the election of Lisa McIntyre and Jacqueline Hey as Non-Executive Directors. As stated in the Notice of Meeting, under our constitution, Kathryn and Peter retire at the end of this meeting and being eligible, offer themselves through reelection.

Lisa and Jacqueline recommended for election by the Board to fill the vacancies arising upon the retirement of our long-serving Directors, Linda Nicholls and David Fagan at the conclusion of this meeting. Being eligible, Lisa and Jacqueline also offer themselves for election.

The candidates won't be providing a formal address to the meeting today in relation to their reelection or election, but they will be available for questions during the discussion period later in the meeting. Biography of each of the candidates is contained in the Notice of Meeting.

Your Board, with each Director standing for reelection abstaining on the recommendations for their own reelection, recommends unanimously that you vote for the reelection or election of each candidate.

Now moving to our sixth item of business, which relates to the remuneration report, which is put to the meeting in accordance with the Corporations Act. The resolution is to adopt the remuneration report for the year ended 30 June 2025. Medibank aims to reward executives fairly for delivering the company's strategy in a manner that meets community and customer expectations and delivers sustainable shareholder returns.

The remuneration report provides extensive disclosure of Director and Executive remuneration set out on Pages 50 to 71 of our annual report. Under the Corporations Act, this vote is advisory only. However, as Directors, we give serious consideration to the voting results and comments made upon this item when we review the company's remuneration policies. The Board recommends unanimously that you vote to adopt the remuneration report.

Now turning to Item 7. This resolution is to approve the grant of performance rights to David Koczkar, our Chief Executive Officer, to be issued under Medibank's 2026 long-term incentive plan. Medibank's long-term incentive plan is detailed in the remuneration report. It's designed to align the interest of the Chief Executive Officer with the interest of shareholders, and to this end, put a significant portion of his remuneration at risk.

The value of the rights proposed to be granted remains at 175% of the CEO's total fixed remuneration for the financial year ended 30 June 2026. Following the Board's annual review of the performance hurdles and vesting conditions attaching to the performance certain changes were made to the conditions and their corresponding weighting. The rights proposed to be granted along with details of the vesting conditions are set out in the notice of meeting.

It's important to understand that the performance rights only vest and become available for conversion to Medibank shares for the Chief Executive on the achievement of performance hurdles, which are aligned with shareholder interests. If the performance hurdles are met at the end of the 3-year performance period ending on 30 June 2028 and the rights will vest.

Any rights which vest will then be subject to a pre-exercise holding period of up to a further 3 years. Vested rights will be exercised automatically and convert to shares when the Chief Executive Officer -- which the Chief Executive Officer will receive an equal annual tranches over that 3-year holding period.

The shares, which would be allocated on the exercise of vested rights, must be purchased on market. No dividends are paid on the rights. However, for the rights that are exercised, the Chief Executive will be granted additional Medibank shares equal in value as determined by the Board to the dividends that would have been paid during the period between the vesting date and the relevant exercise date on Medibank shares equal in number to the rights being exercised.

Vested rights and shares granted remain subject toback provisions, as outlined in the Notice of Meeting. Vesting outcome of the performance rights will be detailed in the remuneration report following the conclusion of the performance period on 30 June 2028. Any shares granted during the holding period will be detailed in the remuneration reports for the financial years ended on 30 June 2029 to 2031 inclusive.

Your Board, other than David Koczkar, recommends unanimously that you vote in favor of this resolution.

We've now introduced all items of business, and we're ready to respond to questions. We'll first begin with questions from the meeting. If you hold a Lumi handheld device or a red card or a blue card provided by Computershare and you'd like to ask a question, please make your way to one of the microphones around the room.

At the microphone, please provide your name to the attendant and wait for them to introduce you by name to the meeting. Once introduced, please ask your question clearly into the microphone. So we can enable as many people as possible to ask questions, please limit your questions to 2 and keep them short and concise. If you have further questions, we'll take questions from other shareholders, and we can return to your question. Are there any questions in the room? Microphone 1.

Chair, may I introduce Peter Aird from the Australian Shareholders Association.

Today, I hold proxies from 348 shareholders, almost 3 million shares. Over the last 3 years, you reported non-claim expenses have increased from 12.4% of revenue to 13.9% of revenue or by over $250 million. Whilst you report $10 million in savings, are your increases of non-claim expenses of concern?

No, I don't believe so, Mr. Aird. As David mentioned, we're very conscious about our cost base. So I think One of the key drivers of all of that, though, is for the first time during the 2025 financial year, we did consolidate the MyHealth business, which did add to the overall cost base of the organization.

Previously, we had shareholdings in that, but it was equity accounted. So it was a single line item appearing in our income statement as opposed to now a full consolidation. I think that makes up most of that number.

Thank you. I was going to also acknowledge the work done by the retiring Directors, David Fagan and Linda Nicholls, ensuring that Medibank has developed into a key business in the health area of Australia. So thank you for both of those work.

One other question at this stage. You've indicated that you are using AI to assist with patient care. Given AI models have a tendency to hallucinate, while skilled humans remain control, how is the AI use managed and how have customers react?

Well, thank you for that question. I'll make a couple of comments and David may then speak to add to it. We believe that AI is a business productivity enabler, but it's people that still deliver, particularly for Medibank. What we have done as an organization though is we've set very clear policies and guardrails around where we will and will not use AI in our business.

And we monitor those very, very closely. A couple of examples where we are using AI, which I think come to the benefit of our people: In terms of the Amplar health care work that we're doing in South Australia, our hospital in the home nurses are actually in AI to augment what they're doing in terms of wound care and assessing that, and we find that that's been greatly beneficial to our customers. Likewise, we're using AI to help our customers to navigate some of the more usual issues or questions that they have for Medibank. However, David, I don't know whether there's anything else you want to add to that?

No. Thanks, Mike. And thanks for the question. I think we've been using AI as part of our customer experience for more than 15 years, different types of technologies. Our philosophy is that they are going to support our people connecting with our customers and providing care for our patients.

When you look at the increasing demands of health in the future, we simply won't have enough people to support the needs the community. And so very much, it's about how we work with artificial intelligence and other technologies to support the care of our patients whilst being a human-to-human business. And I think that's an important path for us remain very careful about how we maintain the human involvement in that experience.

Thank you. I see we have question Microphone 3.

Chair, may I introduce shareholder, [ Carol Jane ].

I'm asking a question about why you spend members and shareholders money duplicating services that already offered by the government. And I'm thinking in particular of your 24/7 Medibank mental health support line and your 24/7 Medibank nurse support line. There are already numerous governments supported help lines for both nursing, for example, nurse on-call and for mental health support. A quick Internet search, I've found 6 general mental health support lines more specific help lines for certain situations. Why are you offering these services when there's already a plethora of services already available to everyone, which are provided by the government.

Thank you for that. A couple of comments, if I can, on that. We believe, particularly with the investment that we're making over the years in mental health, that is something that is still lacking in terms of what the government is supporting with all of this. And we are looking to actually continue to support our Medibank and AHN customers through all of that process.

Nurse on-call and doctor on-call, for that matter, additional services are available to our customers, which we find beneficial to them and they get value from them. I would add to that, that in addition to providing those to our customers. We also are actually providing those services through a number of the areas that you talked about for the government. However, the demand for those services outstrips what our customers may want, so we wanted to make sure that we were providing first and foremost, for our customers.

Just a follow-up question. I do realize that you act as a subcontractor for providing some of those services to government. If your members do call your specific Medibank private services, are they just put through to a general call center and the person who answers the phone just answers it differently, depending upon what number it's come through? Or do you have specific dedicated staff to your Medibank private branded telephone support lines?

I'll pass that question to David, because I don't know the answer.

Yes. Thanks for the question. We have a different approach to our triage services if you're a Medibank customer or aging customer versus the provision of the services we provide to government contract. Certainly, if you're a Medibank customer, you'll be asked your membership number, and we are trying to provide a level of service that really actually our customers are looking for. That's quite separate from we would provide that service in the government contract where there are multiple providers supporting those government services.

Microphone 2.

Chairman, may I introduce [ Peter Ray ], shareholder.

I have a question in relation to the Director elections, if I may?

Certainly.

I noted the 2 of the Directors have some reasonable sized votes against them, Peter Everingham, and Jacqueline Hey in particular, with almost 20%. I'm just wondering if you're aware of where those against votes may have come? Are there any particular proxy advisers that weighted against their election or large institutional shareholders? Perhaps just to enlighten us as to if you have any knowledge of that.

Thank you for that. Yes, I do note those votes. Difficult for me to comment on the individual circumstances, particularly in terms of proxy advisers where their recommendations are proprietary between them and their shareholders and their customers. However, what I can say is that in respect of both Peter, we are also aware that he is on a Board that has had some recent press, and I think that may have driven some matters.

In terms of that, I can't comment on that specific matter, but I can comment on contribution that Peter makes to the Medibank Board. His contributions are consistently thoughtful. They're constructive and they're aligned with our commitment to good governance. And as a result of that, the Board hesitation in recommending Peter for reelection.

In terms of Jackie, we went through a significant process as we did with Lisa in terms of looking at the skill set that we feel we need to have on our Board. You asked about Jackie. She brings broad experience across consumer financial services technology sectors. And we think that she's going to make a meaningful contribution to Medibank's governance and strategic agenda. I'd encourage that people consider the full breadth of that experience that she can bring when focusing on the vote that they make today.

And as I mentioned in my address, the board unanimously supports Jackie coming to the Board. To round it out because to that. I might also mention that Lisa brings broad professional experience and a career that spanned health, technology, insurance and e-learning. And we believe that her expertise and strategy will be particularly useful to our Board.

So we've been very thoughtful about all of this. I do acknowledge the -- where the votes are, but they are still significantly in favor of our candidates, and I again recommend all shareholders vote for their election.

We have a question from microphone 3.

Chair, may I introduce shareholder [ Ian Hamilton ].

On Page 13 of the annual report said 100% of electricity consumption is procured through renewable resources. Does this include electricity consumed in data centers? How much water for cooling do your data centers use annually? published this information on an annual basis to look for usage trends.

Mr. [ Hamilton ] will comment generally and then may look to some of our management team as well. I think when we said that we have procured 100% renewables, we mean that, that's through our energy suppliers. Don't ask me who they are, but I can find that one out for you. I don't know off the top of my head, the other statistics that you've asked. However, in our data book, which does accompany our sustainability report, there is significant data around a number of those areas. However, if you like, I will take your questions on Board and one of the team will get back to you over the next few days with those answers.

Yes. Also, the annual report said net resident and nonresident policy growth of 1.4% and 3.1%. Are these figures in line with population increases? And do you have a plan to contact new arrivals directly to explain the need for private health insurance, dangers associated with living in Australia, which might trigger off these needs and the benefits of your products?

Well, what we're talking about is the increase that we saw in our respective customer bases there. David mentioned during his presentation that our growth, particularly our domestic growth had been disciplined in terms of the way in which we were seeking to gain new customers. There are a number of unsustainable in which we could have increased that number, but I think that would have been forced growth because we would have just seen further churn and change.

So we chose to be disciplined in where we went. 1.4% was a significant uplift on where we were domestically 1 year ago. So we were very pleased with that. In terms of the international growth, you would be aware that the migration to this country has slowed over the last few years. So it's lower than it was previously. But we still believe 3.1% is a very good outcome for all that.

Most people coming to Australia and particularly international students need to actually take out health cover before they're able to get a visa. We and others provide that health cover to them so that they're well aware of needing to have it and in fact, they have to have it they can come to the country. For those that then are able to stay, we find that a number convert from overseas -- our overseas cover to our domestic cover as well.

With the voting figures that you put up, they were the percentages of the votes cast. What proportion of the total votes do they represent?

Off the top of my head, I think we had about 67% or 68% of shares on issue have voted.

Do you expect that to increase more with people still here or -- will it get up to 100% or not likely?

I don't think we'll get to 100%. I think the percentages that we that I've just talked about are pretty consistent with the percentages that we've seen over the last few years. There are, however, people in the auditorium who'll vote and Mr. Aird indicated that he has 2-plus million votes, I'm not sure whether he's voted already or whether he's intending to vote at the end of proceedings.

And with the Directors, they're all listed as Independent Directors you explain to people who don't know the difference between Independent and Dependent Directors.

Thank you. Independent Directors are just what they suggest. We have no employment or other ties to the organization apart from receiving Directors' fees. We are not employees, we are not part of management. We do have a specific governance responsibility, which we take very, very seriously. And I'm proud to say that all of the directors, myself included, are assessed each year in terms independence, and I can confirm that, that assessment did indicate that we are all independent.

Microphone 1, please.

May I reintroduce Peter Aird from the Australian Shareholders Association.

Yes, I have questions for both Dr. McIntyre and Ms. Hey. Perhaps, Ms. Hey first. Ms. Hey was a Director of Patos Airways through a particular turbulent period around the COVID-19 pandemic. There were lessons this period, particularly regarding executive remuneration and strategy and workforce management have relevance to Medibank. And given her experience in consumer businesses, what else does he believe she brings to the Medibank Board.

Thanks, Mr. Aird. I addressed a few of those points earlier, but I will ask Jackie to address your specific points.

Thank you. Thank you, Mr. Aird. I appreciate the question. Two parts of it. So firstly, on Qantas, over 15 years in my Board role, so I've had some good times and some tough times, and I had both of those on Qantas. And I think when things go according to plan, you certainly learn and get different capability as a Director. When things don't go according to plan, then maybe you learn even more on your capability set and your knowledge and your experience becomes broader when things don't go as expected when they do. So I think there is a lot of what I have experienced at Qantas that can apply to Medibank.

I think there's also experience from my previous Boards. I've had nearly 12 years in financial services, most particularly as a Director and as Chair of Bank. And there, I saw complex financial products offerings to millions of customers, including insurance, dealing with communities and government, dealing with the evolution of nonfinancial risk with and many other regulators, and I'm on a Superannuation Board today.

So I'm experiencing all of those things. And I think as a director and as a person, you're a sum of your parts and you hopefully bring all of that to every opportunity that's in front of you, and I know I'm very privileged to be given an opportunity today. So hopefully, that addresses your question, but I'm happy to go further if there's any more.

Thanks, Jackie.

Dr. McIntyre has a wide range experience across the health sector, which includes current directorships. Given Medibank's growth strategy focusing on primary health care. Does she see other opportunities in the health sector? And does he believe she can contribute to expanding Medibank's growth strategies?

Thanks. I mentioned earlier that we think Jackie will make a great contribution, particularly in terms of strategy. But Jackie, I'll let you speak for yourself -- sorry, Lisa, I beg your pardon.

Thank you. I think that's a -- you've given me a softball question actually. One of the reasons I'm delighted to be standing here and offering myself to be elected to this Board is because I feel very deeply about the role that Medibank plays and is planning to continue to play in the health transition. And Medibank has the capability and its people as far as I can tell initially and in the ambition that it holds to do this.

I have spent 35 years in the health sector. And I'm very aware that there are changes -- positive changes that need to be made. Both Mike and David talked about the pressure the health sector is under. Australia has a great health system, but it's under huge pressure, and I'm really hoping I can bring my knowledge of medical devices, medical research, other private health insurers and so on to to continue that. I love this ambition that the company has, and I'm delighted to have an opportunity to do that.

Thanks, Lisa. Mr. Aird, did you have another question?

Yes. I wanted to ask some questions of your Directors seeking reelection, as they haven't had the opportunity to speak to that. So if you don't mind, with Ms. Fagg, noting that you've been the Director of Medibank for 3 years and you're now also a Director of the National Australia Bank, would you reflect on any differences that you approach as a Director now compared to the time when you're a Director of companies that actually make stuff?

I think we make stuff as well, Mr. Aird. We make health or health for our people -- for our customers, but I'll go to Kathryn.

would you just clarify?

So what he was asking, I think if -- if I get it...

[indiscernible] business and a business that manufactures things such as oral and other businesses quite a few years ago now. They're all businesses that actually produced things went out the door and were sold to customers.

Very good. Thank you. I do understand the question and impacted it's helpful just to take a moment to describe where I've come from in my career. So I originally studied engineering, chemical engineering. And so that was all about working in industry. Then I went to McKinsey, management consulting and worked across industries and then I went into banking with ANZ before I did other things as well. So I guess, through my career, I've had the experience of working across industries. And

I think once work across industries, you see there are enormous similarities, in fact, in what organizations are needing to do. And in terms of my other educational qualifications, I've got a in organizational behavior, which is all about what is important to get organizations to work very well. I believe myself and I continually get feedback from my colleagues that it's that breadth of experience that really makes a difference to what you can bring to a Board.

And a very simple example that I would use is the safety journey that has been at the forefront of industrial companies for the last 20 years-or-so and the Japanese production system or guess what, that's a fundamentally helpful way to think about how do you run big organizations really well operationally. I know David's got an airline's background as well.

And we often talk about the similarities. So there's -- you can learn so much from bringing eyes from different industries into a new sphere. So it's something that I'm very pleased that I can bring to the table.

For Mr. Everingham, he had previous experience in the digital sector and you also -- you're member of the Medibank Investment and Capital Committee. I wonder if you could comment on the constraints involved in a business such as Medibank compared to that required for success in the digital sector, were the more perhaps adventurous attitude is required?

Well, I think the prior business I've been involved in have not had the capital which investment -- which Medibank has to such a great custodian so careful with. So I think in this case here, we have been sort of more prudent, more diligent processes still. And I've been sort of pleased to see how well that is managed within his leadership and experts.

My prior businesses, the capital had employed has more been working capital and going into technology directly. The importance here is making very good use of the returns we get on funds sitting outside the business.

Thank you. As there are no further questions from the floor at the moment, I'll now move to written questions that have been submitted in advance or during this meeting. Are there any written questions?

Chair, we have a question from shareholder

I'm suggesting that you rotate the AGM between the various cities in each stage. That way, more of us could attend in person. Some other companies do this. So please consider the idea. I await your reply with interest.

Well, Ms. thank you your suggestion. And I think it's a valid suggested, which we will take on board. I would say though that having hybrid meetings does democratize and allow more people to actually participate than the more traditional just face-to-face meeting. But each year, we assess the AGM and how it's affected for our shareholders. So we will certainly take your suggestion on board.

Chair, we have 2 questions from shareholder, [ Natasha Lee ]. She asks, while you have acknowledged that with female Board representation at 33%, this is below practice of 40%. However, I would also ask the Board to be mindful to ensuring the Board is more representative of the community with other forms of diversity beyond female representation.

Well, Ms. [ Lee ], thank you for your question on that. And I am pleased that with Jackie and Lisa joining us, we will be over 40% female representation on our board. I agree with your premise. I think diversity for me is all about diversity of thought, and that's the most important thing that we can have on our Board. And I believe that you've just heard from a couple of our Directors with very different backgrounds who do approach things differently, and that just adds to the overall richness of the discussion that we are able to have around the Board table.

Chair, a question shareholder [ Amber Humphrey ]. Why can interest be rolled over into reinvestment instead of depositing periodic interest funds into my bank account?

Ms. [ Humphreys ], I think you're asking about a dividend reinvestment plan, if I kind of go through all of that because we obviously pay dividends, not interest as Medibank. Our dividend reinvestment plan is something that we discuss from time to time around the Medibank Board table. But at this stage, we don't believe that there is sufficient demand from our shareholders to introduce that. On that basis, we have no current plans for a dividend reinvestment plan, but we will continue pay half yearly dividends.

And I am pleased to acknowledge that the $0.18 dividend that we paid this year was, in fact, an 8.4% increase over the dividend that we paid in respect to the 2024 year.

Chair, a question from shareholder [ Sally Soe ], do you buy back small parcels of shares directly from the shareholders?

Ms. [ Soe ], no, we don't have any plans, and we do not currently purchase small parcels of shares from -- directly from shareholders.

Chair, from [ Natasha Lee ], shareholder. I note that the company is reviewing its investment strategy in anticipation of future RBA cash rate cuts. However, there seems to have been a switch out of Australian equities to international equities over the year. While I'm aware that, for instance, the NASDAQ stocks have done very well recently, this seems a risky move, could you explain your logic?

Well, [ Lee ], first, I think we need to talk about the overall investment strategy that Medibank follows, which is a very conservative approach. In fact, what we did over the course year is we reduced our overall exposure to equities, and that's a combination of Australian and international equities, partially because of the capital charge that regulator imposes on us, but partially also because we we did have some concerns around frothiness of markets.

In terms of having had that reduction, we then have slightly tilted but it's only slight to international equities, but the overall investment that we have in equities this year is lower than we had last year.

Chair, we have 2 questions from shareholder, [ Stephen Mayne ]. Could you please disclose how many shareholders voted for and against the remuneration report in the poll results, so we can see retail shareholder sentiment and gain insight into the chronically low turnout rate. Did even 1% of shareholders vote by proxy on this item? How hard did you work to get the retail vote out today?

Well, Mr. [ Mayne ], I don't know the answer to your question but I think that the premise behind it is not necessarily accurate in terms of how many shareholders voted because, as you're aware, a number of shareholders have their interest in superannuation and a number of -- a Medibank has a number of major superannuation funds as shareholders.

Also, a number of people actually hold their shares through custodians. So in terms of a vote, that custodian would show as 1 vote rather than the underlying shareholders that may be behind that vote. So it's almost impossible for me to be able to answer your question. What I can say that we did not make any significant efforts beyond what we have currently done for previous years in terms of the vote for our remuneration report, which I do note is very positive.

Chair Mr. [ Maynes' ] second question. Mike Wilkins recently announced he will be retiring as Chair of Insurance at the 2026 AGM next May. Is it fair for shareholders to that he won't ever be standing for election again at a public company Board or does he plan to run again and seek another 3-year term at Medibank when his current term expires?

Well, Mr. [ Mayne ], yes, you're quite right. We announced last Friday that I'll be standing down as Chair at QBE after 9 years on that Board. In terms of other Boards, will I ever run again? Well, I do currently sit on 2 other boards. So the answer for that is probably yes, depending on my health and how my colleagues feel about that.

In terms of Medibank, concentrated on what it's doing at the moment and, frankly, a further decision around my continuing as a director will be something that I will discuss with my colleagues over the course of the next year.

Chair, Mr. [ Mayne's ] final question, the Medibank Constitution has a rare board entrenchment provision, which requires external board candidates to be supported by 100 shareholder signatures or of total issued capital just to get on the ballot. This explains why Medibank has never had an external Board nominee during its tenures as a public company. Will the Chair undertake to review this provision propose a constitutional amendment at next year's AGM so that it is like more than 90% of Australian public companies and allows any shareholder to self-nominate for the Board?

Well, Mr. [ Mayne ], we did make a constitutional or several constitutional changes only a year ago and our research at that stage so that we were in line with a number of publicly listed companies. I'll take your question on board. But frankly, if it was only 1 change to the constitution, I'm not sure that, that is something that we would want to do. I think it's far better to bring number of changes if we believe the constitutions are out of date.

Chair, we have no further written questions.

Thank you. As there are no further written questions. I'll now move to questions via the Lumi platform. Are there any audio questions? I'm told that we have no audio questions. As we appear to be in the end of our questions, just a reminder that voting will shortly close. And so I ask shareholders and proxies to please finalize your votes.

I now invite the audience in the meeting room today to ask any final questions that they may have. I'm not seeing any further questions in the room. So we've now reached the end of the formal business of the meeting. Voting will shortly close and so I ask shareholders and proxies to please finalize your votes. I'll once again display the indicative results of the proxies received on items 2 to 7.

Once the voting has been finalized and the final report has been issued, we will release these outcomes to the ASX and publish them on Medibank's website, where you'll be able to access them this afternoon. So I'll now allow a short period for people to finalize their votes.

[Voting]

I now close the polls. On behalf of the Board, I thank all of you for your attendance today and for your continuing for Medibank. The business of this meeting being complete, I now declare the meeting closed. For those shareholders who are joining us here in Melbourne, my fellow Directors and I now invite you to join us and the executives in for refreshments. For those who have attended online today, I thank you again for your attendance and wish you all a good day. Thank you.

All right. Thanks, everyone. Before we get started, I'd just like to introduce [ Lachie ], who's been part of the Investor Relations team for the past 9 months. Over to you, Lachie.

Good morning. I'd just like to acknowledge the traditional owners of the land, the Gadigal people, the Eora Nation and extend my respects to elders past, present and emerging and pay my respects to any indigenous people here present today.

Thank you. So thanks, everyone, for joining us here in person in Sydney today, and thanks to everyone joining us online. We're super excited to be showcasing how Medibank is positioned to lead and grow as a health company. So thanks, everyone, for taking the time to hear our presentations.

While we aren't sharing any updates on private health insurance today, it is an opportunity for everyone to learn more about our private health insurance health business. As part of this, we will be sharing some FY '28 milestones, and we'll also be sharing some FY '30 aspirations, which you'll hear about shortly.

The format today will have a number of presentations. We'll then break for morning tea. We'll then reconvene for some more presentations, and then we will have one Q&A session at the end of the formal presentations before we have a lunch break. After the lunch break, for those joining us in the room, we will have some immersion sessions. There's 4 in total. Everyone will have a colored sticker on their badge. We'll help you navigate where you're supposed to be. And then the day will conclude.

So thanks again for taking the time to attend today. I'll hand over to David for the first presentation.

Good to see you all of you this morning. I thought Sydney was supposed to be a place with good weather. But no, not really, sadly.

Yes, well, so welcome, and thanks so much for joining us all today. We're really looking forward to spending some time with you all today, showcasing how Medibank is positioned to lead and continue to grow as a health company. Our focus remains the same, and you'll hear us talk about this a lot today. Our focus is to grow earnings, strengthen our business and transform health. And this is how we create long-term shareholder value.

But we thought it was a good time now to have this health immersion given the growth in the Medibank Health segment and given the contribution in performance of the segment in the last result. And certainly, when we -- when Mark and I and Colette have discussions with you all, we're spending more and more time on Medibank Health. So the interest is definitely growing. It's an opportunity for us to showcase what we're doing and our next aspirations for growth in health.

And we'll come back to this again, but we've issued today our FY '30 aspirations, which are: one, to significantly increase Medibank Health segment earnings to at least $200 million in FY '30. Two, to maintain our leadership role, we aim to grow policyholder market share each year in a disciplined way with an aspiration to have at least 26.8% share in FY '30. Our growth in health, which we will talk about today, will support this aspiration for our core business and including how we generate more value for this segment. But of course, as you know us, we will continue to look at opportunities to accelerate this if those emerge and are commercially sensible.

And lastly, we're aspiring to double the number of people we engage with in the health and well-being, aiming to support around 10 million people in the health and well-being by FY '30. And we know we can only achieve this with the support of our people and our aspiration to be the healthiest workplace in Australia. So as Colette mentioned today, in our health immersion, you will hear an overview of the opportunities and challenges that are shaping the Australian health system today and our strategy to respond and grow.

And our session is structured into 4 parts. Firstly, an opportunity to transform health in Australia, you'll hear from us, which is very important as a context to our overall strategy. And there, we will share some of the examples we've researched and seen firsthand internationally and some trends in the market, particularly around how technology will help drive the health transition. Second, we'll provide you with some deep dives into our 3 Medibank Health segments.

Third, Mark will talk about how we create value, and I'll come back to talk about how that will impact the system and drive system change. And then for those of us joining in the room in Sydney, we'll have our health showcases, which is an opportunity to bring to life some of our capabilities and foundations we have already in health.

I think part of the day is also to enable you to hear directly from many of our leaders across the business, which is fantastic for them and fantastic for you, and they'll all bring a unique set of experiences and aspects to what we're doing both today and in terms of what we're focused on with our strategy.

So firstly, an overview of the health system in Australia. Many of you may know this, some of you may not. But as you've heard me say many times before, we have one of the best health systems in the world. We definitely punch above our weight when it comes to health outcomes and access to treatment. And unlike many health systems around the world, it's built on the dual model, anchored in the foundation in Medicare and the public system, combined with the private system. And those 2 systems working together are a pillar of national strength. In many ways, I think it's a way -- a reason why we are a lucky country.

And there's sort of 3 things that come to mind that I think about that make us different nationally -- internationally. One, we're a global leader in health outcomes, and we have a proven track record of leading health innovations in treatment and that -- long may that continue.

The second is the way the public and the private system work together. And again, we saw that set us apart from many around the world through the pandemic. Our public system provides universal access with health prioritized to those that need it the most and our private system offering choice and coverage for both residents and nonresidents.

Uniquely, more than half the population have private health insurance in this country. And we all know or many of us know that private health sector delivers around 70% of elective surgery in the country and more than half of mental health admissions. And lastly, we collectively spend around 10% of GDP, which on the world stage is only slightly above the OECD average.

So in short, the Australian health system combines affordability, universal access and choice. It's a strong system, but it's also complex. And so whilst our system is world-class today, there are ever widening cracks in the system that need our urgent attention.

Rising consumer need and expectations are simply outpacing the system's ability to adapt. The increasing demands are well known, and we'll talk about them today. An aging population, an increasing rate of people with chronic conditions, growing mental health needs in the community, particularly younger adults and an increasing desire to engage in more digital health solutions.

But the challenges are real. There's an oversupply of private hospital capacity, which has seen a large reduction in hospital utilization. There remains pressure on the public system, causing increasing ED waiting times and surgery delays for elective surgery. We see out-of-pockets, which are already higher than the OECD average as a percentage of GDP are rising for consumers. And the latest projections are they will double by 2030, and we have workforce challenges.

When I speak to doctors and health professionals around the network, they just don't think the system is set up to support them in the way that it needs to. And overall, productivity in health care, like many sectors in this country is sluggish. And Australia has been slow to adopt many of the trends we see across the world. So in summary, consumer needs are evolving faster than the system can respond and the cracks in the system are at risk of becoming chasms.

So why does this matter? Well, the situation is creating both challenges but opportunities for Medibank. And I and we remain very optimistic, however, we have a unique opportunity to transform health in this country and together create a health system that is future-proof, one that everyone can be proud of. And as you know, the team at Medibank are very much up for this challenge. So where to start, and we'll talk about this throughout today.

We think about the health transition in terms of 4 big shifts, shifts that will drive productivity, improve experiences and allow us all to meet the increasing demands of the future. These are the shifts that we just simply must make. We need to move from treatment to prevention from hospital-based to community-based care, from analog to digital and from generic to personalized care.

And as I've said to you -- to many of you before, these shifts are not new in health, but they're relatively new in Australia. In fact, we see these shifts underway in most countries around the world. So in many ways, we're simply in catch-up mode. which, in some ways, is good because we have the luxury of learning from others.

But what's very clear to me is the countries that are failing to make these shifts are seeing reduced access, reduced health outcomes, increasing variability in quality and increasing costs. And to me and to us, it's very worrying that this is what we are seeing more and more in Australia. So this is why we have to act and we simply can't move fast enough. For Medibank, understanding these challenges and opportunities creates clarity for our vision and our strategy.

So right now, I'm going to pass over to Andrew, who's our Chief Medical Officer. He's going to talk about some of the international examples of these shifts. And then after you hear from Andrew, we'll hear from Felicia, who will talk about how technology and connectedness is going to be key to driving these shifts. And you'll hear back from me a bit about our focus on driving these shifts as Medibank.

Over to you, Andrew.

Thanks, David. It's great to be here today. What I'm going to talk about is a number of case studies from around the globe. These are not meant to be exhaustive or the only examples. There are some that we think are particularly interesting points that are worth talking about and also have direct relevance to Australia. And David's talked about those 4 shifts that we need to see in our health care system that we are really passionate about.

So the first one I wanted to talk about is the treatment to prevention. And this looks at South Africa. And the key issue there really was the need to build essentially like a lot of countries in their position, build a primary care system to actually meet the needs of their populations. Again, there are always some nuances in this. And for South Africa, better treatment for infectious diseases, which fortunately for us, although that may change with vaccine hesitancy. But fortunately for us, we've kind of passed that, but chronic disease was also a very big burden.

And so there was a very big investment centrally by the government to create a national health insurance and access to primary care across the country. And we can see the outcomes. So a very significant increase in life expectancy and a very big strengthening of primary care with more than 3,500 clinics set up around the country, which are sort of multidisciplinary and technology enabled. There are some key lessons there.

Again, I think it just highlights the value in that kind of investment. I do think, though, funding is really important to think about with some of these transitions and the need for some bridging funding to move from system A to system B is something I think as a country, we need to think about because it's not that simple just to go from A to B. And again, and this is a theme you'll hear from Rob later on, the move to multidisciplinary care in primary care is super critical, and that's certainly something in South Africa, they've done.

Now the second example I want to talk about is Singapore. Singapore has an absolutely world-class hospital system. I personally visited pretty much all of them over the years, and they're amazing. But what was not amazing in the past was really the ability to actually see -- get care in the community in particular. And so there's been a very big initiative in Singapore to actually recognize that and again, build that community infrastructure.

And one of the things they've done, again, looking at the funding model is shift from very much a fee-for-service system in community and primary care, which they had 10 years ago to one that's now much more capitated and based on sort of a tiered model around what age you are and what disease burden you've got.

So -- and that's made a really big difference, reducing hospital demand. They're not building any more hospitals and again, an expansion of community and primary care. And again, one of the underpinning things then is that shift to a blended payment model and integrated community care. So again, just reinforcing the need for that more of that in our country.

The third example is that trend David talked about the analog to digital. And the example we're actually very excited about and quite a number of our exec team and Board members actually spent some time there last year in Sweden with CRE looking at what they're doing and what the country is doing. And it's actually incredibly impressive. So whilst if you look at overall, there's been a dramatic increase in digital consults in primary care, but at a broad brush level, in 2022, that was about 11%.

If you look at the leaders in that space in Sweden and CRE, which is a private organization that came out of one of the academic institutes, the Karolinska Institute, they're around 50%, 40% real-time, 10% asynchronous. And really, that's, I think, an ambition we should have in our country that we move towards that. There's a lot of underpinning digital infrastructure, and Felicia will talk a little bit about some of that. that's required to actually enable that.

And that's a real -- I think, a really important lesson for us here that we've got very patchy digital foundations at the moment. We need to build on that as well as providing more equitable access that digital -- the digital channels can actually do. We need to probably stop talking about omnichannel or multichannel, David and I were chatting about this before. In the airline industry, we don't talk about that. It's just an expectation that you go -- you met where you want to be met. In health care in Australia, that's not the case, unfortunately, at the moment.

And the last one, which some of you in the room might feel a bit strange that I'm going to say the NHS is doing something good because generally, I probably wouldn't say that. They've got the world of problems that they need to deal with. But one area they've done really well and a long way ahead of us is actually looking at that move from generic to personalized or precision medicine. And one of the key underpinning pillars of that is really genomics. And that's something that's going to come rapidly at us in Australia.

They have actually rolled that out across the NHS, particularly focusing on people with rare diseases. I mean we have now on the MBS, I think it's 38 genetic tests that are available. The uptake of that is miniscule. And that's because nobody knows about them, including GPs. So there is a real opportunity for us to actually rapidly move into that precision personalized medicine.

But the key lesson there is the one on the right-hand side. It's got to be embedded into the existing care pathways. You can't do it as a silo. It needs to be implemented and rolled out within primary care settings. And you need to align the funding with outcomes, and that just hasn't happened at the moment.

So hopefully, that gives you a bit of a flavor of some of the -- what's happening around the world. I'm going to hand over to Felicia to talk a little bit about technology.

Hi, everyone. I see only a few familiar faces. I haven't met all of you. Hopefully, I will at the morning tea break. I joined Medibank last year as the group lead for data and technology. I have the pleasure this morning of bringing to life some of the shifts that Andrew just talked about through the lens of technology about how technology is making these shifts possible and also some of the clinical benefits that are starting to emerge. I'm also going to use some examples as I go.

We're really spoiled for choice in health tech in terms of the examples I can speak to you about -- so we've tried to give a bit of a mix across different geographies, use cases and stages of maturity. Some of the examples that I'll talk about, we've met, we've engaged with, some of them we already use. But just to reinforce, it's only a snapshot, highlighting the kinds of technology that are shaping care today and into the future.

First, I'm going to talk about from treatment to prevention. To enable this shift, health systems really require three things: strong data foundations, predictive insights and digitally integrated care pathways. This shift, what we've seen is really already underway with AI and predictive analytics opening the door to earlier risk identification and also to more targeted and proactive care. So now instead of reacting to illness, what we're seeing is that emerging technologies are helping us to anticipate health needs and to support earlier and more targeted interventions.

In terms of examples, OpenUp and iPractice, we had the pleasure of meeting last year on the study tour that Andrew talked about in Amsterdam. They're working together to reshape mental health care. OpenUp is a digital mental health platform. It's designed to provide more preventative psychological support through an employer-sponsored subscription. And then iPractice is a psychological service that has a hybrid model, offering both in-person therapy as well as online consultations. And working together, what ends up happening is OpenUp is sort of the frontline triage and support system and then the clinical follow-up happens through iPractice.

And essentially, what that means is that when they use shared data and predictive analytics across this, what we're seeing is that it's reducing the need for acute care and supporting that shift from reactive treatment to sustained well-being. And then here in Australia, in Melbourne, in fact, Everlab is starting to offer more personalized preventive health care through advanced diagnostics, continuous monitoring and clinical support. They have what we call an interoperability first design.

So it's a little bit more plug and play, and they use AI-enhanced clinical workflows. And they're starting to emerge as almost a global platform that combines advanced diagnostics with the use of AI, detecting things like disease markers earlier.

And so that can help guide personalized prevention plans. Both of these examples really point to a future where prevention is guided by data. We see it tailored to individual risk and delivered in partnerships with clinicians before we see symptoms emerge. In terms of from hospital to community, transitioning care to homes and community really requires care models that extend beyond the hospital.

And this needs to be supported by effective workforce coordination as well as some real confidence in remote monitoring. And while hospitals will always remain critical for acute care, within the next decade, what we expect to see is that home and community care will progressively become the center of health. And things like edge computing, wearables, smart home systems, they're really making this happen.

Looking at Singapore and bringing to life some of the Age Well initiatives that Andrew spoke to SHINESeniors is helping to support elderly Singaporeans who are living independently. It leverages things like unobtrusive home sensors, and it will look for things like movement and sleep and even if you're adhering to taking your medication. It uses IoT middleware, predictive algorithms and also alert systems. So it's trying to detect those early signs of health decline so it can activate community support.

Another from the Netherlands that we met last year, we met their founder, in fact, who's a leading cardiologist based in Amsterdam, and he founded a network of specialist heart clinics. What HartWacht does is it's remote cardiac monitoring and it focuses on things like heart failure and hypertension. And it uses wearable and home devices to look at people's vitals such as ECG and blood pressure, so they can be monitored from the home. So what happens is that clinicians will step in when needed versus you going to a preplanned appointment and not really needing to see your cardiologist at that point.

These two and many others point to technology really helping to provide care in that really timely and appropriate way, often from home. And we're seeing a reduction in hospital visits and easing clinical load and also freeing up some of that clinician and that system capacity to focus on acute cases.

The shift from analog to digital, this has been happening for a while, moving from paper-based and completely disconnected systems to the use of things like secure digital identity, interoperable platforms and also the use of AI assistance. And what that's doing is connecting sort of every point of care and enabling instant access to patient histories. This is already seeing a measurable drop in the amount of time that clinicians need to spend on admin and also what that means is they can spend more time with patients.

Rhapsody is U.S.-based. It's a digital enablement platform. It's helping the health care system over their shift from analog to digital by enabling secure, interoperable data and exchanging that across hospitals and clinics as well as digital apps. And it offers things like integration engines. It has an API-enabled data exchange, and it also can be deployed on both cloud and hybrid or private deployment.

Here in Australia, Heidi Health, it's a local innovation, and it automates clinical notes and streamlines workflow in primary care. We use it in our Myhealth GP clinics. And it's essentially, you can think of it as almost an ambient AI medical scribe. It listens to conversations with clinicians. I've been in -- with my son with one of his clinicians and they've used Heidi.

And it generates things like structured clinical notes really quickly, referral letters, summaries and billing codes as well. And what we're seeing with all of this coming together is that care can become continuous instead of being fragmented and clinicians are supported to work to their full scope of practice.

Lastly, from generic to personalized, advances in genomic and digital triage are really making precision medicine part of everyday care. It's enabling things like the identification of inherited risks earlier, tailored screening and prevention and also things like matching medication to your genetic profile.

And this is making care really personal, but what it needs is data and an awful lot of it, things like clinical history, diagnostics, genomics, lifestyle factors, all of this comes together, and it needs data that is accurate, that's varied and is also longitudinal. And delivering this at scale, as Andrew alluded to before, requires infrastructure that can securely manage and connect and apply these complex data sets in real time.

There we go. Okay. Firstly, I'm going to talk about the U.K. again. And the NHS surprisingly, as Andrew did. This is a national initiative that links genomic data to patient records, and it's enabling things like lifetime prescribing alerts, and it helps guide medication choices. The NHS is testing secure integration of genetic data into health records through this initiative with the goal of improving outcomes and then reducing things like adverse drug reactions as well through really personalized prescribing.

Ochre Bio in Oxford, where we also went last year is a biotech start-up. They use genomics, AI, and they also use donated human liver tissue to develop therapies that aim to switch off those sort of disease-driving genes. This helps prevent chronic liver disease with the goal and their stated goal actually of reducing the need for a transplant down to zero. All of these showing that precision care is bringing the focus back to the individual with plans built around biology, not broad averages.

Just to close, the tech I've highlighted today is really, once again, just a glimpse of what's out there. It's such a vast landscape, health tech. It's global platforms, it's local innovations, it's system-wide tools. Some we've engaged with directly, but importantly, to emphasize is some we see as opportunities for broader collaboration with key stakeholders, especially when they support whole of population outcomes. And while all these possibilities are so exciting, particularly for a technologist, real progress depends on really strong foundations, flexible platforms, resilient security and really deliberate choices around ethics, privacy and governance that shape responsible innovation.

Technology isn't replacing care. It's actually making it more meaningful, freeing up clinician time to focus on people, not paperwork, giving families answers sooner and patients care that feels personal and not generic. It's shifting the experience for patients, their loved ones, the professionals who care for them from transactional to truly connected.

David?

Thanks, Felicia. Thanks, Andrew. I think we wanted to showcase a little bit of what we understand, know and connect with internationally to both share with you today, but also it will help you understand how confident we are about some of the solutions that we can employ and actually are employing to drive these shifts, this one with the last time we shared these case studies last time the space is moving.

But I think, as I said before, understanding that we are behind the adoption of some of these shifts on an international context just gives us confidence and we can learn from others to accelerate the transition that we need to make in this country.

So now I'm going to talk to you a bit about us and how we're responding. So for those of you that know us well, I think this may not be new news, but some of you know us less well. And so I will just go through this and how we're really thinking about our role in the health transition. So as you know, we're a health company.

We're almost 50 years old, and we have a clear strategy and vision to create the best health and well-being for Australia. Our health insurance is our core business, and we offer that to both residents and nonresidents in the health insurance sector. We're the largest health insurer.

We support over 4.2 million customers through our 2 brands, Medibank and ahm. But we are different to others, in part by our dual brands, in part by our ongoing focus on delivering more value, choice and control to our customers, in part how we partner with hospitals and health professionals to drive the health transition. But one of our key points of difference, and that's what we're talking about today are the services that we provide outside the health insurance segment in the 3 segments we've talked about in health, well-being, primary care and community and acute care.

And so why does this matter? As I said before, it enables us to diversify our earnings, strengthen our core insurance business and enables us to provide more value to customers to support our growth in insurance. And importantly, in the context of what we shared today, it enables us to catalyze change in the system to drive productivity and the health transition. Our strategy is anchored in the 4 strategic priorities you can see there, and they remain unchanged. And this is how together, we're building a stronger growing health company.

And these investments outside health insurance are not new. For almost 20 years, the business has started to invest in health services. And in the last 10, we've invested more than $300 million outside health insurance across the 3 segments I mentioned before. So over this time, we have evolved from a health insurer to a health company.

And together, these investments now see Medibank as a leading partner in health, supporting around 5 million people in their health and well-being across both the public and private systems. And we've thought about this support in the way that how we can support customers, how we can support customers through their whole journey in health, helping them be better, stay better and get better.

And you'll hear more about how we connect health for customers and providers from Milosh and Rob. But we pay considerable attention to how we don't just replicate what's happening in health, which is individual siloed investments. It's how we can connect these investments to drive the health transition and to drive better experiences. We help our customers be better through health engagement, everyday prevention and rewarding healthy behaviors.

We help them stay better by supporting patients through our multidisciplinary primary care network, including our virtual services. And we help them get better when they need it the most in higher acuity settings through our growing network of community and acute care services, including short-stay hospitals and with our broad network of partnerships.

So across both public and private systems with corporates, universities, governments and private funders, we are supporting the needs of the community across their whole journey in life and health. I think what sets us apart now and the foundations we've built over this last decade or more is our credibility and strong relationships with our customers, and I think that's very evident.

But what really sets us apart is our scale, our track record of innovation, the way we localize our service delivery and the technology we are employing to connect this infrastructure and these investments for our customers and for providers.

So just to recap on what you've heard already from myself, Milosh -- sorry, myself, Andrew and Felicia, Milosh is next. In short, the Australian health system is world-leading, but it's under pressure. There are 4 big shifts we need to make to drive the health transition. Global evidence, case studies and technology provide us confidence that these shifts deliver results. And given our clear strategy, our proven capabilities and our track record in health and innovation, Medibank is well positioned to lead this change and continue to grow as a health company.

So we're going to move into the next section of the day, and you're going to hear more from many of our team to understand what we're doing in health, to understand where we've been and what we're focused on and how we're going to drive growth and value. And I'll come back and share our 2030 aspirations. So for now, I'll hand over to Milosh, who will talk about our focus on the well-being segment and followed by Rob, who will share the role of Amplar Health and its role in shaping our strategy.

So over to you, Milosh.

Thanks, David. My name is Milosh, I'm the Chief Customer Officer at Medibank, and I won't force you to pronounce my last name. My kids struggle themselves. I really wanted to overview what we're doing in the well-being segment and also where we're going over the next few years. And for starters, the well-being segment is big and growing. So it's over $100 billion in Australia today. And within the specific categories we're targeting, we estimate they'll grow to be in excess of $6 billion by 2030. And within that, there are a couple of fundamental drivers that are supporting the growth of that segment into the future.

Firstly, consumers are continuing to have a high interest in all parts of health and particularly health outside of the core health system. And they are increasingly being interested in health spend and how they prolong their health markers and reduce risk, and we're really benefiting from that. Second thing is there are a range of lifestyle risk factors that are getting worse. And as we all know, the chronic disease burden in the country is also getting much worse.

Third, from our corporates, we are seeing a lot more interest in supporting the general health and well-being of their people and in particular, mental health. And they're facing increasing pressure to drive engagement with their employee base and also handle some of the new regulation in psychosocial safety that's recently been implemented. And that really leads to further acceleration in the interest in general well-being within the corporate space.

And lastly, customers are still struggling with affordability, looking for value across the spectrum and looking to find value and peace of mind to look after their lifestyle of the family and the well-being of their families. And all of these across the well-being segment are really aligned with our core health insurance business. They help us support broad customer journeys across the full spectrum, as David outlined.

They strengthen our health insurance value proposition and the amount of needs and problems we can solve for our customers. And they also shift and tilt to the preventative care spectrum, as David, Andrew and Felicia outlined and really allow us to address those risk factors early on and avoid those complicating and driving health care costs in the future.

And as an organization, we have a range of advantages that are putting us in a good position to help us where we are today, but also in the future. Firstly, we have really 2 strong brands in market in Medibank and ahm that have shown a lot of trust and growth. Second thing is we have a large health insurance customer base, and that's in consumers and also corporates where we've been growing in the last few years. And lastly, we've got a track record now over many years in well-being at innovating, launching new propositions and scaling to tap into different parts of the well-being segment.

And as I travel around the country and meet a lot of our frontline teams, it's becoming more and more evident how enthusiastic they are in solving our customers' health care problems across the continuum. They're feeling more confident and empowered and progressively having more and more conversations that cater to well-being, but also broader health needs of our customers. If we get into some of the details, I know well-being may not be as familiar to a number of you.

So I'll take you through a little bit of detail of what we're doing under each of the categories and verticals within well-being. And so within everyday well-being and general well-being, our core proposition is live better. And this is one of the largest health and well-being platforms in the country. It really offers great health insights around personal health. It offers incentives and rewards for healthy behaviors, and it has a growing range of really leading health care -- health and well-being partners and brands that offer additional value and broader engagement opportunities.

And over the last year or 2, we've progressively been growing a range of clinically backed everyday prevention programs that start to more directly address some of those lifestyle and health risk factors that we've talked about. In corporate health, we've got a broad suite of services to try and address well-being and health needs of corporations and the workplaces, but also individuals through the workplace.

And we have a rich history of data and insights that helps inform those interventions and support to make sure they're target and deliver the best value. And progressively, we're linking those increasingly to virtual health such as virtual GP and virtual psychologist, which Rob will go through in a bit more detail.

And as I mentioned, there's a lot of innovation in the space, both because of the growing corporate need, but also the psychosocial safety, and we see those really underpinning strong growth in corporate health for a number of years. In financial well-being, this is probably a category we've been in for longest. We progressively are providing more and more personal insurance solutions and products to our customers that represent really leading value in market, but also offer a one-stop shop to our customers to solve their personal insurance needs.

What really sets us apart across these categories are a couple of things. All of them have established platforms that support growth. We're focused on creating really distinctive and differential value in market. So we're not just trying to do a me-too sort of proposition. All of these really linked to the brands and the propositions and offer unique value. And we have a head start. We've got a leading range of partners. We've got momentum, and we've been able to mature our commercial capability of how we run these businesses and continue to grow in a sustainable way.

And most importantly, we have really strong and trusted customer relationships that support the growth within the well-being segment and how we can solve those customer needs, but also are reinforcing. So the more work we do to solve well-being needs and problems for customers, the more those relationships are stronger.

So if I then jump to the next slide, I'll overview where we've come from over the last couple of years. And we've built strong momentum across all of the categories within well-being with double-digit growth across the metrics you can see on an annualized rate with a growing customer base, growing value to customers, strong relationships and progressively tapping into new market opportunities across the board.

And that scale momentum is built across the 3 categories. So firstly, Live Better. We're now in excess of 900,000 customers engaged in Live Better. As I mentioned, the everyday prevention programs have reached 270,000-plus enrollments in the last financial year. And also in the last financial year, our customers redeemed $33 million through the platform in value through Live Better, and that continues to grow month-on-month.

And these redemptions are used for things like offsetting health insurance premiums, getting products and services through our partners and also supporting the health experience of our customers through the Live Better platform.

And I regularly hear and speak to customers, they have incredible stories around how they've transformed their general health and confidence through Live Better. One customer recently noted that she's redeemed 3 different pairs of running shoes through the Live Better platform over the last year or 2. and it's really rekindled her passion for running and engagement in parkrun.

Another customer was very engaged in the everyday prevention programs and through that, not only felt better about her back pain and mental health, but also was feeling a lot more confident about her health generally. And so it really encourages us and reflects how important Live Better is really supporting our customers in the way that they want. In corporate health, we've now grown to 14% of our corporate relationships, including health services relationship. And this really reflects a high over 20% growth rate over the last 3 years.

And these range of services are quite broad. They could be digital or on-site, things like online doctor or health checks and increasingly running a lot more social engagement through our corporate clients with challenges and competitions that really build our role in supporting the fabric of how people relate and how they collectively look after their well-being in the workplace. And lastly, on financial well-being, we've grown to in excess of 340,000 policies in financial well-being.

As I mentioned, we focus on creating leading value for our customers, and they've shown their response to that by engaging at a really high rate with financial well-being. And a lot of customers tell us that they consider our role in financial well-being a really natural extension of our health insurance relationship across the Medibank and ahm brands. So they're taking out travel insurance with Medibank. We've got leading cover for medical costs when you're outside the country, and that represents really looking at -- continuing to look after our customers' health.

And also those that take our pet insurance to look after the health of their furry family member, reflect on how natural that extension is and how it reinforces their trust in Medibank and also represents the role of us being much further beyond health insurance.

Now in addition to these categories independently showing growth, we are increasingly connecting these across the well-being segment and other segments we operate in. So if you look at corporate health and corporate customers, they significantly over-index in engagement in things like Live Better and financial well-being. We're also progressively embedding financial well-being across the Live Better proposition and the experience.

And lastly, Live Better with its anchor into helping our customers better understand their health is becoming a source of really targeted enrollment into clinical prevention and virtual health consults, which Amplar provides for us, and Rob will take you through some of those later. And they're progressively playing a role at being a gateway and enabler to overall health needs being addressed end-to-end.

And Live Better in particular, provides an example of how we've evolved under these different categories in well-being. And so when we first started Live Better in the first couple of years, really focused on building value, but also building significant engagement with our customers and in the platform, and that led to an improvement in retention relatively quickly.

Then in the middle years, we focused on expanding our partner ecosystem, making sure we had a lot of great experiences and value across that ecosystem that improved integration. And so we strengthened incentives and how the relevant experiences are much more integrated across all of our partners. And that not only boosted value to customers, but improved how we can commercialize that platform in different ways with customers and our partners. And in the last few years, we really accelerated our role in health and everyday prevention programs.

And we've also boosted challenges, so they're much more engaging, much more multifaceted supported by various media and also in-person attendance and things like parkrun. And they have helped us strengthen differentiation in the Medibank brand, in particular, in a way that's also driving customer joins and also addressing some of those risk factors that help avoid health care costs in the future. And all of these, as you can tell, strengthen customer lifetime value and drive direct earnings growth in the Medibank Health segment.

Then if I look forward, based on our platform where we're going, we really have an opportunity to grow customer engagement, customer volume and market share in what are already growing markets. There are a couple of themes in particular across this whole segment that underpin our future. One is increasing the growth in customer relationships beyond PHI. So these are customers that don't have a health insurance product with Medibank or ahm, but engage in various Live Better, corporate health or financial well-being services and products.

And the second thing is really broadening the number of needs -- customer needs we solve under each of these categories. And together, we estimate that will help us drive continued 10-plus percent growth on an annual basis on a number of the metrics for the next 3 years. If I go into everyday well-being and Live Better, our focus is going to be expanding the role of Live Better in health for our customers, and that's health insights health advice and everyday prevention.

And that will also allow us to personalize that health experience, not just in Live Better but beyond in all of the various things we do for our customers in health. We also want to accelerate growth beyond PHI with consumers and corporates, and we already see really great momentum of some of the pilots we've run over the last few years.

And lastly, we want to leverage that strength we have in our partner base in Live Better and customer engagement to elevate Live Better into a broader health and well-being marketplace with mechanics such as points plus pay and various other ways that people can engage in that marketplace to solve more needs and create more value. With this, we expect we'll add another 300,000-plus customers to Live Better to total about 1.2 million and over in FY '28. And we've had that track record over the last few years that supports that momentum.

In corporate health, really, the scale in corporate health is going to be underpinned by a focused and targeted innovation in mental health, EAP and workplace well-being. Almost every single corporate customer I speak to tells me that traditional EAP is no longer fit for purpose.

It doesn't solve the broader health needs of their employee base, and it's not meeting the evolving needs of the corporate and employees in mental health and physical health. And so what we're going to be focusing on is reimagining EAP and also integrating support for health span within the corporate health segment.

As a foundation, we're going to continue to strengthen insights and analytics to make sure that we can make those intervention support very targeted so corporates can maximize the value they're getting for their people and themselves.

And we also want to make sure we strengthen integration between all the corporate health services and also into the core health insurance offering we have for corporates. Together, we expect these will accelerate our growth in corporates and lead to over 20% of our corporates having a health relationship in corporate health.

And also, we envisage growing health-only corporate relationships and then supporting further growth of health insurance. In financial well-being, consistent in terms of driving direct customer growth in financial well-being, we want to strengthen value, broaden our product set in financial well-being and introduce increased rewards for loyalty within financial well-being that we feel will support our customer needs and growth. And a foundational underpinning of that is repositioning ahm as an end-to-end personal insurance platform.

We've seen really great momentum in ahm over the last couple of years. It's really resonated with health insurance and non-health insurance customers. And we believe those priorities will help us add another 100,000-plus policyholders to financial well-being by FY '28 to create a customer base and policyholder base in excess of 440,000.

Now all of these opportunities strengthen PHI synergies, and that will continue into the future, supporting differentiation of the Medibank and ahm brand and also supporting direct growth of earnings within the Medibank Health segment.

And so why is all of this important for well-being other than I'm in front of you talking about it? Firstly, we've built and continue to scale growth platforms across well-being that are delivering tremendous amount of customer value. And hopefully, some of the examples I've shared from our customers are painting a more vivid picture of what that looks like.

And as I mentioned, we've got a growing and very strong ecosystem of partners that we've been nurturing for years that put us in a great position. And that not only delivers direct customer and earnings growth in the Medibank Health segment and in well-being, but it also strengthens our core health insurance business.

It's differentiation, it's supporting acquisition, it's supporting retention and it's helping reduce risk factors in terms of preventative health care. And our strong customer base with trust also supports growth of customers beyond PHI.

And we're seeing our presence in well-being and the growth in customers really drive our brand metrics across Medibank and ahm. And in Medibank, in particular, over the last 6 to 12 months, we've seen real inroads in the differentiation in health and things like prevention and mental health that are really resonating with the whole market, but in particular, the youth segment, which we know is so important to attracting in private health insurance.

And so in summary, we've got strong momentum and track record in delivering innovation and scale in the well-being segment. We've got a road map that I've given you some indication on for the next few years that we feel taps into the most important things we need to do for our customers and to grow. And looking forward in the next 3 years, I'm very excited by FY '28 that will help transform how Australians experience health and well-being and really embed well-being in everyday life for not just our customer, but all of Australia. And that is frankly very motivating for me and the team.

I will now hand over to Rob to go through primary care.

Thanks, Milosh, and welcome, everyone. I'm really pleased to be here. For those that I don't know, my name is Robert Read. I've been with Medibank for just over 3 years. And prior to that, I worked in private equity and global pharma before leading a digital health business that expanded in Australia, the U.S. and U.K.

So Amplar Health. So we deliver local care at national scale across both the public and private systems. We support a wide range of funders from governments to corporates and to other private funders of health with around 1/3 of our revenue coming from supporting the Medibank customer base. Today, my presentation is going to be split in 2. We'll talk about the 2 segments, primary care before the break and community and acute afterwards. So Medibank doesn't fund general practice.

So I often get asked, why are we choosing to focus on scaling primary care. Primary care is the care that people first get in the community. It's not just GPs. It's also pharmacy, physios and other allied health across both physical and mental health. In fact, primary care is critical to the health transition. It's also an attractive segment for us. It's worth $70 billion in Australia and accounts for nearly 200 million interactions between GPs and patients every year. There's a significant opportunity to improve the customer proposition and in turn, support better health care in Australia.

This is why we want to grow in primary care. We're starting from a strong base. We have one of the largest national clinic networks in Australia, and we expect to continue to grow that. Like most parts of health care, though, there are challenges. FTEs in primary care have reduced over the last 5 years, but demand has increased. As a result, waiting times are now over 4 days and out of pockets have increased about 5% over the last year alone. We all know the adage prevention is better than cure, and the ROI for prevention is 14:1. But as David said, we have one of the lowest investments in prevention in the OECD nations. We expect this investment to grow.

An example of preventative health that I wanted to share is cardiac rehab. Today, in Australia, there are about 0.5 million hospitalizations every year as a result of the cardiac admission. Over 80% of people who need cardiac rehab don't receive it in this country. And for those that don't receive it, 95% of readmission bed days are accounted by that cohort. That's why we've combined technology and our primary care network to run our Heart Health at Home program. Our program delivered with cardiac nurses and an app delivers as good or better care than traditional cardiac rehab. I was really proud when this program was recognized in the European Heart Journal earlier this year.

We are well placed to grow in primary care. We have strong foundations in both our scale and our channels. We currently provide options for patients from prevention, as Milosh talked about, clinical prevention to in-clinic care and care in the home and also virtual primary care services. We do this at scale across the country and bringing these capabilities together to deliver better value and experience for customers. We're improving productivity, allowing health professionals to work at the top of their scope of practice and have more time to spend with their patients delivering quality care.

As you can see on the slide, our prevention services that we deliver to patients have now grown strongly, and we deliver 33,000 services to customers every year. We have deep experience in delivering virtual care, and we offer a variety of services to PHI, state and federal governments. And they run 24 hours a day, 7 days a week. Our multichannel offerings already account for over 108,000 interactions every year with our PHI customer base and growing by 24%.

Our primary care clinic business, which operates under the Myhealth brand is a very successful primary care business, operating 105 clinics on the East Coast of Australia. And the scale of the health professionals that we have inside Amplar is extensive with over 2,000 health professionals delivering care, whether that be in the clinic, virtually or in a patient's home.

We have 3 objectives for our Primary Care segment in FY '28. Firstly, to grow our clinical prevention enrollments, so we can bias towards prevention and have more members experiencing better health earlier. This will be measured by growing our prevention by 35% to 45,000, including rolling out integrated propositions to attract and retain Medibank and ahm customers and noncustomers because we know and as Milosh and David both referred to, over half of us have a chronic disease today.

Our second goal is to expand multichannel offerings through integrated pathways and virtual consults at significantly bigger scale. Cam Holland, who runs our primary care business, will be showcasing how we're looking to bring this together. Our milestone for FY '28 is to grow our GP consults to 7 million and increase the percentage that are virtual from 20% to 30% in response to strong customer demand for this channel, helping local teams deliver care whenever and wherever patients need it. The growth in these consults will be from both our organic and inorganic initiatives.

Our third goal is to leverage local health care teams to be more connected and effective supporting planned and preventative care. We know that primary care is a priority of government. And whilst the recent bulk billing initiatives is likely to improve access and addressing some of the challenges of affordability, more needs to be done to support primary care. We've had significant interest from health stakeholders on the trials that we're completing in Western Sydney with Myhealth that are taking the recommendations from the Medicare task force and putting them into actions.

Dr. Mo will later showcase some of these and how they're working and the results that we're seeing. Primary care is an attractive segment to invest in, and we have the foundations to grow and differentiate, supporting patients as we do this and supporting the health transition. Staying better starts with affordable, accessible and proactive primary care. This means people could be helped earlier, lower their cost of care over their lifetime and improving their lives. We want to connect to multichannel so that we can help people through a continuum of care, which is all about reducing the barriers of care, knowing that when someone finishes one service, we understand them well enough to recommend the next service.

We want to deliver national scale with a localized experience. We need to be where our customers are, and we expect to grow our footprint to match our customer base. And finally, driving system reform. For us it means working with funders to create better funding structures over time. Primary care will be a significant contributor to the growth of Medibank Health. We have and will continue to invest capital to accelerate our ambition of a scaled multichannel primary care business.

We're now going to take a brief -- I think, a 30-minute morning tea break, and then I'll come back and talk more about our Community and Acute segment. Thank you.

[Break]

Welcome back, everyone. Hopefully, everyone had a good chance to refresh and have some good conversation and dig a little bit deeper into what we've been talking about this morning. And before the break, we talked about primary care becoming more planned and preventative and being able to improve accessibility and innovation in that sector because it's such an important sector as we think about the health transition and making sure that people are getting the right care at the right time.

Now I want to talk about our Community and Acute sector. And driving the health transition really is all about, for us, supporting the second shift that David talked about, which was moving from hospital to community or home. Primarily, we do this through our Community and Acute segment. The chronic disease burden is accelerating beyond the health systems capacity. This is further challenged by aging. Hospitals are a very expensive place to deliver health care. Yet at $1,500 a night, every night that you can have a patient outside of a hospital is a save to the system.

The KPMG report that was issued earlier this year showed that 30% of patients could safely receive hospital care at home with the same or better outcomes. This shift could save the system $1 billion a year and $6 billion in avoided CapEx from not having to build additional hospitals. For over a decade, in the acute home health sector, we've built the workforce, governance, technology and clinical oversight that makes this possible. partnering with funders nationwide to deliver high-quality care outside of hospital.

A great example of this is the My Home Hospital program that's delivered in partnership with SA Health, where we've delivered acute hospital in-home for over 24,000 people over the last 4 years. To enable this, we've built technology that enables and integrates remote monitoring, virtual care, complex logistics to deliver a full hospital level treatment at home, supported by doctors, nurses, paramedics and in-home diagnostics. But I think what really amazes people when I talk about this is that we can deliver a comprehensive set of services that you would expect in a hospital, such as oxygen, IV, x-rays and pathology into the home.

So it's really a different level of care. It's more convenient for patients. It delivers better outcomes and frees up beds to those who need the most. It's also cheaper for the government and incredibly popular, has an NPS approaching 90. And it's easy to see why. When you can be at home, recover in the comfort of your own home with home cooked meals, with pets, with no visiting hours, it's a much more convenient and safe experience for patients and the results speak for themselves. We have about 1/3 of the hospital-acquired complications than that patient would have in a traditional bricks-and-mortar hospital. And Sarah McRae, who leads this business, will be taking us through a deeper dive through the showcase.

We're now taking this expertise to support other challenges in health. And for example, we're really looking to support people aging in their home as part of this sector. This year alone, the department's numbers have us over 20,000 beds short in aged care homes and only a few thousand being built each year. At the same time, 55,000 people are going to turn 85 this year in Australia. And what's even more concerning is that in 2 years' time, that number will be over 60. With aged care homes unable to meet the demand, more people will inevitably have to age at home. Yet of the $12 billion spent on aged care or home care packages, only 3% of that money is spent on clinical care, and that's about to change.

The new supported home program, which is launching in Australia next month, will overhaul home care funding and specifically clinical care at home. As you can see on the graph there, it's expected to grow from a $400 million market to a $2.8 billion market by FY '30. And we believe we're well positioned to meet that demand. Our ability to codesign and innovate with funders has built a unique nationwide capability, delivering hospital-level services in the home, and we can reach nearly 95% of the Australian population through our home care workforce and our provider network.

These strong foundations give us the platform to scale as the next phase of care at home expands. We are also expecting more patients to select ambulatory care settings. We think this will be driven by both patient demands, but also increasing acceptance by the health market of shorter-stay options. Our community care sector delivers nursing and allied care into people's homes.

As I mentioned before, we can cover about 95% of the population, and this is funded by private funders and home care packages. Most referrals come through our partners or directly from consumers. And you can see here that we're seeing strong growth in this part of the business. Last year, we delivered 107,000 home care visits. Our acute home health sector delivers hospital level and rehabilitation services into the home, supporting both hospitals and private funders. These services include rehab in the home and hospital in the home, which we've grown successfully over the past 5 years, including providing a quality alternative for customers instead of only having the option of inpatient care.

This work also creates valuable synergies for the broader business, helping Medibank customers recover at home rather than in a hospital. These programs had delivered 24,000 episodes of care in FY '25. I wanted to provide an example of another service that we provide in this part of the business called our transition care service.

This has expanded what we've been doing in the My Home Hospital program. Like many states, South Australia had major bed block with nearly 300 patients who still needed some form of clinical care, but no longer needed acute hospital level treatment, many of whom were waiting for rehab or an aged care placement.

And no one wants to spend weeks in a shared hospital room when they could safely recover elsewhere. To help solve this, we partnered with SA Health to launch the transition care service earlier this year, converting a floor of the Pullman hotel into a 24-bed hospital. Like the My Home Hospital program, it extends this model, but with patients receiving their clinical care in a hotel.

A multidisciplinary team of GPs, nurses, physios and social workers deliver care and support families to find aged care placements to help patients return home whenever possible.

We had a patient who had recently been in hospital and admitted to care with no return date. She'd been a frequent visitor into SA hospitals and needed an aged care placement. She came to the aged care -- to the transition care service in April this year. And by May, we've been able to find her and her family a placement in an aged care facility that wasn't possible when she was in the public system. Together, through our services, we've saved over 170,000 bed days last financial year, and that's a win for our health system. And we expect this benefit to support the system as it grows. Ambulatory care. 10 years ago, this market didn't exist in Australia.

Too many patients were delaying surgery because of high out-of-pocket costs. We've invested heavily at Medibank in no-gap and ambulatory care, making high-quality treatment more affordable and accessible. In just 5 years, the share of Medibank patients receiving a no-gap joint replacement has grown from 1% to 7% and we've partnered with doctors to open 4 ambulatory surgical centers where patients would cover in days, not weeks, complete their rehab at home, which makes commercial sense for us and improves the patient outcomes.

These centers deliver great outcomes, shorter stays and lower costs. Our model is catalyzing system-wide change with 41 hospitals now in Medibank's no-gap network. And at Adeney Hospital in Kew, that's become Australia's first and only 100% no-gap hospital. We have over 150 specialists who are working there, providing care to patients at no additional cost. With the right partnerships and investments, we can make surgery more affordable and accessible for patients and PHIs. We also have 3 mental health hospitals under our partnership with the iMH -- with Aurora called iMH.

We have 3 key objectives in this community and acute segment. We're going to grow with new regulatory funding for clinical in the home for older Australians. And as a result, our FY '24 -- FY '28 milestone is to grow 45% to 155,000 clinical home care visits. In the acute home hospital business, we will grow acute hospital and transition care services. Internationally, we see about 5% to 10% of care that's traditionally delivered in a hospital delivered outside the walls of the hospital. In South Australia, we're beginning to approach the bottom end of this range. Our FY '28 milestone of 27,000 episodes of care assumes that, that service stays in South Australia.

However, as the health system expands and grows and the need for these services expand, we -- we'd also expect this to provide further opportunities for growth. And thirdly, for our ambulatory care joint venture hospitals, we will be breakeven by 2028. And for us, this is important because this will mean that these hospitals have scaled well and the new models of care are being more widely adopted by both doctors, patients and PHI funders.

In closing, I wanted to highlight 4 key points on the community and acute sector. First, we're moving hospital-level care safely into the home and community, care that patients love and cost the system less. Next, we're scaling across the continuum of care, which is essential for driving the health transition. Thirdly, by leveraging data and technology, we can help more patients, improve how care is delivered and keep patients at home for longer. Fourth, we're partnering with funders to codesign and innovate models of care.

And finally, over the last decade, we've learned that by investing in this segment enables us to diversify our earnings, strengthen our business, but importantly, catalyze change to drive the health transition. Thank you. And I'll now pass over to Mark, who's going to talk to us about how this creates shareholder value.

Got one job, and that's to work out how the slides operate. Well, thanks, Rob. And let me briefly recap to start with on the material we covered today. So we've highlighted the need to change in health, the 4 system shifts that will enable us -- and Felicia was really clear on the really important role that technology will play. You've also heard about Medibank Health's 3 health segments, our very strong and solid foundations in each of these and our clear strategy for growth. In this final section, you'll hear from David and I about how this sets us up well to deliver on our FY '30 aspirations and how this creates value, and that's value for shareholders and customers.

Now as David mentioned, we think about value creation across 3 individual but connected lenses. So firstly, growing Medibank Health earnings. Now we participate in segments with strong growth prospects, including the opportunity to provide more health services to our 4.2 million PHI members. In these health segments, there's typically less government and regulatory intervention than we see in PHI. And really importantly, organic growth is typically very capital light. Secondly, strengthening our business. Now what you've heard today aligns with our PHI differentiation strategy and supports our PHI market share aspiration. It will enable us to provide health services across the complete continuum of care, and it will help proactively address claims costs across 3 lenses.

So firstly, reducing claims incidents and that's from better chronic disease management, managing claims complexity in the way that we reduce disease progression and probably most importantly, lowering health care costs. So that's shifting care from traditional high-cost settings to lower-cost personalized care settings for customers. And thirdly, and this will probably have the bigger impact over time, transforming the health system, and David will touch on this shortly. Now we'll bring this together very quickly over the next few slides.

Now on this slide, we've broken down the revenue gross profit and key value drivers or key metrics for each of our 3 health segments. Now we're going to report on this basis going forward, both from a financial and from a metrics perspective, and we'll share with you the half year pro forma information in advance of the result. Now you'll see currently that both revenue and gross profit are very much aligned to the well-being and the primary care segments. And these areas are also our current areas of M&A focus. Now achieving the Medibank Health FY '30 earnings aspiration is going to require a combination of volume and revenue growth, gross margin performance and management and improving our operating expense ratio.

So we see volume and revenue growth coming from increasing our number of health customers, meeting more of their health needs and at the same time, broadening our services and our source of payers or our funders. Gross margin performance is going to arise from efficiency benefits, and that will come from scale, utilization and labor productivity. Our channel mix will be very important. You've heard us speak a lot about moving to digital channels. And we will see, as Felicia said, the benefit from investing in technology.

Now when we talk about gross margin performance, that's code for saying we want to optimize for the gross profit we earn. So there always will be a volume margin trade-off. We're not going to be slavish to managing to a particular margin figure. It's how do we actually optimize gross profit. We've invested fairly heavily over the last couple of years across the Medibank Health segment in the fixed -- largely fixed cost infrastructure that's going to allow us to scale and run our business. So we have largely invested in the people and assets that we need to operate and grow the business. So we'd be expecting as the business grows to see an improvement in the operating expense ratio.

Now delivering on the FY '30 aspiration for Medibank Health to grow earnings to at least $200 million is going to require both organic and inorganic growth. So we're going to grow organically by growing volume, and that's including for new products and services. And I think we've shown a good history of innovation and delivering new products to customers. Now whilst the Medibank 4.2 million PHI member base is important, that's not going to be the only source of growth and diversifying our source of funding will also be key. And that's those sources of funding across both the public and the private sector.

You've heard us speak a lot about M&A aspirations. We see inorganic growth through both M&A and partnerships being used to generate scale, geographic diversification and acquire new capability. In cases, M&A will help us accelerate and reduce the risk and execution. And also, we see the earnings that we deliver through M&A acquisitions being able to be invested in delivering new organic growth opportunities. So our inorganic growth priorities are unchanged from what we discussed at the last result. The near-term focus is on expanding our primary care footprint and building out our virtual capabilities and also broadening the areas in the corporate health and well-being market that we participate in.

And really importantly, this execution is going to be with very strong capital discipline. So investments need to make a stand-alone return on capital. In many cases, we're partnering with doctors that don't realize any Medibank synergy benefits. So stand-alone return on capital is important, but also our businesses need to deliver synergies back to our other businesses. The capital employed in Medibank Health, and that's part of the $471 million of other capital we report in our capital note in the result. There's $450 million of that currently. And to achieve that FY '30 aspiration, we expect to invest up to around $250 million, making the capital employed around $700 million. So that's largely the residual amount of our FY '24 to '26 M&A aspiration plus a small amount of BAU capital in MyHealth, where part of their core business is acquiring small numbers of clinics on an ongoing basis.

We do, however, have the willingness and capacity to invest more than an additional $250 million in the Medibank Health segment. And that will either increase our earnings aspiration or deliver the $200 million earnings aspiration earlier. But of course, we will be disciplined as we go about that execution. So achieving $200 million, at least $200 million earnings Medibank Health is a bold aspiration, I think the important thing to call out, though, based on the numbers we've shared with you on the capital we expect to deploy that will not only grow earnings, it delivers a great opportunity for significant improvement on return on invested capital.

And that's the way we really think about deploying your capital, what's the return we can get on that capital versus where you could achieve a return elsewhere. I'll spend a few minutes talking about the synergy opportunity. So this is a fairly busy chart, but it's meant to show pictorially the bidirectional opportunities we have for delivering synergies between our businesses. It's anchored around the 4.2 million Medibank PHI customers that are looking for deeper health engagement. There are quite a large number of individual opportunities, and I'll share a few of those with you.

So there's the opportunity through our differentiated products and services that will support our PHI customer growth. We want to achieve or support more of our customers and support them through more of their health needs. You can see -- and Rob spoke about with Milosh covering the entire continuum of care through starting with prevention all the way through to acute disease management. And then addressing rising health care costs, and we expect to see benefits from the preventative and proactive care that the team mentioned earlier as well as shifting care to lower-cost personalized settings away from the more traditional higher-cost acute settings.

So these synergies aren't all going to rise on one day. They're going to progressively emerge. We currently see some of these opportunities very well embedded that will increase as we increase the number of Live Better policyholders, participants or financial products policyholders. Some such as scaling, some will emerge progressively as we see the adoption of personal care and personalized medicine increasing. And then probably over the longer term, the benefit from prevention and proactive care will progressively emerge as we roll it out to more of our -- those opportunities out to more of our customers. So that's a more future-focused opportunity.

So I guess the money slide is next. And make sure it's the right slide. On this slide, we've shown you 3 really simple examples on how we can create value both for the shareholder and for customers. So what we try to do here is anchor the math for these opportunities around the milestones for FY '28 that we're sharing with you. And most of these are pretty simple. It's how many more customers are we supporting and what's the benefit financially for both us and the customer being supported in their health care journey. So the first one is on Live Better and how that supports PHI customer growth. We know very clearly customers that engage with financial products and Live Better have a lower lapse rate than customers that don't. So we can very easily quantify the benefit of that to gross profit.

We know for customers that are treated in the home versus hospital, what the cost saving is per bed day and what the average length of stay is. So that's very easy to calculate. And the one that's slightly more complicated and will merge over time. It's the people that participate in preventative and proactive care and as well as going through our chronic care programs. Their disease burden and cost of treatment will emerge over a much longer time horizon, and we expect those opportunities to be more significant as we approach FY '30. So to be clear, this is not an exhaustive list. The sizings are indicative. But I think that they demonstrate the really clear opportunity we have for value creation and then how that value creation links to the milestones that we've shared today.

So we've already got synergy delivery in the FY '25 earnings base that we reported a couple of months ago. This is incremental opportunity over and above that will emerge as we progress to FY '30. I might just finish with a few comments on this slide, which really is the money slide. So we haven't covered PHI in much detail today, but we remain very focused on delivering more value to our customers, keeping our PHI offering differentiated. And you won't be surprised we're going to continue to be disciplined in the way in which we run the business. We see growth in our health business supporting our PHI market share aspiration. And we are very prepared to invest additional investment in the PHI business if there's a commercial case to stretch our PHI aspiration but only if it makes commercial sense.

So I've had a few questions in the break about whether this 30 basis point aspiration is a downgrade. It's our aspiration that we're comfortable with based on continuing to run the business in a disciplined way. But of course, if opportunities open up and we can win more market share and make a commercial outcome or commercial return, then that's what we'll do. So we've spoken a lot about enterprise value creation across the 3 separate lens of Medibank Health earnings, strengthen our core business and transform health.

We've said a lot about it being individual and connected. And the reason we say it's connected as we transform health, then the opportunities for Medibank Health open up as Medibank Health delivers more services to PHI members. We know most of our PHI competitors won't be able to match that capability and service offering that gives us greater market share opportunity and then the cycle continues. The earnings aspiration of at least FY '30 of at least $200 million is both from organic and inorganic growth. And we've given you a marker of how much capital we need to spend or we're assuming we spend about $250 million in achieving that aspiration. ROIC is going to be a really important opportunity for us for improvement.

And if you can do the math, if we achieve the earnings aspiration of $20 million, you just need to adjust the noncontrolled interest for Myhealth and you can work out your own estimate of ROIC, and it will be significantly above where we currently sit. And finally, in terms of trying to dimension the value opportunity from synergies, as we expand our role in customer health, I think it positions us to deliver incremental PHI value of over the 5 years, a 5% increment. So in FY '30, that means as a consequence of this strategy, we'd expect PHI earnings to be 5% higher. And so -- of the FY '25 earnings. So that's 5% of about $741 million in round numbers, so $40 million increment versus what that would have been if we were like most of our competitors and just a monoline PHI operator.

Now of course, in the next 5 years, we'll be thinking about how else we can deliver synergies and add value to our customers. And we'll -- this is our initial estimate of the value creation opportunity, and we'll refine that as time passes. Before I hand to David, I might just reinforce one comment. I think we've got the strong foundations. We've got the history in execution, and we've been very good at innovation. And I think all of those 3 components will be very critical in delivering on all the aspirations we've shared with you today. David, bring it home. And I did work out how to use the slides, which is probably the biggest risk.

Thanks, Mark. You've exceeded all expectations of your technology now. They were very low to start with, but you did very, very well. Congratulations. Right, I'm just going to talk a little bit more, maybe 5 more minutes and then very keen to answer any questions you may have about what you've heard this morning. We'll have all the speakers up here. So a lot of this is recap. But what you've heard today hopefully resonates. Our focus in health is driven by the needs of our customers and our greater role in supporting them in their whole journey in health. This is not new for us. We've been doing this for around 20 years. And we've got a track record of building capability, innovating and scaling. We're doing this because our health system needs to transform. And we think it's the absolute right time to shift.

We need the system to shift from treatment to prevention, from hospital to community from analog to digital and from generic to personalized medicine. These shifts are essential for the system to drive the health transition to drive productivity and to really respond to the emerging and increasing needs of the community. I was asked in the break, is there any system in the world that's done this? Really, the answer is not in totality. But many modern systems have made demonstrable shifts along these 4 dimensions. The good thing is we can learn from the ones that have worked, and it gives us confidence that we can accelerate these shifts in Australia.

And what we know to be very, very clear is that we need to work together with doctors, together with other parts of the health system to drive these shifts. We need and we have a shared ambition for where we need to head. And I think there's a collective understanding and appreciation from the many people I speak to across health that we want one that preserves quality health outcomes for our population. I think that is absolutely a united ambition. And we also need to ensure that it's one that continually improves productivity, improves health equity and the experience -- experiences for patients and providers.

So as we've shared with you today, we're investing and leading the health transition and this is enabling us to grow as a differentiated health company. Now this chart is not new to you. How we create value is what makes us different from others. And it's not just what we deliver, it's how we deliver it. And we talk about this a lot internally. It's the many some of our parts of our business that creates something greater than the sum of those individual parts. And it builds trust with our customers and it supports the notion of our purpose, better health for better lives. This approach, we know has also delivered long-term value for our shareholders.

And as we expand in health, we will be diversifying our earnings and strengthening our resilience, increasing our confidence in growing in our core PHI business. And this program of how we go about things is the driving force behind our strategy. And by focusing on growth and connecting our 4 key segments in health, PHI, well-being, primary care and community acute care, we have multiple pathways for future growth and value. But what -- where we start and end is continually advocating for our customers for better health, and we will continue to play our role to keep the Australian health system one of the best in the world.

So just to recap, and I touched on this at the start, but I just wanted to revisit it but we have questions. We have set ourselves some longer-term aspirations that we've shared with you today. And we're focused on driving long-term value, growing earnings, strengthening our core business and transforming health. So our aspirations are to double the number of people we're engaging within their health and well-being, aiming to support 10 million people by FY '30. To maintain our leadership role in PHI, we aim to grow resident policyholder market share in a disciplined way, as Mark said before, with an aspiration to have at least 26.8% share in FY '30.

We know and as we described to you today, our growth in health will help support this aspiration for our core business. And as Mark alluded to and shared with you, it will also generate more value for our PHI segment. And to reiterate, and you know us pretty well by now, if there are opportunities that are sensibly commercial, we will invest in those to increase our share in PHI. And then lastly, we aim to significantly increase Medibank Health segment earnings to more than $200 million by FY '30. And to bring it all home before we have questions. Australian health system is under pressure. Its complexity whilst the strength is driving its inability to respond to increasing needs. And the lack of productivity is not supporting the future health of our population. This is why we need to drive the health transition. And for us, this is an opportunity.

We are well placed to invest and lead this transition backed by a clear strategy, proven capabilities and our established partnerships and strong capital position. As you've seen today, we've got strong foundations in growing segments in health and growing in health strengthens our core PHI business, and it's a key point of difference from others. And as we look ahead, our team across Medibank is very excited by our future. We have a very strong connection to our purpose, and we're excited by the role we'll play with our partners in keeping Australia's health system one of the best in the world. So with that, we're now very keen to answer any questions you may have.

So we've got Lachie and Nicole with microphones around the room. And if you have got a question, just raise your hand, and we'll bring a microphone over. So do we have any questions in the room? Freya?

Freya Kong from Bank of America. I'm just trying to understand where Medibank sits in the value chain for a lot of the health services businesses. How much of your health revenues are coming from the health insurance business as claims costs are out-of-pocket expenses for customers versus those outside of your current ecosystem.

Yes, I think I mentioned that in the opening that about 1/3 of our revenue is coming from the support that we provide to Medibank customers. And the rest of it is coming from the ecosystem more broadly.

And is there an ambition to change this or grow it even more?

Well, I think what you heard in my presentation is that we're actually looking to grow across a number of dimensions in our business. That includes primary care, which is funded very much by governments and customers individually rather than PHI. You're also going to see us continue to serve more customers with -- inside the Medibank ecosystem as well. So I think you'll see both dimensions grow rather than -- and that percentage may change over time.

And is the Medibank Health are the growth ambitions reliant on continued government support or shifts in how health care is being funded by the government?

Yes. No. So that's a really good point. I think what we've talked about, particularly in the primary care space is that we want care to be more planned and preventative. And for that to happen, the system is not designed for that at the moment. So it's designed to deal with episodic and acute care. And so it's funded on a fee-for-service basis. I think we would really like to see that become more funding both DK and Mark both bundled funding that we can actually be funded differently for that. What we're not planning on in these numbers is actually any system reform to enable that. So to the extent that it does occur, it will be a tailwind rather than a requirement.

I might -- just to add to that, we've got, as we've shared with you many times, ongoing dialogue with state, federal government departments, players in the health sector. We want to work with everyone to actually solve and demonstrate some of the reform options that are actually being contemplated. So as Rob said, we're not relying on reform. But equally, we are seen as being a company that's actually putting some reform in action to give confidence to policymakers that the contemplated reform actually drives better health outcomes, better productivity, better experiences, all the things we talked and so I think we're in a really good position to be able to accelerate potential reform because it doesn't -- it's not an unknown, it becomes more of a known.

And when I look internationally for [ exit ] players, often government reform does follow pilots and scales, scale programs where the private sector or groups of practitioners come together to demonstrate what is possible. And I think that's what we're seeing, and that's what we'll see in Australia, but as Rob said we're not relying on any reform in these numbers.

We're probably moving the strategy to a space where, on average, there's less regulatory intervention and less reliance on government. So when we've chosen which of our health segments or our target segments, we've been very mindful of ensuring that we reduce the regulatory and sovereign risk rather than add to it.

And sorry, final question. Just on the -- can I clarify what the M&A budget is then for '27 to '30. Does -- has the budget moved into the next 3 years effectively?

So we said at the result, we had to spend $60 million of our $150 million to $250 million FY '24 to '26 aspiration. And we're still confident that we'll spend that during the course of the next 7 or 8 months. So the M&A budget thereafter is pretty modest around $60 million or $70 million. And that really is just a BAU budget for Myhealth. So they will continually acquire clinic by clinic to expand their presence. Anything over and above that is not included in the FY '30 target aspiration of $200 million. So that will be in addition. And we're pretty confident both from our capital generation or Tier 2 or other access to capital markets that if the right opportunity arose, we can quite easily fund it.

Next question, Michelle?

As you increase the 177,000 hospital beds saved that you delivered in FY '25, how is that going to impact the 64% utilization of hospital beds for the system? And how are you thinking about that relationship that you have with the providers of those hospital beds?

Well I'll start, by March we can fix anything I've said that's wrong. Look, I think as I said before, just before, I think there's a collective understanding of the need to transform health. And there's a collective understanding certainly as we talk about as a private sector, the need to safely move treatment where it's possible from expensive acute hospitals to shorter stay day in the community. I think that resistance of that is now reduced. I think the question is how do we transform together. As you know, there's quite a concerted dialogue at the CEO forum around that transition and what are the best conditions to make that transition.

But I think that understanding where we're going now is kind of a united understanding. That's not a mystery now. I think what we're equally doing in our own business is to create the destinational services where health care needs to be because 5 or 6 years ago, maybe Andrew could add, when we invested in home care, there wasn't really a scaled clinical home care offering in this country. So clinicians had not a lot of confidence. So we're not just doing our bit to create these new services, but equally now more and more partnering with hospitals to help fund that transition incentivize that tradition. Maybe I'll hand over to Milosh to sort of describe the hospital partnerships and what we're doing.

Yes. Thanks, David. I think as Dave outlined, really, we're trying to bend the cost curve for the country and our hospital partners are part of that ambition and strategy. And so over the last couple of couple of years, the no-gap network is a good example. As Rob alluded to, we've got 41 hospitals in that network, the vast majority of with our partners, and we're progressively partnering to shift the care model, reduce length of stay and increase adoption of home care. And granted across no-gap and home care, we'll work with Amplar Health, but we're also working with a range of our hospital partners that's really accelerated in the last 3 years.

And as we've spoken about at the FY '25 full year results, we're progressively adding incentives and sharing that value with our hospital partners and customers so that overall, we collectively are incented to move the care model and drive this health transition over the next few years.

Next question, Kieren.

Kieren Chidgey, UBS. Just interested in some of the synergistic benefits you outlined, I guess, between Medibank Health and the PHI. Obviously, there's the customer benefit. But Mark, I think sort of a couple of presentations touched on some claims opportunities that could drive 5% uplift to the PHI by FY '30. What's your ability to retain those benefits given we still have risk equalization and you've got the government increasingly looking at gross margins.

Yes. So that calculation that we've shared is net of risk equalization. So that's real deliverable value. So value can manifest in a number of ways. You can have a claim saving and you can then chose to reinvest that in product value and reduce your lapse rate even further. So it doesn't necessarily have to come through in claims only.

And based on the size and scale of the opportunity that we've shared today, we're pretty confident we can retain that everything else being equal. And that is just in the kind of micro ecosystem of Medibank Health participating with -- and collaborating with PHI. That doesn't pick up the benefits we expect to get from payment integrity, hospital contracting and all of the other initiatives that are already embedded in the business where there's further opportunity to embed further.

Just a second question around sort of the scalability of Medibank Health. You sort of mentioned a lot of the investments been done in terms of people and systems. The operating profit growth targets look ambitious quite, quite strong. I presume as you're attracting more customers into that ecosystem, there is decent variable cost growth. Can you just kind of give us a feel for, I guess, the bandwidth of the business as it is today from a customer perspective to take on a lot more volume?

So maybe if you think about -- Rob, correct me when I'm wrong, you almost have to bifurcate between the operating expenses and the direct expenses that sitting gross margin. So you'd expect to be able to scale your existing services at a similar gross margin as you see today. And that's based on not getting any real scale benefit in delivery. And then from an operating expense basis, that's probably the more fixed cost basis. So it's technology, it's support, legal governance and all of those kind of costs.

So they expect those to be more immediately scalable. So that's why we spoke about the operating expense ratio improving scale. You'll always like you do in most businesses, get to an inflection point, you grow so much, you need to invest in more fixed costs and you grow into those. But I do see the opportunity really being in the operating -- getting leverage through the existing fixed cost base. Rob...

Yes. Look, I think you did well, Mark. Look, Kieren, I think as Mark described, there's a shift in the scale of the existing operations as they exist today, and that will be right. I think as we move more into that integrated care model, we'll see different gross margin unit economics emerge as technology plays a bigger role in the health care delivery than it does today. There's still a lot of investment that we need to keep doing, this is not a one-and-done exercise to deliver multichannel multidisciplinary care.

We have to continue to stay in that, and that will be a continual OpEx investment, which will be a little bit different to our CapEx that we'll continue to do to get scale. If you look at our primary care GP market, where we're still despite being one of the larger players, a small player in the total market. So there's a lot that we can do to get...

And Kieren, maybe to finish, if you look at the reason for giving FY '28 milestones, which are very much linked to the key value -- the key volumes and the key value drivers for gross profit show what we're aspiring to in terms of growing for each of the segments at a gross profit level. So you can do the math if you assume the gross margin is flat. We know on the management -- on the operating expense level, if we acquire business, we'll pick up their cost base.

But when you look at the revenue growth that's possible if we meet our FY '28 milestones, we wouldn't assume the same level of cost growth even with acquiring cost basis from M&A activity, and that's where we get the opportunity for the operating margin improvement. But if you do the math, if we can achieve those milestones, we are not assuming any significant improvement in margin and therefore, not relying on that to achieve the...

And I just have one last question. You presented a lot of sort of pretty big TAMs out there and the $150 million to $250 million acquisition target hasn't changed for a number of years. Just interested sort of what sort of opportunities would get you really interested in investing a lot more heavily.

I think I might start. Look, the $150 million to $250 million was a 3-year aspiration and we were in year 3. We restated that having spent $60 million of that. So we've got $90 million to $190 million to go, and the pipeline is very strong at this point. So we wouldn't have restated that unless we bought that. Mark's gone through the potential for increasing that to support this ambition, but also if there's better opportunities, we can raise more to support that.

I think the challenge when you are shifting health and investing in the future, you can't really invest in the past to get there. And if you do, you're going to be taking additional challenges around transformation of an asset. So we're very particular and disciplined about where we invest and how we make that trade-off. But look, there are attractive opportunities out there. But we -- as you know us by now, we're going to remain pretty particular about what we go after to support the ambition.

And maybe to finish, Kieren, if you look at the most stretching FY '28 milestone relative to where we are now is in the number of [indiscernible] you should assume that requires some inorganic growth.

Question up front.

I just wanted to ask on one of the problems with private health as a value proposition for the consumer, which is something that's not really in the health service providers' control or the health insurance providers control, and that's out-of-pocket expenses charged by the health care professionals. And so you've done a great job with your 41 owned or partnered hospitals on no-gap offers. To what extent do the doctors who are free agents able to -- are you just shifting out-of-pocket expenses into other hospitals that those doctors operate out of and then overall still maintaining that erosion of the value proposition of PHI, even though it's outside of your controlled hospitals.

Do you understand what I'm saying? So Dr. Smith operates at Adeney, but he also operates at another private hospital in Melbourne, and he makes up for your lower compensation by charging 2x out of pocket at the other private hospital. And then overall, the value proposition of private health to the consumer is still poor.

Well, staff, I think we're all itching to answer the questions, it sounds like. Look, I think the -- as I outlined, out-of-pocket cost percentage of GDP, we're well above the [Technical Difficulty] So it's a big issue, and it's going to grow -- and it's growing rapidly. So that means it's not [ just us probably in the ] problem. There are many stakeholders in the system, governments, hospitals, funders, even doctor groups are highlighting that as an issue. Consumers obviously are paying -- suffering the burden.

And we are seeing really worrying signs of people avoiding care. And that's not going unnoticed. I would say that there a collective challenge. So it's not just us saying that. And there's a new wave of doctors coming in that have a very different sort of approach to long-term system sustainability. So again, as a backdrop, I think that is a current challenge, but we're not the only voices in this at the moment. Who wants to go next?

I think as David outlined, there are a number of stakeholders identifying the problem and looking to solve it. If you look at what we're doing with the no-gap partnerships, it's not the same sort of procedure and the same sort of cost and admin effort but just no gap. You're looking at changing care practices to reduce length of stay. You're looking at home care between equal governance that reduces the requirement of the doctor to be on call and available for longer periods of time. You're looking at removal of the admin burden that a lot of doctor and doctor offices have to collect fees and payments and so on.

And so there's actually more value created in the care model and funding model changes to support the no-gap outcome than the surface level of just lowering the no-gap. And what we're seeing is more and more doctors are -- and hospital partners are coming to us to experiment and pilot various other programs in order to do that. The other thing is if you look at no-gap, the way we're doing it by improving the care model, you're therefore then reducing some of the flow-on cost of health care around readmission and continuing health care costs. So net-net, by changing the care and the funding model, you're creating value in the system can be reinvested to provide compensation at the adequate level to the doctors and hospitals.

We are going to add to that. So the fundamental costing of these procedures was no surprise, we started at -- with orthopedics because there's an opportunity to save money on prosthesis and making sure the most clinically prothesis rather than the most expensive prothesis was used, and there wasn't unnecessary rehab -- so through the short model can readily cost both through the shorter length of stay lower rehab prosthesis, what the savings benefit is then the conversation is about how much the insurer gets versus how much the hospital operator gets. And then for the surgeon, we will pay more so they don't charge out of pocket.

So if they were to go to another hospital and charge more out of pocket for another customer, that would be to increase their realization, not make up what's happening with Adeney as an example. And a lot of the younger surgeons, particularly they see the no-gap offering as an opportunity to help grow their practice. So a lot of the conversation is how many more patients do I treat as a consequence of participating and generally, the surgeon will get the same or a similar amount that they would have had they not participated, but not having as Milosh is going through the admin burden collecting the out of pocket the patient. We just pay them more.

But look, I think it's a really good question. And I think practice [Technical Difficulty] I would say that the egregious charging issue is actually a very small number. And David's point around the vast majority of my colleagues would identify this as a problem and do not egregiously charge. So I think you've got to kind of look at that because it obviously gets complicated in the media and so on. And yes, it's a big problem. It's a big problem in my [Technical Difficulty] where a lot of patients are not seeking care, and that has all sorts of [Technical Difficulty] and I think it's a really good example where actually I think there is going to be -- I'm not saying it's a simple solution because the implementation is not simple, but the answer actually is data transparency. That is the answer. And that's a whole system change, which we can play an important enabling role, but it's bigger than us. And that has to happen.

Doctors are highly competitive and patients and GPs particularly have got that data, I think you can see that problem, not disappear, but it will become a lot more manageable. And that just has to happen, and I think it will. 30% -- data I heard this week, 30% of people are not taking up a referral, okay? So the -- there's a downstream impact on health outcomes, which is actually pretty serious for us as a society. I think we just got to address it.

Andrei Stadnik here from Morgan Stanley. Can I ask a couple of questions? Can I ask around Slide 40, where you suggest that ambulatory care or the hospital investments right now aren't profitable and you're seeking to breakeven by FY '28. Can you explain a little bit more about that in terms of what needs to change to flip them into being profitable by FY '28?

That's a great question, Andrei. And I think it's pretty well accepted that it takes between 3 and 5 years to open a new hospital, commission it and get it to breakeven, that's a fairly standard industry expectation. We've got about 5 hospitals that are around 18 months or less old. And so that is just the process of maturing those. As we've heard today, a lot of those models are different. So we have different models of care that are in there, and we have different funding models as well, which create a slightly different dynamic, but an important one as we scale. And that's why I made the point about being breakeven demonstrates that they've been well accepted by patients, well accepted by the referrers and operating at a profitable level.

Can I ask a second question around Slide 44. I find it interesting to see you say [indiscernible] has $145 million of revenue. Is that explicit revenue that you charge? Or is that implicit revenue that it collects through private health insurance premiums? Like how much of that is actually like additional revenue over and above your private health insurance business of that $145 million?

Well, Medibank is one of the biggest payers for those Live Better services and you can see in our intercompany note in our 4D that breaks out what that amount is. I think it's probably $50 million a half, something around that. But I'll come back to you on the exact number, but Medibank is a big payer in the well-being space.

Can I just add to that? If you look at Live Better, the revenue that it generates is from the fund in the form of points of challenges, as I mentioned, acquisition offers, retention offers, they all amount to it. And we're finding Live Better points a much more effective acquisition offer than a lot of our other offers. Then we get inputs from our partners as our customers engage with them on preventative health or just buying well-being products and services.

And then increasingly, we've got a marketplace where our partners can access customers of various campaigns and challenges and offers that also contribute to the program. When you look at corporate health, that's obviously all stand-alone revenue from corporate. And then you look at financial well-being, that's all the [indiscernible] commission revenue from the premium customers pay for those policies.

Okay. I can ask a third question, bonus question, but I promise it's fun. So the minister expectations for the April renewal for next year, it looks like it has 2 new points. One is what are the health insurers doing about helping the hospitals adjust. And the second one was, well, if you accidentally overcharge with your premiums last year, what are you going to do about it? How do you think about those 2 new points in terms of yourself and how your competitors are positioned?

Yes. Thanks. Slightly different from the health version, but we'll take it anyway. It is fun. Look, I think there -- I mean, as I said, the full year results, we were very clear to set expectations of what could look like in private health insurance. It's about investing in the value for your customers, helping address their cost burden, supporting hospitals in the health transition. And for us, as you know as well, our objective is to keep our gross margin pretty steady, which is what we do. So these 2 new additions are very consistent with what good looks like.

As you know, we've been supporting hospitals in the transition, paying them more indexation, providing one-off support costs through the pandemic and investing in the partnership arrangements that Molish mentioned, but we've disclosed the amount of money we've provided to hospitals. So I think we tick that box. And in terms of our pricing strategy, as we shared with you before, we've kept our gross margins. In fact, our gross margins in resident PHI are still not quite what they were before the pandemic. And we keep that approach because we think that's what the right thing to do is. I think we appreciate the expectations being set because it will mean others have to do the same.

Siddharth Parameswaran from JPMorgan. One question I just wanted to ask was about the growth expectations you have in community care and primary care. I was hoping you could just help us understand the competition that's there for -- just explain the competitive environment, who else is there? There's some strong growth ambitions there. Just keen to understand whether you can hold these margins, why? What's the experience so far?

Happy to. And look, I think let's take it in 2 parts. I think primary care is a very fragmented market. There are a few corporate players that are out there. Myhealth today is probably one of the top 2 or 3 in terms of scaled footprint of primary care operators, but accounts for around 3% or 4% of the total primary care market. So just to give you a sense of [indiscernible] what's out there in growth and the competitive intensity. In the virtual care space, what we're seeing is many more providers coming to market. And you're seeing a number who are playing in what we would call the health want space or even the Sigma space where you wouldn't necessarily go to your regular GP, but you would go there to do a transaction or get something that's a little bit sensitive.

And so that market has grown, but we think it has a certain amount of boundary lines that sit around that. For us, it's really about how do you bring those 2 models together. So you're offering the virtual experience for patients that is about convenience and it's not -- to reduce barriers to getting care, quite frankly. You need script from your regular GP that's 11:00 at night, you can get that versus if it's something that you need to do in a normal wake for a clinic to open, then you're going to have an extra challenge to get there. When we think about our support that we wrap around our members for mental health, again, that's quite unique in the market. So we have 24-hour a day, 7-day a week mental health support for our Medibank members that's provided by Amplar Health. And again, that's a unique offering there.

And as we start to bring these together and you think about your primary care offering is having an in-clinic experience when you need it close to home with a 24-hour wraparound care, which is and mental health and the ability to deliver home care into your home and those things connected, we see that as a unique opportunity and actually a white space that is not being served by anyone today in the Australian market. And in terms of players who can play in that, we think we're really probably by far and away, the most -- have the core capabilities to execute on that because of where our business is today.

I'll just add and give you a break before you go to the next. So we look internationally at some case studies. To Rob's point, you do see a first move emergence of these virtual-only players and they tap out because they can't provide quality care, longitudinal support, both consumers and practitioners end up that being a minority of the share. And then what happens is then the largest percentage of the share of that market becomes this multichannel, multidisciplinary longitudinal care offering, which Rob talked to.

And then what will be left will be some local practitioners who are subscale, but will still deliver great quality community care. So that's what we've seen in a couple of jurisdictions internationally, and that's why we're very focused on this call it the middle model that will become the predominant model in the future.

I might just make one more point on primary care, which is -- yes one more point on primary care, which is it's an interesting market and it's sort of pull and push. Yes, we're going out obviously looking for opportunities. But also you've got to work for an aging workforce actually in a lot of cases a younger workforce that are actually looking for a different value proposition as a doctor. And we see a great example of that internationally. And so that's something we're very focused on.

So as we build that sort of doctor proposition, it's our belief that will actually attract people to come to our business saying, I'd like to really join and work with that. We're already seeing that with our education platform in Myhealth to keep the majority of doctors that are in that are not currently Myhealth GPs. So that's another part of what our strategy is to actually build that workforce proposition because we think that will attract will be a growth opportunity...

And some of the examples you shared technology part of 30% of GP time is wasted.

Yes, exactly. So [Technical Difficulty] productivity benefits really play through. And I think to DK's comment as well about the tapping out of the virtual -- the example I talked about with OpenUp and iPractice in the Netherlands is a really good example of that where OpenUp has sort of pushed to the edges of where they could as a digital platform, but then joining forces with the ability to also provide in-person therapy as well as virtual sort of creates the sum that's greater than the individual parts that we spoke about as far as our strategy.

Yes. And maybe just to shift gears into the community and acute sector. When we look at what we've done in South Australia, particularly with the My Home Hospital program, we are the only stand-alone player who's been accredited to national hospital centers providing this level of care into the home. The reason why that's important is that when hospitals try and deliver care outside of the home or extending into this sort of model, they are typically taking existing processes and standards into that. We feel it's really important to have a design system that's dedicated towards how do you deliver acute care into the home, and it was really important for us to get that credit, which we did last year.

I think what we're seeing in terms of competitive dynamic is more states starting to look at this model and saying, well, how do I actually implement that in my state. And normally, the first challenge is I want to build it here challenge rather than there's another player out there who's delivering this already in the marketplace. So we're competing with an incumbency ideal some of the decision-makers in the state health departments. But we see a very, very strong advantage in not taking people out of public hospitals to serve patients in the community for At Home Hospital care, but actually augment that with a highly trained clinical workforce with paramedics and nurses and a national team of specialists and GPs that can provide that care irrespective of where that care is delivered.

So you could be in Perth for delivering care in South Australia. And I think that's one of the advantages that we can bring to the table as we think about this model expanding across the country. So the challenge is overcoming internal one there. In terms of traditional community care, what we've seen in the home care package market, particularly is a lot of players doing what you want describe as nonclinical work, so personal care work. And given that the packages tend to be directed by consumers as to where that is allocated, it's not surprising that consumers want to have their lawns mode and their house clean instead of getting their clinical care looked after.

So that's where most of the effort -- most of the resourcing has been allocated in the market today. And that is why the government is trying to shift that [ model home ]. And when we look at national players with that clinical home care capability, there's a few. So not a lot. And I think that's where we see an important opportunity over the next 2 or 3 years as we build out our capability in this emerging market to really take a...

Next question.

It's Nigel Pittaway from Citi. Just changing tack slightly. I did just want to pick up on these market share aspirations. Mark, you did touch on it for PHI. And obviously, disciplined growth, we understand is important. But you have moved that target from what you were saying was 26.95% by FY '27 to just more than 26.8% by FY '30. So there's quite a paring back in that PHI market share aspiration. It does suggest the NPL brand, in particular, might be a bit flat. So can you just maybe make some comments on that, please?

Look, I think we've -- I think what we've seen in the last few years is some very uncommercial practices by some players. And so I think we've kept our approach to be disciplined focusing on retention, core markets. And because we know that we don't drive value by just going after market share, and we could equally grow market share, but we don't pay dividends out of policyholders, we pay them out of value and margin, and we can't be sustainable on investing for consumers without being disciplined. So I think we've had a look at the forward position, and we think this is the right disciplined objective for the business. And again, as we've said, we've got 2 or 3 unique opportunities others don't have and won't have in the future to accelerate that.

Our investments in health will help strengthen our ability to deliver that. If we see changing market circumstances where competitors become more rational, obviously, that's opportunity to further back. But also equally, if there's a commercial opportunity to invest more, we will and supported by the value creation the market identified. So we think what we've set now is much more of a consistent expectation based on our current momentum, but we will adjust as we see market conditions evolve.

And Nigel, can I just clarify, I don't think you should assume that the change in market share necessarily is at the expense of the Medibank brand. If you look at the synergy conversation we've had, Live Better and to Medibank currently. [ Fin products ] is a higher penetration in Medibank and the utilization of health services is much, much higher in Medibank. So from a retention perspective, the vast majority of the benefit I showed in one of my synergy slides is going to manifest in Medibank.

So I don't think you should assume the Medibank brand, it's coming at the expense of the Medibank brand. And equally, we've always said over a number of years, typically, the swinging customer that we acquire will be ahm and likely through the aggregator. So I'll leave you with a comment, it's not necessarily at the expense of Medibank brand growth and the swinging customer is typically going to come through the aggregator and through ahm.

The Medibank brand is growing as we talked about at half through FY '25, and that's continuing. And both brands are growing overall and better than last year, and that momentum is strengthened by what we presented today. As Mark said, as David highlighted, we don't want to be getting volume at any cost as we've consistently said over the last few years, and that guidance represents that maintaining our leadership, growing share, but not setting an aspiration that you yourself would not want us to take in terms of not longer being disciplined.

And Nigel, the benefit of a long-term milestone rather than -- or aspiration rather than just setting a number for next year is it's very easy to achieve a number market share for next year. The financial ramification is probably in the future. So the way in which our competitors have 12 weeks free, they acquire the customer in 1 year and then next year, they have to pay the offer even though there's no new customer being acquired, that's really margin dilutive.

We've seen a couple of our big competitors that had share, they won share at a pretty significant cost, and now they're losing share. We had a big not-for-profit in New South Wales, launch a very uneconomic product, Silver Plus product in [indiscernible] and they now have to back away from that and trim other acquisition because of the impact that's having. So it's about a sustainable pathway rather than the sugar hit in any 12-month period. It's easy to do that in a 12-month period. It's hard to do it sustainably and profitably over a 5-year period.

Next question. Sorry, Nigel, had another question.

Can -- I just also just wanted to ask on Medibank Health and the aspiration there for the $200 million. I mean, if you sort of took the same growth rate that you've been sort of aspiring to over the last 2 or 3 years, the 15%, you get to about $150 million, a bit more, slightly more maybe. And then obviously, the rest would be acquisitions. Is that the right way to look at it? Or are you actually expecting to accelerate the growth in Medibank Health...

So maybe the way to think about it, Nigel, is we made $76.7 million last year and had a $7.5 million loss included from the hospitals, the JV hospitals. So add that back to $76.7 million because that's one of our milestones. Assuming spend $250 million in M&A make up the multiple 10 or 11x could be another $25 million of earnings. So that gets you on a pro forma basis above $100 million. And then if you think about going from $100 million to $200 million over 5 years, that's 15%, 16% organic growth rate. So it's not a stretching aspiration relative to what we've had over the last 3 years. It's obviously more monetarily impactful because the earnings base -- we're growing at a similar rate of a higher earnings base.

Thomson from Jefferies.

I just wanted to ask about data security and a lot of the work you spoke about [indiscernible] big data and technology. Should we increase -- should we assume that there's an increase in IT spend? Or would it be proportional and trust in that database...

I think as we've talked about before, we've been investing significantly in our uplift program over the last few years. And that we expect that spend in that program to end at the end of FY '26, although we will end the program when we get the green light from our [indiscernible]. I think what Felicia can maybe share is how we focus that spend to ensure that we invest in technology that's going to set us up for success down the track as we expand...

So what we've been really particular about with our spend data management and information security is making sure that we spend in a way that we can get the benefits of automation and ultimately, the cost is going to come down over time. So being really focused on where we spend on people versus where we spend on technology and platforms and also being really deliberate in particular about things like storage and how we tier our storage.

But one thing around that is we are absolutely relentless about where ethics play, where controls play, where resilience plays and being able to create the guardrails around everything that we do. We talk about a little bit internally as fast and safe, so making sure that we set things up that they can scale to get those productivity benefits, but they also remain safe there.

Andrew has got a question...

Andrew Goodsall from MST Marquee. Just in terms of the -- a question around the measures you have in place to sort of understand the quality of the outcomes that you're delivering if you're substituting or providing services in an alternate site, how do you sort of understand your -- or how do you get the confidence that you're bringing about the same outcomes or the quality of outcomes that they would get otherwise?

Yes. I mean we measure a lot of outcome measures and in the PHI fund as well look at metrics around readmission complications and the like. And so we've got an ability to compare settings across the same measures. And I think what we're seeing and paying a lot of attention to as well as the health metrics and outcomes is the experience metrics and outcomes and we're seeing that from both the provider side and the patient side be more effective with some of these...

So in some cases, you might have data that actually demonstrates you're getting a better outcome, and that's how you can promote yourselves.

Yes, exactly. And like the heart health at home example is a great one where not only are we doing something that's removing barriers to getting cardiac rehab, we're seeing 90% completion rate of an 8- or 12-week program. And then we're seeing the outcomes that are attributed to being studied and reported in the European Heart Journal. So we have varying levels of review of those programs. We work a lot with a number of our university partners as well to assess progress in a number of the innovations -- you'll hear more about that in our primary care project in the showcase. And again, that's where we've got [ Macquarie team ] coming in to assess outcomes rather than just...

In addition to that, I mean, just like Felicia was talking about IT security, if you like we've got a clinical security program. So it's a clinical governance framework that all of our clinicians are involved. Jeanette who's sitting over there, very heavily involved in leading that in Amplar. So there's an always-on BAU kind of measurement system for all aspects of clinical quality, which if we do anything new is adding into that, and that's part of any of the growth we're talking about, that's a given that what you're describing is going to be measured and measured to...

Next question, Andrew...

Andrew Buncombe from Macquarie. Two questions for Mark. First one, just to be clear, the $200 million, is that achieved in FY '30 or exit?

Achieved in FY '30, it's not your fault.

And then the second one is in relation to the reshaped policyholder growth expectations and market share expectations. Does that mean that we should assume that customer acquisition cost ratios are going to decline over that period of time?

Potentially, but I'd focus you on the retention opportunity and the focus on Medibank brand versus ahm has probably been the 2 thematics. But I would just qualify that by the market is shifting towards third-party channels. So they can't discount the risk that if the whole market moves more towards the aggregator, then ahm is impacted by that as well.

And maybe just a broader question on customer acquisition. We've heard that the Department of Health has been interested in how different health insurers are calculating what portion of benefits they're giving to customers each year. Just it'd be interesting to understand where the rewards programs fit in that given they're in Medibank Health, not in the health insurance business.

Or anything in Medibank Health will be outside of the our calculation and effectively, the way the rewards program works is debit to revenue, not a debit to clients.

Which is how exactly how revenue offers work to...

Any other questions? No? Did we have one over here? Okay. Well, that's all the questions in the room. We do have people on the webcast. We're not taking questions from the webcast today. But if anyone on the webcast does have a question, please e-mail us. We'll do what we can to help. The webcast will now conclude at this point. So thanks for joining, everyone.

Thank you for standing by, and welcome to the Medibank Full Year Results 2025.

[Operator Instructions]

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

Well, good morning, everyone, and thanks for joining us. I'm coming to you from Naarm, the home of the Wurundjeri Wurrung peoples, to pay my respects to their elders, past and present.

I'm joined by our executive leadership team, including our CFO, Mark Rogers. I'll first make some comments on our key highlights and strategy, and then Mark will take you through the financials and outlook. I'll then wrap up and of course, very happy to then take your questions.

We're proud of our role as a leader in health, and I want to start by sharing how we think about our contribution. And to me, this is the scorecard that every insurer should be measured against. It's what good looks like. First, it's about providing more value for customers, given cost of living pressures remain a challenge for many. For us, our premium increase was significantly lower than our major competitors this year, which is important as household budgets remain under pressure. We saved our customers $28 million in out-of-pocket costs, and they earned another $33 million in Live Better rewards. And we've kept our promise to not profit from COVID, returning more than $1.7 billion to customers.

Second, it's about having a constructive relationship with partners. We've continued to support our hospital partners, providing $87 million of one-off support to private hospitals over the last 3 years, and our payout ratio remains above the industry average.

Third, it's about investing in the health transition. This year, we paid $37 million to hospitals to fund strategic initiatives to support this shift. We doubled enrollments in our prevention programs through our primary care business and expanded our virtual health capabilities so we can scale our proactive care approach. And we are investing $50 million over the next 5 years in mental health.

And lastly, it's about running the business well. We remain disciplined in how we have grown with positive momentum in our core business. Over the past 8 years, we've taken out more than $122 million in expenses to keep our own costs down. This has meant our management expense ratio remains 1 of the lowest in the market, and it's been that way for a decade and we've maintained a strong capital position to support our ambitions. As you know, productivity is on the agenda at the moment. So I wanted to make a few comments on that now.

I believe it won't be a productive country if we're not a healthy one. The general talk about productivity is mostly in underscale but in health, better health outcomes is the true measure of productivity. Quality care should be the most rewarded in the system, but sadly today, it is not. While we are starting to see good progress on the health transition, we do remain behind this internationally. But what is clear is that at a time we were being asked to find productivity gains for the country, we have to challenge current settings, they're constraining progress. While some of our systems are holding on to the old ways, there are others like us who are up for the challenge of meeting the changing needs of the community.

The leaders are clear. Our focus on prevention is needed to improve health outcomes and reduce health costs over time to prevent conditions from a rising or worsening. And health isn't just in traditional and expensive hospitals is in fit-for-purpose facilities in homes, in workplaces and in communities. In short, we need to move faster to keep up with the needs of the population, and we remain committed to doing that.

On the result, it's a good result. You can see some of the numbers and highlights on Slide 5, but I won't talk to all of these. At a high level, our results demonstrates the greater role we have in the health of our customers. our continued strong growth momentum and our disciplined approach to running the business for the long term. And we're really pleased to see the performance of the Medibank Health segment continuing to become more meaningful to our overall results. now contributing around 10% of group operating profit.

Let's turn to Slide 6 for our customer highlights. We're delivering where it counts for our customers, improving value meeting -- health needs and supporting our health systems future. We're making everyday well being more manageable for our customers, giving them access to a wider range of prevention programs and virtual services delivering where customers want help to be delivered. And because we're giving customers more of the support they want, we are seeing engagement with these services increase, and our customer advocacy is at a 3-year high.

Now to Slide 7 and a brief overview of our key financial highlights. We saw continued growth in both the resident and nonresident health insurance businesses. Net resident policyholder growth was up 27,900 or 1.4%, which is double the rate of growth of last year. with Medibank brand returning to positive growth of 0.3% and ahm up 4.1%. And importantly, we saw positive momentum in the second half. In our nonresident business, we grew 10,500 policy units, up 3.1%. Health Insurance operating profit was up 7.1% to $741.5 million. In Medibank Health, our segment profit was up 27% to $76.7 million, helped by growth in Myhealth.

Net investment income was up 14.1%, and Underlying net profit after tax was up 8.5% to $618.7 million. And in line with our healthy capital position, we are delivering shareholders a final fully faced ordinary dividend of $0.102 per share.

Now to Slide 8. At Medibank, everything we do led us up to our purpose, better health for better lives and it's supported by our ongoing focus on risk culture and the strong foundations that enable our growth. And more and more, it is our teams driving this, managing their days to maximize the impact for our customers. They are harnessing AI to address customer pain points, which has a complaint resolution time by 60% and now growing the number of no-gap inpatient diagnostic agreements keeping an extra $400,000 in Medibank customers' pockets each month. Our team is looking to create points of difference in both big and small ways.

Like our commitment to be a leader in mental health which means a customer can chat with a mental health professional any time of the day or list. It's why we are growing our no gap program with more than 10,000 customers saving $7 million in out-of-pocket costs since we started the program. And by an international student with the flu can call a virtual GP instead of having no other option than going to Ed. And we're not just expanding in health, we're driving change within it from investing in prevention through the primary care and to delivering personalized care options, we are continuing to partner with others who share our commitment to driving the health transition.

Integral to our strategy is continuing to strengthen our foundations, so we can grow fast and safe. We are continuing to uplift our approach to risk management, investing more in flexible technology platforms and scalable resilient security capabilities.

Now to Slide 9. The recent market growth continues to be buoyant, earning industry and younger people are driving the growth, which is important for long-term industry sustainability. However, we are still seeing the consequences of unsustainable competitor activity that existed over the past 2 years. Switching rates are up with many funds acquiring more customers through high-cost aggregated channels. Lapse rates have also increased, although they do remain at similar levels to what we saw before the pandemic. These higher cost acquisition tactics have pushed up management expenses and premium increases for many other funds.

However, we're not surprised to see some parts of the market now start to reel in these tactics. As you know, we chose to stay disciplined. And you can see this through our better retention rates improved risk equalization results through a lower premium increase and management expense ratio. And this approach will remain with our focus on our core markets and to accelerate our differentiation offering. On the hospital side, higher indexation, growing volumes and easing cost pressures is improving hospital margins. And while there are still inflationary impacts, such as the flow on impacts of nurse EBAs. These impacts are now more known and are being built into hospital contracts.

All of this has cleared the path for more constructive conversations on reform opportunities and innovation. And our financial investment in hospital partnerships to support this is more than double that of last year.

Now to Slide 10. The nonresident market also remains strong. We know that migration continues to play a major role in Australia's economy, but there are some changing dynamics in the sector with many of these shifts playing to our strengths. The student segment is stabilizing. And with the student mix skewing to higher education, this favors our strong position in the university market. And the government has also recently announced an increase of student intake in 2026. Our overseas student offer, which goes beyond simply Insurance is resonating with us retaining and growing our university partnerships to support our continued market share growth.

There are similar segment-specific dynamics in the workers market. The demand for skilled workers remains high as Australia grapples with critical skill shortages. Significant price-led competition in this segment carves out opportunities for differentiation. And as you know, that's a very comfortable spot for us. We are focused also on helping students stay with the right cover as they move to the workforce and then to permanent residency. We have a record number of students expected to shift to working places over the next 24 months. In fact, the graduating class of 2025 is actually our largest to date with the conversion opportunities noticeably higher than last year.

We know around 4 out of 10 student arrivals will ultimately become residents. It's a big opportunity for us to grow.

Let's move to Slide 11. We all agree we have 1 of the best health systems worldwide. We also agree it is under pressure. People are expecting more, and so change really can't come fast enough. While hospitals will remain an essential part of the care system for acute care, within the next decade, the home and the community will become the center of health, and we are well placed for this through our Amplar Health Network, which is delivering local care at national scale. This year, Amplar saved around 177,000 hospital bed days through its delivery of home care, equivalent to almost 3 average size private hospitals. We're also seeing good growth across our suite of prevention programs, and we're meeting growing demand for support in areas like mental health with context to our 24/7 support service, almost tripling over the last 4 months.

We are also pioneering a shift to a more proactive model of primary care. Our pilot of GP led multi-disciplinary care teams in a number of Myhealth clinics applies the best practice recommendations to the sector has been calling for some time. Our investment in Myhealth shows how serious we are about growing in primary care and making health care more accessible. And we have aspirations to triple our scale in this sector by end of the decade. It's a model we're using to deliver a growing range of health services for the community in the public sector as well as our health insurance customers.

This year, we've partnered in the launch of Australia's first no-gap private hospital in Melbourne, delivered an out-of-pool transition care service at a hotel for the South Australian government and expanded our IM Mental Health partnership to Brisbane. And just last month, we began holding a new virtual nursing model in residential aged care on behalf of the Australian government. We are doing this because it's what our customers and partners want and that's what Myhealth system needs.

Now to Slide 12. Often get asked about our approach to artificial intelligence. Emerging technologies have underpinned our transformation to a health company for some time. We are using AI to help us simplify health journeys, expand access to services and create more personalized experiences. It's also enabling our people to be more productive and engaged in the work that matters most, using AR to assist in resolving customer queries, helping us detect and resolve payment issues more effectively. It's used by Amplar Health nurses to improve patient wound care. For clinical describing by Myhealth GPs and supporting us to offer personalized health suggestions to customers using their my Medibank app.

And we have more than 15 new experiences with this type of technology, and it's used across our business. We are also working with AI innovators, particularly in the health space. to access tools and platforms to enhance our capabilities. All of this is enabling us to adopt at speed while ensuring we do so responsibly. AI will continue to fundamentally reshape all industries into the future. Importantly, for us, AI is a tool to support our people not to replace them. And with health care demand set to continue to increase the use of AI to support the care team and in fact, be part of the care team can only help us support the health needs of the community into the future.

Now over to you, Mark.

Well, thanks, David, and good morning. This result demonstrates our disciplined approach to running the business. It highlights the benefit of continuing revenue diversification and includes investment for future growth. Group operating profit was up 8.9% to $762.4 million with solid growth in resident health insurance an important contribution from nonresident and continued strong momentum in Medibank Health. With the 14.1% increase in investment income and cyber costs and other income and expenses broadly in line with last year, profit before tax and covered impacts increased 10.8% to $911.6 million.

FY '25 cyber costs were $39.7 million. And in FY '26, we expect costs to be around $35 million. and that the IT security uplift program will largely be embedded. We have reported code impacts outside of group operating profit with the $182.8 million cost this period, including our final customer giveback. And reported EPS was up 1.7% to $0.182 per share. And underlying EPS, which adjusts for the normalization of investment returns and to in tax was up 8.5% and to $0.225 per share.

Slide 3 covers the health insurance results, which is mentioned, it excludes [ core ] impacts, which are reported separately and reconcile against the COVID equity reserve. Whilst the economic environment remained challenging during the year, the business was resilient, and we continue to see benefit from our disciplined approach to growth and claims management during COVID. Gross profit was up 6.8% with 3.9% revenue growth and a significantly improved risk utilization outcome, including a $7.8 million recovery in the second half. Gross margin of 17% is 50 basis points higher and includes a 20 basis point benefit from strong growth in higher-margin nonresident policies. And whilst additional investment resulted in a management expense ratio increasing, operating margin was up 20 basis points to 9% and operating profit up 7.1% to $741.5 million.

Consistent with the trend we saw in the first half, hospital claims were $31.2 million below expectations in the second half with lower utilization in some nonsurgical specialties. FY '25 is the last year, we will separate our code impacts on hospital claims from the health insurance result. We've now finalized our get-back program with all remaining savings returned to customers.

Now turning to Slide 16. The resident health insurance market remains buoyant with policyholder growth in the 12 months of 30 June expected to be only modestly lower than the 2.3% growth we saw in the 12 months to 31 March, with ongoing strong growth in 25 to 30 year olds. However, cost-of-living pressures continue to impact the industry with higher switching rates and aggregators increasing the share at industry joins. Over the last 12 months, our number of policyholders increased by 1.4%, with Medibank and [ AIM ] growing 0.3% and 4.3%, respectively, with improving momentum in the second half.

The acquisition rate of 11.5% is 50 basis points higher with improvement in the Medibank brand from investing in differentiation and additional marketing spend in the second half. The ahm brand continues to resonate with consumers. And plusingly, the improvement in the acquisition rate was achieved without increasing the percentage of joins through aggregators. Despite the higher industry switching rate, retention was 20 basis points higher, with benefits from ahm's enhanced customer experience and additional investment in product benefits and Live Better in Medibank.

Key areas of focus for FY '26 include improving retention, particularly in ahm through further personalization and integrated customer propositions, increasing focus on acquisition in priority segments, particularly the growing corporate market and deepening brand differentiation through investment in new products and services.

Turning to Slide 17. President claims expense increased 3.9% and risk equalization provided a 70 basis point benefit to net claims growth this period compared to a 10 basis point benefit in the prior period. Present claims growth per pulse unit of 2.2% is in line with last year, with the 80 basis point increase in hospital offset by a 270 basis point decrease in Extras. In hospital, higher -- indexation and the increase in New South Wales private room charges from 1 January were partially offset by the improved risk utilization outcome and benefit from customer growth being skewed to lower product tiers. And the decrease in extras reflects that claims were $51.8 million below expectations in the prior period due to COVID impacts and economic conditions impacting the utilization of some services.

Looking to FY '26 and whilst the cost of private hospital agreements renegotiated during FY '25 and higher extras utilization will increase claims growth. We expect this will be partially offset by negative hospital utilization growth as we exit the COVID claim regime, lower MBS and public hospital price increases and more procedures happening outside of traditional higher cost settings. We will also maintain a proactive approach to claims management by broadening our partnership approach to hospital contracting, increasing the number of Medibank customers that are supported by personalized models of care and expanding the use of AI in our payment integrity program.

Slide 18 details health insurance performance, which shows continued growth in both resident and nonresident. In resident, our disciplined approach to growth resulted in gross margin improving 30 basis points to 16.2%, with revenue and claims growth per policy unit of 2.6% and 2.2%, respectively. Growth in revenue per policy unit was in line with FY '24 with the higher average premium increase offset by higher downgrading with increased investment and Live Better, customer growth skewed to lower tier products and other portfolio management impacts. And based on this trend, we expect downgrading to be modestly higher in FY '26.

Strong growth in nonresident revenue has continued with average policy units increasing 11.6%, with positive momentum in work for acquisition, partly offset by lower visa approvals impacting student acquisition. Gross profit increased 22.4% to $111.6 million and gross margin was up 270 basis points to 36.9%, reflecting improved visitor and worker margins partially offset by modest tenure impacts on the student margin. Nonresident remains an attractive market and in FY '26, we will further differentiate our offering, invest to grow market share, particularly in workers and visitors and increased focus on customer life cycle management.

Moving to Slide 19. Management expenses were up 6.5% to $654.9 million with higher operating expenses, increased D&A in line with our increasing investment in digital assets, partially offset by lower sales commissions. Operating expenses were up 8.2%, with inflation of approximately 4%, partially offset by [ $10 million ] of productivity savings, modest volume impacts and additional investment to support both resident and nonresident policyholder growth into FY '26. Sales commissions were $3.5 million lower with nonresident commissions impacted by lower student acquisition and resident commissions increasing in line with higher ahm acquisition. The major drivers of expense growth in FY '26 will be inflation, which we expect to be lower than in FY '25, an increase in commissions in line with higher policyholder acquisition and modest further investment in growth with these increases partially offset by a further $10 million of productivity savings.

Despite the management expense ratio increased in this period, we continue to target a stable to modestly improving ratio through leveraging our investment in analytics, digitization and next horizon of productivity initiatives to improve efficiency and utilizing our direct distribution strength to manage the cost of acquisition. And whilst we will maintain our disciplined approach to cost management, we will balance this with investing in further growth where this makes commercial sense.

Turning to Slide 20. Medibank Health segment profit increased 27% to $76.7 million, with a 31.2% increase in operating profit, partially offset by a higher loss from our JD hospital portfolio, which includes expected losses from 3 recently opened hospitals. These hospitals continue to make an important contribution to the health transition, and we expect performance to improve next year as the portfolio matures. The 12-month operating profit contribution from Myhealth of $19.5 million includes an additional $6 million investment in our new virtual health platform, which will enable more patients and Medibank members to have virtual health consultations in the future. The business continues to perform well with increasing consult numbers and a higher average fee, with the expectation that the recently announced changes to bulk billing incentives will favorably impact performance in FY '26.

In the remainder of Medibank Health, organic growth was 23%, and resulting in operating profit of $64.7 million and a 100 basis point increase in operating margin to 19.1%. Revenue growth of 16.8% includes strong growth in health and well-being and diversified insurances, improving growth in health services and a 6-month contribution from Amplar Home Hospital. The 110 basis point reduction in gross margin includes additional investment in Live Better and was more than offset by a 200 basis point improvement in the management expense ratio with the benefit of improved efficiency and growing scale. We continue to see strong organic growth potential in the business with FY '26 focus areas, including further performance uplift and health services meeting the needs of more of our health insurance customers and scaling existing services with a broader set of payers.

We are augment this organic growth with further M&A that adds scale, capability or expand our geographic coverage. With our near-term focus on expanding our priming and virtual care footprint and broadening our participation in the fast-growing corporate health and well-being sector.

Moving to Slide 21 Investment income of $207.8 million was $25.6 million higher with a $17.9 million and $10.4 million increase in the growth and defensive portfolios, respectively. The increase in the growth portfolio reflects higher income from all asset classes with particularly strong performance in equities and the increase in the defensive portfolio includes the benefit of higher asset balances and improved return on international holdings partially offset by the benefit of tightening credit spreads we saw last year, not recurring. Underlying net investment income increased $10.7 million and the underlying net investment return increased 9 basis points to 5.86%, which is a 166 basis point spread to the average RBA cash rate and within our target range.

In FY '26, we expect underlying net investment income to be impacted by the lower RBA cash rate, and we will consider actions, including adjusting the target asset allocation and defensive asset settings to help offset this impact.

Now Slide 22 covers capital. The Health Insurance business continues to be well capitalized with capital at 1.5x the PCA and the capital ratio at 14% of premium revenue, which is above the target range of 10% to 12%, with additional capital held to offset the $250 million APRA supervisory adjustment. The increase in other capital employed in Fluids investment to acquire 100% shareholdings in the Medinet and Amplar Home Hospital JVs and funding growth in Medibank Health. And with the business' strong capital generation and performance of investment markets, unallocated capital increased to $251.9 million and supports our M&A aspiration.

Given the strong capital position, the Board has declared a final dividend of $0.102 per share, bringing FY '25 dividend to $0.18 per share, which is an 8.4% increase and 80.1% payout of underlying net profit after tax.

And to finish a few comments on our outlook for FY '26. In resident Health Insurance, we anticipate moderating industry growth relative to FY '25, and we aim to grow market share in a disciplined way, including further growth in the Medibank brand. We expect growth in claims per pause unit of between 2.6% and 2.9%, and that increasingly, our proactive claims management approach will differentiate us from the industry. We aim to further diversify earnings, including in nonresident health insurance. We are maintaining solid gross profit growth remains a key focus.

And in Medibank cost, where we expect low double-digit organic operating profit growth. And given the strong asset pipeline this year, we aim to invest towards the top end of our $150 million to $250 million M&A target, provided this creates long-term value.

I'll now pass back to David Koczkar for closing comments.

Thanks, Mark. Now to Slide 25. We will remain clear on what opportunities we go after and what we say to -- what I thought we'd do is share a bit of an insight on how we run our business. Across Medibank, what you see here are known as our 12 priorities for FY '26, and we use them to measure and track progress across our 4 strategic pillars. And you can see here our key priorities for FY '26 include growing market share in our resident and nonresident businesses by delivering leading experiences and differentiated offerings.

Two, continue to expand into health to support both our insurance business and to diversify our earnings in Medibank Health. As Mark explains both through organic expansion, but also delivering a strong M&A pipeline. Three, largely complete our IT uplift program and expand our adoption of AI and other technologies to support our people to simplify our business and to accelerate our strategy and to continue to reinvent the way we work to empower our teams to deliver for our customers.

You'll see these again in October when we have our Health Immersion Day, where we're going to share our medium-term expectations and plans.

Now attention on Slide 26. I thought I'd end by restating what makes us different to others in health and how we create value. It's not just what we do for our customers. It's the way we do it. By connecting the different parts of our business, we deliver more than the sum of our parts, providing more of what our customers want, while building trust and growing as a health company. This has also delivered consistent long-term value for our shareholders, establish new and diversified earnings streams and created a more resilient business. This approach continues to drive our strategy.

So in summary, we're a strong growing business, and we're excited about the future. Our insurance and health businesses provide a clear pathway for future growth and value. We have an approach that's different from others that enables us to take both sides of our business to support each other and to create value across them. We are a resilient business, and we'll remain disciplined in our approach to growth and managing costs. And we will continue to advocate for our customers and drive the health transition this country needs to improve productivity and to keep the Australian Health System, one of the best in the world.

We can't do any of this without our people. They are the backbone of Medibank of ahm and at Amplar. Our people work incredibly hard every day with energy and commitment for our customers and our purpose, and I thank them for their dedication and passion.

So now, it's over to you for any questions you may have.

[Operator Instructions]

Your first question comes from Vanessa Thomson with Jefferies.

I was interested in your hospital claims, noted that they were below expectations, and you've seen lower-than-expected utilization in some nonsurgical specialties. I know you've discussed this in the past. I wondered if it was the nonsurgical claims were lower in the same areas that you've spoken to previously.

Vanessa, the 2 major specialties where we continue to see softness in the -- mental health and Rehab, which is around 50% of our total nonsurgical spend.

And also respiratory or has that changed a bit?

Respiratory is still live, but that's only around 6% of total nonsurgical claims. So the favorability is largely driven by the 2 spend buckets.

Okay. And then I also wanted to ask about hospital contracting and some of the press we've seen recently from the Private Hospital Association talking about the balance of power between insurers and hospital operators. I just wondered if you could give us some insights on that and how you think that will change contracting into the future.

Yes. As I said in my remarks, I think we're seeing higher indexation inflationary pressures are more known and unknown. There's quite a few new players in the sector who are more interested in looking in the forward wind screen rather than review measure should we say -- mirror. So I think actually that's setting up conditions for conversations on reform and innovation.

We've seen -- we continue to see and have seen very constructive conversations with our hospital partners. We've made sure that we've supported hospitals in the last 3 years. We spent $87 million in one-off costs to support hospitals. But as you know, we've been, for some time, including partnership and joint incentives on creating a path for innovation with our hospital partnerships. That covers more than 80% of our contracts and has for some time. And in this last year, we spent $37 million on those incentive payments, which is double that of last year. So I think when we start our conversations, which are all very constructive, it's really how can we support affordability today and invest in innovation to sustain the system. And those conversations are sort of positive and constructive.

And Vanessa, I'd add 1 final comment. At a 16.2% resident gross margin, we're still 20 basis points behind where we were going into COVID. So I feel like we've actually managed through the cycle and our gross margin hasn't increased at the expense of the hospitals. So I think the challenge will be for those players in the industry where the gross margin is significantly higher than what it was pre-COVID, I think that's going to be putting a target on a few people's backs.

Right. And so sorry, Mark, I think it was David mentioned reform. Is that something that you think could be targeted in potential reform?

Look, I think there's a lot of discussions about reform in both the public and private sector is an ongoing need to challenge the current settings. I think as a participant in the CEO Forum meeting next week, we're actively coming together to see what we can do to change the settings to make sure the system remains sustainable. I think it's very clear that we have a vision that the sector is sustainable and does what it needs to do to support customers into the future. But that's more about any 1 individual players at about the system itself. I think it's also likely that the reforms any reforms will be timed around the premium review cycle.

But we're not relying on any reforms in the short term. I think what I was referring to is more individual bilateral changes that we are driving with our hospital partners that we've talked about before we have those arrangements with all of our major groups. And that's really creating the joint incentives to invest in the health transition, whether that be increasing the safe adoption of things like short stay, whether it's looking at prosthesis, whether it's looking at delivering care outside the hospital walls, all of those things are of interest to our hospital partners and to us. And that's why we're committed to continuing those conversations.

Your next question comes from Julian Braganza with Goldman Sachs.

Just the first 1 in terms of just the claims inflation number over the full year and also the second half, 2.2%, 2.1%. Can you maybe just provide some color on what's in that number? Are there any additional product benefits that were made in the period? Any one-off benefits to hospitals? And also just that $30 million benefit for the half, let's call it, $75 million benefit for the full year. Is that now captured in your 20 inflation number into FY '26 in terms of this benefit kind of evaporating in terms of that claims inflation number that the guidance you've given us for next year?

So I'll start with any one-off payments during the year. So we had a $36 million release from the 30 June 2024 claims reserve. And by and large, that amount was actually, as David mentioned, was provided to hospitals through innovation or hardship payment. So that had no impact on the reported claims result. Looking across the 2 halves, probably in the second half, the 2 biggest impacts were New South Wales private room charge increases, the $16 million incremental cost in the second half. And then you'll see extra utilization was significantly lower in the second half than the first half and that reflects the softness we had in second half '24.

So over to most significant tax in the half on half split.I am sorry what's your third question, Julian?

Yes, sorry, just to follow up on that in terms of the benefit that we saw versus the expectation. Just trying to get to the bottom of what you're seeing in terms of paid versus incurred inflation and the guidance you've given us for next year, does that have -- how should we be thinking about that $30 million benefit that you saw in the second half in context of that claims inflation number you provided for FY '26.

I think you need to look across the full 12 months, which is a $74.8 million of favorable variance to expectations that Julian. We don't have a reserve next year. So what that means is you need to get $74.8 million of additional claims just to get back to the expected number we reported this year. So that's about a 1.5% utilization uplift in hospital. What we're expecting in that claims guidance is the majority of that favorability unwind, so it's temporary rather than structure, but we are expecting negative utilization growth in hospital next year as a consequence of what we saw in '25.

So if you look back on what happened in FY '25 in Extras, so we came off the cap ratio for extras in 2025. We had negative utilization growth and that more than offset a slightly higher inflation. It's the same thematic for a hospital going into '26.

Got it. No, that's clear. And then just a second question on downgrading, which is quite high in the second half, and you're expecting that to increase into next year, which I gather is on a full year basis being higher like-for-like FY '21 versus FY '26. Can I just understand what is the -- in your claims number for next year? And the mix of downgrading across the different policies. How should we be thinking about the claims benefits and margin benefits in your guidance for next year on trans inflation from the downgrade?

Yes, that's a really good question. Let me just start with the guidance for next year. You're right. It's modestly higher based on the full year downgrade of 90 basis points. And the reason for that is there is some seasonality in downgrading the premium view goes through in the second half, and that's typically the trigger for downgrading and you know that premium increases were slightly higher this year for us and significantly higher across the industry. So it's had a biggest seasonality impact this year than in prior years.

And we also did invest in some additional benefits and a Live Better during the second half. So you're right, I've looked through FY '25 at 0.9% and expect modest growth from there for the full year '26. And then in terms of the claims guidance, where we land in that range is going to be very dependent upon where we see acquisition and lapse similar to what we saw this year. So if customer growth is slightly skewed to higher tier products, you'd expect to land at the top end of the claims range. And then you expect as a consequence of lower downgrading or generally, if you have growth due to the lower tier products as we saw this year, we'd expect to land at the bottom end of the range and downgrading to be higher.

But I guess in a 10,000 feet view, Julian, and obviously subject to where the premium increase lands from 1 April, provided downgrading doesn't increase significantly, which is not our expectation, but I think a flat jaws outcome is extremely possible.

Okay, that's very good. Okay. And then just in terms of the last question for me in terms of the nonresident business. Just keen to understand rate and claims inflation intralesion, trends looks like the second half seeing a little bit of a tick up in inflation from the first half and rate as well. But just what are you seeing towards the close of the half and expectations into FY '26, so just wrong rate and inflation for that online business.

We'll start with claims, actually, we had a quite significant improvement in claims inflation in the second half. We saw a much better margin outcome for our business book. So if you look through the full, I think we did 36.9% gross margin through for the full year, Julian, but we did 39% in the second half. So that's reflective of the improved margin and therefore, lower claims growth in the visitor book. In terms of premium increases, we'll be going through the submission process for next year's may write around, so I won't go into that in any detail. It's probably more important to focus on the policy led trajectory. And I think probably the most important thing for FY '26 is without the 10% increase in student visa approvals comes through? And then when do they come through? Is it in the first half or in the February emission period.

So I think that for us, we may not get a stronger policy hold price or average balance growth next year because we don't have the same momentum going into '26 as we had '25. But I think it's probably going to be equally important is how we manage our margin to deliver gross profit growth.

The only thing I add there, Julian, just as I mentioned before, our approach to the life cycle management, we've invested more in supporting students and workers who become residents to stay with Medibank or ahm. For us, it's a different business unit for them. It's just the same cover. And we know that 4 of 10 students become resident, 7 out of 10 workers become residents. And that's another way that we can grow our resident book that's very different from how others can. When I look back, we're now almost 70% larger in terms of book than we were at pre-COVID. So we have opportunity for us to drive growth in the resi business is very attractive.

Your next question comes from Siddharth Parameswaran with JPMorgan.

A couple of questions, if I can. Firstly, just carrying on around the question around downgrading and growth. I just wanted to understand if there was any increase in incentives 3 weeks or anything like that in the second half and also, just maybe if you could provide some help understanding your confidence in getting market share growth into next year. which segments you're hoping to get that in and whether you're expecting any of these incentives to continue if there was a step-up in those.

Yes. Okay. Thanks for your question. So on investment, there was only a very small increase in the spend on offers in the second half. We were really measured in our approach to growth. And in fact, we -- for some products, we went off aggregators between March and June as part of our kind of disciplined approach to where we grow. Our investment was more in the increased investment was more in Live Better where we see a better longer return on investment and paying commissions to [indiscernible].

Yes, just on the broader question about next year. I mean I think when I look through this year, we had a very pleasingly strong momentum in the second half I think we'll find out what when APRA releases the market results, I think it's tomorrow where we sit, but we're very confident that we're growing in line with the market, as we expected to in the second half. So really, momentum is just not continuing that momentum. I think to Mark's point about the aggregators, I mean we've remained very disciplined given there's still some unsustainable practices out there. We could have short-term the business, if you like, in grown through aggregators. We saw aggregators in the last year, take another 10% to 15% share growth of acquisitions as others in the market are desperate to spend money on acquiring customers.

Again, we've stepped away from that and ahm actually maintained its direct share of direct distribution year-on-year, which sort of points to -- there. Similarly, though, we invested in Medibank because we saw the conditions were right to both growth for '26 but also support growth in '26. So I think we do expect that those practices will start to unwind. We are seeing the major funds or the larger funds having much higher premium increases that sort of expected given their approach to how they've been growing their business. Their retention rates are a lot worse than ours and we're seeing signs that they're pulling back. So I think what gives us confidence is the market conditions will probably start to stabilize during the year. We have our giveback. We've got a very strong performance on retention with more investment in differentiation and product settings.

And I think we're seeing very strong growth in the corporate sector that will continue to support growth in Medibank and really ahm. It's about remaining disciplined and attracting the right to the customer for the group. We're very pleased that the ahm results showed an improvement in retention rates, and others are going in the other direction. So I think that just shows what we're doing quite differently in our approach.

And maybe just to close off on the downgrading point, if you look at the increased from 50 basis points to 90 basis points for the full year. Slightly more than half of that reflects acquisition and lapse mix, and we saw an offsetting impact and benefit in our claims. We undershot our claims guidance by 20 basis points. The vast majority of the remaining difference is because of seasonality rather than any investment in offers or any other factor.

Okay. That's super helpful. If I could just ask a second question just around just your discussions with the government and with the hospitals and how that's informing your thinking about margins. I think, Mark, you said you're expecting the outcome of all the moving parts to the gross margin roughly flat into next year. But obviously, 1 of the missing components is just the next rate round. I was just keen to understand, I think clearly, the government is trying to push for more support for hospitals, but I was just wondering where you think the discussion is on affordability for customers.

Are they willing to accept that more being given back many pressures on premium rates?

I think I'll start -- Mark, hand over to Mark. I think look, what I get asked what good looks like and when we talk about this, it's what we are doing. It's investing in the health and well-being of our customers giving them more value, which I think we've shared today. It's about having a higher payer ratio than the industry average, which we do. It's about having 1 of the lowest cost in the market. I think us apart from 1 other small fund, we've got the lowest cost market. It's about investing in the health transition supporting hospitals as we've evidenced today through our one-off and support costs and pay indexation. I think that's the scorecard that we run our business against, and that's the sort of conversation we have.

I think others have different conversations where they are not doing any of those 4 or some of those 4 or they are sitting in a position where they have a low payout ratio. So I think you've got to sort of separate the industry from the players. And that really shapes the conversations we have in the reform program with the government, but also with hospital partners. And as I said, when we come to conversations about supporting our hospital partners comes in a position of us doing all those things to keep our check on affordability and supporting our customers. I think there's more that needs to be done, though, and that's the big focus of the reform program over the next few years is how do we make keep health insurance affordable.

Health is a very big priority for customers. They're taking our health insurance still in record numbers. We've seen strong growth in younger customers -- and so -- but we need to keep working hard so that we can maintain affordability in the future. We did talk about a slight moderating growth. We've been saying that for a few years now. But the conversation of the reform table is how do we reduce the cost of insurance. Let's talk about payout ratios, but I think it's quite interesting because the real conversation should be why does it cost twice as much in the private sector to have a knee replacement as it does in Northern Europe? Why is it 4x as much to deliver a baby in the private sector than it does in Europe? Why is it more expensive to have a hip replacement in the public system?

We -- I don't think the Australian private health insurance consumer should pay for what the graph shows is 64% of beds being utilized. We've actually got to look at the core fundamentals of cost and productivity, and that's what we advocate for in the reform discussions.

And so probably the 2 things I'm watching closely from a gross margin perspective is we've got claims for $74.8 million below expectations in hospital this year, that's 1.5% utilization. We've assumed the majority of that will unwind. We'll need to watch that closely. If that is actually structural, not timing and there's no recovery, and that could provide upside for both the claims guidance and the gross margin. And then at a fund level, Obviously, the growth rate of overseas relative to reside. And then the margin track on overseas, I think that's going to have a very important input into what the fund gross margin delivers in 2026.

Your next question comes from Freya Kong with Bank of America.

Can I just go back to the positive momentum that you guys saw in H2 for the resident book? What's actually driven this in terms of momentum? Are you seeing pullback from competitors because they need to manage their expense ratio? Or is it something that you've done?

It's a series of factors. We have seen the early signs of competitors starting to, I guess, change strategies given the practices that we've seen in the last 2 years have been unsustainable. We've seen a reduction in offers different timing of aggregator use, and we've seen some cost-cutting initiatives emerge. So all of those are changing competitive practices. I wouldn't say that it's uniform because there's still other competitors that are still looking to grow through acquiring on the aggregator, which for us, it's just not a sensible way of investing in the long term of our business. It's not good for the long-term support for our customers. So we are still seeing some of that. But I'd say that the market conditions are changing.

I think when you look at the premium increase rounds, where others have had to put very high premium increases through to support what is probably a falling margin expectation with higher costs. We've kept our settings reasonably steady and have had a premium increase, it's lower than the industry average. So that's really helped our momentum as well. I just [indiscernible] was interested in your perspective in the second half, anything to add.

Yes. I think there's a spot on. On the other 2, 1 is the customer and brand metrics all moving in the right direction. And so our ability to attract and retain customers are improving year-on-year materially. And then the second 1 is part of our disciplined growth, we've focused on families and corporates and we saw great trend over the year, but in particular, half 2 acquisition of families and corporates hit numbers that we haven't seen in over 10 years. So that momentum is building in particularly those target segments we've chosen to focus on for the last few years.

That's really helpful. And then can I just ask on the M&A budget of $150 million to $250 million over FY '24 to '26. How much of this has been spent? And what would you deem a reasonable time frame to consider what to do with the excess?

It's around $60 million spend -- $60 million to $70 million is spent to date. And the comment in your guidance was in respect to FY '25 spending at '26 being the residual. So I think the M&A pipeline is as strong as I've seen it for a long time. And so we'd hope to deploy that the capital position is strong. The strategic rationale is also strong. So we hope to be able to deploy that during the course of this year.

Okay. Great. And then final 1 just on the APRA supervisory charge. Can you also remind us on the time line of this release and what needs to happen for the regulators to get comfortable here?

Yes. The final decision obviously, rests with the regulator. We're in regular contact with APRA and we're well progressed through the uplift program that we are sharing today that we expect to put that program into the embed phase by the end of this year. We're well progressed more than halfway through, for sure, and we're in consultation and discussion with APRA about how they view progress and what that means, if anything, for the capital overlay. I think it's really the balls in their court. And we have very open and transparent conversations about that. I think there's other situations where they provided partial release to capital overlays is either situations where they've held on to that capital to the very end of a program, and that's really the termination to them.

What I would say is the program is going very well, and we remain well capitalized to support our strategy.

And for the comment we made about deployment of the capital in the M&A, there's no assumption of that capital being released. It's -- you made that statement based on the level of unallocated capital and the ability to fund that is cash reserves that are surplus to the businesses existing needs rather than assuming any of that money was released from the supervisory overlay.

Okay, right. And just to be clear, the comment around capital management actions is just in case the M&A pipeline doesn't come through, but it sounds like it's pretty strong.

We're not going to sit on that level of unallocated capital indefinitely. So if we can't deploy that capital will make an appropriate return, then we'll need to think about getting that back to shareholders.

Your next question comes from Andrew Buncombe with Macquarie.

Just 2 for me, please. The first 1 the probability of adequacy on the risk adjustment remains unchanged at 98%, while a number of your peers are starting to drop that. What do you need to see to drop back to pre COVID levels?

It's a great question, Andrew. It's interesting the variability in flames processing speed is probably more volatile and I've seen it for a number of years. So I'm even more resolute about meeting the 98% at this longer than I was in the middle of COVID. So we would need to see a more predictable pattern on an percentages on a month-by-month basis to get comfortable on releasing that. And to be clear, that will be released and be very transparent on how that's impacting flames will call it out specifically given that's a one-off impact when released Andrew.

Yes, really interesting point. That leads into my other question really well. Are you seeing any structural change in the pace that claims across the market are being processed? Or is it just all over the place?

I'll -- it's not starting, we saw it 12-plus months ago, particularly when [ Healthscope ] started to have its financial challenges. So I think we went through a cycle where claims were lower. So the process in terms of catch up with their billing, then you've gone into a period where cash flows are challenged. So there's another reason for acceleration. So it's not a new phenomenon. And I'm not sure if they're getting any better or worse, but it's just almost becoming part of BRU going forward.

Your next question comes from Dan Hurren with MST Market.

Look, I've got the other -- in other year, I've got the Ramsay earnings call going. And they suggested a little bit time in the market that they are already working with unions in anticipation of changes as recommended by Fairwork to correct that the wage gender and balance. Can you talk to how these wage increases are going to be considered in the next premium brand, please?

Well, I kick up and then maybe Mark, you can provide some comments. Look, I think as I said before, probably the last 3 years, there's a bit more unknowns in -- from a hospital cost perspective, certainly, hospitals tell us we're telling us that there were a few things that were unexpected in their forecast. And so there was a few more out-of-cycle conversations that we were having. I think really now, and as I said before, we support the hospitals with some one-off support to the tune of $87 million over the last 3 years.

Now I think there's more known knowns. There's still inflation coming through but we're also increasing indexation both as a fund but also as in the industry. So as we enter these conversations, given the settings that we've talked about today, we talk about anything that's material unknown that's going to drive cost. We want to preserve access for our members but we will need to make sure affordability is preserve today and in the future. So I think it's pretty much BAU.

No worries, Dan. I was just going to say that wages are a part of a regular conversation and there are different drivers for why they might go up or moderate in the balance of how we create affordability for customers access and continue to support innovation and strategic initiatives. So a number of our conversations with our hospital partners have been working through the public EBAs flowing through and potential implications from fare work judgment. And a lot of those then have a multi implementation schedule that we can then work with our hospital partners on what's going to impact when, how do we offset it with other initiatives that can improve affordability and value-based care and in the mix the constructive conversations that we continue to work through.

And then, I'd just caution for reference, 48% of our total claims to private hospitals. And so you need to think about the entirety of inflationary or deflationary impacts across the whole portfolio, not just a particular impact in the private hospital -- of claims. So we know in the hospital product, you've got public hospital payments and MBS, which is linked to headline inflation, which is going to be deflationary year-on-year to the hospital product, and we think there'll be a bigger drop in FY '27 just given where headline inflation is going and probably more important to the claims trajectory going into FY '27, it's going to be the fact that the New South Wales private room rate impact, which is for us around $35 million for the full year. That will be fully embedded in claims.

And so that will not -- that will provide a tailwind going into 2017. So I think you've got to think about all the inflationary and deflationary impacts in the portfolio rather than just 1 that may be linked to the minority of our claims.

[Operator Instructions]

Your next question comes from Andrei Stadnik with Morgan Stanley.

Can I ask my first question around the outlook for a slow industry growth in FY '26 what makes you make such a statement? And how much of a slowdown could you expect?

I might start that crystal ball it doesn't compute because every time we come out with an expectation of slightly moderating industry growth. Industry growth remains very buoyant. And I think the word is moderating, we are saying only very slightly. We're talking about March year-to-date 2.35%, which is actually stronger than the previous year, hospital growth of 2.55%, moderating to us might be somewhat shy of that by a few basis points. But I think we're comparing that to growth rate of pre-pandemic of 50 basis points. So you have to think that, that will slightly moderate given premium increases at an industry level are higher than they were last year. There's going to be some moderation, but still health is a very important part of the consideration for consumers, there's real challenges in the public system, which is really the alternative offering.

And so whilst we think moderating, we're not saying the growth will slow significantly.

And maybe why we say that we through the industry data and media industry was up slightly in the 12 months to 31 March. The exits were flat year-on-year. So given the economic cycle we've been through, you would expect exits to increase slightly, and we haven't yet seen that. So that's the main driver of that expectation of moderating growth, but we'll see what's happened in the industry data for the fourth quarter. And I may be wrong again for the fifth year in a row, David.

Yes, I think, Andrei, it's probably -- there's 1 thing about total growth. It's all about the quality of growth, and we are seeing very strong growth in hospital lives under 30, it's, I think a 13-year high. We've got the adult dependent reform that's coming that still has some way to play out. So I think even if the growth moderates in the quality of the insurance pool and therefore, the impact on claims and support in a community-rated system is very positive. So I think whilst we may see that growth rate moderate. I think we also pay very strong attention to the quality of that growth.

If I can ask a second question. And just checking, if you can hear me.

Yes. Yes, Andrei.

I actually did accidentally disconnect myself in between. If I can ask second question around costs. So -- just to clarify, Slide 19, you talked about $10 million uplift in digital and other tech delivery there over on the left. Did that already take place in FY '25? Or is that taking place in FY '26.

No, that's embedded in the FY '25 number, Andrei?

Okay. So what you're saying is you've increased FY '25 with $10 million digital, $6 million in marketing that's already embedded in FY '25. And FY '26, you're look at some further investments, where you have a $10 million productivity saving offset?

And so in totality, we invested in round numbers, $20 million, including some investment in nonresident, which you didn't mention. We still and always -- we're always still invest in FY '26, but not to the same level we did in FY '25.

It sounds like costs will be relatively well managed in '26.

I'd like to think because we've always been relatively well managed. What I would say is from an MER perspective, I think '26 is going to be quite a lot easier to get a flat in ER or achieve that aspiration than it was in FY '25. And the reason I say that is inflation is going to be lower but expect revenue growth to be higher and we're not investing as much. So the 3 major drivers of where the MER goes are all going to be moving in favor of say MER next year rather than compared to what we saw this year.

And if I can ask a very quick one. Like anything change on cyber crime cost outlook? Because I thought we were under the impression that, that spend would slow substantially in '26, instead, it looks like fairly more a slowdown in '26 and then the big step down in '27. Did anything change there?

Not particularly, but I think overall, there's a few things to say, I mean, this uplift program over the journey has been probably a bit more complicated than we had thought. We've also taken the view to investing resilient, scalable, flexible solutions that are going to support us into the future. And I think when you actually have an uplift program where you need not just at work, but we have an expectation of internal validation and then external validation, things just move a little slower, not so much in the actual work, but in the evidence of the work. So all those things are probably if I look back 3 years ago, probably slower -- or to slower than we thought, but I think the expectation of what we're going to deliver for next year is pretty reasonable.

And as I said, we focus on the comment that we think will be largely done in the bed phase by the end of the financial year. So then what will be residual in that in that cost bucket, we'll just be the ongoing litigation activities.

Your next question comes from Kieren Chidgey with UBS.

Most of my questions have been covered, but just a couple of follow-up questions. Number one, on your growth outlook, can you just remind me what the timing is around any final givebacks from COVID and how you're kind of thinking about phasing those in over the remainder of the year and sort of, I guess, how critical is that in terms of your above-market growth outlook?

Well, the $228 million we announced brings the COVID reserve down to 0. So there will be no subsequent impacts given the COVID reserve has been expensed. So any favorability or unfavorability goes into the operating result. I think most customers should expect to have $228 million or less share of it in their bank accounts around end of September, early October.

Okay -- policies and retention.

Look, I think it's been important for -- it's important for retention, but we've been proactively investing in product benefits and in price and in better proposition to ensure that there's a very soft exit from the COVID regime. I think we're really well placed and we're not expecting any significant impact on retention as a consequence of that last customer giveback. I think we've tried to time the last giveback to align with the inflation cycle turning and interest rates starting to come lower, Kieren. So we're hoping and expecting that it will be a very, very soft landing coming off the COVID regime.

Okay. And secondly, I mean, just on customer benefits. I know Mark, last time we talked after seeing the APRA March quarter data, which had quite low patient -- you were talking about the potential for maybe reinvesting any some claims benefits into more customer sort of benefits into '26. Just wondering within that claims inflation outlook, does that actually include any change in benefits prospectively in terms of policy design for customers? .

And so what it includes is 2 things. So we invested progressively during the year on new customer benefits. So that includes the full period the -- full run rate of those benefits in FY '26. And also, there was an allowance for further investment.

To the extent we see claims even lower. So let's say, the hospital utilization recovery that we expect doesn't occur and we've got further investment capacity and that's something we'll definitely look at during the course of the year as we will -- when we think about our premium increase.

And anything to add there. I mean, there's product benefits is also the differentiated offering. So I think we -- when you look at the percentage of Medibank policyholders that have an experience that we provide outside their core product, is now 52%, a couple of years ago, it was 45%. That drives a differential -- a material difference in their retention rates. So as that grows, it's another way of retaining customers we have, which is why you see our retention rates better than market, and it's part of the differential strategy that not many other insurers you have.

Yes. Okay. And final question, just a clarification. I mean from what you're saying around the jaws on the resident business gross margins should be fairly flat. You're kind of talking to MER stable to even potentially a slight improvement. I was a bit less clear on the nonresident contribution into your margin. But like in aggregate, it doesn't sound like you're expecting your net margin to sort of slip at all into next year. Is that fair?

Well your first 2 thematics all right, Kieren, from what you said about resident and what you said about our aspiration on MER. So on nonresident, we know that it's a high-margin product, and it's likely to grow more quickly than resident. And so that should be accretive to gross margin at a credit level.

Okay. And then I think the real unknown is whether the hospital claims at the $74.8 million below expectations. The real unknown is do you actually see that as being a timing impact and may recover, but just by and large, what we've seen in the claims time. So the big unknown that is a permanent and structural shift and that could have a positive impact on the jaws for next year. .

I think you've then got to think about our Medibank Health segment, which we did have a 3-year expectation of a 15% organic compound growth, which actually, we're almost through that in 2 years. So we've set an outlook, which is to expect low double-digit organic operating profit, which puts us well in advance of our expectation 3 years ago. So I think when you add back plus our expectation on M&A, I think that gives you the full picture of expectations for next year.

Thank you. That does conclude our conference for today. Thank you for attending. You may now disconnect.