27/09/2018 - 15:46

HBF lifts surplus to $61m

27/09/2018 - 15:46

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HBF has flagged the possible sale and lease-back of its head office building in central Perth after reporting a lift in its financial performance and a major shift in its east coast growth strategy.

John Van Der Wielen says the group maintains a conservative investment approach.

HBF has flagged the possible sale and lease-back of its head office building in central Perth after reporting a lift in its financial performance and a major shift in its east coast growth strategy.

The not-for-profit health insurer has reported a 2.1 per cent lift in its after-tax surplus to $60.8 million for the year to June 2018.

Its core business performed much better, with its underwriting result going from a loss of $24.5 million in FY17 to a profit of $1.1 million in FY18.

That was partly offset by a 27 per cent decline in net investment income, to $56 million.

Managing director John Van Der Wielen said the group had maintained a conservative investment approach, with most of its assets invested in cash deposits.

However, it was considering a shift in its property assets, which are worth about $135 million.

The group sold its former head office at 125 Murray Street for $8.1 million in May, and Mr Van De Wielen said it was now assessing its current head office at 570 Wellington Street.

“We are going to consider selling the building on a long-term lease-back basis,” Mr Van De Wielen told Business News.

He said there was a large amount of money tied up in the building and the modern approach was to sell it to an appropriate investor.

Mr Van Der Wielen said one of the notable achievements over the past year was a reduction in the group’s operating expenses.

There were multiple contributors, including adoption of a performance culture inside the business and a greater focus on productivity.

Specific measures included the closure of three branches and cutting sponsorship of AFL teams.

Another major shift was ending HBF’s use of east coast broker sites.

Mr Van Der Wielen said this was an expensive way to win new customers, as it relied on discounted pricing and high commissions, and was not profitable.

This decision followed the collapse of merger discussions with east coast-based competitor HCF.

Mr Van Der Wielen said HBF would still pursue growth in order to achieve the scale that would ensure the group’s sustainability, with a mix or organic growth and mergers and acquisitions.

There are 37 health insurers across Australia, and Mr Van Der Wielen expects that number will decline.

“We believe there will be more consolidation,” he said.

HBF is also planning a major upgrade of its technology and systems, with Mr Van Der Wielen expecting this will boost efficiency and customer service.

HBF member numbers declined during the past year, as did its market share, to 53.05 per cent in Western Australia (down 1.26 per cent) and 7.82 per cent nationally (down 0.19 per cent).

Mr Van Der Wielen said one contributor was the abolition of several products,

This year’s annual report included a higher level of disclosure compared with previous reports and many other not-for-profit businesses.

Mr Van Der Wielen said the HBF board believed higher disclosure was important to the group’s members and took pride in holding itself to the highest standards of governance.

The improved disclosure included a detailed breakdown of remuneration.

Mr Van Der Wielen had total income last year of $1.4 million, including a $401,000 annual bonus.

To put that in context, 58 Perth-based executives at ASX-listed companies earned a higher income last financial year, according to Business News’s annual CEO Salary Survey.

HBF chairman Tony Crawford earned $259,000.

Meanwhile, the Royal Automobile Club of WA has reported a sharp decline in annual profit to $5.3 million for the year to June 2018, down from $43.3 million in the prior year.

RAC’s concise annual report, released early this week, showed operating revenue increased 7.9 per cent to $737 million.

Offsetting the higher operating revenue was an increase in insurance claims expenses, staff expenses and 'other' expenses.

The latter was due to a $9.3 million unrealised loss on the annual revaluation of its wholly-owned St Ives Group retirement villages and associated resident loans, which RAC attributed to the subdued Western Australian residential property market.

Another negative was a $9.8 million loss on RAC's share of joint ventures - this was due to the underperformance of a business owned by St Ives Home Care.

St Ives Home Care is a joint venture with Quadrant Private Equity, and has been known as Enrich Living Services since July 2018.

Other income, including realised gains on the sale of group investments, fell to $6.2 million from $32 million.

The prior result included a one-off $13 million pre-tax gain from the sale of the St Ives Home Care business into the Quadrant JV in July 2016 and a one-off gain from the completion of stage 1 of St Ives Group's Carine retirement village.

The RAC report disclosed the cost of two tourist parks acquired over the past year.

It paid $3.5 million for Karri Valley resort near Pemberton, which was bought in November 2017; the resort contributed $1.9 million of revenue and a loss of $200,000.

RAC paid $2.5 million for Wharncliffe Mill near Margaret River in May 2018.

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