TIDMBUPF
RNS Number : 9456M
BUPA Finance PLC
03 August 2017
Bupa Finance plc: Half year statement for the six months to 30
June 2017
INVESTING IN STRENGTH AND DEPTH IN OUR KEY MARKETS
HIGHLIGHTS:
-- Revenue GBP6.1bn up 4% at constant exchange rates (CER)([1])
(2016 HY: GBP5.9bn); up 15% at actual exchange rates (2016 HY:
GBP5.3bn AER)
-- Statutory profit before taxation GBP280.8m up 51% at AER (2016 HY: GBP185.7m)
-- Underlying profit([2]) before taxation GBP380.7m up 12% at CER and 25% at AER
-- Net cash generated from operating activities is GBP577.3m up 6% at AER (2016 HY: GBP547.0m)
-- Solvency II capital coverage ratio([3]) of 160% (2016 FY: 204%)
Performance overview
Over the past six months, the Group grew revenue by 4% and
underlying profit 12% - a good result given challenging market
conditions. Our largest Market Units - Australia and New Zealand,
the UK and Europe and Latin America - have delivered good revenue
and profit growth. The performance of our International Markets
Market Unit was impacted by further profit decline in its Bupa
Global business, as signalled in March in our Directors' Report for
the year ended 31 December 2016.
In the first half of 2017, we continued to invest in customer
service, digital capability and in the strength and depth of our
key market positions. In the UK, our purchase of Oasis Dental Care
completed in February, making Bupa a major dental provider with and
the integration is progressing well. In June, we increased our
stake in our Bupa Arabia associate business by 8% to 34.25%. As a
result of these investments, Bupa's Solvency II capital coverage
stands at 160% and its balance sheet remains strong.
On 25 July 2017, we announced the divestment of Bupa Thailand as
part of our strategy of focusing investment in our key markets. As
this transaction completed in the second half of our financial
calendar, the financial effect will be reflected in our Full Year
results.
Looking to the second half of the year, we believe market
conditions will remain testing with volatile political and economic
environments in our key markets. We are committed to ensuring we
deliver sustainable business performance and operational
excellence, through focus and financial discipline.
Market Unit performance:
-- Australia and New Zealand: revenue up 5%; underlying profit up 4%.
-- UK: revenue down 7% mainly driven by disposal of Bupa Home
Healthcare (BHH) in July 2016; underlying profit up 22%.
-- Europe and Latin America: revenue up 8%; underlying profit up 27%.
-- International Markets([4]) : revenue up 15%; underlying
profit down 21%, driven by Bupa Global.
Operational highlights:
-- Australian health insurance business remains the number one
provider in a highly competitive market.
-- Completed the purchase of Oasis Dental Care in February in
the UK, with integration on track.
-- Increased stake in Bupa Arabia from 26.25% to 34.25% in June.
-- Care Plus integration is on track, following completion of
the acquisition of the Brazilian company in December 2016.
-- Bupa Thailand assets are held for sale, with divestment announced on 25 July 2017.
-- Continued investment in digital capabilities across the Group.
Financial position:
-- Statutory profit before taxation up 51%.
-- Solvency II capital coverage of 160% at half year 2017 (FY
2016: 204%) following investment in Oasis Dental Care and Bupa
Arabia.
-- Leverage ratio up to 31.4%.
-- Bupa Finance plc's senior debt ratings A- stable (Fitch) and Baa1 stable (Moody's).
-- Net cash generated from operating activities reflects the
foreign exchange movements which, together with our financial
discipline, results in a 6% increase.
Enquiries:
Media
Sally Pain, Samantha Lo Blanco (Corporate Affairs): +44 (0)20
7656 2176
Investors
Gareth Evans (Treasury): +44 (0)20 7656 2316
About Bupa Finance plc
Bupa Finance plc (the Company) is a company incorporated in
England and Wales. The condensed consolidated half year financial
statements comprise the financial results and position of the
Company and its subsidiary companies (together referred to as the
Group). The immediate and ultimate parent of the Company is The
British United Provident Association Limited (the Parent), which is
also the ultimate parent company of the Bupa Group (Bupa).
Bupa's purpose is helping people live longer, healthier, happier
lives. The Parent's status, as a company limited by guarantee with
no shareholders, enables the Group to make our customers our focus,
reinvesting our profits to provide more and better healthcare for
current and future customers.
Bupa employs over 86,000 people([5]) , principally in the UK,
Australia, Spain, Poland, Hong Kong, Chile, Brazil, Saudi Arabia,
India, New Zealand and the US.
Around 70% of our revenue is from health insurance, with the
rest from health and care provision. We fund healthcare around the
world and run clinics, dental centres, hospitals, care homes and
retirement villages in a number of countries.
For more information on Bupa, visit www.bupa.com
Management review
One year on from the introduction of our refreshed strategic
framework, we have made good progress on the three key pillars -
Customer, People and Performance.
We are focused on strengthening the core of our business,
investing to continuously improve customer experience and service
in our Market Units, enabled through our people and investment in
digital.
Risk management, compliance and privacy remain high on Bupa's
agenda to ensure Bupa upholds the high standards our customers and
regulators expect. In July, we took prompt steps to manage a Bupa
Global customer data loss incident, including informing affected
customers and introducing additional security checks. We continue
to review information security and data protection controls across
our business.
Over the past six months, the Group grew revenue by 4% and
underlying profit 12% - a good result given local market
conditions. Our largest Market Units - Australia and New Zealand,
the UK and Europe and Latin America - have delivered good revenue
and profit growth. The performance of International Markets has
been impacted by a further profit decline in Bupa Global, as
signalled in March in our Directors' Report for the year ended 31
December 2016.
Health insurance is the largest business line for Bupa, with
around 70% of revenue coming from this part of the business.
In Australia and New Zealand, we grew revenue 5% and underlying
profit by 4% in a challenging and competitive market environment.
Despite slower overall market growth, our Australian health
insurance business remains the country's leading provider, serving
four million customers.
In the UK, revenue is down 7% year-on-year reflecting the sale
of Bupa Home Healthcare (BHH) to Celesio in 2016 while underlying
profit has grown by 22%. The recent increases in Insurance Premium
Tax (IPT) continue to impact affordability and revenue in the UK
health insurance market. Our purchase of Oasis Dental Care
completed in February, transforming our dental presence, with Bupa
now a major provider serving over two million dental patients with
around 420 practices. Bupa and Oasis have a shared commitment to
putting patients first and we are pleased to have the Oasis team
now part of the Bupa family.
Our Europe and Latin America Market Unit delivered good growth,
with revenue up 8% and underlying profit up 27%. Sanitas Seguros,
our private medical insurance (PMI) business in Spain, has
delivered through a combination of stronger partnership sales and
improved customer retention. In Bupa Chile, growth has been driven
by the higher premiums per member in Isapre.
In International Markets, as signalled in our Directors' Report
for the year ended 31 December 2016, Bupa Global continues to show
the impacts of our decision to exit non-strategic markets. There
has been a shift in customer mix towards corporate customers, which
has resulted in higher loss ratios. We have a performance
improvement programme underway to strengthen our distribution
capabilities, improve customer engagement and enhance our product
and service offering. We increased our stake in Bupa Arabia from
26.25% to 34.25% in June, acquiring a portion of Nazer Group's
stake in the company. In late December we announced the completion
of the acquisition of Care Plus, one of Brazil's leading health
insurers, which serves more than 400 companies, with around 100,000
customers. The integration into Bupa is on track. On 25 July 2017,
we announced the divestment of Bupa Thailand as part of our
strategy of focusing investment in our key markets. As this
transaction completed in the second half of our financial calendar,
the financial effect will be reflected in our 2017 Full Year
results.
Digital remains a priority in our agenda to enhance customer
experience. We are investing in the underlying systems and
infrastructure right across our business, as well as digital
products and services. In May, we launched Blue Table, an
accelerator programme inviting startups and small businesses to
partner with us to develop new, innovative ways of delivering high
quality health and care services in the digital age.
Bupa made two appointments to its Executive Team. In June 2017,
Nigel Sullivan, formerly Group HR Director for TalkTalk, joined
Bupa as Chief People Officer. On 27 July 2017, Bupa announced that
Sim Preston, former Group COO at AIA, will be joining Bupa as CEO
International Markets from 1 October.
Outlook:
Looking ahead, we believe conditions will remain testing in our
key markets for the remainder of 2017. We continue to navigate our
way through changing and volatile political and economic
environments, including plans for the UK's withdrawal from the
European Union.
We remain focused on enhancing customer experience and ensuring
high standards of quality, efficiency, safety, privacy and
compliance across all of Bupa, to enable strong and sustainable
business performance.
MARKET UNIT PERFORMANCE
Australia and New Zealand:
Revenue Underlying profit
HY 2017 GBP2,439.3m GBP175.6m
HY 2016 GBP2,331.9m GBP169.5m
% growth 5% 4%
In the first half of 2017, Australia and New Zealand generated
steady revenue and profit growth in a challenging and competitive
healthcare environment. The result was driven mainly by our health
insurance business which is Australia's largest health fund. This
has been achieved despite slower overall growth in the health
insurance market, which is facing significant pressure due to
consumer affordability and public policy initiatives. The
Australian Government has indicated that addressing health
insurance affordability is one of its key priorities in the second
half of 2017 and Bupa is actively engaged in those discussions.
We are also working with the Government, hospitals, doctors and
our networks to tackle rising healthcare costs for our customers,
and looking for ways to provide increased value in our products and
services. We are working to improve customer experience with an
emphasis on digital. In Health Insurance, this has included
introducing enhanced real-time payment systems, improved complaint
handling, digitised benefits statements and streamlining customer
application processes.
Our Aged Care Australia business, which now comprises 71 homes,
has had a challenging first half of the year as it manages changes
to the Government's recently altered Aged Care Funding Instrument.
This change has reduced sector funding for residents with complex
needs, and is negatively impacting overall revenue and
profitability. Occupancy rates for the first half of the year were
at 96.5%.
Our New Zealand aged care business performed well in the first
six months of the year. We opened one new care village and are
taking a leading role in dementia awareness and care, partnering
with Government and industry to create a dementia-inclusive
community in Rotorua. Occupancy rates for the first half of the
year were at 90.4%.
There has been growth in our Health Services business,
particularly through our 227 dental practices. We now operate 38
optical stores in Australia and we are expanding our Bupa Hearing
audiology business.
In May, Australia's Department of Immigration and Border
Protection (DIBP) extended the Bupa Medical Visa Services
partnership for a further two years to 30 June 2019. The business
operates medical centres around Australia to provide immigration
health examinations to around 250,000 Australian visa
applicants.
UK:
Revenue Underlying profit
HY 2017 GBP1,369.6m GBP89.7m
HY 2016 GBP1,479.1m GBP73.5m
% (decline)/growth (7%) 22%
Our UK business has delivered good performance in the first half
of 2017, despite ongoing challenges in the market. Revenue is down
7% year-on-year reflecting the sale of Bupa Home Healthcare (BHH)
to Celesio in 2016 while underlying profit has grown by 22%.
The UK health insurance market remains challenging in the face
of recent increases in Insurance Premium Tax (IPT) which is
continuing to impact affordability. Revenue remains steady, driven
largely by the resilience of the small medium enterprise (SME) and
corporate segments while the individual paid segment continues to
decline. We have focused on developing improved care pathways and
ensuring better healthcare cost management, which have delivered
better claims performance year-on-year.
Our focus on digital enhancements has delivered encouraging
results in the first half of the year. We've seen an increasing
number of customers using our online tool to book health
assessments, GP, musculoskeletal and dermatology appointments in
our health clinics.
In February, we completed our acquisition of Oasis Dental Care.
This has enabled us to deepen and strengthen our market position,
making Bupa a major dental provider in the UK, serving over two
million dental patients with around 420 practices. The acquisition
of Oasis provides us with a strong, well-established and well-run
platform to provide dental care to NHS patients and we are
committed to serving both NHS and private dental patients. We are
pleased to have the Oasis team on board and have set about the
process of integrating our businesses to establish Bupa Dental UK
as a cohesive team. We will be announcing our new brand shortly and
want to ensure customers continue to receive the very best care
both brands are known for, and maintain our high customer
satisfaction scores.
Within Care Services our occupancy is now 85.2% and improved fee
rates have had a positive impact on the business performance. We
received our first 'outstanding' care home rating from the Care
Quality Commission for Eglantine Villa. We remain absolutely
committed to providing all our residents with high quality care in
safe and supportive environments. Since the start of the year we
have refurbished 12 of our homes and are currently refurbishing 10
more. In addition to this, we have completed construction of
Richmond Village in Witney and a further two villages and four care
homes are under construction.
We continue to make significant upgrades to the facilities at
the Cromwell Hospital and believe these enhancements will ensure we
are well placed to deliver sustained growth in this business
line.
We are committed to upholding the high standards our customers
and regulators expect, which is why risk management and compliance
remain high on the agenda of our UK businesses.
Europe and Latin America:
Revenue Underlying profit
HY 2017 GBP1,407.4m GBP100.3m
HY 2016 GBP1,306.1m GBP79.2m
% growth 8% 27%
In Europe and Latin America, we delivered good growth across our
businesses leading to revenue being up 8% and underlying profit up
27%.
Sanitas Seguros, our PMI business in Spain, has delivered strong
performance in the first six months of 2017. This has been driven
by a combination of enhanced sales due to our partnerships with
SantaLucía and BBVA and our work on improving customer
satisfaction, which has led to reduced lapses. We have also
launched a number of successful digital products, designed for
small medium enterprises, with significantly improved customer
experience.
Sanitas Hospitales delivered a solid performance. We are proud
of our clinical excellence agenda and have achieved the +500
EFQM([6]) Global Excellence certificate at our hospital in Manises
(our public private partnership hospital in Valencia). Sanitas
Hospitales is enhancing its digital capability, particularly with
the acquisition of Healthia in February, a startup business which
specialises in sports medicine services.
Our Sanitas Dental business has delivered a good performance
driven by the contribution of our dental insurance product and
strong activity levels in our dental centres.
Sanitas Mayores, our Spanish aged care business, has expanded
through the acquisition of five Valdeluz Group care homes in
Madrid. We now care for nearly 6,000 residents in 45 care homes and
three day care centres in Spain. We have introduced new digital
tools such as the Sanitas Mayores App, designed for families of
care home residents enabling them to have day-to-day contact.
Occupancy rates are around 95%.
Bupa Chile has grown revenue this year, despite challenging
market and political conditions. This is mainly driven by the
higher premiums per member in Isapre and higher activity in both
inpatient and outpatient businesses. The construction of Clínica
Bupa Santiago is well advanced and the hospital is expected to be
operational in 2018.
In Poland, our LUX MED business has delivered good growth in
revenue, primarily due to a good performance in our ambulatory
business. Ambulatory revenues were driven by demand for our core
subscription product, supported by a strong fee-for-service revenue
stream. We have expanded our provision services, with the opening
of a new oncology hospital in Warsaw in April. The Magodent
oncology hospital has 178 beds and 38 chemotherapy chairs and
provides patients with comprehensive diagnostics and treatment.
International Markets:
Revenue Underlying profit
HY 2017 GBP862.8m GBP39.8m
HY 2016 GBP751.1m GBP50.4m
% growth/(decline) 15% (21%)
In International Markets, while revenue grew 15%, underlying
profit was down 21% predominantly due to challenges in Bupa Global.
As signalled in our Directors' Report for the year ended 31
December 2016, Bupa Global continues to be impacted, in part, by
our decision to exit non-strategic markets. There has been a shift
in customer mix towards corporate customers, which has resulted in
higher loss ratios. We have a performance improvement programme
underway to strengthen our distribution capabilities, improve
customer engagement and enhance our product and service offering.
The acquisition of Care Plus in Brazil in late 2016 has had a
positive impact on performance, with the integration into Bupa on
track.
In July, we took prompt steps to manage a Bupa Global customer
data loss incident. We continue to review information security and
data protection controls across our business.
In June, we increased our stake in Bupa Arabia, our associate
business in the Kingdom of Saudi Arabia (KSA), by 8% from 26.25% to
34.25% by acquiring a portion of Nazer Group's stake in the
company. Bupa Arabia continues to deliver good customer and revenue
growth([7]) despite less favourable economic conditions and is now
the largest health insurance provider in the KSA in terms of
revenues, with over three million customers.
Despite a competitive market environment, the performance of
Bupa Hong Kong is good, largely due to stronger renewals and
improvements to the pricing of group schemes. We have also made a
number of operational improvements, investing in IT and digital
systems, risk and compliance frameworks, and customer service
processes. Quality HealthCare has delivered good performance and
continues to expand, with three new facilities opened.
In India, our associate business MaxBupa, in which we hold a 49%
stake, ended their financial year (31 March) with good growth in
customers and revenues. The business recently signed a new
bancassurance partnership with South Indian Bank and announced a
three-way partnership for the creation of an integrated health and
wellness ecosystem with GOQii, a fitness technology player, and
Swiss Re.
On 25 July 2017, we announced the divestment of Bupa Thailand.
As this transaction completed in the second half of our financial
calendar, the financial effect will be reflected in our 2017 Full
Year results.
FINANCIAL REVIEW
We track performance against a number of key performance
indicators which are aligned to our strategic vision.
Against a difficult economic environment in the first half of
2017, we have deepened and strengthened our market positions in the
core markets in which we operate. This investment in future growth
has led to a reduction in Bupa's Solvency II coverage ratio at the
half year while its balance sheet remains strong.
In the period, revenue grew by 4% to GBP6.1bn (HY 2016:
GBP5.9bn) at constant exchange rates (CER) and we generated a
statutory profit of GBP280.8m (HY 2016: GBP185.7m AER). Underlying
profit has grown by 12% to GBP380.7m (HY 2016: GBP341.0m CER) as a
result of growth in all our Market Units with the exception of
International Markets, which continues to be impacted by challenges
of Bupa Global's performance. Revenue is up 4% while underlying
profit is up 10% at CER on a like-for-like basis when excluding our
recent acquisitions (Oasis Dental Care and Care Plus) and the
disposal of Bupa Home Healthcare in July 2016. In February 2017, we
completed the purchase of Oasis Dental Care while in June 2017 we
increased our shareholding in Bupa Arabia by 8% to 34.25%. We have
continued to invest in our digital and technological resources to
improve the customer experience, drive future growth, strengthen
risk management and compliance capabilities and drive out more
efficiencies.
Summary of results
Revenue Net cash generated
from operating
+4% CER activities + 6% AER
GBP6.1bn (2016: GBP577.3m (2016:
GBP5.9bn) GBP547.0m)
+ 15%
AER
(2016:
GBP5.3bn)
==================== ============ =================== ============
Statutory profit + 51% Underlying
before taxation AER profit([8]) + 12% CER
GBP280.8m (2016: GBP380.7m (2016:
GBP185.7m) GBP341.0m)
+ 25% AER
(2016:
GBP303.8m)
Bupa Finance plc
senior debt rating
Fitch A- Moody's Baa1
(stable (stable
outlook) outlook)
Growth in underlying profit is underpinned by strong
performances from Europe and Latin America; in particular Sanitas
Seguros. In the UK, the Oasis Dental Care acquisition contributes
to the positive variance, in addition to improved fee rates in Care
Services, partly offset by an increase in operating expenses as a
result of investing in compliance and risk management capabilities
in our Health Insurance business. Growth in our Australia and New
Zealand Market Unit is driven by Health Insurance which continues
to be Australia's largest Health Insurer. In International Markets,
while revenue grew 15%, underlying profit declined 21%,
predominantly driven by challenges of Bupa Global's performance.
Bupa Global continues to be impacted in part by our decision to
exit non-strategic markets which led to high lapses in the period,
and a lower rate of growth in some of Bupa Global's other market
segments. We have also seen a change in customer mix with growth
primarily in corporate customers, leading to overall higher loss
ratios. Revenue in International Markets is benefiting from the
acquisition of Care Plus in Brazil in late 2016.
Health insurance, which is our largest line of business,
continues to perform well despite difficult trading conditions.
Customer numbers have increased across all Market Units, with the
exception of the UK where the market remains challenging in the
face of recent increases in Insurance Premium Tax (IPT) which
continue to impact affordability. We are continuing to invest in
compliance and risk management capabilities, as upholding the
highest standards is a key operating principle of our refreshed
strategic framework. Our Australian Health Insurance business
remains the country's leading provider, with 1% growth in customer
numbers compared to the same period last year, despite slower
overall growth in the market. Sanitas Seguros, our PMI business in
Spain, has delivered growth driven by stronger partnership sales
and increased focus on improving customer satisfaction, which has
led to lower lapses. Bupa Chile, which is part of Europe and Latin
America, has grown this year driven by higher premiums per member
in Isapre. As mentioned earlier, and as anticipated in our
Directors' Report for the year ended 31 December 2016 in March,
challenges in Bupa Global's performance more than offset growth in
International Market's other health insurance businesses.
Management is focused on improving performance by strengthening our
distribution capabilities, improving customer engagement and
enhancing our product and services.
Our statutory profit before taxation of GBP280.8m (HY 2016:
GBP185.7m) is up 51% at actual exchange rates (AER). This reflects
the good trading performance in our Market Units in the first six
months of 2017 coupled with favourable foreign exchange movements,
while our 2016 result was negatively impacted by a loss on the
early redemption of the secured loan notes. This is partly offset
by net property revaluations and foreign exchange losses, as well
as higher amortisation of intangible assets.
Our geographically diverse portfolio makes our results subject
to fluctuations in foreign exchange rates. Compared to the same
period in 2016, sterling has declined against our major operational
currencies, which has had a positive impact on the translation of
results from our non-sterling operations. In particular, the
continued impact of uncertainty due to the UK's 2016 decision to
leave the European Union has had a significant effect on the
average exchange rates between the two periods. Net cash generated
from operating activities reflects these favourable foreign
exchange movements which, together with our strong financial
discipline, result in an increase in cash flows from operating
activities of 6% to GBP577.3m (HY 2016: GBP547.0m).
Change
Currency HY 2017 HY 2016 %
AUD average
rate 1.6689 1.9548 -15%
AUD closing
rate 1.6943 1.7818 -5%
EUR average
rate 1.1624 1.2838 -9%
EUR closing
rate 1.1398 1.1982 -5%
USD average
rate 1.2591 1.4330 -12%
USD closing
rate 1.3008 1.3268 -2%
After the impact of foreign exchange is considered, notably a
strengthening of the Euro, US dollar and Australian dollar compared
with sterling, underlying profit increased 25% at AER.
Summary of results
(AER)
Six months ended 2017 2016
30 June GBPm GBPm
======================== ======== ========
Total revenues 6,078.5 5,299.9
Underlying profit
before taxation 380.7 303.8
Non-underlying items (99.9) (118.1)
========================= ======== ========
Profit before taxation 280.8 185.7
In the first six months of 2017 we have undertaken a number of
key transactions in line with our strategic framework. In February
we completed the purchase of Oasis Dental Care in the UK, and also
increased our shareholding in Bupa Arabia by 8% (to 34.25%) in
June. In the UK we continue to actively manage our Care Services
portfolio, which resulted in a number of homes being identified for
sale at 2016 year end and again at the 2017 half year. On 25 July
we announced that we completed the disposal of our Thai insurance
business. Strong financial management has allowed us to support
these transactions. Bupa's estimated Solvency II surplus of
GBP1.3bn (FY 2016: GBP2.1bn), represented a coverage ratio of 160%
(FY 2016: 204%). The decrease in the coverage ratio reflects the
investment in Oasis Dental Care and the additional 8% shareholding
in Bupa Arabia, as Bupa proactively increased the ratio ahead of
2016 year end, by issuing tier 2 subordinated debt, in preparation
for subsequent investment in growth.
Our leverage ratio has increased to 31.4% compared to 23.7% at
31 December 2016, driven by increased borrowings as a result of the
aforementioned transactions.
Non-underlying profit items
In order to reflect trading performance in a consistent manner
year-on-year, a number of non-trading items that limit
comparability are removed from our reported profit to arrive at
underlying profit. These items are presented in the table
below:
Six months ended 2017 2016
30 June (AER) GBPm GBPm
================================================= ======= ========
Amortisation of intangible assets arising
on business combinations (32.7) (22.9)
Net losses on disposal of businesses
and transaction costs on business combinations (9.1) (2.6)
Net property revaluation (losses)/gains (42.4) 3.6
Realised and unrealised foreign exchange
losses (26.9) (0.8)
Other Market Unit and central non-underlying
items 0.3 (0.8)
Early termination of secured loan notes - (112.3)
Gains on return seeking assets, net
of hedging 10.9 17.7
Total non-underlying profit items (99.9) (118.1)
================================================== ======= ========
Following the 2016 reclassification of a number of UK care homes
as assets held for sale, a GBP49.2m adjustment was recognised
within net property revaluation losses in 2017, including expected
sales costs.
Realised and unrealised foreign exchange losses were GBP26.9m
compared to GBP0.8m at half year 2016. The variance is mostly
attributable to foreign exchange losses on monetary assets in Bupa
Global (denominated in USD), as a result of the appreciation of the
GBP (closing rate as at December 2016 versus June 2017), when
compared to the depreciation of GBP in the same period last year
(closing rate as at December 2015 versus June 2016).
The gains on return seeking assets were GBP10.9m (HY 2016:
GBP17.7m), driven by our corporate bond and emerging market debt
exposure. In 2017 we continue to actively manage the portfolio,
consistent with our investment risk appetite and in line with our
views of prospective asset class returns.
To provide further period-on-period context, in 2016 there was a
net loss of GBP112.3m on the redemption of the secured loan notes
(HY 2017: GBPnil).
Taxation
Our effective tax rate for the period was 25.6% (HY 2016:
25.3%), which is higher than the weighted average UK corporation
tax rate of 19.25%, mainly due to impairments (which do not qualify
for taxation relief) and profits arising in jurisdictions with a
higher rate of corporate income tax.
Funding
We manage our funding prudently to secure a sustainable platform
for our continued growth. A key element of our funding policy is to
target an A-/A3 senior debt rating for the Company, the main issuer
of Bupa's debt. There has been no change to the ratings since 31
December 2016: the Company is currently rated A- (stable) and Baa1
(stable) by Fitch and Moody's respectively.
On 17 January 2017, the Company entered into a GBP650m
acquisition financing facility to part fund the purchase of Oasis
Dental Care. Further drawings were also made under the existing
GBP800m revolving credit facility to fund the acquisition. A new
GBP300m, senior, unsecured bond was issued in April, the proceeds
of which were used to partially repay the acquisition financing. In
June, approximately GBP195m of the GBP800m revolving credit
facility was drawn down and used to fund the increased shareholding
in Bupa Arabia. At 30 June 2017, GBP395m was drawn under the
GBP800m facility, including outstanding letters of credit of
GBP6.4m, and GBP353.2m under the acquisition facility.
We also took the opportunity in the period to extend the final
maturity of the GBP800m revolving credit facility by a further
year. It is now due to mature in August 2022.
We focus on managing our leverage in line with our rating
target. Leverage at the half year was 31.4% (FY 2016: 23.7%). This
increase is largely due to additional borrowings as a result of the
acquisition of Oasis Dental Care as well as the increased
shareholding in Bupa Arabia. Coverage of financial covenants
remains considerably within levels required by Bupa's bank
facilities.
Cash flow
Net cash generated from operating activities for the six months
to 30 June 2017 has increased by GBP30.3m compared to the same
period in 2016 to GBP577.3m. This reflects a combination of
favourable FX movements and increased customer premium prepayments
in Australia and New Zealand and improved working capital movements
in the UK.
Net cash used in investing activities has increased by GBP950.2m
compared to half year 2016, which reflects our significant
investment in the last six months. The increased outflow is driven
by the acquisition of Oasis Dental Care for GBP575.4m (net of cash
acquired). Bupa's purchase of five new care homes in Madrid and the
additional 8% shareholding in Bupa Arabia, which took place in June
this year, also contribute. Movements in financial investments and
deposits with credit institutions reflect expected net purchases in
the first six months of the year, whereas the first half of 2016
focused on sales of financial investments to make cash available to
repay interest bearing liabilities.
Cash inflows from financing activities in the first half of 2017
have increased by GBP1,101.7m compared to half year 2016. This is a
result of entering into a GBP650m acquisition financing facility to
part fund the purchase of Oasis Dental Care, the issuance of a
senior unsecured bond of GBP300m on 5 April 2017, as well as one
off repayment of the secured loan notes in 2016.
The Group have maintained a solid cash position throughout the
period increasing 17% to GBP1,649.0m from the year end. Cash and
cash equivalents, in addition to the Group's financial investments
and longer term deposits, continue to be managed conservatively, in
line with a clearly articulated risk appetite. The Group actively
manages counterparty exposures and cash is only invested with
counterparties rated A/A2 or higher, unless approved by the
relevant investment committee of Bupa.
Solvency
Bupa's estimated Solvency II surplus capital as at 30 June 2017
was GBP1.3bn, compared to GBP2.1bn at 31 December 2016. This
represents a solvency coverage ratio of 160% (2016 FY: 204%). Bupa
proactively increased the ratio ahead of 2016 year end, by issuing
tier 2 subordinated debt, in preparation for investment in growth
in 2017. As expected, the purchase of Oasis Dental Care in February
and an additional shareholding in Bupa Arabia has reduced Bupa's
coverage ratio at June 2017.
Outlook
Against the backdrop of challenging market conditions and
uncertain economic outlook, we are committed to growth in our core
markets along with having a strong and resilient balance sheet and
solvency coverage ratio for Bupa. At the same time, we are focused
on improving Bupa Global's performance and continue to integrate
businesses such as Oasis Dental Care and Care Plus. The investment
in digital and technology will continue not only to respond to
needs of the customer but also to generate synergies within the
business. Overall, we are committed to strong and sustainable
business performance achieved through focus, financial discipline
and operational excellence.
Business risks
The principal risks faced by the Group are set out in the
Principal risks and uncertainties section of the Group Directors'
Report and Financial Statements 2016.
There have been no significant changes to the nature of the
risks mitigated through holding economic capital. The most
significant of these quantifiable risks facing the Group remain
property risk and insurance risk, reflecting the significant
property portfolio, mainly care homes, owned by the Group and the
potential volatility of insurance claims. Movements in property
markets aside, exposure to investment market fluctuations is
relatively low as the Group's bond portfolio is small in relation
to its other financial assets and is of investment grade.
The most significant risks currently facing the Group have not
changed materially since December 2016. Bupa has an established
enterprise wide process for identifying and managing all business
risks, including all aspects of operational risk, including
conduct, information security, and clinical risk.
Economic and geo-political conditions are evolving in the
markets in which the Group operates and could impact our business
model. These include structural market changes (e.g. political
change, medical inflation, minimum wage increases) and economic
volatility. We continually review our strategy and processes to
ensure that they are flexible enough to take account of changing
external conditions.
A year on from the UK's EU referendum and following the recent
UK general election, the Group continues to see a strengthening
across all our key financial metrics due to the weakening of
sterling. Weaker sterling leads to higher statutory profit and cash
flows. Liquidity remains strong and the investment portfolio is
largely cash-based and low risk. The formal process for the UK
leaving the EU was triggered by the UK Government at the end of
March 2017. Negotiations between the UK Government and remaining
EU27 started in June, with much uncertainty surrounding limitations
of movement of people and workers, regulation of financial services
(passporting) and the wider impact on the UK economy. There will be
operational, commercial and legal impacts for Bupa from the UK's
eventual exit from the EU and we are working through and
contingency planning for those implications.
Like most organisations, the Group faces competition in its
insurance, provision and care services businesses, which can affect
customer acquisition and retention and erode margins. A lack of
competition among hospitals and other suppliers can also lead to
higher claims costs for insurance businesses. The regulatory focus
applied to the Group and other companies operating within the same
markets continues to increase.
The new EU General Data Protection Regulation will come into
force in May 2018 and we are focused on ensuring that our data
protection controls across our business meet the needs of our
customers and regulators locally and globally.
In continuing to monitor and manage all of our risks, we seek to
ensure that we are meeting the evolving expectations of our
customers, investors and regulators.
BUPA AROUND THE WORLD
Bupa is organised across four Market Units:
Australia and New Zealand
-- Bupa Health Insurance, the leading health insurance provider
in Australia with more than four million customers, which also
offers health insurance for overseas workers and visitors.
-- Bupa Health Services, a health provision business which
comprises Bupa Dental, Bupa Optical, Bupa Medical Visa Services and
Bupa Medical GP Clinics.
-- Bupa Aged Care Australia, one of the largest privately-owned
residential aged care providers, caring for nearly 7,000 residents
across 71 homes.
-- Bupa New Zealand, a leading aged care provider caring for
over 4,000 people in 61 homes, 34 retirement villages, seven
rehabilitation sites and a medical alarm network.
UK
-- Bupa UK Insurance, the leading health insurer with 2.3 million customers.
-- Bupa Care Services, caring for over 17,000 people in 270
homes, 28 retirement villages, seven Richmond Villages and 21
Goldsborough Estates retirement and assisted-living properties.
-- Bupa Dental UK, the purchase of Oasis Dental Care completed
in February 2017 and we now operate around 420 practices, with over
two million dental patients.
-- Bupa Cromwell Hospital, a complex care hospital in London
providing care for insured, self-pay, NHS and international
patients.
-- Bupa Health Services, health clinics and wellness centres.
Europe and Latin America
-- Sanitas Seguros, the second largest health insurance provider
in Spain with 1.7 million customers. (Including traditional PMI and
Oral Health Insurance).
-- Sanitas Hospitales and New Services, four private hospitals,
34 private medical clinics and two public- private partnership
hospitals in Spain.
-- Sanitas Dental, dental insurance and provision through 183
centres and third-party networks in Spain.
-- Sanitas Mayores, caring for nearly 6,000 people in 45 care
homes and three day care centres in Spain.
-- LUX MED, the largest private healthcare business in Poland
with eight hospitals and 194 private clinics.
-- Bupa Chile, a leading health insurer and provider with three
hospitals and 38 medical clinics.
International Markets([9])
-- Bupa Global, serves 1.5 million international health
insurance (IPMI) customers and also administers travel insurance
and medical assistance for individuals, small businesses and
corporate customers.
-- Bupa Arabia, an associate business, in which Bupa has a
34.25% stake; the largest health insurance business in Saudi
Arabia.
-- Max Bupa, an associate business in India, in which Bupa holds
a 49% stake; a leading private health insurer.
-- Bupa Hong Kong, a leading private health insurer in Hong Kong.
-- Quality HealthCare, the leading private clinic network in Hong Kong.
-- Bupa China, our representative office in China.
A full copy of the Half Year Report has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
http://www.morningstar.co.uk/uk/NSM
[1] Constant Exchange Rates (CER) are used to aid comparison.
All figures presented are CER unless otherwise stated. We use CER
to compare trading performance in a consistent manner to the prior
year. We have therefore translated our 2016 results using 2017
average foreign exchange rates. Due to our geographically diverse
portfolio, the impacts of foreign exchange rates fluctuate
year-on-year.
[2] Underlying profit is based on profit before taxation expense
adjusted to reflect trading performance only (for further details
of non-underlying profit items, see the Financial Review). Total
Group underlying profit includes central expenses and net interest
margin not allocated to Market Units.
([3] The HY 2017 Solvency II capital coverage ratio is an
estimated value.)
([4]) (While revenues from our associate and joint venture
businesses are excluded from our reported figures, customer numbers
and the appropriate share of profit from these businesses are
included in our reported numbers.)
([5] Employee numbers as at 31 December 2016.)
([6] European Foundation of Quality Management.)
([7]) (W) (h) (il) (e revenues from our associate and joint
venture are excluded from our reported figures, customer numbers
and the appropriate share of profit from these businesses are
included in our reported numbers.)
([8] To derive underlying profit, profit before taxation is
adjusted for amortisation of intangible assets arising on business
combinations, net property revaluation gains or losses, realised
and unrealised foreign exchange gains and losses, gains or losses
on return seeking assets, profits or losses on the sale of
businesses and fixed assets, transactions costs on acquisitions and
disposals, and restructuring costs.)
([9] On 27 July 2017, Bupa announced the divestment of its Bupa
Thailand business to Aetna) .
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKBDBPBKDQFK
(END) Dow Jones Newswires
August 03, 2017 02:05 ET (06:05 GMT)
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