Private Healthcare Australia Conference

How is healthcare performing? - an industry economists perspective

Dean Pearson Head of Industry Analysis, NABNovember 29, 2013 Hobart, Australia

2

“Confidence is contagious, but so is a lack of confidence”Vince Lombardi, legendary NFL player & coach

The Numbers

Cartoon by Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au

44

Global economic forecastsHalf of current global growth still coming from China, India & Brazil but a bigger contribution in 2014 from advanced economies.

4.14.24.04.2Trading partners

4.4

3.5

7.5

1.9

-0.3

1.7

2.9

20132012 2014 2015

World GDP growth 3.2 3.5 3.6

United States 2.8 2.6 2.9

Euro zone -0.6 1.1 1.4

Japan 2.0 2.1 1.5

China 7.8 7.2 7.0

Emerging Asia (a)

3.8 3.8 4.2

India 5.1 4.9 5.3

(a) South Korea, Taiwan, ASEAN

55

Australian economic forecastsWeaker AUD & lower interest rates won’t be enough.Mining transition & fiscal austerity will see the labour market slow.

* at end of period; ** through-year growth

n.a.0.860.95$US/$A*

3.002.252.50RBA cash rate*

2.12.42.3CPI underlying**

6.36.65.9Unemployment rate*

0.90.31.1Employment

2.92.42.3GDP

201520142013

Dec2009

Dec2010

Dec2011

Dec2012

Dec2013 2014

Dec

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

GDP% change

Source: ABS and NAB forecasts

% change % change on year earlier

The Business Environment

Cartoon by Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au

77

Australian business conditions & confidenceAfter surging to a 3½ year high in September, the business confidence fell back significantly in October suggesting businesses have reassessed their expectations given the continued weakness in actual conditions.

Source: NAB Monthly Business Survey

-40

-30

-20

-10

0

10

20

IV I II III IV I II III IV I II III IV

2010 2011 2012 2013

Seasonally adjusted TrendConds 1990s recn Conds GFC

Business conditions (net balance)

-40

-30

-20

-10

0

10

20

IV I II III IV I II III IV I II III IV

2010 2011 2012 2013

Seasonally adjusted TrendConf 1990s recn Conf GFC

Business confidence (net balance)

Average of the indexes of trading conditions, profitability and employment.

Excl. normal seasonal changes, how do you expect conditions facing your industry in the next mth to change?

8

Capacity utilisation & capital expenditureCapacity utilisation by industry shows little incentive for new investment. There is still little evidence that business investment outside the mining sector is likely to pick up strongly any time soon.

Capacity Utilisation

70

75

80

85

90

95

2008 2009 2010 2011 2012 2013

%

70

75

80

85

90

95

%

Mining

Manufacturing

Source: NAB

All industriesTransport& utilities

-4

-2

0

2

4

6

8

10

12

IV I II III IV I II III IV

2011 2012 2013

Seasonally adjusted Trend

Capital expenditure (net balance)

99

Business conditions by state State conditions have converged as weakness infiltrates previously strong performers. More recently, conditions have lifted significantly in WA.

Business conditions by state (net balance), 3-month moving average

-40

-30

-20

-10

0

10

20

IV I II III IV I II III IV

2011 2012 2013

Australia NSW VIC

-40

-30

-20

-10

0

10

20

IV I II III IV I II III IV

2011 2012 2013

Australia QLD WA

-40

-30

-20

-10

0

10

20

IV I II III IV I II III IV

2011 2012 2013

Australia SA TAS

10

Regional UnemploymentBig disparities in unemployment within and across Australian regions. Some suburbs & towns clearly missed out on the “boom”.

Unemployment Rate by Statistical Division(avg year to October 2013)

0123456789

1011

NS

WS

YD

NE

YIn

ner &

Inne

r Wes

tern

Syd

ney

Inne

r Syd

ney

Inne

r Wes

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Syd

ney

Eas

tern

Sub

urbs

St G

eorg

e-S

uthe

rland

Can

terb

ury-

Ban

ksto

wn

Fairf

ield

-Liv

erpo

ol &

Out

er S

outh

Wes

tern

Syd

ney

Fairf

ield

-Liv

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uter

Sou

th W

este

rn S

ydne

yC

entra

l Wes

tern

Syd

ney

Nor

th W

este

rn S

ydne

yLo

wer

Nor

ther

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ydne

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entra

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ther

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ydne

yN

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ern

Bea

ches

Gos

ford

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NC

E O

F N

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Hun

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cast

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r exc

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Illaw

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& S

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Wol

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Mel

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Mel

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elbo

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Mel

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Mel

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Mel

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Mel

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BA

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VIC

Bar

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Dis

trict

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-Wim

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Coa

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oret

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-Bur

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Mac

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SO

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AU

STR

ALI

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DE

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EN

orth

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Ade

laid

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rn A

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Ade

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laid

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NC

E O

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AS

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& E

aste

rn S

AN

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& W

este

rn S

AW

ES

TER

N A

US

TRA

LIA

PE

RTH

Cen

tral M

etro

polit

anE

ast M

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polit

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litan

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est M

etro

polit

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outh

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BA

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OF

WA

Low

er W

este

rn W

AR

emai

nder

-Bal

ance

WA

TAS

MA

NIA

HO

BA

RT

BA

LAN

CE

OF

TAS

Sou

ther

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Mer

sey-

Lyel

lN

OR

THE

RN

TE

RR

ITO

RY

AC

TA

US

TRA

LIA

NSW VIC QLD SA WA

%

TAS

11

Labour market challengeAdjustment process to go into reverse! Mining could release 100k construction jobs in 3 years. But jobs are being made as well as lost. Health has been a key driver of jobs growth!

12

Population growthAustralia's population grew by 1.8% in 2012, well above its long-term average. WA population growing at more than double the national average.

12

Annual Population Growth: Australia

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Mar

-83

Mar

-84

Mar

-85

Mar

-86

Mar

-87

Mar

-88

Mar

-89

Mar

-90

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Natural Increase Net Migration

persons

13

Net Interstate MigrationAt the State level, net interstate migration is also important (ie. movements within states). And here there are some big differences.

Caroline Springs, on Melbourne's western fringe

Annual Net Interstate Migration

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

Mar

-82

Mar

-83

Mar

-84

Mar

-85

Mar

-86

Mar

-87

Mar

-88

Mar

-89

Mar

-90

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

NSW VIC QLD SA WA NT

persons

14

Lower rates have seen expectations (& actual) house prices increase, esp. in NSWBut we still expect relatively moderate gains (by historical norms) in the next 12 months (around 5%) but with differences across cities.

Source: Nab Residential Housing Survey Q3 2013

Property Survey - House Price Expectations

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Next 6months

Next 12months

Next 2years

Australia Victoria NSW Qld SA/NT WA

%

Current expectations in...

Estimated price growth during relevant survey period...

15

More interest in investor market - esp. foreignOwner occupier the largest share and appears to be increasing again. But overseas investors are around 12.5%. Main focus is Qld & recently NSW.

Share of Demand for New Properties from Overseas Buyers

0

5

10

15

20

25

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Australia Victoria NSW QLD WA

%Percentage Share of Buyers - New Developments

0

10

20

30

40

50

60

FHBs ResidentOwner

Occupiers

AustralianInvestors

OverseasBuyers

Other FHBs ResidentOwner

Occupiers

AustralianInvestors

OverseasBuyers

Other

Q3'11 Q3'12 Q2'13 Q3'13

%

Current Quarter Next 12 Months

16

Industry share of state productionWhen comparing conditions across states, important to review the contribution of industry sectors to each economy. The most notable disparity is the mining sector.

17

Aust industry structure & growthConstruction, Finance and Health Services have recorded the fastest growth rate of all sectors over the past decade. And Health a key employer!

Australia Industry Structure(bubble size = employment)

Arts & Recreation

Health & Social AssistanceEducation & Training

Public Administration& Safety

Admin & SupportServices

Prof, Scientific & Technical Services

Rental, Hiring& Real Estate

Finance & Insurance

Communications

Transport, Post & Warehousing

Hospitality

Retail

Wholesale

Construction

Utilities

Manufacturing

Mining

Agriculture

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

average growth in gross value-added 2002/03 - 2011/12 (%)

gros

s va

lue

adde

d 20

11/1

2 ($

mn)

1818

Business conditions by industry sectorMulti-speed economy narrowing: but fast lane slowing. Big fall in mining since peak. Consumer dependent sectors remain poor. Where is the strength? = “Recreational & Personal Services” (incl. Health, Education, Travel).

Source: NAB Monthly Business Survey

-30

-20

-10

0

10

20

30

40

IV I II III IV I II III IV

2011 2012 2013

Mining Manuf Constn

-30

-20

-10

0

10

20

30

40

IV I II III IV I II III IV

2011 2012 2013

Retail Wsale Transp

-30

-20

-10

0

10

20

30

40

IV I II III IV I II III IV

2011 2012 2013

Fin, bus, prop Rec, pers

1919

SME business conditions by industry sectorSME’s still “multi-speed” with some sectors - particularly services - (eg. Property & Finance) outperforming while others (eg. Retail, Manufacturing, Wholesale) still doing it tough. Health on watch!

Source: NAB Quarterly SME Business Survey

SME Conditions by Industry sector

Property

Finance

Accommodation, cafes & restaurants

Retail Manufacturing Wholesale Construction

Health

Business Transport

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

Sep-12 Jun-13 Sep-13

?

20

Will consumers remain cautious?Yes! Consumers still saving to repair balance sheets. Lower interest rates & higher equity & house prices will help, but higher unemployment will affect job security.

Jun2005

Jun2007

Jun2009

Jun2011 2013

Jun

14

12

10

8

6

4

2

0

-2

Household saving ratePer cent of net household disposable income

Source: ABS & NAB calculations

Seasonally adjusted Trend

21

NAB Online Retail Sales IndexAustralians spend >$14bn a yr online (6.3% of retail excl. food). Growing fast but has slowed. Around 70% of online spend domestic. Average spend around $40 per transaction.

80

100

120

140

160

180

200

220

240

260

280

Jan-10 Oct-10 Jul-11 Apr-12 Jan-13

Online Index (nsa)Online Index (sa)ABS Retail Sales (nsa)ABS Retail Sales (sa)

Online sales vs. Retail sales (monthly)“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run..”Roy Amara, American futurologist.

22

Where to from here for retail? The future of retail is multi-channel, building brands & multiple touch-points. Stores have to become “FUN” to visit.

“Every morning, at opening time, the crew picks one child to “unlock imagination” with

an over-sized key to open the store for the day!”

23

ManufacturingAustralian manufacturing has shifted up the global cost curve (esp. against other advanced economies). The future? Leverage our digitally-driven infrastructure, customisation and focus on sustainability.

Australia

United States

2424

Chinese firms also moving up the cost curveShifting demographics & higher cost structure has seen China lose some allure as base for multinationals.

''It is one thing to sell a homogenous minerals commodity to a minerals-hungry

industrialist in China, and another thing entirely to design and market a

sophisticated personal service to someone living in that culture….''

Former Treasury secretary & lead author of the White Paper on Australia in the Asian Century, Dr Ken Henry.

Health in Focus

27

Government finances & health expenditureThe problem for Government is on the spending side. And against the backdrop of demographic forces & ongoing global economic uncertainty, the cost of healthcare continues to rise.

Total Australian government health expenditure with & without non-

demographic growth (in 2009-10 $’s)

28

ASX S&P 200 v Healthcare & Property returnsThe healthcare sector has been the standout performer on the Australian stock exchange. Healthcare property also mitigates downside risk - underperforms pre-GFC & outperforms during and post GFC.

Source: IPD

ASX 200 vs ASX 200 Healthcare Price Index (5-Jan-2007 = 100, weekly)

40

60

80

100

120

140

160

180

200

Jan-

07

Jun-

07

Oct

-07

Mar

-08

Aug-

08

Jan-

09

Jun-

09

Oct

-09

Mar

-10

Aug-

10

Jan-

11

Jun-

11

Nov

-11

Mar

-12

Aug-

12

Jan-

13

Jun-

13

Nov

-13

40

60

80

100

120

140

160

180

200

ASX 200 ASX 200 - Healthcare

29

Most efficient healthcare countriesAustralia already has one of the OECD’s most efficient health systems, in terms of life expectancy achieved for dollars spent.

Source: Bloomberg

30

Nab business survey - health v economyBusiness conditions from our external business survey shows that the health care sector consistently outperforms the broader economy.

Business Conditions (net balance, s.a.)

-40

-30

-20

-10

0

10

20

30

40

50

60

Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

Range of All other Industries Health All Industries

31

Nab business survey - health v economyHowever, health lags the economy for confidence. Gap between confidence in heath and the broader economy is now at its widest point in history of the SME survey.

Business Confidence (net balance, s.a.)

-40

-30

-20

-10

0

10

20

30

40

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

min Range of All other Industries Health All IndustriesSource: Group Economics, NAB

32

NAB Wellbeing IndexNational wellbeing deteriorated slightly in Q3 in line with more subdued economic conditions with significant fall in WA driven by much higher levels of anxiety!

In Q3 2013, wellbeing was typically highest for those who:

resided in a rural towns/bush;earned >$75,000;

were aged 50+ and female;were married or widowed;

were without children;lived in a 2 person

household;had a diploma or tertiary

qualifications;were retired;

lived in Tasmania.

Overall Wellbeing Index

3

4

5

6

7

8

9

10

Overall Wellbeing Satisfied Life Worthwhile Life Happy Yesterday Not AnxiousYesterday

Mar-13 Jun-13 Sep-13

Not

at a

llC

ompl

etel

y

Source: Group Economics, NAB

33

The Business of Selling “Happiness”“Happiness is not a goal, it’s a by-product”, Eleanor Roosevelt.

34

NAB Consumer Anxiety IndexConsumer anxiety still greatest around rising “cost of living”. Consumers are becoming more concerned about their ability to fund their health needs.

Overall Consumer Anxiety Index

3

4

5

6

7

8

9

10

Overall Anxiety Job Security Health Ability to FundRetirement

Cost of Living GovernmentPolicy

Jun-13 Sep-13

Nil

Extre

mel

y

Source: Group Economics, NAB

35

Are we a nation of whingers & worriers?The challenge is to capture how people define “quality of life” & “cost of living”. But… what is clear is health spending will rise, however much costs fall!

3636

thank you

3737

Important information

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