TIDMBUPF
RNS Number : 4309V
BUPA Finance PLC
07 August 2020
Bupa Finance plc (Bupa Finance):
HALF YEAR STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2020
KEY POINTS
o Half Year 2020 results reflect the impact of the COVID-19
pandemic across all of Bupa, although the operational impact
varied by line of business and by geography
o Disruption caused by COVID-19 to our healthcare provision
and aged care businesses during the period, along with reduced
investment earnings, more than offset the improved profit performance
in our insurance businesses
o Our priority has been to focus on the welfare of our customers,
our people and society, and play our part in government and
public health responses to COVID-19
o Revenue ([1]) GBP5.8bn, down 3% at AER (2019: GBP6bn); flat
at constant exchange rates ([2]) (CER) (2019: GBP5.8bn)
o Statutory profit before taxation GBP191m, down GBP66m at
actual exchange rates (AER) (2019 profit before taxation: GBP257m)
o Underlying profit before taxation ([3]) GBP178m, down 26%
at AER (2019: GBP242m); down 26% at CER (2019: GBP240m)
o Solvency II capital coverage ratio ([4]) of 169% (FY 2019:
159%)
Performance review: "Our results reflect the disruption caused
by COVID-19 across our businesses. We are very proud of how our
people have responded to the challenge of the pandemic. They have
focused on our customers, while contributing to national responses,
often in the toughest of circumstances.
Across our insurance businesses, claims temporarily reduced due
to restrictions on access to hospitals. W e expanded telehealth and
digital healthcare services so customers could continue to access
care. In insurance, we have reserved prudently as we expect to pay
increased claims as our customers access treatments delayed by
lockdowns. As restrictions have started to ease, we have reopened
our healthcare provision services, with the requisite safety
measures in place, and activity levels are returning.
COVID-19 means we are operating in a time of significant
uncertainty. We are actively managing our financial position,
ensuring Bupa remains financially strong, so we can continue to
invest in organic growth in our chosen markets, in technology
capabilities and operational resilience."
Bupa Finance plc is the main financing company, and an
intermediate holding company, in The British United Provident
Association Limited group (Bupa/the Bupa Group). The Bupa Group
financial results are published separately.
Market performance ([5]) (CER)
o Australia and New Zealand: revenue up by 4% to GBP2,238m at
CER with the new Australian Defence Force (ADF) contract driving
growth. Underlying profit was GBP60m, a decrease of 32% at CER
driven by losses in our Australian aged care businesses mainly due
to occupancy challenges arising from the previously reported
compliance issues which we have been successfully addressing, and
from COVID-19, along with higher costs of operations.
o Europe and Latin America: revenue is up by 3% to GBP1,827m and
underlying profit growth of 2% to GBP85m at CER mainly driven by
growth in our insurance businesses offset by how our provision and
aged care businesses were impacted by lockdowns and restrictions
caused by COVID-19.
o Bupa Global and UK: revenue was down by 7% to GBP1,532m, with
underlying profit down 57% to GBP26m at CER mainly due to the
impact of COVID-19 related lockdowns and restrictions, particularly
in our aged care, dental and clinics businesses.
o Other businesses: Revenue is stable at GBP243m. Underlying
profit is up 84% to GBP35m, mainly reflecting the growth in Bupa
Arabia.
Financial position
o Net cash generated from operating activities was GBP930m, up
GBP424m on prior year (2019: GBP506m) reflecting the delay in
claims outflows in the first half
o Solvency II capital coverage ratio of 169% (FY 2019: 159%)
o Leverage ratio of 29.1% (FY 2019: 26.6%). Leverage is 36.4%
(FY 2019: 34.6%) when IFRS 16 lease liabilities are taken into
account
o In March Fitch downgraded Bupa Finance plc's Long-Term Issuer
Default Rating (LT IDR) to 'A-' from 'A', and senior and
unguaranteed subordinated bonds to BBB+ and BBB- respectively. In
April, Moody's affirmed the senior and subordinated debt ratings of
Bupa Finance plc, while changing outlook from stable to
negative
Operational responses to COVID-19
Our focus on our customers and our people, together with the
continued emphasis on Bupa's values, was an important foundation of
our response to the pandemic.
o In health insurance , we accelerated our telehealth and
digital healthcare services so customers could continue to access
care and advice . We also took targeted action in our markets such
as removing pandemic exclusions as they relate to COVID-19,
delaying approved premium increases, reviewing excess clauses, and
supporting those experiencing financial hardship.
o In health provision , our hospitals and clinics supported the
national public health response across different countries,
treating COVID-19 patients and providing capacity to the public
health systems. Our hospitals in Spain, Poland and Chile treated
thousands of COVID-19 patients as part of the national responses.
In Spain, we doubled the number of Intensive Care Unit (ICU) beds
and constructed two field hospitals. In the UK, the Cromwell
Hospital treated cancer and cardiology patients on behalf of the
NHS, and some of our clinical staff were deployed to the NHS 111
helpline. Although many of our dental practices were closed for a
period in line with local public health advice, we kept services
open for emergency treatments.
o In our four aged care businesses we have supported and cared
for residents, while ensuring our people could operate safely,
always working in close collaboration with local health
authorities.
o Our people have played a huge part in the COVID-19 response,
working on the front line to support customers and contribute to
the national responses. We swiftly enacted remote working
capabilities wherever possible, and nearly all our people worldwide
have been able to continue to work effectively through the
pandemic.
Operational highlights
o Our total number of health insurance customers grew to 18m (FY
2019: 17.5m)
o In June, we enhanced our liquidity and capital position
through two bond issues together raising GBP650m
o In June, w e announced an agreement to increase our
shareholding in Bupa Arabia by 4% to 43.25%
o We sharpened our focus on Environmental, Social and Governance
(ESG) priorities with the creation of a Healthy Communities
Fund
Enquiries
Media
Rupert Gowrley (Corporate Affairs) rupert.gowrley@bupa.com
Investors
Gareth Evans (Treasury): ir@bupa.com
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.
Health insurance accounts for the major part of our business
with 18m customers and contributes 74% of revenue. We operate
clinics, dental centres and hospitals in some markets. We run aged
care businesses in the UK, Australia, New Zealand and Spain.
We directly employ around 83,000 people, principally in the UK,
Australia, Spain, Chile, Poland, New Zealand, Hong Kong, Turkey,
Brazil, the US, Middle East and Ireland. We also have associate
businesses in Saudi Arabia and India.
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 British United Provident
Association Limited (Bupa) and Bupa's directors or management, are
forward-looking statements. In particular, but not exclusively,
these may relate to Bupa'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's control and all of which are solely based on Bupa'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 or its industry to be materially different to
those expressed or implied by such forward-looking statements.
Other than as required by law, Bupa 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 with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
Forward-looking statements in this document are current only as
of the date on which such statements are made.
Neither the content of Bupa's website nor the content of any
other website accessible from hyperlinks on Bupa's website is
incorporated into, or forms part of, this document.
Management review
COVID-19 is a major global health, socio-political and economic
challenge. We are hugely appreciative and proud of the way our
people have responded. They have been focused on supporting our
customers, while contributing to national responses, often in the
toughest of circumstances.
The Group's Half Year 2020 results reflect the impact of the
COVID-19 pandemic across all of Bupa, although the operational
impact varied by line of business and by geography. Revenue was
flat at GBP5.8bn at CER, and underlying profit was GBP178m, down
26% on prior year (GBP240m at CER). The disruption caused by
COVID-19 to our healthcare provision and aged care businesses,
along with reduced investment earnings, more than offset the
improved profit performance in our insurance businesses. Across all
our insurance businesses claims volumes were reduced due to the
temporary restrictions on access to hospitals for elective surgery
during the various lockdowns. The Group expect to see increased
claims as customers access the treatments and procedures delayed by
the lockdowns as restrictions are lifted. We have used past claims
experience to arrive at a best estimate for the necessary provision
for delayed claims that were restricted due to the pandemic.
Revenue growth from the new ADF contract and our health
insurance businesses in Turkey, Chile and Spain was offset by a
decline in the revenue in our Australian and UK health insurance,
UK dental and Chile provision businesses.
The Group's operational responses to COVID-19 and the impact on
performance by business lines was as follows:
-- Our insurance businesses saw improved profits as claims were
reduced by the restrictions on access to hospitals for elective
surgery. We accelerated the offering of telehealth and digital
healthcare services so customers could continue to use their cover
and access care and advice. As the restrictions are eased, w e are
supporting our customers in accessing treatment and providing
guidance to businesses on employee health and wellbeing. We have
reserved for the expected cost of delayed claims in respect of
customers accessing treatments. We have taken a range of targeted
actions to support our customers. This includes removing pandemic
exclusions for COVID-19, delaying approved premium increases,
premium rebates, reviewing excess clauses, and supporting those
experiencing financial hardship.
-- Our healthcare provision businesses, particularly dental and
clinics, were significantly impacted by government-mandated
lockdowns and were largely closed for a number of months . As
restrictions have started to ease, we have reopened our services,
with the requisite safety measures in place, and the activity
levels are recovering . Our hospitals in Spain, Poland and Chile
treated thousands of COVID-19 patients as part of the national
responses. In Spain, we doubled the number of ICU beds and
constructed two field hospitals, treating thousands of patients. In
the UK, the Cromwell Hospital treated cancer and cardiology
patients on behalf of the NHS, and some of our clinical staff were
deployed to the NHS 111 helpline.
-- In our aged care businesses in Spain, the UK, Australia and
New Zealand, we temporarily closed homes to new admissions to
protect our residents and our people . These restrictions, and the
tragic loss of some residents to COVID-19, are reflected in reduced
occupancy. Our people did an outstanding job taking care of our
residents and supporting their families at this challenging time.
We have higher operating costs as we ensure that staff and visitors
have the additional Personal Protective Equipment (PPE) they need
and that our homes maintain very high standards for cleaning and
hygiene. Our homes are largely now open to admissions with new
operating protocols in place, although we remain prepared for
further local lockdowns . In Australia, we continued to invest to
improve clinical standards and we now have no care homes under
regulatory sanction.
-- Investment returns were impacted by comparatively lower
interest rates reducing underlying profit by GBP18m compared to
2019 thus contributing to 8% of the overall reduction in Group's
underlying profit.
-- We continue to invest in technology capabilities as part of a
multi-year programme to enhance security and privacy, digitalise
the customer experience and improve service.
-- Statutory profit before taxation was GBP191m compared to GBP257m at the half year in 2019.
Our focus on our customers and our people, together with the
continued emphasis on Bupa's values, was an important foundation
for our response to the pandemic. Our scale and global footprint,
and the more streamlined global organisation structure we put in
place during 2019, have enabled us to share insights rapidly,
respond quickly, and ensure business continuity and operational
resilience during this period. The Group's investment in technology
capabilities enabled us to ramp up our offerings of digital
healthcare and telehealth across the organisation and to move
quickly to remote working, all the time maintaining high standards
of customer service.
We have closely managed our financial position, ensuring Bupa
remains financially strong, and our solvency capital coverage has
remained stable. We are managing liquidity tightly and have
cancelled or delayed non-essential capital expenditure where
appropriate. In June, we improved our debt maturity profile through
a senior bond and Tier 2 bond issue together raising GBP650m.
When we published our 2019 Results on 5 March, we outlined how
we were navigating challenges in some of our key markets, notably
Australian health insurance and aged care, UK dental and Chile, and
making significant investments in technology capabilities. The
Group has made progress in many of these areas, and continues to do
so, notwithstanding COVID-19.
In June, Bupa announced the agreement to increase its
shareholding in Bupa Arabia by 4% to 43.25%, subject to regulatory
approvals. This is in line with the Group's strategy of investing
in existing market positions to deliver sustainable growth. We
expect this transaction to complete in August.
Environmental, social and governance (ESG) considerations are
central to society's recovery from COVID-19. We are reassessing our
ESG priorities, to bring sharper focus to activity and delivery. We
are focusing particularly on the role we can play in supporting
mental health and wellbeing, and on climate change. Our Healthy
Communities Fund is supporting our businesses in different
countries to fund long-term flagship programmes. We are defining
the next level of detail for our 2021-2025 Environment and Climate
Change Action Plan particularly our focus on the health impacts of
climate change.
Outlook
The ongoing effects of COVID-19 mean we are operating in a time
of significant disruption and uncertainty. The timing and
effectiveness of potential vaccines are still highly uncertain. The
ongoing pandemic, and public health responses, will continue to
affect all human behaviour, including that of our customers and our
people. It will directly influence the health systems in which we
operate and continue to generate significant economic
volatility.
Underlying profit from operating segments is likely to be
broadly in line with our pre-pandemic expectations although market
conditions will remain challenging with the potential for
significant volatility. While we have reserved appropriately in our
health insurance businesses, the timing and level of future claims
is uncertain, including the impact of customers accessing delayed
treatment and the potential costs of treating late diagnosed or
under-treated illness. Performance in our provision businesses will
improve in the second half of the year as they re-open for service,
but we are prepared for further disruption from COVID-19 with local
lockdowns. We continue to address challenges in our Australian
health insurance business where sector-wide issues remain, and in
our Australian aged care, UK dental and Chilean businesses. We
continue to monitor the future EU-UK trading relationship and its
impact on the UK economy.
Notwithstanding these challenges, Bupa is resilient and well
placed to navigate this environment in service of our
customers.
We have a strong solvency position, a solid balance sheet and
healthy cashflow.
The Group will continue to invest in organic growth in our
chosen markets, in technology capabilities and operational
resilience. We are prioritising investment in digital and virtual
health and enhancing our services in health and wellbeing,
particularly mental health, for the benefit of our customers and
our people.
MARKET UNIT PERFORMANCE
Australia and New Zealand
Revenue Underlying profit
HY 2020 GBP2,238m GBP60m
HY 2019 (AER) GBP2,254m GBP92m
% growth/(decline)
(AER) (1)% (35)%
HY 2019 (CER) GBP2,153m GBP88m
% growth/(decline)
(CER) 4% (32)%
In Australia and New Zealand, revenue increased by 4% to
GBP2,238m at CER. Underlying profit was GBP60m, a decrease of 32%
at CER driven by losses in our Australian Aged Care businesses.
Entering the year we had seen lower occupancy rates than historical
averages as a result of compliance issues we had been addressing,
and these had been improving. This operational progress was set
back by admissions restrictions and higher costs of operations
caused by COVID-19, but stands us in good stead for the future.
In Australian health insurance, revenue was marginally down and
underlying profit was in line with the prior year. The combined
operating ratio ([6]) (COR) for the first six months of 2020 was
95% ([7]) (HY 2019: 95%). We maintained our position as a leading
health insurer in Australia, with 26% ([8]) market share, and 4m
customers.
We are focused on acting in the interests of our customers and
communities. In April, w e delayed the planned premium rate
increase for six months and launched a GBP26m financial hardship
scheme (GBP9m impact on HY results), with more than 32,000
customers so far receiving support. We extended coverage for
COVID-19 related claims to all customers and used telehealth to
support delivery of ancillary services such as mental health and
physiotherapy. Around 80,000 customers have accessed online fitness
and nutrition support at no cost for three months through a
partnership with an Australian fitness expert. Claims reduced for
approximately six weeks, due to restrictions on health providers
and on non-urgent elective surgery but started to return strongly
when the restrictions were lifted during May. We have reserved
prudently at the half year for the expected rebound in claims
during future periods.
Our Health Services business delivered revenue growth with the
inclusion of the new ADF contract. Underlying profit declined,
driven by the temporary suspension of the majority of our dental,
optical and audiology services. The majority of these services have
now reopened with new operating procedures to protect customers and
our people. We supported the ADF throughout the pandemic, and our
Medical Visa Services business continued to deliver essential
services to customers, albeit at a reduced capacity.
Revenue in Australian Aged Care was down, with an operating loss
arising largely from reduced occupancy and increased staff costs.
Admission restrictions were also introduced to protect residents
and our people from COVID-19. We incurred higher operating expenses
along with investments in compliance and additional PPE.
Significant progress was made on strengthening the operating model
and, as at the time of reporting, none of our homes were under
regulatory sanction. Our closing occupancy rate was 82% (HY 2019:
88%).
At the start of 2020, bushfires impacted many parts of Australia
and we responded with a relief package to help support our
customers and the communities affected.
Our New Zealand aged care business largely performed in line
with expectations. Revenue increased despite the impact of COVID-19
on occupancy. Underlying profit decreased due to higher staffing
and COVID-19 related costs. Our closing occupancy rate at June 2020
was 89% (HY 2019: 91%).
Europe and Latin America
Revenue Underlying profit
HY 2020 GBP1,827m GBP85m
HY 2019 (AER) GBP1,890m GBP84m
% growth/(decline) (3)% 1%
HY 2019 (CER) GBP1,782m GBP83m
% growth/(decline) 3% 2%
In Europe and Latin America, revenue grew by 3% and underlying
profit grew by 2% at CER mainly driven by our insurance businesses
offset by the performance in our provision and aged care
businesses.
Our health insurance business in Spain, Sanitas Seguros,
delivered solid revenue growth as it started the year with a bigger
portfolio than last year. Underlying profit grew mainly because of
lower claims, and although a provision is being held for the best
estimate of claims that will rebound, the COR improved to 84% ([9])
(HY 2019: 90%). We significantly enhanced our digital health offer,
Blua, by expanding our network of doctors to around 3,000. This
helped ensure that customers could continue to access support for
all types of conditions during lockdowns in Spain. From December
2019 we grew Blua customers to more than 1.7 million. We waived
pandemic exclusion clauses in our insurance policies as they
related to COVID-19, and provided premium relief to those in
financial hardship. We maintained our number two position with a
market share of over 20% ([10]) .
Our Sanitas dental business had the majority of its centres
closed due to lockdowns during Q2. Revenue and underlying profit
were down. We adapted quickly, launching a dental video
consultation service and we kept over 40 centres open for
emergencies. Our centres gradually reopened during April with
activity recovering quickly, notwithstanding the new operating
protocols in place to ensure patient safety.
In Hospitals and New Services in Spain, revenue declined during
the lockdown period. We made an underlying loss mainly as a result
of the temporary suspension of elective treatments. As part of the
national response, we doubled ICU bed capacity by creating two
'field hospitals' in Madrid, attached to our La Moraleja and La
Zarzuela hospitals, to support both the public and private health
systems. We treated over 9,300 patients with COVID-19 in our
facilities and delivered around 230,000 video consultations.
Our aged care business, Sanitas Mayores, had a year-on-year
decline in revenue and made a small underlying loss due to reduced
occupancy levels. Sadly, COVID-19 caused the deaths of a number of
residents. Occupancy was also affected by admission restrictions,
essential to protect residents and our people. Our closing
occupancy rate was 78% (HY 2019: 95%). We took many measures to
reduce the spread of infection, we worked closely with the public
health system and we connected our residents with their families by
expanding the availability of apps and videocalls.
In Chile, revenue declined in our hospitals and clinics
businesses because of COVID-19 reducing volumes, leading to an
underlying loss. We are working closely with the government and
health authorities to provide additional capacity where needed. Our
i nsurance business saw strong revenue and profit performance,
reflecting lower claims during the pandemic. The delay in
implementing the agreed Isapre premium increase across the sector
helped alleviate financial pressures on customers.
In Poland, LuxMed delivered revenue growth as the corporate
medical subscription business held up very well. Underlying profit
was stable. We adapted our services to support our customers safely
through COVID-19, including enhancing and expanding telehealth
services and offering new digital health advice services.
Bupa Acıbadem Sigorta, the health insurance business in Turkey,
continued to perform well. Our portfolio grew strongly by 9% since
June 2019 to around 650,000 customers. Claims were reduced for a
period due to restrictions on access to treatment in private
hospitals.
We are restructuring what was Bupa Global Latin America (BGLA)
into three business units, a new BGLA, Care Plus in Brazil and Bupa
Mexico. The new BGLA, our Miami based operation, ran a programme to
reduce costs and improve technology. It delivered improved
underlying performance due to lower claims. Care Plus increased
telehealth services for customers and grew Net Promoter System
(NPS) scores year-on-year. It delivered good revenue growth, while
underlying profit remained stable. Bupa Mexico also delivered
improved results.
Bupa Global and UK
Revenue Underlying profit
HY 2020 GBP1,532m GBP26m
HY 2019 (AER) GBP1,647m GBP58m
% growth/(decline) (7)% (55)%
HY 2019 (CER) GBP1,652m GBP60m
% growth/(decline) (7)% (57)%
Revenue in Bupa Global and UK was down by 7%, with underlying
profit down 57% at CER. This mainly reflected the impact of
COVID-19 on our provision businesses. We have used past claims
experience to arrive at a best estimate for the necessary provision
for claims that were delayed due to the pandemic.
UK Insurance revenue on an underlying basis was up on last year
driven by growth in customer numbers in 2019 and early 2020. Our
commitment to pass back to UK Insurance customers any exceptional
financial benefit ultimately arising as a result of COVID-19
reduces reported revenue. Underlying profit was lower as we
continued to invest in technology capabilities together with the
prudent approach to reserving for claims delayed due to the
pandemic. As hospitals start resuming elective treatment, we expect
claims to increase. In the first half, we enhanced remote services
to allow customers quick, direct access to GPs, physiotherapists,
consultants and nurses, via video or phone. Digital GP appointments
more than doubled during lockdown and calls to our Anytime
Healthline more than doubled on last year. We also launched our new
brand campaign, 'Is it normal?', to tackle stigma around mental
health and underline how we can support our customers. In August,
we announced an agreement with CS Healthcare, a friendly society,
to transfer its 18,500 health insurance members and business to
Bupa. This agreement is subject to approvals by regulators and by
CS Healthcare's members.
In Bupa Global, our IPMI business, revenue was stable compared
to 2019 while underlying profit grew reflecting favourable claims
performance. We saw a significant increase in customers using our
Global Virtual Care app which provides remote access to a global
network of doctors.
The COR for Bupa Insurance Limited, the UK-based insurance
entity that underwrites both domestic and international insurance,
improved marginally to 94% due to better international performance
(HY 2019: 95%).
In UK dental, revenue reduced on 2019 and we incurred an
underlying loss because of the temporary closure for around three
and a half months of practices for routine care. During the
lockdown, we partnered with the NHS to provide telephone advice to
patients, prescribe medicines and provide emergency care, including
in 11 urgent dental centres. We also provided these services in the
Republic of Ireland. The majority of our practices reopened in late
May and June with new safety measures for our customers and people.
We continue to address the ongoing challenge of recruiting dentists
and are positioning ourselves as the best place to work within the
industry.
Revenue in UK care services was down on last year, and the
business made a marginal underlying loss (small profit in the prior
year), due to the impact of COVID-19. Our closing occupancy rate at
June 2020 was down to 78% (HY 2019: 87%), due to reduced admissions
and the sad loss of a number of residents from COVID-19. Property
sales were also down in Richmond Villages, where viewings were
impacted by lockdown restrictions. We are following Government
guidance to reduce the spread of COVID-19 and have supplied
hundreds of iPads and phones to help keep residents connected with
loved ones.
Performance in Health Services was down, reflecting the
temporary closure of clinics. We adapted our services to protect
our people and customers, including expanding virtual appointments
for musculoskeletal conditions and GP services. We reopened our
clinics for health assessments in June. We also launched new
services to s upport employers with return-to-work policies and are
offering antibody testing. At the Cromwell we worked in partnership
with NHS England to provide care for NHS patients and to support
the Royal Marsden Cancer Hub to deliver urgent treatment through
our new ICU.
FINANCIAL REVIEW
Overview
Revenue was GBP5.8bn, in line with prior year (GBP5.8bn at CER),
and underlying profit was GBP178m, down 26% on prior year (GBP240m
at CER). The Group's underlying results reflected difficult trading
conditions caused by the COVID-19 pandemic, materially impacting
our provision businesses.
Our half year statutory profit before tax was GBP191m, compared
to a statutory profit of GBP257m (at AER) at the half year in 2019,
as we continued to invest in technology capabilities to enhance
security, ensure operational resilience and digitalise the customer
experience.
We generated cash from operating activities of GBP930m, up
GBP424m on prior year.
In March, Fitch downgraded our senior and subordinated debt
ratings by one notch and in April, Moody's placed our ratings on
negative outlook.
On 25 June 2020, Bupa issued two tranches of debt: GBP300
million 1.750% fixed rate senior notes due 2027 and GBP350 million
4.125% fixed rate, Tier 2, subordinated notes due 2035. These bonds
improve our liquidity and debt maturity profiles. We have now given
notice that we intend to redeem the GBP330m restricted Tier 1 bond
on its call date in September.
Our Parent's Solvency II capital coverage ratio of 169% at 30
June 2020 remained strong and comfortably within a target working
range of 140-170%. This is regarded as the range within which Bupa
would expect to operate in normal circumstances. The impact of the
planned purchase of an additional 4% shareholding in Bupa Arabia
which is expected to complete in August 2020, along with the call
of the Tier 1 bond in September 2020 will decrease the coverage
ratio by around 4% and 13% respectively.
Revenue (CER)
Revenue was broadly flat year on year as a result of growth seen
in our Australia and New Zealand and Europe and Latin America
Market Units, offset by a decline in Bupa Global and UK.
By business lines, revenue in our health insurance businesses
grew by 1% compared to last year, largely driven by our Europe and
Latin America Market Unit following the acquisition of Bupa
Acıbadem Sigorta in 2019 and growth in our health insurance
businesses in Spain, Chile, Brazil and Hong Kong. This growth was
offset by COVID-19 impacts globally where we took a range of
targeted actions to support customers and deliver value, including
delaying approved premium increases, support for customers
experiencing financial hardship, and provisions for passing back
value to customers .
Our provision businesses (other than aged care) saw a decline in
revenue of 2% year-on-year as many of our clinics were closed due
to COVID-19 restrictions. This was partly offset by the
contribution of the Australian Defence Force contract that came
into effect from 1 July 2019.
In our four aged care businesses, revenue was down 4% on 2019.
Across the businesses the impacts of the pandemic resulted in
reduced occupancy from restrictions on new resident admissions and,
in the case of Spain and the UK, we sadly lost a number of our
residents to COVID-19.
Underlying profit (CER)
Underlying profit declined by 26% to GBP178m (2019: GBP240m at
CER). Overall, our provision and aged care businesses made losses
in the first six months of 2020 reflecting the significant
disruption to services from lockdowns and restrictions following
the outbreak of COVID-19.
For our largest line of business, health insurance, underlying
profit was up given the reduced levels of claims since the outbreak
of COVID-19 as countries applied lockdown measures and elective
procedures were postponed. Although claims volumes were lower in
the first half, it is expected that a significant majority will
return as access to medical provision continues to open up, and as
such we are accounting appropriately to ensure the reserves will
meet our obligations to our customers. The total provision held at
half year was GBP389m for deferred claims, however estimating the
quantum and timing of when the claims will rebound is a key
judgement and has been modelled carefully by our actuarial teams.
Actual outcomes will be linked to the extent of lockdowns, consumer
behaviour, and government policy, and we will update our estimates
as time moves on.
We incurred an underlying loss in our healthcare provision
businesses due to COVID-19 restrictions. For example, in UK dental
we saw the majority of our operations closed for around three and a
half months. In addition, our outpatient services in Chile were
severely impacted. In Spain, our clinics and most of our dental
practices were closed.
We recognised an underlying loss in aged care due to a decline
in occupancy and higher COVID-19 related costs including from PPE
in all markets. At the end of June, the number of residents in our
care homes was down by around 10% on 2019 mainly due to admission
restrictions following the outbreak of COVID-19. In addition, in
Australia, operating costs were higher following actions taken to
address a number of compliance issues in our aged care business in
2019.
Central expenses and net interest margin were GBP28m, higher
than the prior year (GBP10m at CER) as comparatively lower interest
rates adversely impacted investment returns (GBP18m worse than
prior year). This was partially offset by corporate restructuring
that took place in 2019 to remove the International Markets Market
Unit, thus lowering central costs.
Statutory Profit (AER)
Statutory profit before taxation was GBP191m compared to GBP257m
at the half year in 2019. This reflects the decline in underlying
profit. Investment in technology capabilities continued at broadly
the same level as prior year.
2020 2019
GBPm GBPm
Australia and New Zealand at CER 60 88
------ ------
Europe and Latin America at CER 85 83
------ ------
Bupa Global and UK at CER 26 60
------ ------
Other businesses at CER 35 19
------ ------
Underlying profit for reportable segments
at CER 206 250
------ ------
Central expenses and net interest margin at
CER (28) (10)
------ ------
Consolidated underlying profit before taxation
at CER 178 240
------ ------
Foreign exchange re-translation on 2019 results
(CER/AER) - 2
------ ------
Consolidated underlying profit before taxation
at AER 178 242
------ ------
Net loss on disposal of businesses and transaction
costs on business combinations (5) (2)
------ ------
Net property revaluation gains 10 8
------ ------
Realised and unrealised foreign exchange gains/(losses) 14 (9)
------ ------
(Losses)/gains on return-seeking-assets, net
of hedging (5) 24
------ ------
Centre non-underlying items (1) (6)
------ ------
Total non-underlying items 13 15
------ ------
Statutory profit before taxation at AER 191 257
------ ------
In 2020, non-underlying items totaled GBP13m profit, compared
with GBP15m profit in 2019. The key items in 2020 were foreign
exchange gains, and marginal property valuation gains in some of
our New Zealand care homes. This was offset by minor losses in our
return seeking assets as credit spreads widened following the onset
of COVID-19 (this was in contrast to gains made on these assets in
2019 when credit spreads had narrowed).
Taxation
The Group's effective tax rate for the period was 24% (HY 2019:
30%, FY 2019: 440%), which is higher than the current UK
corporation tax rate of 19%. This is mainly due to profits arising
in jurisdictions with a higher rate of corporate income tax and
deferred tax adjustments arising from changes to the enacted UK
corporation tax rate .
Cashflow
Net cash generated from operating activities increased by
GBP424m to GBP930m as a result of the lower claims paid due to
COVID-19 disruption on elective healthcare procedures and a one-off
tax settlement in 2019. Operational cashflow earnings before
interest, depreciation and amortisation declined broadly in line
with the reduction in pre-tax profit as we have established a
provision for the proportion of claims that have been delayed and
are expected to return in future periods.
Net cash used in investing activities increased by GBP217m to
GBP523m in the first half of the year with higher deposits being
made than during the same period last year as a result of lower
claims paid. We have continued to invest in IT infrastructure
during 2020 and have made a small number of dental and clinic
acquisitions in the period. In 2019 we completed the purchase of
Acıbadem Sigorta.
Net cash generated from financing activities increased to
GBP178m, a change of GBP252m from last year.
Funding
We manage our funding prudently to ensure a strong platform for
continued growth. A key element of our funding policy is to target
an A-/A3 senior credit rating for the Company, the main issuer of
Bupa's debt.
The Company's senior debt ratings are A3 (negative) by Moody's
and BBB+ (stable) by Fitch. Fitch and Moody's reviewed our credit
ratings in the period. The Fitch rating was downgraded to A- in
March and the Moody's rating moved from stable to negative outlook
in April.
Fitch downgraded our Long-Term Issuer Default Rating (LT IDR) to
'A-' from 'A', and senior and Tier 2 bonds one notch to BBB+ and
BBB- respectively. Fitch affirmed Bupa Insurance Limited's Insurer
Financial Strength (IFS) rating and LT IDR as A+ (Strong) and A
respectively. The outlooks on both our LT IDR and Bupa Insurance
Limited's IFS rating are stable. Moody's affirmed Bupa Insurance
Limited's Insurance Financial Strength Rating at A1 and affirmed
our senior and subordinated debt ratings of, while changing the
outlook from stable to negative. The senior and Tier 2 bond ratings
stand at A3 and Baa1.
The key development in the first half of 2020 was our issuance
of both a GBP300m senior and a GBP350m Tier 2 bond in June. These
transactions enhance both our liquidity and capital positions.
At 30 June 2020, we had no drawings under our GBP800m revolving
credit facility, which is due to mature in August 2022. The bond
proceeds were received in June and were partly used to repay all
remaining drawings under that facility. The remainder of the
proceeds are held in cash. We have now given notice that we intend
to redeem the GBP330m restricted Tier 1 bond on its call date in
September and will use the remaining cash balances from the recent
bond issuance to fund the repayment.
We focus on managing our leverage in line with our credit rating
targets. Leverage excluding operating leases at 30 June 2020 was
29.1% (FY 2019: 26.6%). Leverage is 36.4% (FY 2019: 34.6%) when
IFRS 16 lease liabilities are taken into account. The increase in
leverage is primarily due to the timing of the bond issue and the
temporary grossing up of the balance sheet in advance of the
September 2020 call date and June 2021 bond maturity.
Coverage of financial covenants remains well within the levels
required in our bank facilities.
Solvency ([11])
The sensitivity of our Parent's solvency capital coverage ratio
to individual market risks is summarised below. The overall
sensitivity to these risks remains low as has been demonstrated in
the first half of 2020. Property continues to be the most material
sensitivity for our solvency coverage.
The Group Capital risk appetite seeks to ensure that Bupa has
sufficient resources to withstand a 1-in-20-year event and still
meet regulatory capital requirements. Earlier this year, the Bupa
Board adopted a capital working range of 140% - 170% of Solvency
Capital Requirement (SCR), taking into consideration the Group's
capital risk appetite. This is a solvency coverage range that Bupa
expects to operate within under normal circumstances.
Risk Sensitivities Solvency
II coverage
ratio
Solvency coverage ratio 169%
-------------
Property values -10% 154%
-------------
Loss ratio worsening by 2% 162%
-------------
Interest rate -100bps 165%
-------------
Group Specific Parameter (GSP) ([12]) +0.2% 167%
-------------
Credit spreads +100bps (no credit transition) 167%
-------------
Pension risk +10% 169%
-------------
Sterling depreciates by 10% 169%
-------------
Equity markets -20% 169%
-------------
Business risks
We describe our main risks in the Risks section of the Bupa
Annual Report and Accounts 2019. In the period to 30 June 2020 the
outbreak of the COVID-19 pandemic has resulted in significant
uncertainty for society as a whole and for Bupa, but the principal
risks and themes identified at the year-end also remain. Across
Bupa we have implemented our crisis management plans, which have
focused on ensuring our critical business services continue to
operate effectively throughout an extended period of disruption. To
date, this has operated effectively.
COVID-19 has had a significant impact on the half year results
of our businesses as set out in the CEO Statement and Financial
Review sections. Despite lockdown restrictions easing in many key
markets the pandemic is not behind us. We operate in a number of
markets that have still to move beyond the peak of the pandemic
and, in others, the risk of further waves, nationally or locally,
is still high. We continue to monitor the situation carefully and
run stress and scenarios to examine potential impacts across all
businesses and remain prepared to take appropriate actions, if the
situation worsens, to manage the impact on our customers and
people.
The pandemic has served to validate our understanding of the
existing risk profile whilst accelerating and accentuating a number
of trends. These are the vulnerability of global supply chains, a
move away from globalisation, the rise in the provision of
technologically enabled remote clinical consultations and the
ability for a large part of the workforce to work effectively from
home. It has also demonstrated how quickly issues can escalate and
how critical it is that we were able to adapt and respond quickly
together with effective and dynamic governance structures playing a
role in how we have managed this situation. The strengthening of
the Chief Medical Officer's role and clinical governance across the
Group has helped ensure we have strong clinical advice and
guidance, which has been crucial to our response to the crisis. As
we move through the crisis, we update our existing risk profile to
reflect the impact of the pandemic, no longer reporting COVID-19 as
a separate risk.
Strategic and financial risks and risks impacting our ability to
deliver for our customers:
The macroeconomic environment is challenging in most markets,
and this will be compounded by COVID-19. It is uncertain how severe
the impacts will be and how long they will last but any reduction
in consumer or government spending may impact our businesses.
Weakened economic environments are also likely to compound the
existing affordability challenges in health insurance as medical
inflation continues to increase at a higher rate than premiums.
This is particularly true in Australia, where the government
continues to approve premium increases below medical inflation. At
the same time, customer expectations are accelerating as ease of
access, particularly through digital innovation, and quality of
service are increasing. We have significantly increased our digital
offerings for customers during the pandemic and this will remain an
area of focus in the future. We regularly review our products and
offerings to ensure that we continue to provide value to our
customers despite the economic challenges.
The availability of healthcare professionals, particularly
dentists in the UK and staff in our aged care businesses globally,
continues to pose a challenge for our businesses. It is unclear how
the pandemic, and future government funding decisions may impact
this. Our people make the difference and deliver on our promise to
our customers. We continue to focus in this area to ensure that we
attract, develop and retain outstanding people and leaders to
mitigate this risk.
While the Group is currently seeing lower claims due to short
term delays to elective surgery, the cost of claims could increase
in the long run due to deferred costs of treating under-treated
illnesses. We have established reserves for the best estimate of
the proportion of the claims that have been delayed that are likely
to return in future periods, reflecting Bupa's intent and
commitment to fulfil obligations to policyholders. As with any
reserve of this nature there is inherent uncertainty in the key
judgements which may impact future results particularly should
further lockdowns or significant restrictions to private health
care manifest in future. Details of the reserve established are set
out on page 44.
We have undertaken a range of stress and scenario analysis on
our businesses to understand the potential impact of the pandemic
on our business performance, solvency capital and liquidity
position. This has helped us understand and mitigate the impact of
the pandemic as far as possible and develop appropriate targeted
actions to respond to these challenges. We will continue to do so
in the second half of the year.
We have significantly de-risked our liquidity and capital
positions, having issued senior and Tier 2 bonds in June 2020.
However, the state of the bond markets and the pricing of issuances
was highly volatile during many periods in Q2 and that could recur
in the event of either a second wave of COVID-19 or a further
downturn in the global economic environment. This could create a
risk in the event that further funding is required in the short to
medium term.
Governmental and regulatory policy risks:
Changes in governmental and regulatory policy has consistently
been one of our top risks given the nature of our businesses and
this remains true. The significant governmental and regulatory
responses to the pandemic has shown that future legislation,
regulations and government funding decisions could have a material
impact on the Group, and any measures put in place may improve or
reduce the attractiveness and affordability of private health
insurance. These may include any restrictions on price increases,
increased minimum wage levels, higher costs of operating healthcare
provision businesses, changes in the tax system or restrictions on
dividend payments. We continue to engage governments and regulators
in the markets we operate in to understand and influence potential
changes to ensure we are able to continue to deliver high quality
care and value for our customers and providers.
We are continuing to prepare for the operational, commercial and
legal implications of an exit from the EU under different
scenarios, including a situation where the UK leaves the EU with no
trade deal in place. We are examining a number of potential issues
and working through steps to protect Bupa's position in these
areas.
Operational risks:
Information Security and Privacy remain key risks for the Group.
Our focus on information security, technology and operational
resilience in recent years, supported by significant investment to
uplift capability and capacity in this area across the Group, has
been critical in our response to this crisis. This investment has
equipped us to effectively enhance digital and telehealth services
and enabled our people to work remotely. Our information security
efforts have been focused on the increased privacy and information
security risks associated with people working from home.
Operationally, this has proven effective and been well supported by
our technology infrastructure.
Litigation risks:
Following the pandemic we are likely to see extensive and wide
ranging reviews into all aspects of the public and private
response. These responses will often be judged in hindsight and
this increases the risk of potential future litigation for all
participants in the health care sector, including Bupa.
Social and environmental risks:
The pandemic has further demonstrated the importance of managing
our reputation, with higher scrutiny on the actions of businesses
in respect of customers, employees; and their contributions to
society. There is also a risk that responses to the pandemic will
be judged in hindsight in the future. It is more important now than
ever that we continue to deliver on our purpose and serve and
support our customers, our people and the communities we operate
in.
In order to ensure issues in one business or Market Unit do not
spread and impact the trust in our brand in another, contagion risk
remains prominent in our operational and reputational risk
management agenda with a focus on resolving and learning from
issues faced.
Climate change remains one of the major risks we face as a
society and is a key area of focus for us. We closely manage our
environmental impacts and promote positive environmental practices.
The Group's longer term exposure to climate change falls into two
broad categories. Physical risks, particularly to the Group's
property assets arising from severe weather events; and transition
risks from the move to a low carbon economy, which will impact the
value of those investments associated with higher levels of
greenhouse gas emissions and affect the broader macroeconomic
environment.
We do not have a material direct exposure to investments which
may be affected by transitional risks, but we may be affected by
impacts on the economy, which negatively impacts on the ability of
customers to afford our products. Physical risks may impact the
value of property assets in the longer term but increasing weather
events will also have an impact on the ability to operate and
maintain business continuity in these businesses, particularly the
care homes and hospitals which are occupied by vulnerable
customers.
There are also potential longer term implications of climate
change on the health of our customers. The short-tailed nature of
our products allows us to respond to these developments, although
this can be limited by pricing controls in some markets. We
continue to work to ensure our business is equipped to anticipate
and mitigate the health impacts of climate change. In 2019, we
established a Corporate Responsibility and Sustainability Committee
as a management advisory committee to advise management on actions
to address the wider ESG agenda, including addressing environment
and climate change risks. It's chaired by Nicholas Lyons,
Non-Executive Director, and membership includes a mix of
management, including the Group CEO and CFO, and Non-Executive
Directors.
Our approach to risk management:
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. Monitoring and managing our risks
is key to ensuring that we achieve our strategic objectives in the
long-term, meeting the evolving expectations of our customers,
people, bondholders and regulators. The pandemic has reinforced
that our Risk Management Framework remains appropriate for Bupa and
has operated effectively, even during these extraordinary times.
Internal controls, particularly regarding customer conduct and
information security and privacy, continue to be key areas of
focus.
As we hold significant goodwill, intangibles and financial
investments on our balance sheet, the crystallisation of the risks
set out above could lead to impairments being recognised in future
reporting periods. The lack of certainty that exists as a result of
the pandemic means that there is significant uncertainty relating
to key judgements in the valuation of goodwill in particular. These
are set out in detail on page 37 of the condensed consolidated half
year financial statements, including sensitivities to movements to
these underlying assumptions. A review of goodwill was carried out
as at 30 June 2020, with a further assessment planned at the year
end.
BUPA AROUND THE WORLD
Bupa is organised into three 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 health care for the Australian Defence Force
-- Bupa Villages and Aged Care Australia cares for around 6,000
residents across 72 homes. Bupa Villages and Aged Care New Zealand
cares for around 3,400 residents in 48 homes and 7 rehabilitation
centres and provide independent living in 32 retirement villages in
New Zealand
Europe and Latin America
-- Sanitas Seguros is the second largest health insurance provider in Spain, with 1.8m customers
-- Sanitas Dental provides dental services through 194 centres and third-party networks in Spain
-- Sanitas Hospitales and New Services comprise four private
hospitals, 25 private medical clinics, 18 fertility clinics (in
Spain and Portugal), and one public hospital under a Public-Private
partnership model
-- Sanitas Mayores cares for around 4,900 people in 47 care
homes and operates six daycare centres in Spain
-- LuxMed is a leading private healthcare business in Poland,
operating in health funding and provision through 8 hospitals and
233 private clinics.
-- Bupa Chile is a leading health insurer serving 800,000
customers and offering provision services across four hospitals and
34 medical clinics
-- Bupa Acıbadem Sigorta is Turkey's second largest health
insurer, with products for corporate and individual customers, and
has around 650,000 customers
-- Care Plus is a leading health insurance company in Brazil,
with around 120,000 customers, concentrated in São Paulo
-- Bupa Mexico is a health insurer offering private medical
insurance to individuals and corporates in Mexico, with around
60,000 customers
-- Bupa Global Latin America provides international health
insurance, local health insurance, and travel insurance to around
80,000 customers. Main operations include Guatemala, Panama,
Dominican Republic, Colombia, Ecuador, Bolivia and Chile, as well
as a health provision business in Peru
Bupa Global and UK
-- Bupa UK Insurance is a leading health insurer, with 2.3m customers
-- Bupa Dental Care is the leading provider of private dentistry
in the UK with 493 dental centres across the UK and the Republic of
Ireland
-- Bupa Care Services has around 5,800 residents in 124 care
homes, and nine Richmond care villages in the UK
-- Bupa Health Services comprises 48 health clinics, and the Bupa Cromwell Hospital
-- Bupa Global serves over 550,000 IPMI customers and
administers travel insurance and medical assistance for
individuals, small businesses and corporate customers
Other businesses
We also have associate health insurance businesses in Saudi
Arabia and India, an interest in MyClinic in Saudi Arabia, a health
insurance and provision business in Hong Kong SAR and a
representative office and medical centre in mainland China.
Bupa Finance plc
(Company No. 2779134)
Condensed Consolidated Half Year Financial Statements
(unaudited)
Six months ended 30 June 2020
Bupa Finance plc
Condensed Consolidated Income Statement (unaudited)
for six months ended 30 June 2020
For six
months For six For year
ended months ended ended
30 June 30 June 31 December
2020 2019 2019
Note GBPm GBPm GBPm
================================== ===== ========= ============== =============
Revenues
Gross insurance premiums 4,387 4,483 9,077
Premiums ceded to reinsurers (47) (38) (79)
================================== ===== ========= ============== =============
Net insurance premiums earned 4,340 4,445 8,998
Care, health and other customer
contract revenue 1,467 1,566 3,287
Other revenue 33 14 31
================================== ===== ========= ============== =============
Total revenues 3 5,840 6,025 12,316
================================== ===== ========= ============== =============
Claims and expenses
Insurance claims incurred (3,308) (3,598) (7,239)
Reinsurers' share of claims
incurred 31 24 56
================================== ===== ========= ============== =============
Net insurance claims incurred (3,277) (3,574) (7,183)
================================== ===== ========= ============== =============
Share of post-taxation results
of equity accounted investments 36 17 48
Impairment of goodwill and
intangible assets - (1) (449)
Other operating expenses (2,355) (2,19 1) (4,592)
Other income and charges 4 (5) (2) (42)
================================== ===== ========= ============== =============
Total claims and expenses (5,601) (5,751) (12,218)
================================== ===== ========= ============== =============
Profit before financial income
and expense 239 274 98
================================== ===== ========= ============== =============
Financial income and expense
Financial income 5 39 71 110
Financial expense 5 (78) (79) (162)
Net impairment loss on financial
assets (9) (9) (11)
================================== ===== ========= ============== =============
Net financial expense (48) (17) (63)
================================== ===== ========= ============== =============
Profit before taxation expense 191 257 35
Taxation expense 6 (45) (78) (154)
Profit/(loss) for the financial
period 146 179 (119)
================================== ===== ========= ============== =============
Attributable to:
Bupa Finance plc 145 177 (121)
Non-controlling interests 1 2 2
================================== ===== ========= ============== =============
Profit/(loss) for the financial
period 146 179 (119)
================================== ===== ========= ============== =============
Notes 1-18 form part of these Condensed Consolidated Financial
Statements.
Bupa Finance plc
Condensed Consolidated Statement of Comprehensive Income
(unaudited)
for six months ended 30 June 2020
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
========= ========= =============
Profit/(loss) for the financial
period 146 179 (119)
======================================= ========= ========= =============
Other comprehensive income/(expense)
Items that will not be reclassified
to the Income Statement
Remeasurement losses on pension
schemes - - (2)
Unrealised (losses)/gains
on revaluation of property (2) 1 18
Taxation charge on income
and expenses recognised directly
in other comprehensive income - - (2)
Items that may be reclassified
subsequently to the Income
Statement
Foreign exchange translation
differences on goodwill 72 6 (107)
Other foreign exchange translation
differences 177 18 (188)
Net (losses)/gains on hedge
of net investment in overseas
subsidiary companies (68) 4 51
Change in fair value of financial
investments through other
comprehensive income 1 4 5
Change in fair value of underlying
derivative of cash flow hedge - 1 1
Taxation charge on income
and expenses recognised directly
in other comprehensive income - - (1)
======================================= ========= ========= =============
Total other comprehensive
income/(expense) 180 34 (225)
======================================= ========= ========= =============
Comprehensive income/(expense)
for the period 326 213 (344)
======================================= ========= ========= =============
Attributable to:
Bupa Finance plc 325 211 (344)
Non-controlling interests 1 2 -
======================================= ========= ========= =============
Comprehensive income/(expense)
for the period 326 213 (344)
======================================= ========= ========= =============
Notes 1-18 form part of these Condensed Consolidated Financial
Statements.
Bupa Finance plc
Condensed Consolidated Statement of Financial Position
(unaudited)
as at 30 June 2020
At 30 June At 31 December At 30 June
2020 2019 2019
Note GBPm GBPm GBPm
=============================== ===== =========== =============== ===========
Goodwill and intangible
assets 7 3,842 3,759 4,285
Property, plant and equipment 8 4,245 4,170 4,224
Investment property 574 522 491
Equity accounted investments 804 716 725
Post-employment benefit
net assets 9 2 2 4
Restricted assets 10 123 117 109
Financial investments 11 2,796 2,331 2,519
Derivatives assets 26 59 27
Deferred taxation assets 47 44 42
Current taxation asset 5 8 25
Assets arising from insurance
business 12 2,069 1,416 1,994
Inventories 104 98 109
Trade and other receivables 656 739 761
Cash and cash equivalents 13 1,843 1,234 1,679
Assets held for sale 14 292 278 4
=============================== ===== =========== =============== ===========
Total assets 17,428 15,493 16,998
=============================== ===== =========== =============== ===========
Subordinated liabilities 15 (1,595) (1,245) (1,261)
Other interest bearing
liabilities 15 (1,171) (1,105) (1,180)
Lease liabilities (1,081) (1,062) (1,106)
Post-employment benefit
net liabilities 9 (7) (7) (8)
Provisions arising from
insurance contracts 16 (4,060) (2,836) (3,663)
Derivative liabilities (86) (34) (49)
Provisions for liabilities
and charges (191) (176) (182)
Deferred taxation liabilities (189) (250) (261)
Current taxation liabilities (126) (64) (89)
Other liabilities arising
from insurance business (188) (146) (198)
Trade and other payables (1,839) (1,898) (1,888)
Liabilities associated
with assets held for sale 14 (202) (193) -
Total liabilities (10,735) (9,016) (9,885)
=============================== ===== =========== =============== ===========
Net assets 6,693 6,477 7,113
=============================== ===== =========== =============== ===========
Equity
Called up share capital 200 200 200
Property revaluation reserve 705 692 696
Income and expenditure
reserves 5,348 5,310 5,685
Cash flow hedge reserve 21 21 21
Foreign currency translation
reserve 401 237 491
=============================== ===== =========== =============== ===========
Equity attributable to
Bupa Finance plc 6,675 6,460 7,093
Equity attributable to
non-controlling interests 18 17 20
=============================== ===== =========== =============== ===========
Total equity 6,693 6,477 7,113
=============================== ===== =========== =============== ===========
Notes 1-18 form part of these Condensed Consolidated Financial
Statements.
Bupa Finance plc
Condensed Consolidated Statement of Cash Flows (unaudited)
for six months ended 30 June 2020
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
----------------------------------------
Note GBPm GBPm GBPm
======================================== ===== ========= ========= =============
Cash flow from operating activities
Profit before taxation expense 191 257 35
Adjustments for:
Net financial expense 48 17 63
Depreciation, amortisation and
impairment 235 234 921
Other non-cash items (39) (3) (34)
Changes in working capital and
provisions:
Increase in provisions and other
liabilities arising from insurance
contracts 1,179 777 17
Increase in assets arising from
insurance business (621) (554) (25)
Funded pension scheme employer
contributions - - (1)
Increase in trade and other
receivables, and other assets (34) (76) (129)
Increase/(decrease) in trade
and other payables, and other
liabilities 36 (2) 267
Cash generated from operations 995 650 1,114
======================================== ===== ========= ========= =============
Income taxation paid (59) (142) (242)
Increase in cash held in restricted
assets 10 (6) (2) (10)
Net cash generated from operating
activities 930 506 862
======================================== ===== ========= ========= =============
Cash flow from investing activities
Acquisition of subsidiary companies,
net of cash acquired 17 (17) (140) (215)
Investment in equity accounted
investments - (4) (8)
Dividends received from associates - - 13
Disposal of subsidiary companies,
net of cash disposed of (5) (3) -
Divestment in equity accounted
investments - - 4
Purchase of intangible assets 7 (43) (31) (130)
Purchase of property, plant
and equipment (85) (91) (291)
Proceeds from sale of property,
plant and equipment 2 9 12
Purchase of investment property (27) (24) (58)
Disposal of investment property 1 - 4
Net proceeds from sale, maturities
and (purchases) of financial
investments, excluding deposits
with credit institutions (11) 56 157
Net investment into deposits
with credit institutions (355) (111) (92)
Interest received 17 33 83
Net cash used in investing activities (523) (306) (521)
======================================== ===== ========= ========= =============
Cash flow from financing activities
Proceeds from issue of interest
bearing liabilities and drawdowns
on other borrowings 686 162 113
Repayment of interest bearing
liabilities and other borrowings (272) (48) (30)
Principal repayment of lease
liabilities (59) (74) (114)
Repayment of interest on lease
liabilities (27) (1) (57)
Interest paid (37) (42) (91)
(Payments)/receipts on settlement
of hedging instruments (3) 9 (35)
Dividends paid (110) (76) (154)
Acquisition of non-controlling
interests in subsidiary company 17 - (2) (2)
Dividends paid to non-controlling
interests - (2) (3)
Net cash generated from/(used)
in financing activities 178 (74) (373)
======================================== ===== ========= ========= =============
Net increase/(decrease) in cash
and cash equivalents 585 126 (32)
Cash and cash equivalents at
the beginning of period(1) 1,451 1,552 1,552
Effect of exchange rate changes 58 (1) (69)
======================================== ===== ========= ========= =============
Cash and cash equivalents at
end of period 13 2,094 1,677 1,451
======================================== ===== ========= ========= =============
Includes cash balances classified as held for sale of GBP252m
(HY 2019: GBPnil; FY 2019: GBP218m) and bank overdrafts
of GBP1m (HY 2019: GBP2m; FY 2019: GBP1m) which are not
considered as a component of cash and cash equivalents within
1. Note 13.
Notes 1-18 form part of these Condensed Consolidated Financial
Statements.
Bupa Finance plc
Condensed Consolidated Statement of Changes in Equity
(unaudited)
for six months ended 30 June 2020
Total Equity
Income Cash Foreign attributable attributable
Property and flow exchange to Bupa to
revaluation expenditure hedge translation Finance non-controlling Total
reserve reserves reserve reserve plc interests equity
------------- ------------- --------- ------------- -------------- ---------------- --------
For six months
ended
30 June 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ============= ============= ========= ============= ============== ================ ========
Balance as at 1
January
2020 692 5,310 21 237 6,260 17 6,277
Profit for the
financial
period - 145 - - 145 1 146
Other
comprehensive
income/(expense)
Unrealised loss
on revaluation
of property (2) - - - (2) - (2)
Foreign exchange
translation
differences on
goodwill - - - 72 72 - 72
Other foreign
exchange
translation
differences 15 2 - 160 177 - 177
Net loss on hedge
of
net investment
in overseas
subsidiary
companies - - - (68) (68) - (68)
Change in fair
value
of financial
investments
through other
comprehensive
income - 1 - - 1 - 1
Other
comprehensive
income for the
period,
net of taxation 13 3 - 164 180 - 180
================== ============= ============= ========= ============= ============== ================ ========
Total
comprehensive
income for the
period 13 148 - 164 325 1 326
================== ============= ============= ========= ============= ============== ================ ========
Dividends to
equity
holders of the
company - (110) - - (110) - (110)
Balance as at 30
June
2020 705 5,348 21 401 6,475 18 6,493
================== ============= ============= ========= ============= ============== ================ ========
Share capital at
beginning
and end of
period 200
================== ============= ============= ========= ============= ============== ================ ========
Total equity 6,693
================== ============= ============= ========= ============= ============== ================ ========
Total Equity
Income Cash Foreign attributable attributable
Property and flow exchange to Bupa to
revaluation expenditure hedge translation Finance non-controlling Total
reserve reserves reserve reserve plc interests equity
------------- ------------- --------- ------------- -------------- ---------------- --------
For year ended 31
December
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ============= ============= ========= ============= ============== ================ ========
Balance as at 1
January
2019, as
previously
reported 700 5,640 20 464 6,824 20 6,844
Opening balance
adjustments (3) (61) - - (64) - (64)
================== ============= ============= ========= ============= ============== ================ ========
Balance as at 1
January
2019, as
restated 697 5,579 20 464 6,760 20 6,780
(Loss)/profit for
the
financial period - (121) - - (121) 2 (119)
Other
comprehensive
income/(expense)
Unrealised gain
on revaluation
of property 18 - - - 18 - 18
Realised
revaluation
profit on
disposal of
property (2) 2 - - - - -
Remeasurement
loss on
pension schemes - (2) - - (2) - (2)
Foreign exchange
translation
differences on
goodwill - - - (107) (107) - (107)
Other foreign
exchange
translation
differences (18) 3 - (171) (186) (2) (188)
Net gain on hedge
of
net investment
in overseas
subsidiary
companies - - - 51 51 - 51
Change in fair
value
of financial
investments
through other
comprehensive
income - 5 - - 5 - 5
Change in fair
value
of underlying
derivative
of cash flow
hedge - - 1 - 1 - 1
Taxation charge
on income
and expense
recognised
directly in
other
comprehensive
income (3) - - - (3) - (3)
================== ============= ============= ========= ============= ============== ================ ========
Other
comprehensive
income/(expense)
for
the period, net
of taxation (5) 8 1 (227) (223) (2) (225)
================== ============= ============= ========= ============= ============== ================ ========
Total
comprehensive
income/(expense)
for
the period (5) (113) 1 (227) (344) - (344)
================== ============= ============= ========= ============= ============== ================ ========
Dividends to
equity
holders of the
company - (154) - - (154) - (154)
Acquisition of
subsidiary
companies
attributable
to
non-controlling
interests - (2) - - (2) - (2)
Dividends paid to
non-controlling
interests - - - - - (3) (3)
================== ============= ============= ========= ============= ============== ================ ========
Balance as at 31
December
2019 692 5,310 21 237 6,260 17 6,277
================== ============= ============= ========= ============= ============== ================ ========
Share capital at
beginning
and end of
period 200
================== ============= ============= ========= ============= ============== ================ ========
Total equity 6,477
================== ============= ============= ========= ============= ============== ================ ========
Total Equity
Income Cash Foreign attributable attributable
Property and flow exchange to Bupa to
revaluation expenditure hedge translation Finance non-controlling Total
reserve reserves reserve reserve plc interests equity
------------- ------------- --------- ------------- -------------- ---------------- --------
For six months
ended
30 June 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ============= ============= ========= ============= ============== ================ ========
Balance as at 1
January
2019, as
previously
reported 700 5,640 20 464 6,824 20 6,844
Opening balance
adjustments (3) (61) - - (64) - (64)
================== ============= ============= ========= ============= ============== ================ ========
Balance as at 1
January
2019, as
restated 697 5,579 20 464 6,760 20 6,780
Profit for the
financial
period - 177 - - 177 2 179
Other
comprehensive
income/(expense)
Unrealised gain
on revaluation
of property 1 - - - 1 - 1
Realised
revaluation
profit on
disposal of
property (2) 2 - - - - -
Change in fair
value
of financial
investments
through other
comprehensive
income - 4 - - 4 - 4
Foreign exchange
translation
differences on
goodwill - - - 6 6 - 6
Other foreign
exchange
translation
differences - 1 - 17 18 - 18
Net gain on hedge
of
net investment
in overseas
subsidiary
companies - - - 4 4 - 4
Change in fair
value
of underlying
derivative
of cash flow
hedge - - 1 - 1 - 1
Other
comprehensive
income/(expense)
for
the period, net
of taxation (1) 7 1 27 34 - 34
================== ============= ============= ========= ============= ============== ================ ========
Total
comprehensive
income/(expense)
for
the period (1) 184 1 27 211 2 213
================== ============= ============= ========= ============= ============== ================ ========
Dividends to
equity
holders of the
company - (76) - - (76) - (76)
Acquisition of
subsidiary
companies
attributable
to
non-controlling
interests - (2) - - (2) - (2)
Dividends paid to
non-controlling
interests - - - - - (2) (2)
================== ============= ============= ========= ============= ============== ================ ========
Balance at 30
June 2019 696 5,685 21 491 6,893 20 6,913
================== ============= ============= ========= ============= ============== ================ ========
Share capital at
beginning
and end of
period 200
================== ============= ============= ========= ============= ============== ================ ========
Total equity 7,113
================== ============= ============= ========= ============= ============== ================ ========
Notes 1-18 form part of these Condensed Consolidated Financial
Statements.
Bupa Finance plc
Notes to the Condensed Consolidated Financial Statements
(unaudited)
for six months ended 30 June 2020
1 Financial information and basis of preparation
1.1 Basis of preparation
Bupa Finance plc (the 'Company'), a company incorporated in
England and Wales, together with its subsidiaries (collectively the
'Group') is an international healthcare business, providing health
insurance, treatment in clinics, dental centres and hospitals, and
operating care homes. The immediate and ultimate parent of the
Company is The British United Provident Association Limited (the
'Parent' or 'Bupa' and together with its subsidiaries, the 'Bupa
Group').
The condensed consolidated half year financial statements of the
Company as at and for the six months ended 30 June 2020 comprise
those of the Company and its subsidiary companies.
The interim financial statements have been prepared in
accordance with Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority and with International Accounting
Standard ('IAS') 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 2019,
which have been prepared in accordance with the International
Financial Reporting Standards ('IFRS') as adopted by the EU.
The interim financial statements were approved by the Board of
Directors of Bupa Finance plc on 6 August 2020.
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 2019
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 forecasts which take account of
reasonably possible changes in trading performance, liquidity and
solvency capital as well as detailed stress and scenario testing.
In doing this, the Group has explicitly considered further possible
impacts of COVID-19 related risks.
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 Half Year 2020 Results Announcement.
This includes changes to key risks and uncertainties in light of
the COVID-19 pandemic within the Business Risks section. The
financial position of the Group, its cash flows, liquidity position
and borrowing facilities are also described in the Financial Review
of the Half Year 2020 Results Announcement.
1.3 Accounting estimates and judgements
The preparation of financial statements requires the use of
certain accounting estimates and assumptions that affect the
reported assets, liabilities, income and expenses. It also requires
management to exercise judgement in applying the Group's accounting
policies.
Areas that have been recognised as being particularly sensitive
to the impact of COVID-19 are set out below, with more detail on
any judgements taken included in the related notes.
Goodwill and intangible assets
Goodwill and intangible assets are recognised on business
combinations and are tested for impairment on an annual basis, or
where there are indicators of impairment. The key assumptions
within this process include the discount rate, terminal growth rate
and the forecast cash flows. In the current environment, these are
key sources of estimation uncertainty and goodwill impairment tests
have been carried out for cash generating units with limited
headroom. The outcome of Goodwill impairment test reviews and
sensitivities to reasonably possible changes in assumptions are
included in Note 7.
Property valuations
The Group has a significant portfolio of care home, hospital and
office properties. Significant assumptions for freehold properties
include average occupancy and capitalisation rates, whereas for
investment property key assumptions include discount and capital
growth rates. Given the lack of recent observable market
transactions and that the longer term economic and social impacts
of COVID-19 are not yet fully known, these valuations are subject
to a high degree of judgement and uncertainty.
Provisions arising from insurance contracts
Across the Group's insurance businesses, claims volumes were
reduced due to the restrictions on access to hospitals for elective
surgery during the various lockdowns. Reserves have been
established prudently at the half year, as increased claims are
expected to be paid in future, as customers access the treatments
and procedures that have been deferred due to the lockdowns.
Further details of the reserving approach are included in Note
16.
1.4 Changes in accounting policies
Except for the changes below, the Group has consistently applied
the accounting policies to all periods presented in these condensed
consolidated financial statements.
1.4.1 2019 Transitional impacts
The Group adopted IFRS 16 Leases with a date of initial
application of 1 January 2019.
For the majority of leases, the Group applied IFRS 16 using the
modified retrospective approach, where the right-of-use assets
equal the lease liabilities on transition, adjusted by the amount
of any prepayments, intangible assets and onerous lease provisions.
For a small proportion of leases, the modified retrospective
approach for the right-of-use asset was determined as if IFRS 16
had been applied since the lease commencement date but discounted
using the lessee's incremental borrowing rate at the date of
initial application. The cumulative impact of initially applying
IFRS 16 was recognised as an adjustment to the opening balance of
retained earnings.
On transition to IFRS 16 on 1 January 2019, leases previously
classified as finance leases under IAS 17 were recognised as a
right-of-use asset and lease liability based on the carrying amount
of the finance lease asset and liability as at 31 December 2018.
These leases are subsequently measured under IFRS 16 principles.
Other reclassifications related to previously recognised lease
intangible assets/liabilities arising on business combinations due
to favourable/unfavourable lease terms, prepayments and accruals,
which were all reclassified to the right-of-use asset on
transition.
The impact of implementing IFRS 16 on 1 January 2019 is set out
below:
Measurement adjustments Reclassifications Total
GBPm GBPm GBPm
============================================================== ======================== ================== ========
Goodwill and intangible assets - (18) (18)
Property, plant and equipment (right-of-use assets) 1,017 28 1,045
Property, plant and equipment (leasehold property/equipment) - (11) (11)
Investment property (right-of-use asset) - 2 2
Deferred taxation assets 13 - 13
Trade and other receivables - (23) (23)
Other interest bearing liabilities - 4 4
Lease liabilities (1,094) (1) (1,095)
Trade and other payables - 19 19
============================================================== ======================== ================== ========
Total impact on net assets (64) - (64)
============================================================== ======================== ================== ========
In addition, GBP3m was reclassified from the property
revaluation reserve to the income and expenditure reserves as a
result of reclassifying finance leased property assets to
right-of-use assets on implementation of IFRS 16.
1.5 Foreign exchange
The following significant exchange rates applied during the
period:
Average rate Closing rate
========================================= =========================================
At 30 June At 31 December At 30 June At 30 June At 31 December At 30 June
2020 2019 2019 2020 2019 2019
==================== =========== =============== =========== =========== =============== ===========
Australian dollar 1.92 1.84 1.83 1.80 1.89 1.81
Brazilian real 6.17 5.03 4.97 6.72 5.32 4.87
Chilean peso 1,024.77 898.47 873.84 1,016.91 995.54 861.30
Danish krone 8.54 8.52 8.55 8.22 8.82 8.34
Euro 1.14 1.14 1.15 1.10 1.18 1.12
Hong Kong dollar 9.79 10.00 10.15 9.59 10.31 9.92
Mexican peso 27.19 24.58 24.79 28.49 25.03 24.35
New Zealand dollar 2.01 1.94 1.93 1.92 1.97 1.89
Polish zloty 5.04 4.90 4.92 4.90 5.02 4.74
Turkish lira 8.16 7.25 7.27 8.49 7.88 7.35
US dollar 1.26 1.28 1.29 1.24 1.32 1.27
==================== =========== =============== =========== =========== =============== ===========
2 Operating segments
During the second half of 2019, the Group announced a
simplification of the organisational structure, to manage the Group
through three Market Units based on geographic locations and
customers: Australia and New Zealand; Europe and Latin America; and
Bupa Global and UK. Management monitors the operating results of
the Market Units separately to assess performance and make
decisions about the allocation of resources. The segmental
disclosures below are reported consistently with the way the
business is managed and reported internally.
Businesses previously part of International Markets have been
reallocated. Bupa Global Business Unit is now part of Bupa Global
and UK. Bupa Global Latin America and Bupa Acıbadem Sigorta are now
part of Europe and Latin America and from 30 June 2020 Bupa Global
Latin America has been split to report business in Brazil and
Mexico separately . All remaining International Markets business
units, including Bupa Hong Kong, Bupa China and the Group's
associate investments, Bupa Arabia and Max Bupa , are reported
within Other businesses. Comparative information has been restated
accordingly.
Reportable Segments Service and Products
-------------------- --------------------------------------------------------
Australia and Bupa Health Insurance: Domestic health insurance
New Zealand and international health cover in Australia.
Bupa Health Services: Health provision services
relating to dental, optical, audiology and medical
assessments and therapy.
Bupa Villages and Aged Care - Australia: Nursing,
residential and respite care.
Bupa Villages and Aged Care - New Zealand: Nursing,
residential, respite care and residential villages.
-------------------- --------------------------------------------------------
Europe and Latin Sanitas Seguros: Health insurance and related
America products in Spain.
Sanitas Dental: Insurance and dental services
through clinics and third-party networks in
Spain.
Sanitas Hospitales and New Services: Management
and operation of hospitals and health clinics
in Spain.
Sanitas Mayores: Nursing, residential and respite
care in care homes and day centres in Spain.
LuxMed: Medical subscriptions, health insurance,
and the management and operation of diagnostics,
health clinics and hospitals in Poland.
Bupa A cıbadem Sigorta: Domestic health
insurance in Turkey.
Bupa Chile: Domestic health insurance and the
management and operation of health clinics and
hospitals in Chile.
Care Plus: Domestic health insurance in Brazil.
Bupa Mexico: Domestic health insurance in Mexico.
Bupa Global Latin America: International health
insurance.
-------------------- --------------------------------------------------------
Bupa Global and Bupa UK Insurance: Domestic health insurance,
UK and administration services for Bupa health
trusts.
Bupa Dental Care UK: Dental services and related
products.
Bupa Care Services: Nursing, residential, respite
care and care villages.
Bupa Health Services: Clinical services, health
assessment related products and management and
operation of a private hospital.
Bupa Global: International health insurance
to individuals, small businesses and corporate
customers.
-------------------- --------------------------------------------------------
Other businesses Bupa Hong Kong: Domestic health insurance, primary
healthcare and day care clinics including diagnostics.
Bupa China : Clinical services.
Associates: Bupa Arabia (Kingdom of Saudi Arabia)
and Max Bupa (India): Health insurance.
-------------------- --------------------------------------------------------
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 taxation not directly related to the trading
performance of the business.
Underlying profit
The following items are excluded from underlying profit:
- Impairment of intangible assets and goodwill arising on
business combinations - impairment reviews are performed
at least annually. Goodwill impairments are considered
to be one-off and not reflective of the in-year trading
performance of the business.
- Net gains/losses on disposal of businesses and transaction
costs on business combinations - gains/losses on disposal
of businesses that are material and one-off in nature
to the reportable segment are not considered part of the
continuing business. Transaction costs that relate to
material 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.
- Realised and unrealised foreign exchange gains/losses
- short-term fluctuations outside of management control,
which would distort underlying trading performance.
- Gains/losses on return-seeking assets, net of hedging
- fluctuations on investments that are not considered
to be directly related to underlying trading performance.
- Other Market Unit/Group non-underlying items - includes
items that are considered material to the reportable segment
or Group and are not reflective of ongoing trading performance.
The total underlying profit of the reportable segments is
reconciled below to the profit before taxation expense in the
Consolidated Income Statement.
Europe
Australia and
and Latin Bupa Global Other
New Zealand America and UK businesses Total
------------- --------- ------------ ------------ ------
For six months ended
30 June 2020 GBPm GBPm GBPm GBPm GBPm
=========================== ============= ========= ============ ============ ======
(i) Revenues
Gross insurance premiums 1,756 1,326 1,108 197 4,387
Premiums ceded to
reinsurers - (11) (34) (2) (47)
Internal reinsurance - - 24 (24) -
=========================== ============= ========= ============ ============ ======
Net insurance premiums
earned 1,756 1,315 1,098 171 4,340
Care, health and other
customer contract
revenues 459 510 430 68 1,467
Other revenues 23 2 4 4 33
Total revenues for
reportable segments 2,238 1,827 1,532 243 5,840
=========================== ============= ========= ============ ============ ======
Consolidated total
revenues 5,840
=========================== ============= ========= ============ ============ ======
(ii) Segmental result
Underlying profit
for reportable segments 60 85 26 35 206
Central expenses and
net interest margin (28)
======
Underlying profit
for reportable segments 178
Non-underlying items:
Net losses on disposal
of businesses and
transaction costs
on business combinations - (3) (2) - (5)
Net property revaluation
gains 10 - - - 10
Realised and unrealised
FX gains - 8 5 1 14
Losses on return-seeking
assets, net of hedging (5)
Central non-underlying
items (1)
======
Total non-underlying
items 13
=========================== ============= ========= ============ ============ ======
Consolidated profit
before taxation expense 191
=========================== ============= ========= ============ ============ ======
Europe
and Bupa
Australia Latin Global Other
and America and UK businesses Total
New Zealand (restated) (restated) (restated) (restated)
============= ============ ============ ============ ============
For six months ended
30 June 2019 GBPm GBPm GBPm GBPm GBPm
================================= ============= ============ ============ ============ ============
(i) Revenues
Gross insurance premiums 1,851 1,317 1,137 178 4,483
Premiums ceded to reinsurers - (10) (28) - (38)
Internal reinsurance - - 27 (27) -
================================= ============= ============ ============ ============ ============
Net insurance premiums
earned 1,851 1,307 1,136 151 4,445
Care, health and other
customer contract revenues 395 581 508 82 1,566
Other revenues 8 2 3 2 15
Total revenue for reportable
segments 2,254 1,890 1,647 235 6,026
================================= ============= ============ ============ ============ ============
Net reclassifications
to other expenses or
financial income and
expense (1)
Consolidated total
revenues 6,025
================================= ============= ============ ============ ============ ============
(ii) Segmental result
Underlying profit for
reportable segments 92 84 58 18 252
Central expenses and
net interest margin (10)
============
Underlying profit for
reportable segments 242
Non-underlying items:
Net losses on disposal
of businesses and transaction
costs on business combinations - - (2) - (2)
Net property revaluation
gains 8 - - - 8
Realised and unrealised
FX losses - - (9) - (9)
Gains on return-seeking
assets, net of hedging 24
Central non-underlying
items (6)
============
Total non-underlying
items 15
================================= ============= ============ ============ ============ ============
Consolidated profit
before taxation expense 257
================================= ============= ============ ============ ============ ============
Europe
Australia and Bupa
and Latin Global Other
New Zealand America and UK businesses Total
------------- --------- -------- ------------ -------
For year ended 31 December
2019 GBPm GBPm GBPm GBPm GBPm
================================= ============= ========= ======== ============ =======
(i) Revenues
Gross insurance premiums 3,731 2,685 2,295 366 9,077
Premiums ceded to reinsurers - (21) (57) (1) (79)
Internal reinsurance - 1 49 (50) -
================================= ============= ========= ======== ============ =======
Net insurance premiums
earned 3,731 2,665 2,287 315 8,998
Care, health and other
customer contract revenues 906 1,184 1,028 169 3,287
Other revenues 15 4 8 4 31
Total revenue for reportable
segments 4,652 3,853 3,323 488 12,316
================================= ============= ========= ======== ============ =======
Consolidated total
revenues 12,316
================================= ============= ========= ======== ============ =======
(ii) Segmental result
Underlying profit for
reportable segments 185 178 131 49 543
Central expenses and
net interest margin (18)
=======
Underlying profit for
reportable segments 525
Non-underlying items:
Impairments of intangible
assets and goodwill
arising on business
combinations (177) (24) (242) - (443)
Net losses on disposal
of businesses and transaction
costs on business combinations - (26) (3) - (29)
Net property revaluation
gains/(losses) 9 (1) (2) - 6
Realised and unrealised
FX losses - (6) (17) - (23)
Group non-underlying
items (29)
Gains on return-seeking
assets, net of hedging 28
=======
Total non-underlying
items (490)
================================= ============= ========= ======== ============ =======
Consolidated profit
before taxation expense 35
================================= ============= ========= ======== ============ =======
3 Revenue
Revenue has been analysed at Business Unit level reflecting the
nature of services provided by each geography that is reported
internally to management.
Care,
health
and other Net
customer insurance
contract premiums Other Total
revenue earned revenue revenues
For six months ended 30 June 2020 GBPm GBPm GBPm GBPm
=========== =========== ========= ==========
Bupa Health Insurance 3 1,756 1 1,760
Bupa Health Services 239 - 12 251
Bupa Villages and Aged Care -
Australia 149 - 3 152
Bupa Villages and Aged Care -
New Zealand 68 - 7 75
===================================== =========== =========== ========= ==========
Australia and New Zealand 459 1,756 23 2,238
===================================== =========== =========== ========= ==========
Sanitas Seguros 4 592 - 596
Sanitas Dental 32 32 1 65
Sanitas Hospitales and New Services 98 - - 98
Sanitas Mayores 70 - - 70
LuxMed 192 5 - 197
Bupa Acıbadem Sigorta - 104 - 104
Bupa Chile 109 342 1 452
Care Plus 1 91 - 92
Bupa Mexico - 7 - 7
Bupa Global Latin America 4 142 - 146
===================================== =========== =========== ========= ==========
Europe and Latin America 510 1,315 2 1,827
===================================== =========== =========== ========= ==========
Bupa UK Insurance 7 719 2 728
Bupa Dental Care UK 166 - - 166
Bupa Care Services 192 - - 192
Bupa Health Services 65 - - 65
Bupa Global - 379 2 381
===================================== =========== =========== ========= ==========
Bupa Global and UK 430 1,098 4 1,532
===================================== =========== =========== ========= ==========
Bupa Hong Kong 68 171 - 239
Other - - 4 4
===================================== =========== =========== ========= ==========
Other businesses 68 171 4 243
===================================== =========== =========== ========= ==========
Consolidated total revenues 1,467 4,340 33 5,840
===================================== =========== =========== ========= ==========
Care,
health
and other Net
customer insurance
contract premiums Other
revenue earned revenue Total
(restated) (restated) (restated) revenues
For six months ended 30 June 2019 GBPm GBPm GBPm GBPm
============ ============ ============ ==========
Bupa Health Insurance 4 1,851 1 1,856
Bupa Health Services 151 - 1 152
Bupa Villages and Aged Care -
Australia 170 - - 170
Bupa Villages and Aged Care -
New Zealand 70 - 6 76
===================================== ============ ============ ============ ==========
Australia and New Zealand 395 1,851 8 2,254
===================================== ============ ============ ============ ==========
Sanitas Seguros 4 570 - 574
Sanitas Dental 42 30 1 73
Sanitas Hospitales and New Services 112 - - 112
Sanitas Mayores 72 - - 72
LuxMed 183 5 - 188
Bupa Acıbadem Sigorta - 82 - 82
Bupa Chile 166 372 1 539
Care Plus 1 99 - 100
Bupa Mexico - 7 - 7
Bupa Global Latin America 1 142 - 143
===================================== ============ ============ ============ ==========
Europe and Latin America 581 1,307 2 1,890
===================================== ============ ============ ============ ==========
Bupa UK Insurance 8 760 1 769
Bupa Dental Care UK 224 - - 224
Bupa Care Services 204 - - 204
Bupa Health Services 72 - - 72
Bupa Global - 376 2 378
=====================================
Bupa Global and UK 508 1,136 3 1,647
===================================== ============ ============ ============ ==========
Bupa Hong Kong 82 151 - 233
Other - - 2 2
===================================== ============ ============ ============ ==========
Other businesses 82 151 2 235
===================================== ============ ============ ============ ==========
Net reclassifications to other
expenses or financial income and
expense - - (1) (1)
===================================== ============ ============ ============ ==========
Consolidated total revenues 1,566 4,445 14 6,025
===================================== ============ ============ ============ ==========
Care,
health
and other Net
customer insurance
contract premiums Other
revenue earned revenue Total
(restated) (restated) (restated) revenues
For year ended 31 December 2019 GBPm GBPm GBPm GBPm
============ ============ ============ ==========
Bupa Health Insurance 8 3,731 2 3,741
Bupa Health Services 428 - - 428
Bupa Villages and Aged Care -
Australia 330 - - 330
Bupa Villages and Aged Care -
New Zealand 140 - 13 153
===================================== ============ ============ ============ ==========
Australia and New Zealand 906 3,731 15 4,652
===================================== ============ ============ ============ ==========
Sanitas Seguros 8 1,149 1 1,158
Sanitas Dental 83 62 1 146
Sanitas Hospitales and New Services 230 - 1 231
Sanitas Mayores 148 - - 148
LuxMed 383 10 - 393
Bupa Acıbadem Sigorta - 185 - 185
Bupa Chile 330 744 1 1,075
Care Plus 2 205 - 207
Bupa Mexico - 15 - 15
Bupa Global Latin America - 295 - 295
===================================== ============ ============ ============ ==========
Europe and Latin America 1,184 2,665 4 3,853
===================================== ============ ============ ============ ==========
Bupa UK Insurance 15 1,537 3 1,555
Bupa Dental Care UK 454 - 1 455
Bupa Care Services 408 - - 408
Bupa Health Services 150 - 1 151
Bupa Global 1 750 3 754
===================================== ============ ============ ============ ==========
Bupa Global and UK 1,028 2,287 8 3,323
===================================== ============ ============ ============ ==========
Bupa Hong Kong 169 315 - 484
Other - - 4 4
===================================== ============ ============ ============ ==========
Other businesses 169 315 4 488
===================================== ============ ============ ============ ==========
Consolidated total revenues 3,287 8,998 31 12,316
===================================== ============ ============ ============ ==========
4 Other income and charges
For year
For six months For six months ended
ended ended 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
=============== =============== =============
Net loss on disposal and restructuring
of businesses(1) (5) (3) (24)
Deficit on revaluation of
property - - (19)
Net gains on disposal of property,
plant and equipment - 1 1
======================================== =============== =============== =============
Total other income and charges (5) (2) (42)
======================================== =============== =============== =============
Net loss on disposal and restructuring of businesses includes
a loss of GBP3m (FY 2019: loss of GBP26m) in respect of
a provision business in the Europe and Latin America segment
1. classified as held for sale.
5 Financial income and expense
Financial income
For six
For six months For year
months ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------- --------- -------------
Interest income:
Investments at fair value through
profit or loss 12 13 28
Investments at fair value through
other comprehensive income - 3 1
Investments at amortised cost 15 28 51
Net realised (losses)/gains:
Net realised (losses)/gains
on financial investments at
fair value through profit or
loss (3) 1 9
Net realised gains on financial
investments designated at fair
value through other comprehensive
income 2 - -
Net increase in fair value:
Investments at fair value through
profit or loss - 27 13
Investment property 11 8 25
Net foreign exchange translation
gains/(losses) 2 (9) (17)
==================================== ============== ========= =============
Total financial income 39 71 110
==================================== ============== ========= =============
Included within financial income is a net loss, after hedging,
on the Group's return-seeking asset portfolio of GBP5m (HY 2019:
net gain of GBP24m; FY 2019: net gain of GBP28m).
Financial expense
For year
For six months For six months ended
ended ended 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
=============== =============== =============
Interest expense on financial
liabilities at amortised cost 49 48 100
Finance charges in respect
of leases and restoration
provisions 28 29 58
Other financial expenses 1 2 4
================================ =============== =============== =============
Total financial expenses 78 79 162
================================ =============== =============== =============
6 Taxation expense
The Group's effective tax rate for the period was 24% (HY 2019:
30%; FY 2019: 440%), which is higher than the current UK
corporation tax rate of 19%. This is mainly due to profits arising
in jurisdictions with a higher rate of corporate income tax and
deferred tax adjustments arising from changes to the enacted UK
corporation tax rate.
7 Goodwill and intangible assets
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=========== =============== ===========
Net book value at beginning
of period 3,759 4,197 4,197
Adoption of IFRS 16 Leases
(Note 1.4) - (18) (18)
Assets arising on business
combinations 11 206 130
Additions 43 130 31
Disposals - (4) (1)
Amortisation for the period (70) (148) (71)
Impairments - (449) (1)
Other 6 (2) 6
Foreign exchange 93 (153) 12
================================= =========== =============== ===========
Net book value at end of period 3,842 3,759 4,285
================================= =========== =============== ===========
The net book value of intangible assets comprises:
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=========== =============== ===========
Goodwill 2,626 2,544 3,049
Computer software 284 259 247
Brands and trademarks 176 181 228
Customer relationships 552 575 576
Other 204 200 185
================================= =========== =============== ===========
Net book value at end of period 3,842 3,759 4,285
================================= =========== =============== ===========
Intangible assets of GBP3,842m (HY 2019: GBP4,285m; FY 2019:
GBP3,759m) includes GBP932m (HY 2019: GBP989m; FY 2019: GBP956m)
attributable to other intangible assets arising on business
combinations. This comprises customer relationships, brands and
trademarks and other in the above table.
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. A review of goodwill was carried out as at 30 June 2020,
which resulted in no impairments. It has highlighted some cash
generating units ('CGU') where a reasonably possible change in
assumptions could give rise to an impairment in future, as set out
below.
Goodwill by CGU is as follows:
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
============================ ========================= ================================= ===========
Australia and New Zealand
Bupa Australia Health
Insurance 883 840 875
Bupa Health Services
Australia 308 292 297
Bupa Villages and Aged
Care - Australia 84 80 268
Europe and Latin America
Bupa Chile 146 150 173
LuxMed 260 250 255
Sanitas Seguros 102 95 102
Sanitas Mayores 22 21 22
Bupa Acıbadem
Sigorta 49 53 57
Care Plus 20 24 27
Bupa Global and UK
Bupa Care Services
UK 90 90 90
Bupa Dental Care UK 468 463 677
Bupa Global 68 68 68
Bupa Cromwell Hospital - - 16
Other 2 3 3
Other businesses
Hong Kong(1) 124 115 119
============================ ========================= ================================= ===========
Total 2,626 2,544 3,049
============================ ========================= ================================= ===========
From 2019, the Hong Kong Quality HealthCare and Insurance
businesses are being managed as a single business unit,
and are now treated as a single Hong Kong CGU reflecting
1. the operating structure of the business.
COVID-19 has caused significant disruption across the Group's
provision and aged care businesses, particularly the closure of a
number of provision businesses during the peak period of lockdown
in their given geography. Goodwill impairment testing has therefore
been carried out on CGUs where there is evidence that there is
limited headroom at 30 June 2020.
A key judgement in performing this testing is the assumptions
underlying the five year cashflow forecasts of the businesses. For
aged care, key drivers are occupancy rates, fee rates, staff costs
and operating expenses. For provision business these are driven by
available clinician hours, fee rates and operating expenses. For UK
Dental, cashflows are particularly sensitive to the availability of
dentists for the Group to recruit.
The goodwill tests have been performed using the latest cashflow
forecasts for the CGUs as at 30 June 2020. These reflect the
anticipated recovery of the businesses over the medium term
along-side the impacts of management actions, such as delaying
capital expenditure, that have been implemented in the short term.
Given the uncertainty regarding potential second wave lockdowns,
and acknowledging that the longer term economic and social impact
of COVID-19 is not yet fully known, projecting future cash flows is
inevitably judgemental and will require periodic further review.
For further details of current business risks, see page 15.
The tests have not indicated that an impairment of goodwill is
required for any of the CGUs. Sensitivities have been provided
below for CGUs where a reasonably possible change to the discount
rate, terminal growth rate or cash flows could give rise to an
impairment in the future.
Reduction
Reduction in headroom
in headroom from
from 0.5% Reduction
0.5% reduction in headroom
Terminal increase in terminal from
Discount growth in discount growth 10% reduction
Headroom rate rate rate rate in cashflows
GBPm % % GBPm GBPm GBPm
======================== ========= ========= ========= ============= ============= ===============
Bupa Villages and
Aged Care - Australia 14 9.5 3.0 (36) (30) (48)
Bupa Chile 52 10.3 3.0 (45) (37) (75)
LuxMed 41 9.0 3.6 (50) (43) (51)
Bupa Care Services
UK 45 6.5 2.6 (89) (79) (63)
Bupa Dental Care
UK 2 6.5 2.6 (103) (91) (82)
======================== ========= ========= ========= ============= ============= ===============
8 Property, plant and equipment
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=========== =============== ===========
Net book value at beginning
of period 4,170 3,181 3,181
Adoption of IFRS 16 Leases
(Note 1.4) - 1,034 1,034
Additions through business
combinations 1 15 2
Additions 110 431 140
Transfer to assets held for
sale (1) (3) (1)
Disposals (2) (11) (3)
Revaluations (2) (1) 1
Remeasurement of lease right-of-use
assets 28 - 25
Depreciation charge for the
period (164) (324) (162)
Other (2) 4 (3)
Foreign exchange 107 (156) 10
===================================== =========== =============== ===========
Net book value at end of period 4,245 4,170 4,224
===================================== =========== =============== ===========
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, office buildings and equipment. Lease right-of-use
assets, recognised on transition to IFRS 16 Leases, relate
primarily to property leases.
Care home and hospital freehold property valuations are
determined based on a capitalisation of earnings approach (i.e.
each facility's normalised earnings are divided by an appropriate
capitalisation rate to determine a value in use). All other
properties are valued by external valuers, based on observable
market values of similar properties. Given the lack of recent
observable market transactions and that the longer term economic
and social impact of COVID-19 is not yet fully known, the
valuations are subject to a high degree of judgement and
uncertainty and will require periodic further review. A review of
property valuations at 30 June 2020 resulted in write-downs of
GBP2m in respect of owned property.
Right-of-use assets in relation to property leases, are carried
at historical cost less depreciation. An assessment for indicators
of impairment of right-of-use assets is made at the CGU level of
the business concerned, based on value in use. If impairment
testing is required, key assumptions include future projected cash
flows and discount rates. Whilst no indicators of impairment have
been identified as at 30 June 2020, as with other key accounting
judgements, there is future uncertainty as the longer term economic
and social impacts of COVID-19 are fully understood.
9 Post-employment benefits
The Group operates several funded defined benefit and defined
contribution pension schemes for the benefit of employees and
Directors.
The defined benefit pension schemes provide benefits based on
final pensionable salary. The Group's net obligation in respect of
the defined benefit pension 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 Condensed Consolidated Income
Statement
The amounts credited to other operating expenses for the period
are:
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
================================ ============ =============== ===========
Current service cost - 1 -
Gain on settlement - (2) (1)
================================ ============ =============== ===========
Total amount credited to the
Condensed Consolidated Income
Statement - (1) (1)
================================ ============ =============== ===========
Assets and liabilities of schemes
The assets and liabilities in respect of the defined benefit
funded pension schemes are as follows:
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=========== =============== ===========
Present value of funded obligations (79) (78) (74)
Fair value of scheme assets 74 73 70
===================================== =========== =============== ===========
Net recognised liabilities (5) (5) (4)
===================================== =========== =============== ===========
Represented on the Condensed
Consolidated Statement of
Financial Position:
Net liabilities (7) (7) (8)
Net assets 2 2 4
===================================== =========== =============== ===========
Net recognised liabilities (5) (5) (4)
===================================== =========== =============== ===========
10 Restricted assets
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=============================== =========== =============== ===========
Non-current restricted assets 44 44 42
Current restricted assets 79 73 67
=============================== =========== =============== ===========
Total restricted assets 123 117 109
=============================== =========== =============== ===========
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 should they
crystallise. The non-current restricted assets balance of
GBP44m
(HY 2019: GBP42m; FY 2019: GBP44m) consists of cash deposits
held to secure a charge over the non-registered pension arrangement
(held in the Parent company). Included in current restricted assets
is GBP77m (HY 2019: GBP65m; FY 2019: GBP72m) in respect of claims
funds held on behalf of corporate customers.
11 Financial investments
The Group generates cash from its underwriting, trading and
nancing activities and invests the surplus cash in nancial
investments. These include government bonds, corporate bonds,
pooled investments funds and deposits with credit institutions.
Classification
All financial investments are initially recognised at fair
value, which includes transaction costs for financial investments
not classified at fair value through profit or loss.
Financial investments are derecognised when the rights to
receive cash flows from the financial investments have expired or
where the Group has transferred substantially all risks and rewards
of ownership.
Financial investments at initial recognition are recorded using
trade date accounting.
The Group has classified its financial investments into the
following categories: at fair value through profit or loss
('FVTPL'), at fair value through other comprehensive income
('FVOCI') and at amortised cost.
Impairment
Entities are required to recognise an allowance for either
12-month or lifetime 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 at FVOCI and amortised cost
are all either investment grade or short term, 12-month ECL is
applied. 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 lifetime ECL using a provision
matrix.
At 30 June At 31 December At 30 June
2020 2019 2019
----------------------------- ------------------ ------------------ ------------------
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ========= ======= ========= ======= ========= =======
Fair value through
profit or loss
Corporate debt securities
and secured loans 311 311 335 335 349 349
Government debt securities 49 49 52 52 47 47
Pooled investment funds 221 221 220 220 220 220
Deposits with credit
institutions 1 1 1 1 2 2
Other loans 6 6 5 5 9 9
Equities 12 12 13 13 21 21
Fair value through
other comprehensive
income
Corporate debt securities
and secured loans 100 100 31 31 30 30
Government debt securities 35 35 52 52 66 66
Amortised cost
Corporate debt securities
and secured loans 650 656 627 631 702 705
Government debt securities 139 141 129 130 155 159
Deposits with credit
institutions 1,271 1,278 865 867 917 921
Other loans 1 1 1 1 1 1
============================= ========= ======= ========= ======= ========= =======
Total financial investments 2,796 2,811 2,331 2,338 2,519 2,530
============================= ========= ======= ========= ======= ========= =======
Non-current 990 998 767 770 837 840
Current 1,806 1,813 1,564 1,568 1,682 1,690
============================= ========= ======= ========= ======= ========= =======
The performance of the Group's financial investments has been
resilient during the period, largely due to the proportion invested
in high credit quality bank deposits and liquidity funds. Certain
insurance businesses in the Group also invest in smaller
return-seeking asset portfolios of bonds and loans, where there has
also not been a significant decline in value.
Fair value of financial investments
Fair value is a market-based measurement of assets based on
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 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).
The fair values of quoted investments in active markets are
based on current bid prices. The fair values of unlisted securities
and quoted investments for which there is no active market are
established by using valuation techniques supported by market
transactions and observable market data provided by independent
third parties. These may include reference to the current fair
value of other investments that are substantially the same and
discounted cash flow analysis.
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 hierarchy level is as
follows:
Level 1 Level 2 Level 3 Total
As at 30 June 2020 GBPm GBPm GBPm GBPm
======== ======== ======== ======
Fair value through profit
or loss
Corporate debt securities
and secured loans 14 297 - 311
Government debt securities 49 - - 49
Pooled investment funds 47 167 7 221
Deposits with credit institutions 1 - - 1
Other loans - - 6 6
Equities - - 12 12
Fair value through other
comprehensive income
Corporate debt securities
and secured loans 100 - - 100
Government debt securities 35 - - 35
Amortised cost
Corporate debt securities
and secured loans 653 3 - 656
Government debt securities 140 1 - 141
Deposits with credit institutions - 1,278 - 1,278
Other loans - 1 - 1
=================================== ======== ======== ======== ======
Total financial investments 1,039 1,747 25 2,811
=================================== ======== ======== ======== ======
Level 1 Level 2 Level 3 Total
As at 31 December 2019 GBPm GBPm GBPm GBPm
======== ======== ======== ======
Fair value through profit
or loss
Corporate debt securities
and secured loans 18 317 - 335
Government debt securities 52 - - 52
Pooled investment funds 48 168 4 220
Deposits with credit institutions 1 - - 1
Other loans - - 5 5
Equities - - 13 13
Fair value through other
comprehensive income
Corporate debt securities
and secured loans 31 - - 31
Government debt securities 52 - - 52
Amortised cost
Corporate debt securities
and secured loans 629 2 - 631
Government debt securities 129 1 - 130
Deposits with credit institutions - 867 - 867
Other loans - 1 - 1
=================================== ======== ======== ======== ======
Total financial investments 960 1,356 22 2,338
=================================== ======== ======== ======== ======
Level 1 Level 2 Level 3 Total
As at 30 June 2019 GBPm GBPm GBPm GBPm
======== ======== ======== ======
Fair value through profit
or loss
Corporate debt securities
and secured loans 26 323 - 349
Government debt securities 47 - - 47
Pooled investment funds 46 171 3 220
Deposits with credit institutions 2 - - 2
Other loans - - 9 9
Equities - - 21 21
Fair value through other
comprehensive income
Corporate debt securities
and secured loans 30 - - 30
Government debt securities 66 - - 66
Amortised cost
Corporate debt securities
and secured loans 703 2 - 705
Government debt securities 158 1 - 159
Deposits with credit institutions - 921 - 921
Other loans - 1 - 1
=================================== ======== ======== ======== ======
Total financial investments 1,078 1,419 33 2,530
=================================== ======== ======== ======== ======
The Group currently holds Level 3 financial investments
totalling GBP25m (HY 2019: GBP33m; FY 2019: GBP22m). The majority
of investments are unlisted equities and convertible notes valued
at the recent subscription value and conversion price, which are
deemed to be unobservable inputs. Reasonably possible changes to
the valuation assumptions applied could result in a change in fair
value of plus or minus GBP2m.
The table below shows movement in the Level 3 assets measured at
fair value:
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=============================== =========== =============== ===========
Opening balance 22 32 32
Additions 2 17 -
Net decrease in fair value - (17) -
Disposals - (9) -
Foreign exchange 1 (1) 1
=============================== =========== =============== ===========
Total Level 3 assets measured
at fair value 25 22 33
=============================== =========== =============== ===========
There have been no transfers in or out of Level 3 during the
period.
12 Assets arising from insurance business
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
============================ =========== ============================ ============================
Insurance debtors 1,744 1,143 1,684
Ceded insurance provisions
(see Note 16) 54 24 45
Deferred acquisition costs 188 160 173
Medicare Rebate 74 73 68
Risk Equalisation Special
Account recoveries 9 16 24
============================ =========== ============================ ============================
Total assets arising from
insurance business 2,069 1,416 1,994
============================ =========== ============================ ============================
Non-current 12 27 15
Current 2,057 1,389 1,979
============================ =========== ============================ ============================
Due to the nature of the Group's insurance business and the
timing of renewals, half year balances are higher than year
end.
13 Cash and cash equivalents
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
================================= =========== =============== ===========
Cash at bank and in hand 1,132 807 1,098
Short-term deposits 711 427 581
================================= =========== =============== ===========
Total cash and cash equivalents 1,843 1,234 1,679
================================= =========== =============== ===========
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 GBP1m (HY 2019: GBP2m; FY 2019: GBP1m) that
are repayable on demand are reported within other interest bearing
liabilities (Note 15) on the Condensed Consolidated Statement of
Financial Position, although these are considered as a component of
cash and cash equivalents for the purpose of the Condensed
Consolidated Statement of Cash Flows.
14 Assets and liabilities held for sale
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
==================================== =========== =============== ===========
Assets held for sale
Property, plant and equipment 5 7 4
Financial investments 6 6 -
Deferred taxation assets 1 1 -
Inventories 6 4 -
Trade and other receivables 22 42 -
Cash and cash equivalents 252 218 -
==================================== =========== =============== ===========
Total assets classified as
held for sale 292 278 4
==================================== =========== =============== ===========
Liabilities associated with
assets held for sale
Other interest bearing liabilities (17) (18) -
Lease liabilities - (2) -
Deferred taxation liabilities (2) (3) -
Trade and other payables (182) (170) -
Current taxation liabilities (1) - -
==================================== =========== =============== ===========
Total liabilities classified
as held for sale (202) (193) -
==================================== =========== =============== ===========
Net assets classified as
held for sale 90 85 4
==================================== =========== =============== ===========
Held for sale assets and liabilities primarily comprise a
provision business in the Europe and Latin America segment. The
sale is currently expected to be completed during 2020 following
receipt of regulatory approval.
15 Borrowings
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
==================================== =========== =============== ===========
Subordinated liabilities
Callable subordinated perpetual
guaranteed bonds 346 336 346
Fair value adjustment in respect
of hedged interest rate risk 3 9 16
==================================== =========== =============== ===========
Callable subordinated perpetual
guaranteed bonds at carrying
value 349 345 362
Subordinated unguaranteed bonds 1,246 900 899
==================================== =========== =============== ===========
Total subordinated liabilities 1,595 1,245 1,261
==================================== =========== =============== ===========
Other interest bearing liabilities
Senior unsecured bonds 992 695 700
Fair value adjustment in respect
of hedged interest rate risk 11 3 2
Bank loans and overdrafts 168 407 478
==================================== =========== =============== ===========
Total other interest bearing
liabilities 1,171 1,105 1,180
==================================== =========== =============== ===========
Total borrowings 2,766 2,350 2,441
==================================== =========== =============== ===========
Non-current 2,334 1,679 2,095
Current 432 671 346
==================================== =========== =============== ===========
Subordinated liabilities
On 25 June 2020, Bupa Finance plc issued GBP350m of unguaranteed
subordinated bonds which mature on 14 June 2035. Interest is
payable on the bonds at 4.125%. In the event of the winding up of
Bupa Finance plc the claims of the bondholders are subordinated to
the claims of other creditors of that company.
Other interest bearing liabilities
On 25 June 2020, Bupa Finance plc issued GBP300m of senior
unsecured bonds which mature on 14 June 2027. Interest is payable
on the bonds at 1.75%.
The Group maintains a GBP800m revolving credit facility which
matures in August 2022. At 30 June 2020 the facility was undrawn
(HY 2019: GBP295m; FY 2019: GBP230m). The GBP30m bilateral loan
facility matured in November 2019 and was refinanced with a two
year GBP40m bilateral loan facility, which was fully drawn down at
half year end (HY 2019: GBP30m; FY 2019: GBP40m).
Fair value of financial liabilities
At 30 June At 31 December At 30 June
2020 2019 2019
GBPm GBPm GBPm
=========== =============== ===========
Subordinated liabilities 1,653 1,279 1,346
Senior unsecured bonds 1,012 707 721
Bank loans and overdrafts 168 407 478
=============================== =========== =============== ===========
Total fair value of financial
liabilities 2,833 2,393 2,545
=============================== =========== =============== ===========
16 Provisions arising from insurance contracts
At 31 December
At 30 June 2020 2019 At 30 June 2019
=========================== =========================== ===========================
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 2,797 (43) 2,754 1,937 (15) 1,922 2,636 (37) 2,599
Provisions
for claims 1,227 (11) 1,216 865 (9) 856 991 (8) 983
Long-term
business
Life insurance
contract
liabilities 36 - 36 34 - 34 36 - 36
=================== ====== =========== ====== ====== =========== ====== ====== =========== ======
Total insurance
provisions 4,060 (54) 4,006 2,836 (24) 2,812 3,663 (45) 3,618
=================== ====== =========== ====== ====== =========== ====== ====== =========== ======
Provision for unearned premiums
The provision for unearned premiums primarily represents
premiums written that relate to periods of risk in future
accounting periods. It is released to the Income Statement on a
straight-line basis, which is not materially different from a
calculation based on the pattern of incidence of risk.
In circumstances where a return of premiums is due to
policyholders, a provision for the return of premium is established
within the provision for unearned premiums, reducing gross premium
income.
Provision is also made for unexpired risks when unearned
premiums, net of associated acquisition costs, are insufficient to
meet expected claims and administrative expenses. The expected cash
flows are calculated having regard only to contracts commencing
prior to the balance sheet date. At 30 June 2020, the unexpired
risk provision is estimated to be GBP50m.
Provision for claims
The gross provision for claims represents the estimated
liability arising from claims episodes in current and preceding
financial years which have not yet given rise to claims paid. The
provision includes an allowance for claims management and handling
expenses.
In setting the provisions for claims outstanding, a best
estimate is determined on an undiscounted basis and then a margin
of prudence is added such that there is confidence that future
claims will be met from the provisions. The level of prudence set
is either one required by regulation or one that provides an
appropriate degree of confidence. The gross provision for claims is
estimated based on current information and the ultimate liability
may vary as a result of subsequent information and events.
Where the expected provision of treatment has been deferred as a
result of COVID-19 related lockdowns and disruption to healthcare
services, claims provisions have been established for those
treatments that are ultimately still expected to be provided. These
provisions totalled GBP389m as at 30 June 2020. Provisions have
been established on a prudent basis, taking into account both,
regulatory obligations, and customer commitments . Provisions have
also been estimated on a basis that is relevant to the local
situation, taking into account the nature and extent of disruption
to healthcare provision and the subsequent treatment levels that
will be required. The calculated provision for each business is
based on a deferral factor multiplied by the observed shortfall in
incurred claims, compared with pre-COVID-19 statistical
expectations. Related future claims experience may differ
significantly from these estimates.
17 Acquisitions and disposals
A summary of material acquisitions is provided below. There have
been no material disposals in the six month period ended 30 June
2020, nor were there material disposals during the year ended 31
December 2019.
a) 2020 acquisitions
During the period the Group made acquisitions for a total
consideration of GBP10m, recognising net assets on acquisition of
GBP1m. This comprised dental and clinic acquisitions in Poland
generating goodwill of GBP4m and further dental acquisitions in
Australia and the UK generating goodwill of GBP5m. The acquisition
balance sheets of these acquisitions are provisional and will be
finalised during 2020. Adjustments to goodwill in respect of prior
period acquisitions amounted to GBP2m.
b) 2019 acquisitions
Refer to the Financial Statements for the year ended 31 December
2019 for full details of the acquisitions made during 2019.
On 17 January 2019, the Group acquired 100% of the ordinary
share capital of Turkish company, Acıbadem Sa lık ve Hayat Sigorta
A.S., the holding company of Acıbadem Grubu Sigorta Aracılık
Hizmetleri A (together "Acıbadem"), for cash consideration of
GBP138m. Acquired intangible assets of GBP42m comprised key direct
customer relationships and distribution channels (relationships
with agents and brokers) of GBP34m, brand of GBP5m and software of
GBP3m. The associated goodwill of GBP57m reflects expected future
synergies from the integration of Acıbadem into the Bupa Group.
During 2019, Bupa Dental Care UK acquired 23 further dental
centres for a total consideration of GBP83m, of which GBP9m was
deferred and contingent. Identified intangible assets including
customer relationships of GBP45m and goodwill of GBP40m were
recognised which represents the continued future growth expected to
be achieved through the development of the Group's dental insurance
business.
Further minor acquisitions across the Group included the
acquisitions of hospitals, clinics and dental centres in Poland
which generated further goodwill of GBP11m and the continued
expansion in dental centres in Australia which generated goodwill
of GBP10m.
Acquisition transaction costs expensed in the year ended 31
December 2019, within other operating expenses, totalled GBP4m.
18 Commitments and contingencies
Capital commitments
Capital expenditure for the Group contracted at 30 June 2020 but
for which no provision has been made in the financial statements
amounted to GBP158m (HY 2019: GBP273m; FY 2019: GBP268m), primarily
due to aged care facilities and retirement village project
commitments in the Australia and New Zealand Market Unit and the
Bupa Global & UK Market Unit.
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. It is not considered
that the ultimate outcome of such contingent liabilities will have
a significant adverse impact on the financial condition of the
Group.
The Australian dental business currently has a contingent
liability arising as a result of a recent court appeal in relation
to historical superannuation entitlements of a dental practitioner
under a service agreement. The relevant business will further
appeal the decision as it considers the position it has adopted is
in accordance with the relevant superannuation legislation. At this
stage, it is not practicable to assess the potential financial
exposure and, as with any legal dispute, the risk of a liability
crystallising in future periods remains.
Bupa Finance plc
Statement of Directors' responsibilities
for the six months ended 30 June 2020
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 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 2019. There have been no
changes in Directors since the publication of the Company's Annual
Report and Accounts for the year ended 31 December 2019.
By order of the Board
Gareth Roberts Joy Linton
Director Director
6 August 2020
Independent review report to the members of Bupa Finance plc
("The Company") for six months ended 30 June 2020
Conclusion
We have been engaged by Bupa Finance plc ("The Company") to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2020 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 2020 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, as if the Company were
required to comply with these rules. 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
1 5 Canada Square London, E 14 5GL
6 August 2020
[1] Revenues from associate businesses are excluded from
reported figures. Customer numbers and economic share of post-tax
profits from our associate businesses are included.
[2] All figures are at constant exchange rates (CER) unless
stated. We use CER to compare trading performance in a consistent
manner to the prior year. We have restated 2019 results to 2020
average exchange rates.
[3] Underlying profit is a non-GAAP financial measure. This
means it is not comparable to other companies. Underlying profit
reflects our trading performance and excludes a number of items
included in statutory profit before taxation, to facilitate
year-on-year comparison. These items include impairment of
intangible assets and goodwill arising on business combinations, as
well as market movements such as gains or losses on foreign
exchange, on return-seeking assets, on property revaluations and
other material items not considered part of trading performance. A
reconciliation to statutory profit before taxation can be found in
the notes to the condensed consolidated financial statements.
[4] The 2020 Solvency II capital coverage ratio is an estimate
and unaudited. It represents the position of the Parent (The
British United Provident Association Ltd)
[5] At the 2019 half year, we announced the simplification of
our organisation into three Market Units: Australia and New
Zealand; Europe and Latin America; and Bupa Global and UK. We are
reporting in accordance with this new structure and have restated
our comparator results, where applicable.
[6] Combined Operating Ratio is an alternative performance
metric for insurance businesses. It is calculated based on incurred
claims and operating expenses divided by net earned premiums.
[7] Bupa HI Pty Ltd (Australia): based on S.05.01 Prudential
Regulation Authority (SII) form (estimated and unaudited).
([8]) Australian Prudential Regulation Authority (APRA),
Operations of private health insurers annual report (June
2019).
[9] Sanitas S.A de Seguros (Spain): Prepared under local GAAP
(unaudited).
[10] ICEA (Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones).
[11] The 2020 solvency II capital coverage ratio is an estimate
and unaudited. It represents the position of the Parent (The
British United Provident Association Ltd).
[12] Group Specific Parameter (GSP) is substituted for the
insurance premium risk parameter in the standard formula,
reflecting the Group's own loss experience.
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 FLFIATFIRIII
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August 07, 2020 02:00 ET (06:00 GMT)
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