TIDMBUPF
RNS Number : 5964W
BUPA Finance PLC
02 August 2018
Bupa Finance plc: Half year statement for the six months to 30
June 2018
CUSTOMER FOCUS DELIVERS STABLE H1 PERFORMANCE IN KEY INSURANCE
BUSINESSES DESPITE TOUGHER MARKET CONDITIONS
HIGHLIGHTS
* Revenue(1) GBP5.9bn, flat at constant exchange rates
(CER)(2) (2017 HY: GBP5.9bn); down 3% at actual
exchange rates (AER) (2017 HY: GBP6.1bn)
* Underlying profit(3) before taxation GBP329.8m, down
11% at CER and down 13% at AER (2017 HY: GBP380.7m),
mainly due to the divestment of a significant number
of care homes in the UK in December 2017 and February
2018, and the disposal of Bupa Thailand in July 2017
* Statutory profit before taxation GBP306.2m, up 9% at
AER (2017 HY: GBP280.8m)
* Net cash generated from operating activities
GBP493.2m, down GBP84.1m on prior year
* Solvency II capital coverage ratio(4) of 189% (2017
FY: 180%)
Performance review
Group revenue was flat and underlying profit fell 11%, both at
constant exchange rates (CER). This was mainly due to the sale of
parts of our UK care home business in December 2017 and February
2018, and the divestment of Bupa Thailand in July 2017. Excluding
these divestments, revenue rose by 4% and underlying profit was
down 2% (CER). Overall, statutory profit increased by 9% at actual
exchange rates (AER). Our core insurance businesses performed well
despite tougher market conditions in Australia and the UK. Health
insurance remains our largest business line and is responsible for
the majority of our revenue and profit.
A volatile political and uncertain economic environment means
that conditions in some of our main markets are likely to remain
tough in 2018. In response, we will continue to invest to
strengthen and broaden our market-leading positions, extending the
services we provide to further improve the experience of our
customers, who remain our absolute priority.
Market Unit performance(2)
* Australia and New Zealand: revenue up 2%; underlying
profit up 2%
* Europe and Latin America: revenue up 6%; underlying
profit down 5%, mainly driven by reserve
strengthening in Bupa Chile, over and above local
requirements
* UK: revenue down 9%; underlying profit down 25%,
mainly due to the sale of 132 care homes in December
2017 and February 2018
* International Markets: revenue down 2%; underlying
profit down 26%, driven by the expected continued
profit decline in Bupa Global and the disposal of our
business in Thailand, in July 2017
Other operational highlights
* In March, we proposed a further increase in our stake
in Bupa Arabia from 34.25% to 39.25%, and expect the
transaction to be completed shortly
* In May, we opened the first phase of Clínica
Bupa Santiago in Chile, which when complete, will
have a capacity of 460 beds and will be the largest
Bupa hospital
* We have applied to the Irish insurance regulator for
the authorisation of a new insurance entity to enable
Bupa Global, our international health insurance
business, to continue its relationships with
customers who are resident or based in the European
Economic Area (EEA) after the UK leaves the European
Union (EU)
* We continue to invest to ensure the privacy and
security controls across our businesses meet the
needs of our customers, as well as responding to
regulatory requirements and the increasing external
cybersecurity challenge
* We have signed the UK HM Treasury's Women in Finance
Charter, a pledge which underlines our commitment to
gender balance in our organisation
Financial position
* Net cash generated from operating activities
GBP493.2m, down GBP84.1m (15%) on prior year (HY
2017: GBP577.3m)
* Bupa Finance plc's senior debt rating upgraded to A3
(Moody's). Remained A- stable (Fitch)
* Leverage ratio 25.8% (HY 2017 31.4%) as we continue
to see good cash repatriations from our main
insurance businesses
* Solvency II capital coverage is 189% (FY 2017: 180%)
(1) 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
(2) All figures presented are at Constant Exchange Rates (CER)
unless otherwise stated. We use CER to compare trading performance
in a consistent manner to the prior year. We have therefore
retranslated our 2017 results using 2018 Average Exchange Rates
(3) To derive underlying profit, profit before taxation is
adjusted for amortisation and impairment of intangible assets and
goodwill 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, transaction costs on
acquisitions and disposals, restructuring costs and other one-off
items. Total Group underlying profit includes central expenses and
net interest margin not allocated to Market Units
4 The 2018 Solvency II capital coverage ratio is an estimated
value
Enquiries
Media
Helen Vaughan-Jones, Mar Soro (Corporate Affairs): +44 (0) 20
3855 0473
Investors
Gareth Evans (Treasury): +44 (0) 20 3314 1708
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.
With no shareholders, our customers are our focus. We reinvest
profits into providing more and better healthcare for the benefit
of current and future customers.
We serve 15.5m health insurance customers, provide healthcare to
over 14.5m people in our clinics and hospitals and look after over
22,900 aged care residents.
We directly employ over 78,000 people, principally in the UK,
Australia, Spain, Poland, Chile, New Zealand, Hong Kong, the USA,
Brazil, the Middle East and Ireland. We also have associate
businesses in Saudi Arabia and India.
Health insurance accounts for the majority our business. In some
markets we also operate clinics, dental centres, hospitals, and
care homes and villages.
For more information, visit www.bupa.com.
Disclaimer: Cautionary statement concerning forward-looking
statements
This document may contain certain "forward-looking statements".
Statements that are not historical facts, including statements
about the beliefs and expectations of the Bupa Finance plc Group
("Bupa Finance plc") and Bupa Finance plc's directors or
management, are forward-looking statements. In particular, but not
exclusively, these may relate to Bupa Finance plc's plans, current
goals and expectations relating to future financial condition,
performance and results.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon future
circumstances that may or may not occur, many of which are beyond
Bupa Finance plc's control and all of which are solely based on
Bupa Finance plc's current beliefs and expectations about future
events. These circumstances include, among others, global economic
and business conditions, market related risks such as fluctuations
in interest rates and exchange rates, the policies and actions of
governmental and regulatory authorities, the impact of competition,
the timing, impact and other uncertainties of future mergers or
combinations within relevant industries. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors, which may cause the actual future condition, results,
performance or achievements of Bupa Finance plc or its industry to
be materially different to those expressed or implied by such
forward looking statements. Other than as required by law, Bupa
Finance plc expressly disclaims any obligations or undertakings to
release publicly any updates or revisions to any forward-looking
statements to reflect any change in the expectations of Bupa
Finance plc with regard thereto or any change in events, conditions
or circumstances on which any such statement is based. To the
fullest extent possible by receipt of, and using, this document,
you release Bupa Finance plc and each of its affiliates, advisers,
directors, employees and agents, in all circumstances (other than
fraud) from any liability whatsoever and howsoever arising from
your use of this document. In addition, no responsibility of
liability or duty of care is or will be accepted by Bupa Finance
plc or its respective affiliates, advisers, directors, employees
and agents, for updating the document (or any additional
information), correcting any inaccuracies in it or providing any
additional information to any person. Accordingly, none of Bupa
Finance plc or its affiliates, advisers, directors, employees or
agents shall be liable (save in the case of fraud) for any loss
(whether direct, indirect or consequential) or damage suffered by
any person as a result of relying on any statement in, or omission
from, the document.
Management review
Group revenue was flat and underlying profit fell 11%, both at
constant exchange rates. This was mainly due to the sale of parts
of our UK care home business in December 2017 and February 2018,
and the divestment of Bupa Thailand in July 2017. Excluding these
divestments, revenue rose by 4% and underlying profit was down 2%
(CER). Overall, statutory profit increased by 9% at actual exchange
rates (AER). Our core insurance businesses performed well despite
tougher market conditions in Australia and the UK. Health insurance
remains the largest business line for Bupa, with the majority of
our revenue and profit coming from this part of the business.
Customers remain our priority, and we continue to use Net
Promoter Score across the business to track how we are improving
customer experience. We are responding to pressure on household
budgets in Australia by introducing our lowest health insurance
premium increase in more than a decade. In the UK, we have enhanced
our propositions by adding mental health coverage for employees of
corporate customers. As we continue to use technology to improve
customer experience, we launched a UK partnership with digital
healthcare provider Babylon that gives our corporate customers 24/7
access to virtual health services such as GP consultation. We also
launched 'B Table' in the UK and 'Disruptive' in Spain; accelerator
programmes that work with start-ups and small businesses to help us
develop innovative ways of delivering high quality health and care
services.
We are committed to protecting the privacy of our customers and
employees. We continue to invest to ensure that the privacy and
information security controls used across our businesses meet the
needs of our customers, as well as responding to new regulatory
requirements and the increasing external cybersecurity
challenge.
Outlook
A volatile political and uncertain economic environment means
that conditions in some of our main markets are likely to remain
tough in 2018. In response, we remain focused on listening to our
customers and our people to help us deliver an enhanced
experience.
MARKET UNIT PERFORMANCE
Australia and New Zealand
Revenue Underlying profit
HY 2018 GBP2,325.2m GBP166.7m
HY 2017 (CER) GBP2,281.1m GBP164.2m
% growth (CER) 2% 2%
Conditions in the Australian Private Medical Insurance (PMI)
market remain challenging, with the economy and wages growing
slower than medical expense inflation. This is affecting health
insurance demand, especially among younger people.
Against this background, the performance of our Australia and
New Zealand Market Unit showed marginal growth, with year-on-year
revenue up 2% and profit up 2% (both at CER).
We responded to continued pressure on PMI affordability with our
lowest annual health insurance premium increase in 16 years. We
also made a number of changes with the aim of improving product
transparency and reducing out-of-pocket costs for customers.
However, a negative response to these changes contributed to higher
than expected customer churn in Q2, and we are working to address
this.
Our health insurance transformation programme continued with the
introduction of our new Customer Relationship Management (CRM)
system which will enable us to provide a more personalised service
for customers.
We completed a strategic review of our Health Services business,
focusing on dental and optical services to deliver the best
possible customer experience and more efficient operating models.
This will provide a strong foundation for future growth. We will
open new clinics and stores later this year.
Our aged care businesses in Australia and New Zealand were
affected by expected reductions in government care funding across
both countries. Despite this, our aged care business in Australia
achieved stable performance. Our average care home occupancy rate
is 95%. In New Zealand, we completed the sale of Bupa NZ's Medical
Alarms business to focus on care homes and retirement villages, our
core business in that country. We also completed the sale of 12
care homes and four retirement villages because they no longer fit
our long-term strategy. We are currently developing new villages.
Occupancy in Bupa New Zealand is 91%, higher than the national
average (88%).
Europe and Latin America
Revenue Underlying profit
HY 2018 GBP1,516.5m GBP97.1m
HY 2017 (CER) GBP1,424.3m GBP102.0m
% growth (CER) 6% 5% decline
In Europe and Latin America, revenue rose 6% year-on-year.
Although our businesses performed well, underlying profit was down
5%, mainly driven by reserve strengthening in Bupa Chile, over and
above local requirements. Excluding the adjustment, profit was up
3%.
In Spain, where we operate as Sanitas, we are steadily growing
our insurance membership due to successful partnerships with BBVA
and Santa Lucia and our focus on customer retention. Our digital
proposition, Blua, is proving popular and added 126,000 new
customers in the first half of the year. In June, we reached an
agreement to acquire another health insurance company Néctar
Seguros de Salud (subject to regulatory approval).
Sanitas Dental delivered an improved performance thanks to an
increase in customer numbers. In the first half of the year, we
added 194,000 customers and announced a plan to expand our dental
clinics from 181 to 250 in the next three years.
Our provision business benefited from the growing portfolio of
customers in our Health Funding business, with over 552,000
patients treated in our hospital and medical clinics - a 31%
increase on the same period last year.
Sanitas Mayores, our Spanish aged care business, is doing well.
We launched our Sanitas En Casa Contigo (Sanitas At Home) service,
which provides specialist services for the elderly and training for
carers at home, supported by a strong digital platform. We launched
a pilot in three Spanish cities and are looking to extend to more
locations later in the year. On average, occupancy rate is 94%.
Our Polish business, LUX MED, delivered robust revenue growth,
driven by an increase in corporate customers and growth in the
market for customer self-pay products in our hospitals and clinics.
We completed several acquisitions, including a chain of dental
clinics in Warsaw and an image diagnostics centre in Olsztyn.
In Chile, we opened the first phase of Clínica Bupa Santiago - a
GBP140m investment which, when complete, will have a capacity of
460 beds and will be the largest Bupa hospital.
UK
Revenue Underlying profit
HY 2018 GBP1,251.5m GBP67.1m
HY 2017 GBP1,369.6m GBP89.7m
% growth 9% decline 25% decline
Due to the sale of parts of our UK care home business in
December 2017 and February 2018, our revenue fell by 9% and
underlying profit was down 25% year-on-year. Excluding these
divestments, revenue was up 5% and underlying profit rose 8% (CER).
These gains, which included six months of trading of Oasis Dental
Care compared to four months in 2017, were achieved in an
environment of low economic growth in which medical cost inflation
continues to outstrip price inflation.
Our insurance business launched Business Mental Health
Advantage, offering the most extensive mental health coverage in
the market for employees of corporate customers.
Within our aged care business, we completed the sale of 22 care
homes to Advinia and opened four new homes. Our Tenterden House
care home became the second Bupa home to receive an 'Outstanding'
rating from the Care Quality Commission. Our average occupancy rate
is 83%.
We continue to strengthen our market position in dental care by
acquiring practices - we have over 470 practices across the UK and
Ireland. Most of the former Oasis Dental Care practices have been
rebranded to Bupa Dental Care.
We are also investing in our health clinics, opening new centres
at our Cromwell Hospital and in Glasgow, as well as a partnership
clinic at the Kingsbridge private hospital in Belfast. We are
trialling a partnership with Waitrose, offering shoppers a range of
services such as in-store health assessments.
International Markets
Revenue Underlying profit
HY 2018 GBP785.8m GBP27.2m
HY 2017 (CER) GBP802.7m GBP36.8m
% growth 2% decline 26% decline
(CER)
Revenue in International Markets declined 2% year-on-year, with
underlying profit down by GBP9.6m due to a continued profit decline
in Bupa Global and the disposal of our business in Thailand, in
July 2017. As anticipated, Bupa Global's results continue to be
affected by the strategic repositioning we began in this business a
number of years ago to focus on selected strategic markets. A
number of additional costs have also been incurred as we respond to
the changing regulatory and compliance landscape. We are committed
to investing in customer services, retaining customers and
strengthening the distribution of our products and services across
key markets, as well as delivering operational efficiencies.
As we work to mitigate the continuing uncertainty surrounding
Brexit, we have applied to the Irish insurance regulator (Central
Bank of Ireland) for the authorisation of a new insurance entity.
This is intended to enable Bupa Global to continue its
relationships with customers who are resident or based in the EEA
after the UK leaves the EU. We anticipate some cost implications in
the short term.
In Colombia, we launched our first international private medical
insurance (IPMI) product in partnership with Seguros Bolivar, one
of the country's leading insurers. Our integration of Care Plus in
Brazil continues, including the launch of IPMI products.
Bupa Hong Kong continued to focus on customer retention in all
channels, including our bancassurance distribution partnership. In
July, we opened our first Bupa-branded dental clinic as part of our
global dental strategy. Quality HealthCare, our provision business
in Hong Kong, launched a new mobile app in partnership with online
healthcare provider HealthTap, which enables customers to receive
an e-ticket to see a GP, make bookings with specialists at our
clinics, and view their health records.
In March, we proposed a further increase in our stake in Bupa
Arabia from 34.25% to 39.25%. This follows an agreement on the
acquisition of a portion of Nazer Group's stake in Bupa Arabia. We
have submitted formal applications to the relevant Kingdom of Saudi
Arabia (KSA) authorities for the customary regulatory approvals and
expect the transaction to be completed shortly. We have over 3m
customers in Saudi Arabia, and we recently signed an agreement to
provide services to Saudi Aramco employees.
In India, our associate business Max Bupa, launched its GOActive
health insurance plan. This is Max Bupa's first digital product,
and includes an integrated health and wellness platform aimed at
younger customers.
FINANCIAL REVIEW
Performance in the first half of 2018 was in line with
expectations. Revenue was GBP5.9bn, flat on prior year (2017:
GBP5.9bn), while underlying profit declined by 11% to GBP329.8m
(2017: GBP370.3m) at CER. Statutory profit increased by 9% to
GBP306.2m (2017: GBP280.8m) at AER.
These results reflect our strategic framework in action. The
decline in underlying profit is largely due to the divestment of a
significant number of UK care homes in December 2017 and February
2018 and of our insurance operation in Thailand in July 2017. We
are committed to delivering strong and sustainable performance even
if reshaping our portfolio leads to reduced growth in the short
term.
On a like-for-like basis, revenue grew 4%, and underlying profit
was behind prior year by 2%, including six months of trading of
Oasis Dental Care versus four months in 2017.
We generated cash from operating activities of GBP493.2m, down
GBP84.1m on prior year, and Bupa strengthened its capital position
from the 180% reported at the full year to 189% as at 30 June 2018
(2017: 160%). Our senior debt rating was upgraded by Moody's to A3
from Baa1 in May 2018.
Revenue
Insurance revenue trends are broadly unchanged from the position
at full year. In Europe and Latin America, Sanitas Seguros
maintained its customer and top line growth, while revenue at our
UK and Australian businesses was broadly flat as growth was kept in
check by pressure on household budgets. In International Markets,
revenue was stable, and we are beginning to see improvements in
Bupa Global and Hong Kong.
Revenue in our aged care business was constant year-on-year,
excluding the disposed UK care homes. A full six months of trading
following the acquisition of the Spanish Valdeluz properties in
March 2017 was offset by reduced occupancy across the Group.
Provision revenues increased, and overall customer numbers grew
by 10% to 9.9 million in the first half, due to the acquisition of
Oasis Dental Care in the UK and strong performance in LUX MED and
Bupa Chile.
Underlying profit
Underlying profit represents our trading performance and
normalises for several items included in statutory profit to
facilitate year-on-year comparability. These items include
amortisation and impairment of intangible assets and goodwill
arising on business combinations, market movements such as gains or
losses from foreign exchange, on return-seeking assets, or property
revaluations and other one-off items.
Underlying profit decreased by 11% to GBP329.8m (2017: GBP370.3m
CER) as strong growth in the UK, and stable performance in
Australia and New Zealand were more than offset by disposals,
reserve-strengthening in Chile and persistent challenges in
International Markets. Excluding divestments, underlying profit
decreased by 2% on a like-for-like basis.
Health insurance is our largest line of business and represents
the greatest proportion of underlying profit. Our three main
insurance businesses in Australia, the UK and Spain have broadly
maintained or improved their performance on prior year, continuing
to perform well despite difficult trading conditions.
The Australian private health insurance market is impacted by
pressure on household budgets and a drop-off in overall customer
numbers. Despite this, profitability in our Australian business
remained flat and its combined operating ratio was stable at
93%.
In Europe and Latin America, our Spanish private health
insurance business, Sanitas Seguros, showed continued customer
growth through a combination of partnerships and good customer
retention, and our combined operating ratio was unchanged at
91%.
The UK private health insurance market remains difficult, with
affordability putting pressure on customer numbers. This decline in
the top line was mitigated by improved claims performance compared
with the prior year period.
In International Markets, Bupa Global's result declined on the
previous year. This business unit is still affected by the
strategic repositioning we began in this business a number of years
ago to focus on selected strategic markets. We are committed to
investing in customer services, retaining customers and
strengthening the distribution of our products and services across
key markets, as well as delivering operational efficiencies.
Bupa Insurance Limited, our UK insurance entity, underwrites
both domestic and international private medical insurance, covering
the business written by both the UK and parts of Bupa Global. At
the half year, its combined operating ratio improved on prior year
period to 94% (2017: 98%) as a result of the UK claims performance,
as well as foreign exchange movements.
In aged care, we saw growth in our Spanish business, Sanitas
Mayores, following the Valdeluz acquisitions, although we are
experiencing pressure on occupancy rates across all our markets and
a reduction in government care funding in Australia and New
Zealand.
Total underlying profits in our provision businesses were
stable, supported by six months of full trading in the Oasis Dental
Care business and growing customer numbers in Sanitas Dental.
Statutory Profit
Statutory profit before taxation was GBP306.2m (2017: GBP280.8m)
representing growth of 9% at AER. Although trading profitability
has reduced on prior year, there were several non-underlying items
that affected the prior year statutory figure.
Amortisation and impairment of intangibles and goodwill of
GBP33.8m (2017: GBP32.7m) were broadly in line with the prior year.
2018 saw gains on disposal net of transaction costs of GBP8.0m
compared to the GBP9.1m of 2017 costs predominantly associated with
the Oasis acquisition, a movement of GBP17.1m.
The period saw positive movements in realised and unrealised
foreign exchange gains of GBP4.9m (2017: loss of GBP26.9m), an
increase of GBP31.8m. Property revaluations moved favourably by
GBP43m, reflecting a GBP0.6m gain in 2018 versus an impairment of
GBP42.4m in 2017.
Although the return-seeking asset portfolio showed losses in the
first half year of GBP4.2m, a reversal of GBP15.1m on the GBP10.9m
gain shown in the prior year period, this does not alter the
overall positive statutory profit growth story.
Taxation
The effective tax rate for the period was 23.6% (2017: 25.6%),
which is higher than the UK corporation tax rate of 19%. This is
mainly due to profits arising in jurisdictions with a higher rate
of corporate income tax. The reduction in the effective tax rate
compared to 2017 was mainly because of non-recurring items such as
property impairments.
Our Approach to Tax is available on Bupa.com.
Cashflow
Net cash generated from operating activities fell, by GBP84.1m
(15%) to GBP493.2m (2017: GBP577.3m). Although operational cash
generation before working capital increased broadly in line with
year-on-year statutory profit growth, this was offset by investment
in inventory for the construction of our UK care villages and
reduced receipts from accommodation bonds in our Australia and New
Zealand aged care and village businesses. In Australia, we opened
fewer homes than in 2017, while in New Zealand, cash inflows fell
following the divestment of several care homes. This impact was
partially reduced by improved cash collections elsewhere in the
Group.
Net cash used in investing activities fell by GBP742.8m to
GBP273.0m as we made several large one-off investments in 2017. The
largest of these were, the acquisition of Oasis Dental Care, the
Valdeluz care home purchases and an additional 8% shareholding in
Bupa Arabia. In the current year, we have continued to invest in
growth and development, finalising the construction of Bupa Clínica
Santiago, opening our new UK office in Salford Quays and
maintaining our care home portfolios.
The reorganisation of our UK care home portfolio, combined with
several large developments in 2017, means that we have spent less
on the purchase of fixed assets than prior year. We have also
received proceeds from the further disposal of 22 care homes in
February 2018. As a result of this, and portfolio management
decisions, we increased our holdings in financial investments and
long-term deposits.
Cash inflows from financing activities fell by GBP797.6m
compared to 2017. 2017 saw significant financing activity, which
has not recurred, including entering a GBP650m financing facility
and issuing a GBP300m senior unsecured bond, to fund the Oasis and
Bupa Arabia acquisitions.
Funding
We manage our funding prudently to ensure a platform for
continued growth. A key element of our funding policy is to target
an A-/A3 senior credit rating for Bupa Finance plc.
Our senior debt rating was upgraded by Moody's to A3 from Baa1
in May 2018. The upgrade follows Moody's new cross sector
methodology for assigning instrument ratings for insurers. Moody's
modified its guidance for rating certain insurance holding company
instruments, and now applies narrower notching where there is
enhanced regulatory supervision at a group-wide level. Solvency II
is one of the regulatory regimes that Moody's considers as
providing enhanced group supervision. The Fitch rating was
unchanged at A- (stable).
At 30 June 2018, we had drawn GBP210.0m under our GBP800m
revolving credit facility, which is due to mature in August
2022.
We focus on managing our leverage in line with our credit rating
targets. Leverage at 30 June 2018 was 25.8% (FY 2017: 25.3%).
Coverage of financial covenants remains well within the levels
required in our bank facilities.
Solvency position
Our parent company, The British United Provident Association
Limited (Bupa), holds capital to cover its Solvency Capital
Requirement (SCR), calculated on a Standard Formula Basis,
considering of all our risks, including those related to
non-insurance businesses.
A Group Specific Parameter (GSP) is used, having obtained
approval from the Prudential Regulatory Authority (PRA) instead of
the Standard Formula insurance risk parameter. This is calculated
based on own loss experience and reflects the lower risk resulting
from our size, expertise and geographic diversification.
Bupa's estimated SCR as at 30 June 2018 was stable when compared
to year end 2017 at GBP2.1bn (2017 HY: GBP2.1bn) and Own Funds were
GBP3.9bn, GBP0.2bn higher than year end (2017 HY: GBP3.4bn). Our
business is strongly capital generative due to our profitability as
shown over the past six months and this has been only partially
offset by exchange rate movements.
Bupa's surplus capital was estimated to be GBP1.8bn, compared to
GBP1.7bn at 31 December 2017 (2017 HY: GBP1.3bn), representing a
solvency coverage ratio of 189% (2017 HY: 160%, 2017 FY: 180%).
In March 2018, we signed a sale and purchase agreement to
further increase our stake in Bupa Arabia by 5% to 39.25%. This
transaction would decrease Bupa's 30 June 2018 coverage ratio by
approximately 5%.
Bupa's financial position under Solvency II differs from that of
our statutory accounts. The key items of the reconciliation are:
goodwill and intangibles in the IFRS statement of financial
position are not recognised as available capital under Solvency II;
and subordinated debt is treated as available capital under
Solvency II but as a liability in the statement of financial
position.
Bupa's capital comprises equity exclusive of any non-controlling
interests, together with eligible subordinated debt. We have
GBP330m of callable subordinated perpetual guaranteed bonds, a
GBP500m dated hybrid bond which matures in 2023 and a GBP400m dated
hybrid bond which matures in 2026. These bond issues are accounted
for as liabilities in the statement of financial position but
treated as capital for regulatory and management reporting
purposes.
Bupa performs an analysis of the relative sensitivity of our
estimated solvency coverage ratio to changes in market conditions
and underwriting performance. Each sensitivity is an independent
stress of a single risk and before any management actions. The
selected sensitivities do not represent Bupa's expectations for
future market and business conditions. A movement in property
values continues to be the most sensitive item, with a 10% movement
having an 11-percentage point impact on the solvency coverage
ratio.
Risk sensitivities
Solvency Coverage Ratio 189%
Interest rate + / - 100bps 188%
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Credit spreads + 100bps (assuming no credit
transition) 187%
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Equity markets - 20% 189%
-----
Property values - 10% 178%
-----
Sterling appreciates by 10% 189%
-----
Pension risk +10% 188%
-----
Group Specific Parameter (GSP) + 0.2% 186%
-----
Loss Ratio worsening by 2% 180%
-----
Outlook and upcoming changing to accounting standards
The Group will apply IFRS 16 (Operating Leases) from the
beginning of 2019. The application of the standard will bring
additional assets and liabilities onto our balance sheet which in
turn will impact the calculation of our capital position under the
standard formula. Following implementation, we anticipate capital
coverage continuing to be comfortably above our risk appetite.
BUSINESS RISKS
The main risks we face are described in the Risks section of the
Bupa Finance Annual Report and Accounts 2017. In the period to 30
June 2018 there were no significant changes to the nature of these
risks. We have a well-established process for identifying and
managing all business risks, including all types of operational
risk such as information security and privacy, conduct, and
clinical risk.
Economic and political conditions in our markets could affect
our business. These might include structural shifts (such as
political changes, medical inflation, minimum wage increases) and
economic volatility. We keep our strategy and processes under
review to ensure they are flexible enough to react to changing
external conditions. Regulatory focus is generally increasing in
the markets in which we operate.
As set out in the notes to the half year financial statements,
our Australian businesses currently have contingent liabilities
arising in the ordinary course of business due to unresolved issues
associated with the application of Australian tax law in relation
to cross border transactions and operations. The issues are ongoing
with uncertain future outcomes and we consider that the positions
adopted are in accordance with the tax law and we intend to defend
our position with respect to these matters. Also, as we say in the
disclosures, we do not consider that the ultimate outcome of any
contingent liabilities will have a significant adverse impact on
the financial condition of the Group.
There is uncertainty surrounding the arrangements for the UK
leaving the EU. We are closely monitoring negotiations, especially
those surrounding the regulation of financial services, the wider
impact on the UK economy, and the UK's future immigration rules for
EU nationals. In Europe, our Bupa Global business relies on
passporting rights to undertake cross-border activities between the
UK and the rest of the EU for the sale of international private
medical insurance (IPMI) and travel insurance. Our priority is to
minimise the disruption for our IPMI customers in the EEA and to
continue to deliver the highest standards of service for them.
By monitoring and managing our risks, we seek to ensure that we
are meeting the changing expectations of our customers, investors
and regulators. We continue to strengthen our risk management
processes and capability as we respond to growth in our business
and the increasing demands of regulators globally. Internal
controls, particularly with regard to information security and
privacy, remain a key focus.
BUPA AROUND THE WORLD
Bupa is organised across four Market Units:
Australia and New Zealand
* Bupa Health Insurance, with four million customers,
is a leading health insurance provider in Australia
and also offers health insurance for overseas workers
and visitors.
* Bupa Health Services is a health provision business,
comprising dental, optical, audiology, medical
assessment services, and therapy.
* Bupa Villages and Aged Care Australia and New Zealand
is the largest privately-owned residential aged care
provider in Australia, caring for around 6,900
residents across 72 homes. It is also a leading aged
care provider in New Zealand, caring for around 3,600
people a year in 49 homes, and also supporting
customers in 30 retirement villages and seven
rehabilitation sites.
Europe and Latin America
* Sanitas Seguros is the second largest health
insurance provider in Spain.
* Sanitas Hospitales and New Services comprises four
private hospitals, 33 private medical clinics and two
public-private partnerships in Spain, as well as
other health services.
* Sanitas Dental provides dental insurance services
through 181 centres and third-party networks in
Spain.
* Sanitas Mayores cares for around 5,800 people every
year in 46 care homes and three day care centres in
Spain.
* LUX MED is the largest private healthcare business in
Poland, with seven hospitals, 196 private clinics and
one care home.
* Bupa Chile is a leading health insurer and provider
with four hospitals and 39 medical clinics.
UK
* Bupa UK Insurance is the UK's leading health insurer,
offering health insurance to 2.2 million people.
* Bupa Dental Care is the leading provider of private
dentistry in the UK, with over two million patients
and over 470 practices.
* Bupa Care Services cares for around 6,600 people in
around 135 homes, and seven Richmond villages and 20
Goldsborough Estates retirement and assisted-living
properties.
* Bupa Health Services comprises around 50 wellness
centres and health clinics, and the Bupa Cromwell
Hospital, a complex care hospital in London providing
care for insured, self-pay, NHS and international
patients.
International Markets
* Bupa Global serves 850,000 international health
insurance (IPMI) customers and administers travel
insurance and medical assistance for individuals,
small businesses and corporate customers.
* Bupa Arabia, in which Bupa has a 34.25% stake, is the
largest health insurance business in Saudi Arabia,
with over 3m customers.
* Bupa Hong Kong is a health insurance specialist in
Hong Kong, with over 400,000 customers, and Quality
HealthCare is Hong Kong's leading private clinic
network in the territory.
* Max Bupa, with 1.9 m customers, is a leading private
health insurer in India in which Bupa holds a 49%
stake.
* Bupa China is our representative office and an
integrated medical centre.
Bupa Finance plc
(Company No. 2779134)
Condensed consolidated half year financial statements
(unaudited)
Six months ended 30 June 2018
Bupa Finance plc
Condensed Consolidated Income Statement (unaudited)
for the six months ended 30 June 2018
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Note GBPm GBPm GBPm
====================================== ===== ========== ========== =============
Revenues
Gross insurance premiums 4,340.3 4,446.9 8,920.0
Premiums ceded to reinsurers (29.8) (31.5) (63.4)
Net insurance premiums earned 4,310.5 4,415.4 8,856.6
Revenues from insurance service
contracts 10.9 11.3 22.2
Care, health and other revenues 1,557.2 1,651.8 3,370.0
Total revenues 2 5,878.6 6,078.5 12,248.8
======================================= ===== ========== ========== =============
Claims and expenses
Insurance claims incurred (3,478.2) (3,588.4) (7,111.5)
Reinsurers' share of claims incurred 22.5 22.8 45.4
Net insurance claims incurred (3,455.7) (3,565.6) (7,066.1)
Share of post-taxation results
of equity accounted investments 8.5 11.4 29.1
Other operating expenses (2,100.3) (2,182.7) (4,378.6)
Impairment of goodwill (0.1) - (0.5)
Other income and charges 3 2.0 (52.7) (99.3)
======================================= ===== ========== ========== =============
Total claims and expenses (5,545.6) (5,789.6) (11,515.4)
======================================= ===== ========== ========== =============
Profit before financial income
and expense 333.0 288.9 733.4
======================================= ===== ========== ========== =============
Financial income and expense
Financial income 4 23.3 38.7 90.3
Financial expense 4 (49.5) (46.8) (97.7)
Net impairment loss on financial (0.6) - -
assets
Net financial expense (26.8) (8.1) (7.4)
======================================= ===== ========== ========== =============
Profit before taxation expense 306.2 280.8 726.0
Taxation expense 5 (72.3) (72.0) (155.1)
Profit for the financial period 233.9 208.8 570.9
======================================= ===== ========== ========== =============
Attributable to:
Bupa Finance plc 231.3 206.7 567.0
Non-controlling interests 2.6 2.1 3.9
======================================= ===== ========== ========== =============
Profit for the financial period 233.9 208.8 570.9
======================================= ===== ========== ========== =============
Notes 1-17 form part of these Condensed Consolidated Financial
Statements.
Bupa Finance plc
Condensed Consolidated Statement of Comprehensive Income
(unaudited)
for the six months ended 30 June 2018
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
============================================= ========= ========= =============
Profit for the financial period 233.9 208.8 570.9
============================================== ========= ========= =============
Other comprehensive income/(expense)
Items that will not be reclassified
to the Income Statement
Remeasurement (losses)/gains on pension
schemes (0.1) - 6.0
Unrealised gains on revaluation of
property 20.9 4.9 233.4
Taxation credit/(expense)on income
and expenses recognised directly in
other
comprehensive income 0.1 (1.1) (49.8)
Items that may be reclassified subsequently
to the Income Statement
Foreign exchange translation differences
on goodwill (65.2) 15.0 (13.9)
Other foreign exchange translation
differences (60.3) 75.6 (10.3)
Net gain/(loss) on hedge of net investment
in overseas subsidiary companies 17.6 (15.1) (6.6)
Change in fair value of underlying
derivative of cash flow hedge 4.8 4.2 5.1
Reclassification of foreign exchange
translation differences to profit or
loss on
disposal of subsidiary - - (4.3)
Unrealised gains on available-for-sale
assets - 1.1 0.8
Taxation expense on income and expenses
recognised directly in other
comprehensive income (0.1) (0.1) (3.3)
============================================== ========= ========= =============
Total other comprehensive (loss)/income (82.3) 84.5 157.1
Comprehensive income for the period 151.6 293.3 728.0
============================================== ========= ========= =============
Attributable to:
Bupa Finance plc 149.4 292.0 724.6
Non-controlling interests 2.2 1.3 3.4
============================================== ========= ========= =============
Comprehensive income for the period 151.6 293.3 728.0
============================================== ========= ========= =============
Bupa Finance plc
Condensed Consolidated Statement of Financial Position
(unaudited)
as at 30 June 2018
At 30 At 31 December At 30
June 2018 2017 June 2017
Note GBPm GBPm GBPm
========================================= ===== =========== =============== ===========
Intangible assets 6 4,132.6 4,244.0 4,233.7
Property, plant and equipment 7 3,146.5 3,184.5 2,961.3
Investment property 407.3 399.1 415.1
Equity accounted investments 561.8 552.7 567.3
Post employment benefit net assets 8 3.1 4.3 5.9
Restricted assets 9 88.4 76.3 71.5
Financial investments 10 2,450.8 2,227.0 2,176.0
Derivative assets 32.5 47.4 50.0
Deferred taxation assets 4.4 4.4 5.4
Assets arising from insurance
business 11 1,853.1 1,230.2 1,755.2
Inventories 118.6 103.5 97.8
Trade and other receivables 862.4 798.2 746.4
Cash and cash equivalents 12 1,585.4 1,504.8 1,620.3
Assets held for sale 13 9.6 89.0 547.3
========================================== ===== =========== =============== ===========
Total assets 15,256.5 14,465.4 15,253.2
========================================== ===== =========== =============== ===========
Subordinated liabilities 14 (1,306.4) (1,303.2) (1,321.1)
Other interest bearing liabilities 14 (1,102.1) (1,170.1) (1,627.2)
Post-employment benefit net liabilities 8 (10.7) (11.9) (18.8)
Provisions under insurance contracts
issued 15 (3,380.5) (2,636.6) (3,379.7)
Derivative liabilities (32.1) (19.2) (32.4)
Provisions for liabilities and
charges (126.0) (114.6) (121.9)
Deferred taxation liabilities (217.5) (229.8) (200.9)
Trade and other payables (1,873.0) (1,952.4) (1,746.1)
Other liabilities under insurance
contracts issued (201.7) (116.5) (199.4)
Current taxation liabilities (80.6) (73.7) (67.5)
Liabilities directly associated
with assets held for sale 13 - (10.7) (91.0)
========================================== ===== =========== =============== ===========
Total liabilities (8,330.6) (7,638.7) (8,806.0)
========================================== ===== =========== =============== ===========
Net assets 6,925.9 6,826.7 6,447.2
========================================== ===== =========== =============== ===========
Equity
Called up share capital 200.1 200.1 200.1
Property revaluation reserve 708.7 796.1 711.4
Income and expenditure reserve
and other reserves 5,501.1 5,220.9 4,818.9
Cash flow hedge reserve 30.7 22.2 21.9
Foreign exchange translation
reserve 454.9 557.1 666.9
=========== =============== ===========
Equity attributable to Bupa Finance
plc 6,895.5 6,796.4 6,419.2
Equity attributable to non-controlling
interests 30.4 30.3 28.0
------------------------------------------ ----- ----------- --------------- -----------
Total equity 6,925.9 6,826.7 6,447.2
========================================== ===== =========== =============== ===========
Bupa Finance plc
Condensed Consolidated Statement of Cash Flows (unaudited)
for the six months ended 30 June 2018
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Note GBPm GBPm GBPm
=========================================== ===== ========= ========== =============
Cash flow from operating activities
Profit before taxation expense 306.2 280.8 726.0
Adjustments for:
Net financial expense 26.8 8.1 7.4
Depreciation, amortisation and
impairment 155.1 187.6 419.2
Other non-cash items (9.4) 12.4 (26.6)
-
Changes in working capital and -
provisions:
Increase in provisions and other
liabilities under insurance contracts
issued 880.0 808.5 56.2
Increase in assets under insurance
business (636.2) (567.0) (57.3)
Change in net pension asset/liability (0.2) (0.2) 0.4
Increase in trade and other receivables,
and other assets (43.2) (58.4) (93.8)
(Decrease)/increase in trade and
other payables, and other liabilities (102.8) (12.4) 122.0
Cash generated from operations 576.3 659.4 1,153.5
============================================ ===== ========= ========== =============
Income taxation paid (71.0) (70.6) (158.1)
Increase in cash held in restricted
assets 9 (12.1) (11.5) (16.3)
========== =============
Net cash generated from operating
activities 493.2 577.3 979.1
============================================ ===== ========= ========== =============
Cash flow from investing activities
Acquisition of subsidiaries and
other businesses, net of cash acquired 16 (22.7) (616.8) (668.4)
Increase in equity accounted investments (0.1) (197.1) (191.4)
Acquisition of non-controlling
interests in subsidiary companies - - (0.4)
Dividends received from associates 11.7 6.4 -
Disposal of subsidiaries and other
businesses, net of cash disposed
of 2.2 - 23.2
Disposal of equity accounted investments 7.0 - -
Purchase of intangible assets 6 (15.8) (36.0) (91.1)
Purchase of property, plant and
equipment (106.2) (170.5) (351.6)
Proceeds from sale of property,
plant and equipment 74.7 5.5 372.9
Purchase of investment property (11.8) (14.7) (27.8)
Disposal of investment property 12.9 1.9 2.0
Net purchase of financial investments,
excluding deposits with
credit institutions (229.2) (31.0) (252.2)
Net (investment into)/withdrawal
from deposits with credit institutions (17.9) 27.6 155.0
Interest received 22.2 8.9 60.8
============================================ ===== ========== =============
Net cash used in investing activities (273.0) (1,015.8) (969.0)
============================================ ===== ========= ========== =============
Cash flow from financing activities
Proceeds from issue of interest
bearing liabilities and drawdowns
on
other borrowings 24.6 1,132.2 1,327.2
Repayment of interest bearing liabilities
and other borrowings (85.9) (380.3) (1,040.3)
Interest paid (39.0) (41.6) (94.4)
Receipts from/(payments for) hedging
instruments 25.9 5.5 (3.8)
Dividends paid (43.0) (33.9) (88.9)
Dividends paid to non-controlling
interests (1.9) (3.6) (3.7)
============================================ ===== ========== =============
Net cash generated (used in)/from
financing activities (119.3) 678.3 96.1
============================================ ===== ========= ========== =============
Net increase in cash and cash equivalents 100.9 239.8 106.2
Cash and cash equivalents at beginning
of period(1) 1,503.2 1,408.9 1,408.9
Effect of exchange rate changes (19.7) 0.3 (11.4)
============================================ ===== ========== =============
Cash and cash equivalents at end
of period(2) 12 1,584.4 1,649.0 1,503.7
============================================ ===== ========= ========== =============
(1) Opening cash and cash equivalents adjusted to reflect ECL
provision for investments less than 3 months on adoption of IFRS 9
(GBP0.5m).
(2) At 30 June 2018 Cash and cash equivalents includes GBPnil
(HY 2017: GBP28.7m, FY 2017: GBPnil) of assets held for sale.
Bupa Finance plc
Notes to the Condensed Consolidated Financial Statements
(unaudited)
for the six months ended 30 June 2018
Income
and
expenditure Cash Foreign Total
Property and flow exchange attributable
revaluation other hedge translation to Non-controlling Total
reserve reserves reserve reserve Bupa interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ============= ============= ========= ============= ============== ================ ========
Balance at 1
January 2018 796.1 5,220.9 22.2 557.1 6,596.3 30.3 6,626.6
Adoption of IFRS
15: Revenue
(refer to Note
1.3) - (1.1) - - (1.1) - (1.1)
Adoption of IFRS
9: Financial
instruments
(refer to Note
1.3) - (6.2) - - (6.2) - (6.2)
Balance at 1
January 2018, as
restated 796.1 5,213.6 22.2 557.1 6,589.0 30.3 6,619.3
Profit for the
financial period - 231.3 - - 231.3 2.6 233.9
Other
comprehensive
income/(expense)
Unrealised profit
on revaluation
of property 20.9 - - - 20.9 - 20.9
Realised
revaluation
profit
on disposal of
property (100.1) 100.1 - - - - -
Remeasurement loss
on pension
schemes - (0.1) - - (0.1) - (0.1)
Foreign exchange
translation
differences on
goodwill - - - (65.2) (65.2) - (65.2)
Other foreign
exchange
translation
differences (8.3) - 3.8 (55.4) (59.9) (0.4) (60.3)
Net gain on hedge
of net investment
in overseas
subsidiary
companies - - - 17.6 17.6 - 17.6
Change in fair
value of
underlying
derivative of
cash flow hedge - - 4.8 - 4.8 - 4.8
Taxation expense
on income and
expense
recognised
directly in other
comprehensive
income - (0.6) (0.1) 0.7 - - -
===================
Other
comprehensive
(expense)/income
for the period,
net of taxation (87.5) 99.4 8.5 (102.3) (81.9) (0.4) (82.3)
Total
comprehensive
(expense)/income
for the period (87.5) 330.7 8.5 (102.3) 149.4 2.2 151.6
=================== ============= ============= ========= ============= ============== ================ ========
Dividends to
equity holders
of the Company - (43.0) - - (43.0) - (43.0)
Acquisition of
subsidiary
companies
attributable to
non-controlling
interests - - - - - (0.2) (0.2)
Dividends paid to
non-controlling
interests - - - - - (1.9) (1.9)
=================== ============= ============= ========= ============= ============== ================ ========
Balance at 30 June
2018 708.6 5,501.3 30.7 454.8 6,695.4 30.4 6,725.8
=================== ============= ============= ========= ============= ============== ================ ========
Share capital at
beginning and
end of period 200.1
Total equity 6,925.9
=================== ============= ============= ========= ============= ============== ================ ========
Bupa Finance plc
Condensed Consolidated Statement of Changes in Equity
(unaudited)
for the year ended 31 December 2017
Income
and
expenditure Cash Foreign Total
Property and flow exchange attributable
revaluation other hedge translation to Non-controlling Total
reserve reserves reserve reserve Bupa interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ============= ============= ========= ============= ============== ================ ========
Balance at 1 January
2017 706.1 4,645.7 14.7 594.9 5,961.4 30.7 5,992.1
Profit for the
financial period - 567.0 - - 567.0 3.9 570.9
Other comprehensive
income/(expense)
Unrealised profit on
revaluation
of property 233.4 - - - 233.4 - 233.4
Realised revaluation
profit
on disposal of
property (95.1) 95.1 - - - - -
Remeasurement loss
on pension
schemes - 6.0 - - 6.0 - 6.0
Unrealised loss on
available-for-sale
assets - 0.8 - - 0.8 - 0.8
Foreign exchange
translation
differences on
goodwill - - - (13.9) (13.9) - (13.9)
Other foreign
exchange
translation
differences 0.6 - 2.6 (13.0) (9.8) (0.5) (10.3)
Net loss on hedge of
net investment
in overseas
subsidiary
companies - - - (6.6) (6.6) - (6.6)
Change in fair value
of underlying
derivative of cash
flow hedge - - 5.1 - 5.1 - 5.1
Foreign exchange
reserve on
disposal of
subsidiary - - - (4.3) (4.3) - (4.3)
Taxation (expense)/
credit on
income and expense
recognised
directly in other
comprehensive
income (48.9) (4.0) (0.2) - (53.1) - (53.1)
=====================
Other comprehensive
income/(expense)
for the year,
net of taxation 90.0 97.9 7.5 (37.8) 157.6 (0.5) 157.1
Total comprehensive
income/(expense)
for the year 90.0 664.9 7.5 (37.8) 724.6 3.4 728.0
===================== ============= ============= ========= ============= ============== ================ ========
Dividends to equity
holders
of the Company - (88.9) - - (88.9) - (88.9)
===================== ============= ============= ========= ============= ============== ================ ========
Acquisition of
subsidiary
companies
attributable to
non-controlling
interests - (0.8) - - (0.8) (0.1) (0.9)
Dividends paid to
non-controlling
interests - - - - - (3.7) (3.7)
--------------------- ------------- ------------- --------- ------------- -------------- ---------------- --------
Balance at 31
December 2017 796.1 5,220.9 22.2 557.1 6,596.3 30.3 6,626.6
===================== ============= ============= ========= ============= ============== ================ ========
Share capital at
beginning and
end of period 200.1
Total equity 6,826.7
===================== ============= ============= ========= ============= ============== ================ ========
Bupa Finance plc
Condensed Consolidated Statement of Changes in Equity
(unaudited)
for six months ended 30 June 2017
Income
and
expenditure Cash Foreign Total
Property and flow exchange attributable
revaluation other hedge translation to Non-controlling Total
reserve reserves reserve reserve Bupa interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ============= ============= ========= ============= ============== ================ ========
Balance at 1 January
2017 706.1 4,645.7 14.7 594.9 5,961.4 30.7 5,992.1
Profit for the
financial period - 206.7 - - 206.7 2.1 208.8
Other comprehensive
income/(expense)
Unrealised loss on
revaluation
of property 4.9 - - - 4.9 - 4.9
Unrealised gain on
available-for-sale
assets - 1.1 - - 1.1 - 1.1
Foreign exchange
translation
differences on
goodwill - - - 15.0 15.0 - 15.0
Other foreign
exchange
translation
differences 1.2 - 3.1 72.1 76.4 (0.8) 75.6
Net loss on hedge of
net investment
in overseas
subsidiary
companies - - - (15.1) (15.1) - (15.1)
Change in fair value
of underlying
derivative of cash
flow hedge - - 4.2 - 4.2 - 4.2
Taxation
credit/(expense) on
income and expense
recognised
directly in other
comprehensive
income (0.8) (0.3) (0.1) - (1.2) - (1.2)
=====================
Other comprehensive
income for
the period, net
of taxation 5.3 0.8 7.2 72.0 85.3 (0.8) 84.5
Total comprehensive
income for
the period 5.3 207.5 7.2 72.0 292.0 1.3 293.3
===================== ============= ============= ========= ============= ============== ================ ========
Dividends to equity
holders
of the Company - (33.9) - - (33.9) - (33.9)
Acquisition of
subsidiary
companies
attributable to
non-controlling
interests - (0.4) - - (0.4) (0.4) (0.8)
Dividends paid to
non-controlling
interests - - - - - (3.6) (3.6)
===================== ============= ============= ========= ============= ============== ================ ========
Balance at 30 June
2017 711.4 4,818.9 21.9 666.9 6,219.1 28.0 6,247.1
===================== ============= ============= ========= ============= ============== ================ ========
Share capital at
beginning and
end of period 200.1
Total equity 6,447.2
===================== ============= ============= ========= ============= ============== ================ ========
Bupa Finance plc
Notes to the Condensed Consolidated Financial Statements
(unaudited)
for the six months ended 30 June 2018
1 Financial information and basis of preparation
1.1 Basis of preparation
Bupa Finance plc (the Company), is a company incorporated in
England and Wales.
The condensed consolidated half year financial statements of the
Company as at and for the six months ended 30 June 2018 comprise
those of the Company and its subsidiary companies (together
referred to as the Group).
The interim financial statements have been prepared in
accordance with Disclosure and Transparency Rules of the Financial
Conduct Authority and with International Accounting Standard 34
Interim Financial Reporting, as adopted by the European Union (EU)
and should be read in conjunction with the annual financial
statements for the year ended 31 December 2017, which have been
prepared in accordance with the International Financial Reporting
Standards as adopted by the EU (IFRS).
The interim financial statements were approved by the Board of
Directors of Bupa Finance plc on 1 August 2018.
The financial information contained in these interim results
does not constitute statutory accounts of Bupa Finance plc within
the meaning of Section 435 of the Companies Act 2006. The
comparative figures for the financial year ended 31 December 2017
are not the company's statutory accounts for the financial year.
Those accounts have been reported on by the company's auditor and
delivered to the registrar of companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
1.2 Going concern
Management has conducted a detailed assessment of the Group's
going concern status based on its current position and forecast
results. They have concluded that the Group has adequate resources
to operate for the next twelve months. In making this assessment,
management have considered the discussions with the relationship
banks as well as forecasts which take account of reasonably
possible changes in trading performance, solvency capital and
recent acquisitions.
Details of the Group's business activities, together with the
factors likely to affect its future development, performance and
position are set out in the Directors' Report for the year ended 31
December 2017. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the
Financial Review of the Directors' Report for the year ended 31
December 2017.
The Group's GBP800.0m committed bank facility, which matures in
August 2022, was drawn down by GBP210.0m at 30 June 2018.
1.3 Changes in accounting polices
Except for the changes below, the Group has consistently applied
the accounting policies to all periods presented in these
consolidated financial statements.
1.3.1 IFRS 15
The Group has adopted IFRS 15 Revenue from Contracts with
Customers with a date of initial application of 1 January 2018.
The Group has applied IFRS 15 retrospectively with the
cumulative effect of initially applying IFRS 15 recognised as an
adjustment to the opening balance of retained earnings at the date
of initial application of 1 January 2018. Therefore, the
comparative information has not been restated and continues to be
reported under IAS 18 and IAS 11.
IFRS 15 establishes principles that an entity can apply to
report information about the nature, amount, timing and uncertainty
of revenue and cash flows arising from a contract with a customer
and is based on the principle that revenue is recognised when
control of a good or service transfers to a customer. It replaces
IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the Construction of
Real Estate and IFRIC 18 Transfers of Assets from Customers. IFRS
15 does not apply to revenue related to insurance or leasing
contracts.
The application of IFRS 15 has not resulted in any significant
changes in revenue recognition, as the Group's revenue streams are
generally for short-term services that have fixed, rather than
variable transaction prices and there is no significant judgement
to be applied when considering the time pattern of revenue
recognition. Where there are variable revenue streams i.e. service
concession arrangements, these have been assessed and there is not
deemed to be a significant risk of reversal. Changes in timing of
revenue recognition reduce the opening balance of retained earnings
by GBP1.1m.
1.3.2 IFRS 9
The Group has adopted IFRS 9 Financial Instruments:
classification and measurement, with a date of initial application
of
1 January 2018. The Group did not early adopt any of IFRS 9 in
previous periods and is not eligible for the deferral approach
(giving companies whose activities are predominantly connected with
insurance an optional temporary exemption from applying IFRS 9
until 2021).
The Group has applied IFRS 9 retrospectively with the cumulative
effect of initially applying IFRS 9 recognised as an adjustment to
the opening balance of retained earnings at the date of initial
application of 1 January 2018. Therefore, the comparative
information has not been restated and continues to be reported
under IAS 39.
IFRS 9 Financial Instruments addresses the classification,
measurement and de-recognition of financial assets and financial
liabilities, introduces new rules for hedge accounting and a new
impairment model for financial assets.
The Group's debt instruments that were previously designated as
available-for-sale under IAS 39, satisfy the conditions for
classification as hold to collect under IFRS 9 and are measured at
amortised cost. See note 10 for details of the classification of
financial investments under IFRS 9.
The new impairment model requires the recognition of impairment
provisions based on expected credit losses (ECL) rather than only
incurred credit losses as is the case under IAS 39. It applies to
financial assets classified at amortised cost, debt instruments
measured at fair value through other comprehensive income (FVOCI),
and trade and other receivables. The Group holds high quality
financial investments and the provisions established under IFRS 9
are not significant.
The Group's hedge relationships continue to qualify as
continuing hedges upon the adoption of IFRS 9.
Income
and
expenditure Cash Foreign Total
Property and flow exchange attributable
revaluation other hedge translation to Non-controlling Total
reserve reserves reserve reserve Bupa interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ============== ============= ========= ============= ============== ================ ========
IFRS 9 impact
Impact of
reclassification
of financial
investments - (0.6) - - (0.6) - (0.6)
Impact of ECL
assessment - (5.6) - - (5.6) - (5.6)
Total impact on
opening equity
from adoption of
IFRS 9 - (6.2) - - (6.2) - (6.2)
------------------- -------------- ------------- --------- ------------- -------------- ---------------- --------
1.4 Accounting estimates and judgements
The preparation of the condensed consolidated half year
financial statements requires the use of certain accounting
estimates and assumptions that affect the reported amounts of
assets, liabilities, income and expenses. It also requires
management to exercise judgement in applying the Group's accounting
policies. The significant judgements made by management in applying
the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that were applied to the annual
financial statements for the year ended 31 December 2017.
1.5 Accounting policies and forthcoming financial reporting requirements
1.5.1 IFRS 16 Leases
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and supersedes
IAS 17 Leases; IFRIC 4 Determining whether an Arrangement contains
a Lease; SIC-15 Operating Leases-Incentives; and SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a Lease.
The mandatory effective date for applying IFRS 16 is for annual
periods beginning on or after 1 January 2019. IFRS 16 was endorsed
by the EU on 31 October 2017.
IFRS 16 will result in almost all leases being recognised on the
balance sheet for lessees, as the distinction between operating and
finance leases is removed. Under the new standard, an asset (the
right to use the leased item) and a financial liability to pay
rentals are recognised. The only exceptions are short-term and
low-value leases. The accounting for lessors will not significantly
change.
The impact of IFRS 16 on the financial statements is currently
being evaluated by the Group. The standard will primarily impact
the accounting for the Group's operating leases. Operating lease
commitments as disclosed in the 2017 accounts was GBP1,161.1m.
1.6 Foreign exchange
The following significant exchange rates applied during the
period:
Average Rate Closing Rate
======================================= =======================================
At 30 At 31 December At 30 At 30 At 31 December At 30
June 2017 June 2017 June 2017 June 2017
2018 2018
============== ========= =============== =========== ========= =============== ===========
Australian
dollar 1.7838 1.6807 1.6689 1.7843 1.7312 1.6943
Chilean
peso 841.7955 835.9026 831.0285 861.7499 832.2579 863.4895
Euro 1.1366 1.1414 1.1624 1.1298 1.1249 1.1398
Hong Kong
dollar 10.7870 10.0432 9.7887 10.3524 10.5655 10.1545
New Zealand
dollar 1.9223 1.8135 1.7777 1.9488 1.9062 1.7759
Polish zloty 4.7968 4.8591 4.9622 4.9441 4.6972 4.8194
US dollar 1.3763 1.2887 1.2591 1.3194 1.3524 1.3008
=============== ========= =============== =========== ========= =============== ===========
1.7 Events occurring after the reporting period
There have been no material events or transactions between the
end of the reporting period and the reporting date.
2 Operating segments
The Group is managed through four Market Units based on
geographic locations and customers. Management monitors the
operating results of the Market Units separately to assess
performance and make decisions about the allocation of resources.
The segmental disclosures are reported consistently with the way
the business is managed and reported internally.
Reportable Segments Service and Products
------------------------------- ------------------------------------------------------------------
Australia and Bupa Australia Health Insurance: Health insurance,
New Zealand health assessments, health coaching and international
health cover in Australia
Bupa Health Services Australia: Dental provision
and optical care within Australia
Bupa Villages and Aged Care Australia and New
Zealand: Nursing, residential and respite care
in Australia and New Zealand. Retirement villages
and telecare services within New Zealand and
other revenue (mainly rental income and amenities
from occupation right agreements in New Zealand)
------------------------------- ------------------------------------------------------------------
Europe and Latin Sanitas Seguros: Health insurance and related
America products sold in Spain
Sanitas Dental, Sanitas Hospitales & New Services:
Management and operation of hospitals, clinics
and dental centres in Spain providing medical
and ancillary services to patients. This includes
other revenue (mainly relating to rental income)
Sanitas Mayores: Provision of nursing, residential
and respite care in Spain. This includes other
revenue (mainly relating to rental income)
LUX MED: Medical subscription, health insurance,
diagnostics and operation of clinics and hospitals
in Poland. This includes other revenue (mainly
relating to rental income)
Bupa Chile: Heath insurance and operation of
outpatient clinics and hospitals in Chile, including
other revenue (mainly relating to rental income)
------------------------------- ------------------------------------------------------------------
UK Bupa UK Insurance: Health Insurance and administration
services revenue for the Bupa Health trust
Bupa Dental: Dental services and related dental
products
Bupa Health Clinics: Clinic services, health
assessments and related products
Bupa Care Services UK: Nursing, residential,
care villages and respite care and other income
mainly relating to rental income
Bupa Cromwell Hospital: Management and operation
of a private hospital providing medical and ancillary
services to patients
------------------------------- ------------------------------------------------------------------
International Bupa Hong Kong, Bupa China and Bupa Global Latin
Markets America: Domestic health insurance and related
products within Brazil, Hong Kong, China, Saudi
Arabia and India
Bupa Global Business Unit: International health
insurance to individuals, small businesses and
corporate customers
Quality HealthCare: Diagnostics, primary healthcare
and day care clinics in Hong Kong
------------------------------- ------------------------------------------------------------------
Revenue for the six months ended 30 June 2018 has been analysed
at business unit level, reflecting the requirements of
IFRS 15:
Revenue
from
Customer Insurance
Contracts Premiums Other Total
=========== ========== ====== ========
For the six months ended 30
June 2018 GBPm GBPm GBPm GBPm
====================================== =========== ========== ====== ========
(i) Revenues
Bupa Australia Health Insurance 6.9 1,900.0 - 1,906.9
Bupa Health Services Australia 156.3 - - 156.3
Bupa Villages and Aged Care
Australia 183.0 - - 183.0
Bupa Villages and Aged Care
New Zealand 73.3 - 5.7 79.0
Australia and New Zealand 419.5 1,900.0 5.7 2,325.2
-------------------------------------- ----------- ---------- ------ --------
Sanitas Seguros 11.6 574.5 4.2 590.3
Sanitas Dental 38.3 - 0.1 38.4
Sanitas Hospitales & New Services 142.4 - 0.2 142.6
Sanitas Mayores 68.6 - - 68.6
LUX MED 164.8 5.1 0.2 170.1
Bupa Chile 148.1 358.0 0.4 506.5
Europe and Latin America 573.8 937.6 5.1 1,516.5
-------------------------------------- ----------- ---------- ------ --------
Bupa UK Insurance 0.3 758.6 - 758.9
Bupa Dental 212.4 - 0.5 212.9
Bupa Health Clinics 35.5 - - 35.5
Bupa Care Services UK 198.6 - - 198.6
Bupa Cromwell Hospital 45.5 - 0.1 45.6
UK 492.3 758.6 0.6 1,251.5
-------------------------------------- ----------- ---------- ------ --------
Bupa Hong Kong 0.1 126.4 0.1 126.6
Bupa China 0.1 - - 0.1
Quality Healthcare 43.2 - 25.3 68.5
Bupa Global 0.8 587.9 - 588.7
Other - - 1.9 1.9
International Markets 44.2 714.3 27.3 785.8
-------------------------------------- ----------- ---------- ------ --------
Net reclassifications to other
expenses or financial income
and expense (0.4) - - (0.4)
Consolidated total revenues 1,529.4 4,310.5 38.7 5,878.6
-------------------------------------- ----------- ---------- ------ --------
A key performance measure of operating segments utilised by the
Group is underlying profit. This measurement basis distinguishes
underlying profit from other constituents of the IFRS reported
profit before tax, excluding items relating to business
combinations and disposals, fluctuations in foreign exchange,
property revaluations and investment return on return seeking
assets, along with other one-off items. Adjustments made exclude
items derived from the application of Group accounting policies
which are not directly related to the underlying trading
performance of the business.
The adjustments made to reported profit before tax are to
exclude the following:
- Amortisation and impairment of intangible assets and goodwill
arising on business combinations - impairment reviews are performed
at least annually. Although driven by trading performance, goodwill
impairments are considered to be one-off and not reflective of the
ongoing trading performance of the business. Amortisation and
impairment of internally generated intangible assets and purchased
computer software is included within underlying profit.
- Net gains/losses on disposal of businesses and transaction
costs on business combinations - gains/losses on disposal of
businesses are not considered part of the continuing business and
are one-off in nature; transaction costs incurred for acquisitions
or disposals are not related to the ongoing trading performance of
the business.
- Net property revaluation gains/losses - short-term
fluctuations which would distort underlying trading performance.
Includes unrealised gains or losses on investment properties,
deficit on revaluations and property impairment losses.
- Foreign exchange volatility - short-term fluctuations outside
of management control, which would distort underlying trading
performance,
- Other Market Unit non-underlying items - include impairment of
investment in associates, Market Unit restructuring costs (which
are one-off and outside the normal operations of the business) and
net gains/losses on disposal of fixed assets (not part of the
continuing business or trading activity).
- Gains on return-seeking assets, net of hedging - fluctuations
on investments are not considered to be directly related to
underlying trading performance.
- Central non-underlying items - include central items of a
one-off nature and outside normal operations, such as central
restructuring costs, net gains/losses on disposal of fixed assets,
and treasury foreign exchange gains/losses.
Australia Europe
and New and Latin International
Zealand America UK Markets Total
========== =========== ====== ============== =======
For the six months ended 30
June 2018 GBPm GBPm GBPm GBPm GBPm
=============================================== ========== =========== ====== ============== =======
(ii) Segment result
Underlying profit for reportable
segments(1) 166.7 97.1 67.1 27.2 358.1
Central expenses and net interest
margin (28.3)
=============================================== ========== =========== ====== ============== =======
Consolidated underlying profit
before taxation 329.8
=============================================== ========== =========== ====== ============== =======
Non-underlying items:
Amortisation of intangible
assets arising on business
combinations (7.3) (9.8) (9.0) (7.7) (33.8)
Net gains/(losses) on disposal
of businesses and transaction
costs on business combinations(2) 0.9 - (0.4) 7.5 8.0
Net property revaluation gains/(losses)(3) 7.2 - (6.6) - 0.6
Realised and unrealised foreign
exchange (losses)/gains (0.1) (5.2) - 10.2 4.9
Other Market Unit non-underlying
items 0.7 (0.7) 0.6 - 0.6
Losses on return-seeking assets,
net of hedging (4.2)
Central non-underlying items(4) 0.3
===============================================
Total non-underlying items (23.6)
=============================================== ========== =========== ====== ============== =======
Consolidated profit before
taxation expense 306.2
=============================================== ========== =========== ====== ============== =======
(1) Underlying profit for reportable segments includes share of
post-taxation results of equity accounted investments.
International Markets includes Bupa Arabia, Max Bupa and Highway to
Health.
(2) Includes GBP7.5m profit on disposal of a 33.33% share of
Forsikringens Datacenter A/S and GBP0.9m on the sale of Bupa
Medical Alarms in New Zealand.
(3) Includes investment property gains of GBP7.4m and write
downs of GBP6.8m on freehold property.
(4) Represents GBP0.3m of foreign exchange gains.
Australia Europe
and New and Latin International
Zealand America UK Markets Total
========== =========== ======== ============== ========
For the six months ended 30
June 2017 GBPm GBPm GBPm GBPm GBPm
=============================================== ========== =========== ======== ============== ========
(i) Revenues
Total revenues for reportable
segments 2,439.3 1,407.4 1,368.3 862.8 6,077.8
Inter segment income - - 1.3 - 1.3
=============================================== ========== =========== ======== ============== ========
External revenues for reportable
segments 2,439.3 1,407.4 1,369.6 862.8 6,079.1
Net reclassifications to other
expenses or financial income
and expense (0.6)
=============================================== ========
Consolidated total revenues 6,078.5
=============================================== ========== =========== ======== ============== ========
(ii) Segment result
Underlying profit for reportable
segments(1) 175.6 100.3 89.7 39.8 405.4
Central expenses and net interest
margin (24.7)
=============================================== ========== =========== ======== ============== ========
Consolidated underlying profit
before taxation 380.7
=============================================== ========== =========== ======== ============== ========
Non-underlying items:
Amortisation of intangible
assets arising on business
combinations (7.8) (8.9) (7.4) (8.6) (32.7)
Net losses on disposal of
businesses and transaction
costs
on business combinations(2) - (0.1) (9.0) - (9.1)
Net property revaluation gains/(losses)(3) 6.8 - (49.2) - (42.4)
Realised and unrealised foreign
exchange losses (0.1) (4.7) - (22.1) (26.9)
Gains on return seeking assets,
net of hedging 10.9
Central non-underlying items(4) 0.3
===============================================
Total non-underlying items (99.9)
=============================================== ========== =========== ======== ============== ========
Consolidated profit before
taxation expense 280.8
=============================================== ========== =========== ======== ============== ========
(1) Underlying profit for reportable segments includes share of
post-taxation results of equity accounted investments.
International Markets includes Bupa Arabia, Max Bupa and Highway to
Health.
(2) Includes GBP8.9m transactions costs relating to the
acquisition of Oasis Dental Care, see Note 16.
(3) Includes GBP49.2m write down on assets held for sale. See
Notes 3 and 13.
(4) Represents GBP0.3m of foreign exchange gains.
Australia Europe
and New and Latin International
Zealand America UK Markets Total
========== =========== ======== ============== =========
For the six months ended 31
December 2017 GBPm GBPm GBPm GBPm GBPm
=============================================== ========== =========== ======== ============== =========
(i) Revenues
Total revenues for reportable
segments 4,926.6 2,869.0 2,804.9 1,647.3 12,247.8
Inter segment income - - 2.3 (0.2) 2.1
=============================================== ========== =========== ======== ============== =========
External revenues for reportable
segments 4,926.6 2,869.0 2,807.2 1,647.1 12,249.9
Net reclassifications to other
expenses or financial income
and expense (1.1)
=============================================== =========
Consolidated total revenues 12,248.8
=============================================== ========== =========== ======== ============== =========
(ii) Segment result
Underlying profit for reportable
segments(1) 408.9 212.8 243.4 83.5 948.6
Central expenses and net interest
margin (41.7)
=============================================== ========== =========== ======== ============== =========
Consolidated underlying profit
before taxation 906.9
=============================================== ========== =========== ======== ============== =========
Non-underlying items:
Amortisation and impairment
of intangible assets arising
on
business combinations (15.9) (34.1) (17.5) (16.7) (84.2)
Net (losses)/gains on disposal
of businesses and transaction
costs on business combinations(2) - (0.1) (11.4) 36.4 24.9
Net property revaluation gains/(losses)(3) (18.3) 2.6 (95.4) - (111.1)
Realised and unrealised foreign
exchange (losses)/gains(4) (0.9) (5.3) - (18.3) (24.5)
Other Market Unit non-underlying
items(5) (1.2) (1.6) (0.7) (1.1) (4.6)
Gains on return-seeking assets,
net of hedging 18.5
Central non-underlying items 0.1
=============================================== ========== =========== ======== ============== =========
Total non-underlying items (180.9)
=============================================== ========== =========== ======== ============== =========
Consolidated profit before
taxation expense 726.0
=============================================== ========== =========== ======== ============== =========
(1) Underlying profit for reportable segments includes share of
post-taxation results of equity accounted investments.
International Markets includes Bupa Arabia, Max Bupa and Highway to
Health.
(2) Includes GBP36.4m profit on disposal of Bupa Thailand and
transaction costs of GBP11.4m in relation to acquisitions during
the year.
(3) Includes GBP97.1m write downs on items previously held for
sale.
(4) Includes FX impact or treating unearned premiums and
deferred acquisition costs as a monetary item.
(5) Includes GBP6.4m UK Market Unit restructuring costs and net
losses on disposal of fixed assets
Other Income and charges
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
========================================== ========= ========= =============
Net gain on disposal of business(1) 8.4 - 36.4
Deficit on revaluation of property (6.6) (3.5) (33.8)
Write down of property(2) (0.2) (49.2) (99.5)
Net gain/(loss) on disposal of property,
plant and equipment 1.2 - (2.4)
Movement in investment in associates (0.8) - -
provision(3)
Total other income and charges 2.0 (52.7) (99.3)
=========================================== ========= ========= =============
(1) Includes GBP7.5m profit on disposal of a 33.33% share of
Forsikringens Datacenter A/S on 3 January 2018 and GBP0.9m profit
on sale of Bupa Medical Alarms in New Zealand settled on 22 June
2018.
(2) Write down on assets previously classified as held for sale
(2017: GBP49.2m).
(3) Impairment on associate Vigil Monitoring Ltd in Bupa New
Zealand.
3 Financial income and expense
3.1 Financial income
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
======================================= ========= ========= =============
Interest income:
Loans and receivables - 14.8 44.5
Investments at fair value through
other comprehensive income - 1.3 4.3
Investments held at amortised cost 25.2 1.9 7.7
Investments at fair value through - 2.0 -
profit or loss
Net realised gains on financial
investments designated at fair value
through
profit or loss 6.6 0.9 1.5
Realised gain on early termination - - -
of long term investment
Net increase in fair value:
Investments at fair value through
profit or loss (9.0) 14.6 22.1
Investment property 7.4 10.6 22.2
Net foreign exchange translation
losses (6.9) (7.4) (12.0)
Total financial income 23.3 38.7 90.3
======================================== ========= ========= =============
Included within financial income is a net loss, after hedging,
on the Group's return-seeking asset portfolio of GBP4.2m (HY 2017:
net gain of GBP10.9m FY 2017: net gain of GBP18.5m). No financial
investments carried at fair value through profit or loss are held
for trading.
3.2 Financial expense
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
=========================================== ========= ========= =============
Interest expense on financial liabilities
at amortised cost 48.4 45.3 94.1
Finance charges in respect of finance
leases 0.1 0.3 0.5
Other financial expenses 1.0 1.2 3.1
============================================ ========= ========= =============
Total financial expense 49.5 46.8 97.7
============================================ ========= ========= =============
4 Taxation expense
The Group's effective tax rate for the period was 23.6% (HY
2017: 25.6%, FY 2017: 21.4%), which is higher than the UK
corporation tax rate of 19.0%. This is mainly due to profits
arising in jurisdictions with a higher rate of corporate income
tax. The reduction in the effective tax rate compared to 2017 was
mainly a result of non-recurring items such as property
impairments.
5 Intangible assets
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
========================================= =========== =============== ===========
Net book value at beginning of
period 4,244.0 3,364.3 3,364.3
Assets arising on business combinations 24.4 958.8 885.8
Additions 15.8 85.2 36.0
Disposals of subsidiary companies - (0.5) -
Disposals (0.1) (1.1) (0.1)
Amortisation for the period (63.0) (122.7) (58.7)
Impairment loss (1.9) (21.7) (0.1)
Other 4.0 5.9 -
Foreign exchange (90.6) (24.2) 6.5
========================================== =========== =============== ===========
Net book value at end of period 4,132.6 4,244.0 4,233.7
========================================== =========== =============== ===========
The net book value of intangibles assets comprises:
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
================================= =========== =============== ===========
Goodwill 2,921.9 2,963.3 2,984.6
Computer software 228.4 245.3 227.6
Brands/trademarks 221.3 232.7 247.9
Customer relationships 581.7 615.8 581.6
Other 179.3 186.9 192.0
================================== =========== =============== ===========
Net book value at end of period 4,132.6 4,244.0 4,233.7
================================== =========== =============== ===========
Intangible assets of GBP4,132.6m (HY 2017: GBP4,233.7; FY 2017:
GBP4,244.0m) includes GBP982.3m (HY 2017: GBP1,021.5m; FY 2017:
GBP1,035.4m) attributable to other intangible assets arising on
business combinations (included within brands/trademarks, customer
relationships and other) as follows:
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
==================================== =========== =============== ===========
Customer relationships 581.7 615.8 581.6
Bed licences (within Bupa Villages
and Aged Care Australia) 117.9 121.6 124.2
Brands and trademarks 221.3 232.7 247.9
Licences to operate care homes 17.8 19.8 21.5
Customer contracts 0.5 0.9 1.7
Rental contracts 25.8 26.6 23.9
Distribution networks 15.3 15.8 18.2
Present value of acquired in-force
business 0.9 0.9 1.0
Non-compete agreement 1.1 1.3 1.5
Total 982.3 1,035.4 1,021.5
===================================== =========== =============== ===========
Impairment testing of goodwill
Goodwill is tested at least annually for impairment in
accordance with IAS 36 Impairment of Assets and IAS 38 Intangible
Assets. As required by IAS 34 Interim Financial Reporting, a review
of goodwill was carried out as at 30 June 2018, which resulted in
no impairments.
Goodwill by cash generating unit (CGU) is as follows:
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
================================= =========== =============== ===========
Australia and New Zealand
Bupa Australia Health Insurance 889.7 916.6 937.6
Bupa Aged Care Australia 271.6 279.9 286.0
Bupa Health Services Australia 298.7 307.9 314.3
Bupa New Zealand 34.3 35.1 38.2
Europe and Latin America
Bupa Chile 172.6 178.5 172.3
LUX MED 240.8 246.6 240.4
Sanitas Seguros 41.5 41.6 39.7
Sanitas Mayores 21.6 19.9 11.8
Other 1.0 1.0 10.0
UK
Bupa Care Services UK 89.9 87.4 87.4
UK Dental(1) 633.6 620.8 613.0
Bupa Cromwell Hospital 16.2 16.2 16.2
Other 2.5 2.5 2.7
International Markets
Quality HealthCare 114.5 112.2 116.7
Bupa Global 67.8 67.8 67.8
Care Plus 25.6 29.3 30.5
Total 2,921.9 2,963.3 2,984.6
================================== =========== =============== ===========
(1) 2017 UK Dental includes the Oasis Dental Care acquisition
completed 27 February 2017. See Note 16 for further detail.
6 Property, plant and equipment
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
========================================= =========== =============== ===========
Net book value at beginning of
period 3,184.5 2,830.6 2,830.6
Additions through business combinations 2.1 68.5 64.5
Additions 93.7 326.6 155.8
Transfer to assets held for sale (1.7) (37.2) (19.3)
Disposals of subsidiaries - (1.6) -
Disposals (2.8) (17.0) (5.5)
Revaluations 14.3 197.2 1.4
Depreciation charge for the period (88.7) (166.4) (79.6)
Impairments (1.3) (8.9) -
Other 1.3 8.0 0.9
Foreign exchange (54.9) (15.3) 12.5
========================================== =========== =============== ===========
Net book value at end of period 3,146.5 3,184.5 2,961.3
========================================== =========== =============== ===========
Property, plant and equipment are the physical assets utilised
by the Group to carry out business activities and generate revenues
and profits. Most of the assets held relate to care homes, hospital
properties, equipment and office buildings.
7 Post-employment benefits
The defined benefit pension schemes provide benefits on final
pensionable salary. The Group's net obligation in respect of the
defined benefit pension schemes is calculated separately for each
scheme and represents the present value of the defined benefit
obligation less, for funded schemes, the fair value of scheme
assets. The discount rate used is the yield at the balance sheet
date on high-quality corporate bonds denominated in the currency in
which the benefit will be paid. When the calculation results in a
benefit to the Group, the recognised asset is limited to the
present value of any future refunds from the scheme or reductions
in future contributions to the scheme.
Amount recognised in the Consolidated Income Statement
The amounts charged to other operating expenses for the period
are:
At 30 At 31 December At 30
June 2018 2017 June 2017
GBPm GBPm GBPm
================================================= =========== =============== ===========
Current service cost 0.8 1.5 0.8
Net interest on defined benefit asset/liability 0.2 0.3 0.1
Administrative expenses 0.1 0.2 0.1
Total amount charged to the Consolidated
Income Statement 1.1 2.0 1.0
================================================== =========== =============== ===========
Assets and liabilities of schemes
The assets and liabilities in respect of the defined benefit
funded pension schemes are as follows:
At 30 At 31 December At 30
June 2018 2017 June 2017
GBPm GBPm GBPm
=========================================== =========== =============== ===========
Present value of funded obligations (98.4) (100.2) (101.9)
Fair value of scheme assets 90.8 92.6 89.0
-------------------------------------------- ----------- --------------- -----------
Net recognised liabilities (7.6) (7.6) (12.9)
============================================ =========== =============== ===========
Represented on the Consolidated Statement
of Financial Position
Net assets 3.1 4.3 5.9
Net liabilities (10.7) (11.9) (18.8)
============================================ =========== =============== ===========
Net recognised liabilities (7.6) (7.6) (12.9)
============================================ =========== =============== ===========
8 Restricted assets
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
=============================== =========== =============== ===========
Non-current restricted assets 43.1 43.1 45.9
Current restricted assets 45.3 33.2 25.6
-------------------------------- ----------- --------------- -----------
Total restricted assets 88.4 76.3 71.5
================================ =========== =============== ===========
Restricted assets are amounts held in respect of specific
obligations and potential liabilities and may be used only to
discharge those obligations and potential liabilities if and when
they crystallise. The non-current restricted assets balance of
GBP43.1m
(HY 2017: GBP45.9m, FY 2017: GBP43.1m) consists of cash deposits
held to secure a charge over the non-registered pension arrangement
maturing after 2022. Included in current restricted assets is
GBP44.7m (HY 2017: GBP25.0m, FY 2017: GBP32.0m) in respect of
claims funds held on behalf of corporate customers.
Financial investments
Classification
IFRS 9 has three classification categories for debt instruments:
amortised cost, fair value through other comprehensive income
(FVOCI) and fair value through profit and loss (FVTPL).
Classification under IFRS 9 is driven by the entity's business
model for managing the financial assets and whether the contractual
characteristics of the financial assets represent solely payments
of principal and interest.
All equity investments should be measured at FVTPL unless they
meet the criteria for designation at FVOCI, where an irrevocable
election can be made. The Group has not made any such election.
Classification Criteria and treatment
Amortised Non-derivative debt instruments where the contractual
cost characteristics of the financial assets represent
solely payments of principal and interest and the
objective is to hold the instrument to collect
cash flows over its life. Any disposals are expected
to be infrequent or insignificant.
The investments are measured at amortised cost
using the effective interest method, less any impairment
losses. Any discount or premium on purchase is
amortised over the life of the investment through
the Consolidated Income Statement.
------------------------------------------------------------
FVTPL Debt and Equity instruments where performance is
managed and evaluated on a fair value basis and
the objective is to realise cash flows through
the sale of the assets.
The investments are carried at fair value, with
gains and losses arising from changes in this value
recognised in the Consolidated Income Statement
in the period in which they arise.
------------------------------------------------------------
FVOCI Non-derivative debt instruments where the contractual
characteristics of the financial assets represent
solely payments of principal and interest and the
objective is to hold the instrument to collect
cash flows and sell, with a greater frequency and
value of sales than instruments at amortised cost.
The investments are measured at fair value in the
Consolidated Statement of Financial Position and
fair value changes are recognised directly in equity,
through the Consolidated Statement of Changes in
Equity, except for interest and foreign exchange
gains or losses which go through the Consolidated
Income Statement. The cumulative gain or loss that
was recognised in equity is recognised in the Consolidated
Income Statement when an available-for-sale financial
asset is derecognised.
The Group does not hold any investments at FVOCI.
------------------------------------------------------------
Impairment
IFRS 9 introduces a forward-looking expected credit loss model,
applicable for financial assets measured at amortised cost or
FVOCI.
Entities are required to recognise an allowance for either
12-month or life-time expected credit losses (ECL), depending on
whether there has been a significant increase in credit risk since
initial recognition. The measurement of ECL reflects a
probability-weighted outcome, the time value of money and the best
available forward-looking information. The ECL should be based on
reasonable and supportable information that is available without
undue cost or effort. An entity may assume that the credit risk on
a financial instrument has not increased significantly since
initial recognition if the financial instrument is determined to
have low credit risk at the reporting date (e.g. it is investment
grade).
As the Group's financial investments held at amortised cost or
FVOCI are all either investment grade or short term, 12-month ECL's
have been applied. ECL provisions on these assets as at 30 June
2018 are GBP2.3m.
For financial investments, an option pricing probability model
is used as the basis for assessing ECL. ECL for trade and other
receivables is measured at life-time ECL using a provision
matrix.
Carrying Value Fair Value
================================== ==================================
At At
At At 30 At At 30
30 June 31 December June 30 June 31 December June
2018 2017 2017 2018 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========= ============= ======== ========= ============= ========
Available-for-sale
Corporate debt securities - 307.4 257.9 - 307.5 257.9
Government debt securities - 86.4 25.9 - 86.4 25.9
Amortised cost
Corporate debt securities
and secured loans 781.5 283.7 203.8 781.2 285.6 204.3
Government debt securities 193.0 97.5 44.6 193.3 99.2 44.9
Deposits with credit
institutions 887.9 886.0 1,026.5 890.1 888.9 1,030.4
Other loans 0.6 0.6 0.6 0.6 0.6 0.6
Fair value through profit
or loss
Government debt securities 57.3 62.4 91.1 57.3 62.4 91.1
Corporate debt securities
and secured loans 272.4 198.2 231.8 272.4 198.2 231.8
Pooled investment funds 229.9 276.8 260.8 229.9 276.8 260.8
Deposits with credit
institutions 8.0 8.1 13.6 8.0 8.1 13.6
Other loans 1.1 1.2 - 1.1 1.2 -
Unlisted securities 19.1 18.7 19.4 19.1 18.7 19.4
Total financial investments 2,450.8 2,227.0 2,176.0 2,453.0 2,233.6 2,180.7
=============================== ========= ============= ======== ========= ============= ========
Non-current 999.7 1,093.2 1,142.8 999.2 1,097.5 1,147.3
Current 1,451.1 1,133.8 1,033.2 1,453.8 1,136.1 1,033.4
------------------------------- --------- ------------- -------- --------- ------------- --------
The adoption of IFRS 9 has resulted in the reclassification of
the Group's Available-for-sale assets to amortised cost, as the
business model for these assets is 'hold to collect'. The
reclassification and measurement impacts of transition to IFRS 9
are provided below:
At At
31 December 1 January
2017 Reclassification Remeasurement ECL 2018
GBPm GBPm GBPm GBPm GBPm
============================== ============= ================= ============== ====== ===========
Available-for-sale
Corporate debt securities 307.4 (307.4) - - -
Government debt securities 86.4 (86.4) - - -
Amortised cost
Corporate debt securities
and secured loans 283.7 307.4 (1.1) (0.4) 589.6
Government debt securities 97.5 86.4 0.5 (1.2) 183.2
Deposits with credit
institutions 886.0 - - (0.6) 885.4
Other loans 0.6 - - - 0.6
Total 1,661.6 - (0.6) (2.2) 1,658.8
=============================== ============= ================= ============== ====== ===========
Fair value of financial investments
Fair value is a market-based measurement for assets for
observable market transactions where market information might be
available. The objective of a fair value measurement is to estimate
the price at which an orderly transaction to sell the asset or to
transfer the asset which would take place between market
participants at the measurement date under current market
conditions (i.e. an exit price at the measurement date from the
perspective of a market participant that holds the asset).
Fair values disclosed have been calculated as follows:
- debt securities, pooled investment funds, deposits with credit
institutions, other loans - quoted price if available or discounted
expected future principal and interest cash flows
- listed securities - quoted price
- unlisted securities - vendor valuations or earnings multiple technique.
Financial investments carried at fair value are measured using
different valuation inputs categorised into a three level
hierarchy. The different levels have been defined by reference to
the lowest level input that is significant to the fair value
measurement, as follows:
- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities
- Level 2: inputs other than quoted prices included within level
one that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices)
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
An analysis of financial investment by valuation method is as
follows:
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
===================================== ======== ======== ====== ========
At 30 June 2018
Amortised cost
Corporate debt securities
and secured loans 779.8 1.4 - 781.2
Government debt securities 192.0 1.3 - 193.3
Deposits with credit institutions - 890.1 - 890.1
Other loans - 0.6 - 0.6
Fair value through profit
or loss
Government debt securities 29.0 28.3 - 57.3
Corporate debt securities
and secured loans 195.5 76.9 - 272.4
Pooled investment funds 133.7 94.5 1.7 229.9
Deposits with credit institutions 8.0 - - 8.0
Other loans - 1.1 - 1.1
Unlisted securities - 0.2 18.9 19.1
Total financial investments 1,338.0 1,094.4 20.6 2,453.0
====================================== ======== ======== ====== ========
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
===================================== ======== ======== ====== ========
At 31 December 2017
Available-for-sale
Corporate debt securities 307.5 - - 307.5
Government debt securities 86.4 - - 86.4
Designated at fair value
through profit or loss
Government debt securities 33.7 28.7 - 62.4
Corporate debt securities
and secured loans 14.5 183.7 - 198.2
Pooled investment funds 176.5 99.2 1.1 276.8
Deposits with credit institutions 8.1 - - 8.1
Other loans - 1.2 - 1.2
Unlisted equities - 0.2 18.5 18.7
Held to maturity
Corporate debt securities
and secured loans 279.9 5.7 - 285.6
Government debt securities 97.8 1.4 - 99.2
Loans and receivables
Deposits with credit institutions - 888.9 - 888.9
Other loans - 0.6 - 0.6
Total financial investments 1,004.4 1,209.6 19.6 2,233.6
====================================== ======== ======== ====== ========
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
===================================== ====== ======== ====== ========
At 30 June 2017
Available-for-sale
Corporate debt securities 257.9 - - 257.9
Government debt securities 25.9 - - 25.9
Designated at fair value
through profit or loss
Government debt securities 63.2 27.9 - 91.1
Corporate debt securities
and secured loans 40.5 191.3 - 231.8
Pooled investment funds 166.0 94.8 - 260.8
Deposits with credit institutions 11.3 2.3 - 13.6
Unlisted securities - 0.2 19.2 19.4
Held to maturity
Corporate debt securities
and secured loans 204.3 - - 204.3
Government debt securities 44.4 0.5 - 44.9
Loans and receivables
Deposits with credit institutions - 1,030.4 - 1,030.4
Other loans - 0.6 - 0.6
Total financial investments 813.5 1,348.0 19.2 2,180.7
====================================== ====== ======== ====== ========
The Group currently holds level three equity investments
totalling GBP20.6m (HY2017: GBP19.2m, FY 2017: GBP19.6m). The
majority of investments are valued using an earnings multiple of
comparable companies, which are deemed to be unobservable inputs.
The average multiple applied is 4.3 (HY 2017: 4.3, FY 2017: 4.3).
Changing these multiples to a reasonable alternative would result
in a change in fair value of plus or minus GBP5.0m (HY 2017:
GBP5.0m, FY 2017: GBP5.0m).
The table below shows movements in the level three assets
measured at fair value:
GBPm
================== =====
Opening balance 19.6
Addition 0.1
Foreign exchange 0.9
Total 20.6
================== =====
There have been no transfers in or out of level three during the
period.
9 Assets arising from Insurance business
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------- ----------- --------------- -----------
Insurance debtors 1,589.2 1,010.2 1,492.7
Reinsurers' share of insurance provisions
(see Note 15) 26.2 18.2 34.8
Deferred acquisition costs 150.3 117.1 134.8
Medicare rebate 69.6 68.8 77.2
Risk Equalisation Trust Fund recoveries 17.8 15.9 15.7
============================================ =========== =============== ===========
Total assets arising from insurance
business 1,853.1 1,230.2 1,755.2
============================================ =========== =============== ===========
Non-current 2.9 2.4 3.0
Current 1,850.2 1,227.8 1,752.2
-------------------------------------------- ----------- --------------- -----------
Due to the nature of insurance business and timing of renewals,
half year balances are higher than year end. The increase year on
year is due to business growth.
10 Cash and cash equivalents
At 30 June At 31 December At 30 June
2018 2017 2017
GBPm GBPm GBPm
=========================== =========== =============== ===========
Cash at bank and in hand 1,129.8 1,025.9 1,008.2
Short-term deposits 455.6 478.9 612.1
---------------------------- ----------- --------------- -----------
Cash and cash equivalents 1,585.4 1,504.8 1,620.3
============================ =========== =============== ===========
Cash and cash equivalents comprise cash balances, call deposits
and other short-term highly liquid investments (including money
market funds) with original maturities of three months or less,
which are subject to an insignificant risk of change in value.
Bank overdrafts of GBP1.0m (HY 2017: GBPnil; FY 2017: GBP1.1m)
that are repayable on demand form part of the Group's Capital
Management Policy. These are reported within Other interest bearing
liabilities (Note 14) on the Consolidated Statement of Financial
Position, although are considered as a component of cash and cash
equivalents for the purpose of the Consolidated Statement of Cash
Flows.
11 Assets and liabilities held for sale
At 30
At 30 June At 31 December June
2018 2017 2017
GBPm GBPm GBPm
======================================== =========== =============== =======
Assets held for sale
Intangible assets - - 0.5
Property, plant and equipment 8.9 75.9 455.5
Investment Property 0.7 12.5 -
Financial investments - - 18.2
Assets arising from insurance business - - 3.5
Deferred taxation assets - - 1.9
Trade and other receivables - 0.6 39.0
Cash and cash equivalents - - 28.7
=========== =============== =======
Total assets classified held for
sale 9.6 89.0 547.3
========================================= =========== =============== =======
Liabilities associated with assets
held for sale
Provisions under insurance contracts
issued - - (37.8)
Trade and other payables - (10.7) (53.0)
Current taxation liabilities - - (0.2)
Total liabilities classified as held
for sale - (10.7) (91.0)
========================================= =========== =============== =======
Net assets classified as held for
sale 9.6 78.3 456.3
========================================= =========== =============== =======
Net assets classified as held for sale relate to two care homes
in the UK, a care home in Australia and a care home and village in
New Zealand.
Borrowings
At 30 June At 31 December At 30
2018 2017 June 2017
GBPm GBPm GBPm
============================================ =========== =============== ===========
Subordinated liabilities
Callable subordinated perpetual
guaranteed bonds 345.9 335.9 345.9
Fair value adjustment in respect
of hedged interest rate risk 27.7 35.5 43.0
-------------------------------------------- ----------- --------------- -----------
Callable subordinated perpetual guaranteed
bonds at fair value 373.6 371.4 388.9
5% subordinated unguaranteed bonds
due 2023 and 2026 897.2 896.9 900.2
Other subordinated debt 35.6 34.9 32.0
=============================================
Total subordinated liabilities 1,306.4 1,303.2 1,321.1
============================================= =========== =============== ===========
Other interest bearing liabilities
Senior unsecured bonds 694.0 697.5 692.7
Bank loans and overdrafts 403.2 466.1 925.6
Finance lease liabilities 4.9 6.5 8.9
============================================= =========== =============== ===========
Total interest bearing liabilities 1,102.1 1,170.1 1,627.2
============================================= =========== =============== ===========
Total borrowings 2,408.5 2,473.3 2,948.3
============================================= =========== =============== ===========
Non-current 2,102.2 2,117.5 2,106.7
Current 306.3 355.8 841.6
--------------------------------------------- ----------- --------------- -----------
Bank loans
Bupa maintains a GBP800.0m revolving credit facility which
matures in August 2022. At 30 June 2018 GBP210.0m (HY 2017:
GBP395.0m; FY 2017: GBP226.0m) was drawn under the facility. On 17
January 2017 Bupa signed a GBP650.0m committed facility to ensure
sufficient funding would be made available to complete the
acquisition of Oasis Dental Care. The facility was repaid in full
on 17 January 2018 (HY 2017: GBP353.2m; FY 2017 GBP48.6m).
Fair value of financial liabilities
At 30 June At 31 December At 30
2018 2017 June 2017
GBPm GBPm GBPm
=========================================== ----------- =============== ===========
Subordinated liabilities 1,385.0 1,450.7 1,439.8
Senior unsecured bonds 725.6 733.0 728.3
Bank loans and overdrafts 403.3 466.1 925.2
Finance lease liabilities 4.9 6.5 8.9
Total fair value of financial liabilities 2,518.8 2,656.3 3,102.2
============================================ =========== =============== ===========
Provisions under insurance contracts issued
At 31 December
At 30 June 2018 2017 At 30 June 2017
===============================
Re- Re- Re-
Gross Insurance Net Gross Insurance Net Gross Insurance Net
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= ======== =========== ======== ======== ============ ======== ======== ============ ========
General
insurance
business
Provisions
for
unearned
premiums 2,432.8 (19.0) 2,413.8 1,728.3 (10.1) 1,718.2 2,417.0 (25.6) 2,391.4
Provisions
for claims 915.9 (6.3) 909.6 877.4 (7.2) 870.2 930.6 (8.2) 922.4
Long-term
business
Provisions
for life
insurance
benefits 31.8 (0.9) 30.9 30.9 (0.9) 30.0 32.1 (1.0) 31.1
Total
insurance
provisions 3,380.5 (26.2) 3,354.3 2,636.6 (18.2) 2,618.4 3,379.7 (34.8) 3,344.9
============= ======== =========== ======== ======== ============ ======== ======== ============ ========
Due to the nature of insurance business and timing of renewals,
half year provisions for unearned premiums are higher than at year
end. The increase in provisions for unearned premiums year on year
is due to business growth.
12 Acquisitions and disposals
a) 2018 acquisitions
Date of Percentage
acquisition of holdings
==================================== ============== =============
UK
Oasis - Dental centres Various 100.0%
Europe and Latin America
Sanitas Mayores - Day care centres Various 100.0%
LUX MED - Dental centres, Medical
imaging, Medical centres Various 100.0%
2018
Fair value
GBPm
Intangible assets 0.6
Property, plant and equipment 2.1
Inventories 0.1
Trade and other receivables 1.3
Other interest bearing liabilities (0.6)
Provisions for liabilities and charges (0.5)
Trade and other payables (1.0)
Other taxation liabilities (0.5)
1.5
Net assets acquired 1.5
Goodwill 23.8
Consideration 25.3
Consideration satisfied by:
Cash 22.7
Deferred consideration 2.6
Total consideration paid 25.3
Purchase consideration settled
in cash 22.7
Net cash outflow on acquisition 22.7
Settlement of deferred consideration -
Net cash outflow associated
with acquisitions 22.7
During the period, the Group made minor acquisitions for total
consideration of GBP25.3m (GBP22.7m cash and GBP2.6m deferred),
giving rise to goodwill of GBP23.8m. Goodwill primarily represents
expected synergies within the respective Market Units.
The acquisitions were made through the expansion of the Health
Services businesses across the Group, mainly through the continued
acquisition of dental centres. Across the UK, a total of seven
dental centres have been acquired in the six month period to 30
June 2018. In Poland, four dental centres were acquired.
In addition to the dental centres, two day care centres were
acquired in Spain and four medical clinics and one magnetic
resonance imaging clinic were acquired in Poland.
Acquisition transaction costs expensed in the period to 30 June
2018, within other operating expenses, total GBP0.4m.
b) 2017 acquisitions
Refer to the Financial Statements for the year ended 31 December
2017 for details of the acquisitions made during 2017.
The most significant acquisition in 2017 was Oasis Dental Care
on 9 February 2017. Bupa completed the purchase of 100% of the
issued share capital of Oasis Dental Care, for an enterprise value
of GBP861.0m including cash consideration of GBP588.8m and
post-acquisition settlement of bank debt of GBP272.2m, following
regulatory referral from the European Commission to the UK
Competition and Markets Authority (CMA). The CMA revoked its
enforcement order on 27 February 2017 and this has been determined
as the IFRS accounting acquisition date. The acquisition plays a
significant part in Bupa's strategy to offer customers high quality
dental services across the UK.
The purchase price allocation exercise for Oasis Dental Care
identified intangible assets of GBP281.6m, representing customer
relationships (GBP277.2m), brand (GBP2.3m) and software (GBP2.1m)
with useful lives of between 3 and 20 years. Goodwill of GBP558.4m
is not deductible for tax purposes and represents future growth
that is expected to be achieved in the core dental business,
through the development of Bupa's dental insurance business and
also through cross-selling opportunities between the two different
customer bases.
Revenue of GBP305.7m and profit before taxation of GBP7.1m has
been recognised for the period since the acquisition date.
Since acquisition, Oasis Dental Care has acquired 48 dental
centres, for a total consideration of GBP77.2m, of which GBP9.4m
was deferred, resulting in goodwill of GBP23.8m.
c) 2018 disposals
There have been no material disposals in the six month period
ended 30 June 2018.
d) 2017 disposals
On 25 July 2017, Bupa Thailand was sold for cash proceeds of
GBP55.5m, realising a net gain on disposal of GBP36.4m taking into
account GBP19.0m net assets divested, GBP4.5m transaction costs and
GBP4.4m cumulative foreign exchange gains recycled to the
Consolidated Income Statement on disposal.
Contingent liabilities
Capital commitments
Capital expenditure for the Group contracted at 30 June 2018 but
for which no provision has been made in the financial statements
amounted to GBP208.7m (HY 2017: GBP64.1m; FY 2017: GBP203.7m).
Contingent assets and contingent liabilities
The Group currently has no contingent assets.
The Group has contingent liabilities arising in the ordinary
course of business, including losses which might arise from
litigation, disputes, regulatory compliance (including data
protection) and interpretation of tax law. The Australian
businesses currently have contingent liabilities arising in the
ordinary course of business due to unresolved issues associated
with the application of Australian tax law in relation to cross
border transactions and operations. While the issues are ongoing
and the future outcomes remain uncertain, the Group considers the
positions it has adopted are in accordance with the tax law and
intends to defend its position with respect to these matters. It is
not considered that the ultimate outcome of any contingent
liabilities will have a significant adverse impact on the financial
condition of the Group.
Bupa Finance plc
Statement of Directors' responsibilities
for the six months ended 30 June 2018
We confirm that to the best of our knowledge:
-- The condensed set of financial statements have been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
-- The interim management report includes a fair review of the
information voluntarily provided in accordance with the
requirements of:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year.
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The Directors of Bupa Finance plc are listed in the Directors'
Report for the year ended 31 December 2017. There have been no
further changes during the period.
By order of the Board
Martin Potkins Joy Linton
Director Director
1 August 2018
Bupa Finance plc
Independent review report from KMPG LLP to the members of Bupa
Finance plc
for the six months ended 30 June 2018
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Cash Flows, the Condensed Consolidated Statement of Changes in
Equity and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Philip Smart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London, E14 5GL
1 August 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKBDDPBKKCFK
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August 02, 2018 02:02 ET (06:02 GMT)
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