#1Australian Unity Australian Unity Limited Investor update Financial results for the year ended 30 June 2019 Health Wealth | Living#22 Australian Unity investor update Australian Unity Limited is pleased to invite you to our investor presentation teleconference for the year ended 30 June 2019 Australian Unity Date 2 September 2019 Time 9am to 10am AEST To access the teleconference participants must register in advance via the link below: http://apac.directeventreg.com/registration/event/4362558 Once registered each participant will be provided with dial in numbers, an event passcode and a participant PIN. Please dial in 10 minutes prior to the scheduled start of the event. If you are unable to attend, you are welcome to email any queries you may have to: [email protected] We will endeavour to respond to your queries by email or during the teleconference. Health Wealth | Living#33 Important information Australian Unity This notice relates to all information provided as a part of this presentation including, without limitation, these slides, associated presentations and any oral presentations by the representatives of Australian Unity Limited ACN 087 648 888 (AUL) or its officers, directors, employees, agents, advisers or consultants made in connection with or arising out of this presentation (Information). This presentation has been prepared by AUL. The Information is intended for discussion purposes only and for no other purpose. The Information is provided to parties on the basis that they are persons to whom an invitation or offer of securities would not require disclosure under section 708 of the Corporations Act 2001 (Cth). The Information is not financial product advice and reliance should not be placed on the Information or opinions contained therein. The Information does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. AUL makes no representation or warranty, express or implied, as to the fairness, accuracy, completeness, correctness or reliability of the statements, estimates, opinions, conclusions and other information contained in the Information. To the maximum extent permitted by law, AUL, its related bodies corporate and each of its respective officers, directors, employees, agents, advisers or consultants accept no responsibility for the Information including, but not limited to, forward looking information or projections and disclaim any and all liability whatsoever for any loss or damage, however so arising, from any use or reliance on the Information. The Information is not and does not form an offer, or part of an offer or invitation, to subscribe for or purchase securities. Investors must make their own independent assessment of AUL and its related entities and undertake such additional enquiries as they deem necessary or appropriate for their own investment purposes. Past performance is no indication or guarantee of future performance. You should be aware that any forecast, projection or other forward looking statement in the Information is subject to inherent risks, uncertainties and factors beyond AUL's control. Those risks and uncertainties include factors and risks specific to the business of AUL and its related entities as well as general economic conditions and may cause actual results, performance or achievements to be materially different from those expressed or implied by those statements. Health Wealth | Living#44 1. Overview & Group highlights 2. Business results 3. Summary & outlook Australian Unity Rohan Mead Group Managing Director & CEO Esther Kerr-Smith Group Executive, Finance & Strategy Alex Smith General Manager Commercial, Finance & Strategy - IAL Health Wealth | Living#55 Australian Unity Overview & Group highlights Health Wealth | Living#66 Overview of Australian Unity Australian Unity ☐ Established in 1840-one of Australia's first member-owned wellbeing companies Around 270,000 members; more than 700,000 customers Mutual with growing community impact ☐ ☐ Profits reinvested into programs and services that benefit members and customers, and create community value The Federal Government passed legislation in April that introduced a definition of 'mutual entity' into the Corporations Act for the first time ☐ Progressing a strategy of developing a commercially sustainable portfolio of businesses Diverse & expanding portfolio ☐ Focused on developing and delivering contemporary, evidence-based and person-centred services and social infrastructure to market segments where we envisage there is the most scope to contribute to community value Health Wealth | Living#7Meeting the wellbeing needs of older Australians In just over 20 years from now, by 2040, there will be: Australian Unity 2.6m+ people with high or very high anxiety, or distress 4.6m+ people with circulatory system disease 5m+ people aged 70+ On current policy settings, by 2040, the health and aged care systems are projected to require an additional: $57b in capital costs for aged care and hospitals $30b in annual operating costs for aged care and hospitals 120,000 nurses (by 2030) 400,000+ aged care workers 7 ^Source: "Practical Innovation: Closing the Social Infrastructure Gap in Health and Ageing". PwC commissioned and supported by Australian Unity. Health Wealth | Living#88 We have prepared and our timing looks right Aligned around a clear purpose to help Australians Australian Unity thrive Portfolio earnings diversification Effective and proactive advocacy on key topics We're measuring what matters We're here to help people thrive OUR VALUES: BOLD WARM HONEST Underpinned by stabilisation of HDS and Social infrastructure pipeline Continued investment in risk, cultural, governance, customer, and strategy capability CREATE A GREAT PLACE TO WORK PUT OUR CUSTOMERS FRONT AND CENTRE DELIVER SUSTAINABLE PERFORMANCE .............. PERF MAKE A DIFFERENCE IN OUR COMMUNITY LEADERSHIP INNOVATION COLLABORATION AGILITY Business aligned with Wellbeing Index seven domains Nurturing capability in data analytics human centred design and community value Health Wealth | Living#99 Solid progress on the year's priorities HDS progress Development pipeline for retirement communities 的 Australian Unity Transformation PHI focus Herston execution Balance sheet Health Wealth | Living#10Solid performance against broad ambitions Australian Unity Continued to progress strategy of portfolio diversification Revenue and other income of $1.6 billion, up 8.2% " Considerable investment in human services operations, including a significant improvement in the Home & Disability Services (HDS) business; successful navigation of an uncertain regulatory period for the health insurance business; and progressed person-centred, outcome-focused healthcare services Significantly progressed the realisation of real-property social infrastructure assets, in particular the Herston Quarter precinct in Brisbane, Queensland and established a Social Infrastructure Development Group Progressing a strategy of developing a thematically linked, commercially sustainable portfolio of businesses grouped into platforms to achieve customer, financial and operating synergies Overall revenue growth generated by the Group's operating businesses, up $35.6 million on the prior corresponding period, and solid investment returns, up $19.9 million, were bolstered by a $66.5 million increase in benefit fund revenue. Within the benefit funds, growth in premiums and other revenue of $14.3 million was supported by $52.2 million in higher investment returns Sound revenue growth in IAL (up 11.0%) with HDS strengthening performance year-on-year and Wealth & Capital Markets performing well in a competitive and challenging environment (up 6.2%) Adjusted EBITDA¹ of $93.0 million, up 135.6% 10 Profit after tax up 2.8% to $53.0 million Operating expenses decreased by $45.0 million compared to the prior corresponding period Significant improvement in the aggregate trading position, with operating earnings from continuing operations for the year of $61.8 million Results influenced by the realisation of benefits arising from the extensive business transformation program commenced in the prior year, and the abovementioned improvement in the HDS business 2018 result included a $66.9 million profit from discontinued operations arising from the sale of the Group's corporate health insurance subsidiary, Grand United Corporate Health Limited " Excluding this impact, net profit after tax from continuing operations was $53.0 million, up $68.3 million (incl. sale impact of GUCH) 1 Adjusted EBITDA: the measure the Group uses in assessing the operating performance of its business segments. This measurement basis excludes the effects of depreciation and amortisation, interest on external borrowings and investment income. It also excludes non-recurring expenditure. See note 1 to the Consolidated Financial Statements in Australian Unity Limited's Annual Report for the Financial Year to 30 June 2019. Health Wealth | Living#1111 FY19 key metrics 60.0 Profit after income tax¹ ($m) 50.0 40.0 L L 30.0 29.6 20.0 10.0 35.6 34.6 53.0 60.0 51.5 46.8 50.0 T Australian Unity Profit after income tax from continuing operations² ($m) 37.7 40.0 35.6 34.6 29.6 30.0 20.0 10.0 0.0 53.0 (10.0) 0.0 (20.0) (15.3) FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 1 Included in the FY2018 result was a profit from discontinued operations of $66.9 million from the divestment of the Group's corporate health insurance subsidiary, Grand United Corporate Health Limited (GUCH) completed 31 October 2017. 2 The FY2018 year excludes the sale of GUCH, affecting the comparative results for FY17. Health Wealth | Living#1212 FY19 segment earnings growth 80.0 74.4 Adjusted EBITDA ($m) FY2018 FY2019 Australian Unity 70.0 64.6 60.0 50.5 48.2 50.0 36.9 40.0 30.0 20.0 10.0 0.0 (10.0) (3.3) Retail Wealth & Capital Markets Independent & Assisted Living Health Wealth | Living#1313 Australian Building balance sheet flexibility and resilience Unity 300.0 Debt maturity profile² ($m) ■ Prioritised financial flexibility and resilience 250.0 ■ Enhanced liquidity and capital buffer in key businesses 200.0 ■ Heightened cash reserves 150.0 Established new LMS for AUCS 100.0 ■ $30m repayment of AUHL subordinated debt 50.0 5.4 In 2019, the Corporations Act 2001 (Cth) was amended to recognise the mutual corporate form 5.1 FY2020 20.0 18.0 250.0 FY2021 FY2022 Enabling legislation for Mutual Capital Interest passed by Parliament ■ One significant maturity tower remaining in FY211 Retirement Village Investment Notes I Herston Quarter Redevelopment Project Loans³ I Series B Australian Unity Bond Tranche 1 I Revolving Loan Facility (Undrawn)" I Other external loans 1 Australian Unity Limited (AUL) is giving consideration to an offer of Simple Corporate Bonds, the net proceeds of which would be used for general corporate purposes. However, no decision has been made to proceed with any offer, and any offer would be subject to appropriate market conditions being maintained in the short term. Any offer would be made under a '2-part' Simple Corporate Bonds prospectus and if any transaction were to proceed, investors wishing to participate would need to apply using an application form accompanying the prospectus 2 Funding maturity profile shows consolidated interest bearing liabilities as at 30 June 2019 that contribute to the gearing ratio, excluding ADI borrowings 3 Loan facilities from a related entity for the development of the Herston Quarter health precinct in Brisbane, Queensland. The facilities are sized to cover development costs of car park and public domain assets at Herston Quarter that are scheduled for practical completion in Q2FY21, and are expected to be up to $45 million 4 $25 million revolving loan facility maturing March 2021 Health Wealth | Living#1414 Gearing analysis and interest cover Australian Unity Interest cover ratio Bond covenant gearing 60% 600.0 8.0 7.0 6.0 5.0 4.0 3.0 20 2.0 1.0 10 Gearing Ratio 50% 40% 30% 20% 10% HI 500.0 400.0 300.0 200.0 100.0 0.0 0% 00 0.0 Jun 16 Jun 17 Jun 18 Jun 19 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Australian Unity Bonds - Tranche 1 ratios at 30 June 2019: Gearing 21.9% based on covenant gearing calculations Interest cover ratio¹ 6.58 times Debt Capacity to covenant limit ($m) (RHS) Bonds Gearing Ratio (LHS) Bonds Covenant maximum (LHS) 1 Interest cover ratio is calculated on a rolling 12 month basis Health Wealth | Living Debt Capacity ($m)#1515 Australian Unity Independent & Assisted Living Health Wealth | Living#1616 Investment for sustainable growth Australian Unity Improved operating model to drive customer-centred continuum of care across the home care, residential care and Remedy Healthcare businesses Pursued opportunities to further develop Integrated Care Model between Remedy Healthcare and Residential Communities and HDS Increase in total segment revenue by 11.0% reflected platform-wide growth with the exception of Residential Communities which saw a decline in revenue in part due to challenges with aged care sector and property market Increase of $51.5 million in adjusted EBITDA reflected the ongoing investment into the sustainability of Home & Disability Services (HDS) Grew aged care home care package revenue by 87.7% equating to approximately 4% market share (2018: 3%) Decommissioned aged care facility at Walmsley in Kilsyth, Victoria in October 2018 to build a new aged care facility that will better meet customer needs and opened two new facilities, in Port Macquarie, NSW and Mornington, VIC Segment Revenue ($m) FY2018 ■FY2019 422.7 469.4 Independent & Assisted Living Adjusted EBITDA ($m) FY2018 FY2019 (3.3) 48.2 Independent & Assisted Living Health Wealth | Living#17IAL highlights* Australian Unity Home & Disability Services Revenue growth of 13.3% to $305.7 million Home care packages revenue increased by 87.7% and Commonwealth Home Support Program (CHSP) growth in funding revenue of $5.4 million Approx. 3,700 care workers served more than 54,000 customers across NSW, Victoria and Queensland. In total, the HDS business delivered 3.8 million hours of care across 31 mainstream branches, five Aboriginal branches and 85 office locations Residential Communities Owns and operates 20 retirement communities in Victoria and NSW with a portfolio of 2,469 independent living units (2018: 2,368) Retirement community occupancy remained greater than 96.0% while aged care grew to 98.0% Number of operational aged care beds increased due to the opening of two new aged care facilities to 786 (2018: 711) after an initial decline from the decommissioning of Walmsley Aged Care in Victoria after 40 years of service Development Construction commenced, progressed or completed and occupancy progressed in the following communities: - Peninsula Grange, Mornington, Victoria Racecourse Grange aged care, Mornington, Victoria The Grace Albert Park Lake, South Melbourne, Victoria Albert Road, South Melbourne, Victoria Sienna Grange aged care, Port Macquarie, NSW Drummond Place, Carlton, Victoria Walmsley, Kilsyth, Victoria Remedy Healthcare Grew revenue by 1.2% to $25.9 million, driven predominantly by Allied Health Services Transition year with focus on integrating Health Services into IAL business and develop a continuum of care approach Delivered more than 390,000 episodes of care across 14 treatment programs Launched 'Healthier Me' program to combat declines in volume and provide a more holistic approach to assessing and delivering healthcare needs ☐ Dental Six dental clinics operating in Victoria Albert Road, South Melbourne clinic relocated to Spring Street, Melbourne Embarked on a program of streamlining digital booking and operational systems in order to support improved scale efficiencies Indigenous Services established 1 July 2018 with a focus on Aboriginal Home Care 17 Figures at 30 June 2019, unless otherwise noted Health Wealth | Living#1818 IAL outlook Australian Unity ☐ ☐ Continue to orientate the platform around the needs of customers and key stakeholders in their health and wellbeing, including families, primary carers, communities and government agencies Continue to develop the customer-centred continuum of care across the home care, assisted living, residential care and Remedy Healthcare businesses Focus on balancing the portfolio by growing evidence-based clinical outcome services and directing further resources on domestic assistance and personal care HDS has embarked on another period of transition as it scales down its provision of National Disability Insurance Scheme (NDIS)-funded disability services-to focus and invest more in the Aged Care sector Continue to define a comprehensive workforce strategy, supported by an effective learning and development framework With ongoing support from the Australian Unity Property business in conjunction with the Social Infrastructure Development Group and investment partners, continue to build pipeline of new and integrated communities Health Wealth | Living#1919 Royal Commissions Australian Unity Recommendations from current reviews and inquiries, such as the Royal Commission into Aged Care Quality and Safety and the Royal Commission into Violence, Abuse, Neglect and Exploitation of People with a Disability, as well as any future reviews and inquiries may result in significant reforms which may have an impact on the Group's operating and financial performance While we are not aware of either Royal Commission having identified any concerns with the operations of the Group at this time, we continue to monitor and observe the proceedings of both Royal Commissions for this purpose and to understand their potential implications for the Australian Unity Group The Royal Commission into Aged Care Quality and Safety was established on 8 October 2018. The Royal Commission invited submissions from approved providers on 23 November 2018 and Australian Unity responded to these invitations with submissions that were provided directly to the Royal Commission within the requested timeframes of 7 January 2019 for residential aged care services and 8 February 2019 for home care services in the community. The Royal Commission is due to finish hearings by early December 2019 and the interim report due on 31 October 2019 and the final report by 30 April 2020 The Royal Commission into Violence, Abuse, Neglect and Exploitation of People with a Disability was established on 4 April 2019. An interim report is due no later than 30 October 2020 and a final report by no later than 29 April 2022 Health Wealth | Living#2020 20 Retail Health Wealth | Living Australian Unity#2121 Solid year amidst mixed operating conditions Australian Unity ☐ ☐ ☐ Adjusted EBITDA increase of 15.2% driven principally by a favourable underwriting experience in the health insurance business and continued net interest margin improvement and loan book growth in the banking business Slight decrease in total segment revenue of 0.6% compared to the prior corresponding period Expenses improvement of 2.1% reflecting a $6.4 million drop in health insurance claims net of risk equalisation, and a $7.4 million decrease in operating expenses Successfully executed a significant change agenda in response to the private health insurance reforms, the largest regulatory change to the sector in a decade Continued providing guidance and advice to policy and decision-makers in understanding the root cause of healthcare cost pressures and diminished patient outcomes Segment Revenue ($m) FY2018 FY2019 726.1 Retail 722.1 Adjusted EBITDA ($m) FY2018 FY2019 74.4 64.6 Retail Health Wealth | Living#22Retail outlook Australian Unity Pressure on affordability and trust remain key factors for private health insurance and banking sectors Australian Unity anticipates increased oversight and a growing cost of compliance as prudential regulators bring the private health insurance industry in line with financial services, and policy makers and regulators respond to the findings of the Royal Banking Commission. To deliver against this, the areas of financial strength, risk management, conduct, controls and compliance will be a significant focus across the Retail platform over the coming year Further accurately target the brand and value proposition, as well as acquisition and distribution strategy to Retail's niche health insurance and banking market Continue to deliver growth through strong, balanced multi-channel distribution by enhancing the health insurance business' partnership and digital models and by building selective relationships in the banking third party (mortgage broking) channel and concurrently target segments via direct channels to market Continue engagement with sector participants and government to urge positive reforms to improve the quality, effectiveness and cost efficiency of the health care sector Seek opportunities to benefit from potential private health insurer and Australian Deposit taking Institutions (ADIs) sector consolidation 22 22 Pursue opportunities arising from the health insurance and banking adjacencies Health Wealth | Living#2323 Retail highlights* EL Health insurance Delivered lowest average premium increase to members in 18 years, approximately in line with industry average Implemented private health insurance industry reforms including the launch of new products, rationalisation and simplification of the product portfolio and re-classification of products in line with the new gold-silver-bronze-basic product tiers Policyholders decreased by 4.0% to 185,936 (2018: 193,771) reflecting declining industry growth and a considered strategy to review profitability of distribution channels Banking Big Sky Building Society Limited renamed Australian Unity Bank Limited Total assets increased by $108.6 million to $886.0 million (2018: $777.4 million) Maintained strong lending momentum with $173.3 million in new loans written Consolidated retail general insurance offering with a single provider Standard & Poor's (S&P) Ratings recently upgraded Australian Unity Bank's issuer credit rating to 'BBB+' from 'BBB' * Figures at 30 June 2019, unless otherwise noted Australian Unity Health Wealth | Living#2424 Australian Unity Wealth & Capital Markets Health Wealth | Living#2525 Building strong and sustainable growth Australian Unity Recorded a 6.2% increase in total segment revenue to $180.9 million reflecting positive underlying revenue growth across all business units in the platform Strong result of 36.7% increase in adjusted EBITDA was positively impacted by underlying business growth, net favourable outcomes in one-off items from social infrastructure related developments and a legal settlement received in the Life & Superannuation business W&CM manages investments, property assets and developments (and associated debt facilities), and provides advice and trustee services, totalling $20.7 billion (2018: $20.3 billion). Segment Revenue ($m) FY2018 FY2019 170.4 180.9 Wealth & Capital Markets Adjusted EBITDA ($m) FY2018 FY2019 50.5 * Figures at 30 June 2019, unless otherwise noted 36.9 Wealth & Capital Markets Health Wealth | Living#2626 Status Strategic partners Herston Quarter Redevelopment HPT 2 HOSPITALS 3 COMMERCIAL CAR PARKS Australian Unity BETTER TOGETHER® HERITAGE BUILDINGS Queensland Government $1.6b Health care Property Trust INTERNATIONALI PARKING GROUP 12 structured car parks across 8 major Australian public hospitals Australian Unity Retirement living and residential aged care operated under Better Together Australian Unity Intended to be funded predominantely through an Australian Unity social infrastructure fund STARS on track for Q2F21 ($390.0m) STARS carpark on track for Q2F21 Due to commence FY21 Due to commence FY20 EDQ DA approved Private hospital forecast to commence FY22 Others due to commence FY21 and FY22 PRECINCT ACTIVATION & ENABLING WORKS Enabling works and public realm, commercial and residential vacant land, management rights Australian Unity Health | Wealth | Living#2727 Wealth & Capital Markets highlights* Australian Unity m Property Assets under management increased to $3.0 billion (2018: $2.8 billion) Pipeline of property development of $1.3 billion (2018: $1.3 billion) Managing lending and debt facilities on behalf of investors of $1.6 billion (2018: $1.7 billion) Healthcare Property Trust increased assets under management to $1.6 billion (2018: $1.5 billion) with a return of 9.3% for the year Life & Super Assets under management and administration of $2.3 billion (2018: $2.2 billion) Sales reached $221.5 million (2018: $216.2 million) As at 31 March 2019, the business remained number one in the investment bond sector in terms of assets under management with 27.3% of funds under management High Court of Australia finding in favour of Lifeplan in Ancient Order of Foresters in Victoria Friendly Society Limited (Foresters) v Lifeplan Australia Friendly Society Limited. Judgement amount was on an "Account of Profits" basis resulting in a favourable outcome to the Group Investments ☐ Funds under management (FUM) of $6.0 billion (2018: $5.6 billion) Investments' joint venture partner Acorn Capital Limited launched the Acorn Capital Expansion platform, which will invest in emerging Australian companies, with $52.0 million provided by investors in its initial capital raising Investment portfolios of the Group approx. $680.0 million, including capital stable and highly liquid insurance reserves, achieving a weighted aggregate return of 3.4 percent (2018: 2.8 percent). Advice New leadership team established, with a focus on positioning the business for sustainable growth and operational scale supported by enhanced supervision, investment and technical functions Advice revenue increased 6.3% to $58.3 million for the year (2018: $54.8 million) Decrease in adviser numbers (including limited authorised representatives) to 184 (2018: 194) Trustees Continued implementation of a new operating system, designed to support and strengthen service and operations capabilities Establishment of three common investment funds with $124.1 million of clients' funds invested Completion of program to reduce the legacy book resulted in a reduction in active FUM and trusteeship to $325.2 million (2018: $360.7 million) due to the closure of legacy estates and the appointment of more suitable administrators for some protected persons - clients Figures at 30 June 2019, unless otherwise noted Health Wealth | Living#2828 W&CM outlook Australian Unity Period ahead should continue to provide opportunities for the platform to offer customers valuable investment and financial opportunities, and to deliver important benefits to many areas of the community Herston Quarter project will continue to be a key focus of the platform as it unfolds this unique example in response to Australia's social infrastructure challenge. Other areas of social infrastructure needs are also being explored W&CM platform is well positioned to benefit from the collective impact of rising and better-planned wealth accumulation, the challenges and opportunities presented by Australia's ageing population, and the changing regulatory landscape and community expectations Health Wealth | Living#2929 Key business risks • Increased regulatory complexity and scrutiny Workplace injuries or conditions Inability to maintain skilled and experienced workforce . Lack of capital or liquidity • Credit defaults People Regulatory & Legal Financial & credit Inappropriate detection and prevention • of cyber security threats Systems are not fit for purpose Australian Unity Strategic • Over reliance on certain businesses or funding sources Operational Conduct Investment in property and social infrastructure . Inability to respond to change . Increased competition and . . poor and inconsistent member or customer experience Member or customer harm Occupancy levels in residential aged care Private Health Insurance risks Failure of strategic and/or business decisions or external events Information & Systems Inappropriate or illegal behaviour Health Wealth | Living#3030 How will we deliver our strategy... CREATE A GREAT PLACE We're here to help people thrive TO WORK OUR VALUES: BOLD | WARM | HONEST PUT OUR CUSTOMERS FRONT CENTRE DELIVER STAINABLE PERFORM DIFFERENCE MAKE A Australian Unity IN OUR COMMUNITY If we take care of our people they will take care of our customers Customers and members have choices and we want them to choose us We've been here for 175+ years and we want to be here for many more Community is at the heart of what we do LEADERSHIP | INNOVATION | COLLABORATION | AGILITY ...and know we are succeeding? Health Wealth | Living#3131 FY20 and beyond - strategic priorities Australian Unity Private Health Insurance sector reforms Realising the HDS and AHC opportunity Capability, Innovation, and Cost A Social Infrastructure Capital and funding Health Wealth | Living#3232 Australian Unity Health | Wealth | Living