The primary intent of this call is to supplement and support your Business Acumen training. Our focus is to understand Cigna’s corporate messaging and reported financial performance within the context of the “Five Business Drivers” model which was introduced in the Building Business Acumen training session.
The information covered today should not be used to make any investment decisions. Our role is not to editorialize or speculate about business decisions, the sufficiency of communications to investors, or other business matters.
David’s major themes: Financial strength and capital deployment Execution of profitable Growth strategy—Outlook Cigna’s integrated and differentiated capabilities Strategy to focus NOT on financing costs of illness
and disease cure, but on preventive health care and maintaining and improving health and wellness
Costs: Medical trends, operating expenditures Exchanges: Trends and cost impact Market segments: Trends, opportunities Impact of alliances—only questions on Assets
Themes the analysts focused on:
13 analysts asked @ 25 questions plus follow-ups
Dominant questions and discussion:
PROFITABILITY (Costs) driven by PEOPLE
Customers, Markets, Exchanges + Cost pressures
15 or 60% PROFIT – Costs focus—in context of Growth & various Cost pressures
5 or 20% PEOPLE – Exchanges, Customer segments, Markets, Medicare Advantage
2 or 8% ASSETS –JV with Catamaran in light of UNH; JV & SCAN Health
2 or 8% CASH – Strategic spending in Q-1
1 or 4% GROWTH– Context of Commercial and Government business
Analysts’ questions by Driver (many questions addressed more than one Driver):
AREAS OF FOCUS BY ANALYSTS & MANAGEMENT
Here’s what was on their mind
INTRODUCTION TO EARNINGS CALL
Q1-2015 Earnings Call—David Cordani, Pres. & CEO
“Cigna's first-quarter 2015 performance represents a strong start to the year. We are pleased withour results, which extends our track record of attractive financial performance.
“Once again, our success was driven by the effective and disciplined execution of our strategy, which continues to guide our actions in a dynamic marketplace. Our first-quarter 2015 consolidated revenue increased 11% to $9.5 billion with strong contributions across our business segments.”
Cigna Q1-2015 performanceRevenues: ▲ 11% to $9.5 billion
Adjusted Income from Operations: DN 4% to $513 million
Adjusted Income from Operations per share: ▲ 1% to $1.96
“Our free cash flow outlook continues to reflect the industry leading margins and returns on capital in our businesses, and a high level of capitalefficiency, particularly from our fee-based businesses.
“This capital efficiency allows us to fund attractive organic growth while continuing to generate significant free cash flow to be deployed for the benefit of shareholders.”
“…we've chosen to redefine our orientation around scale to ensure that we have appropriate scale to have competitive cost structure from an administrative cost standpoint, which we have. We've been able to prove productivity gains year in, year out, and free capacity to further ongoing investment back to within the franchise.
“And then you come down to medical cost in your dialogue, and that's a very localized conversation.”
“By leveraging our integrated capabilities and coordinating clinical care resources for each individual through their health journey, we are improving affordability while creating a more sustainable health care system.
“Over the long term, we believe our approach to healthcare rather than sick care will promote better health, sustainability, and economic vibrancy, and lower the cost burden on customers as well as employers.”
“And this success translates to shareholder value as we leverage our capabilities to meet customer needs with products and services that are enhanced through our highly aligned coordinated offerings.
“This value is evidenced by our industry-leading medical cost trend over the last several years, higher customer retention levels, and strong growthin our specialty and integrated services to achieve the personalization of services outcomes that I previously referenced.”
1 Liabilities adds redeemable non-controlling interests of Finansbank
"Cigna continues to deliver differentiated, personalized and affordable solutions, creating value for our customers and clients. "We continue our focus on delivering innovative products and services centered around unique local market needs, driving growth in new and existing markets."
“As we have discussed previously, we have a clear framework to drive ongoing future value creation for Cigna. First, our diversified businesses are well positioned to create attractive value for customers and clients, and as a result, differentiated revenue growth.
“Second, we are focused on targeted and effective capital deployment to create ongoing shareholder value through investments in our business,strategic M&A, and share repurchase. Our businesses generate high levels of free cash flow which give us financial flexibility and the opportunity to deploy capital to further create value for the benefit of shareholders.
“And finally, we continue to seek new and emerging opportunities to expand in new distribution marketplaces, new geographies, and new buyingSegments…This framework also positions us to support our focus on enabling healthcare over financing sick care, which is well aligned with Cigna's efforts to improve the current healthcare system.
“M&A continues to be a component of our value creation framework.”
“To meet these goals, we must continue to accelerate the transition from yesterday's view of health insurance as a mechanism for financing the cost of illness to an orientation centered around maintaining and improving the health and wellness of individuals.
“At Cigna, we are and will continue to make significant strides toward achieving a more sustainable healthcare system by engaging with individuals and physicians through coordinated offerings and aligned incentives.”
What is the revised projected Consolidated Revenue Growth for 2015?
A. 2% to 4%
B. 5% to 7%
C. 8% to 10%
C. 11% to 13%
GROWTH
2015 FULL-YEAR OUTLOOK
Excludes potential effects of future capital deployment
1. Revenue Growth: ▲ 8% to 10% over 2014
2. Adjusted Inc. from Operations: $2.12 B to $2.21 B ▲ 6.2% to 10.7%
INCREASED: Prior Outlook = $2.10 B to $2.20B
1. Adjusted Inc. fr. Ops. per Share (EPS): $8.15 to $8.50 ▲ 9.7% to 14.4%
INCREASED: Prior Outlook = $8.00 to $8.40
1. Global Health Care Operating Expense Ratio: 21% to 22%
2. Commercial MCR: 78% to 79%
3. Government MCR: 84.5% to 85.5
4. Global Medical Customer Growth: ▲ 2% to 4% 2014 = 3%
INCREASED: Prior Outlook = 1-3%
EARNINGS CALL SUMMARY
“We are effectively executing our strategy and creating value for our customers and clients by leveraging integrated capabilities that promote health care rather than sick care, and driving improved personalization and affordability for the benefit of the individuals we serve.
Q1-2015 Earnings Call—David Cordani, Pres. & CEO
“We remain committed to our long-term objective, which is to double the size of our business over the next seven to eight years, yielding an 8% to 10% annual revenue growth rate on average.
“And over this time horizon, we expect to continue to deliver competitively attractive long-term EPS growth of 10% to 13% annually on average, all while we continue to invest in our Company's business portfolio.”
ENCOURAGEMENT & CHALLENGE
What will you do from here?
Quarterly review of Cigna’s financial performance
� Investor Relations section of Cigna website
� Financial information each Quarter Listen to quarterly Earnings Call or review transcript Quarterly reviews of competitors, industry, economy Continue to watch stock performance Consider how your decisions impact business metrics
Offered by: Connecticut General Life Insurance Company or Cigna Health and Life Insurance Company.
“Cigna” and the “Tree of Life” logo are registered service marks, and “Together, all the way.” is a service mark, of Cigna Intellectual Property, Inc., licensed for use by Cigna Corporation and its operating subsidiaries. All products and services are provided by or through such operating subsidiaries, including Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company, and not by Cigna Corporation. All models are used for illustrative purposes only.
