Financial results presentation - Half Year 2019/media/files/site-specific... · Section 1. Section 2 Section 3 Section 4 Section 5. HY 2019 Group highlights. Bupa. Half year results

Half Year Results Presentation 2019

6 months ended 30 June 2019

Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Half year results presentation 2019

HY 2019 results presentation

Agenda

Joy LintonChief Financial Officer

Gareth RobertsGroup Financial Controller

Gareth EvansGroup Treasurer

Section 5

Questions and answers

Section 1

Overview

Section 4

Outlook and operating priorities

Section 2

Market Unitperformance

Section 3

Financial review

2

Section 1



Overview

3

Section 1 Section 2 Section 3 Section 4 Section 5

HY 2019 Group highlights

Bupa Half year results presentation 2019

Results in line with expectations

Revenue

£6.0bn+2% AER+4% CER

(1) The HY 2019 Solvency II capital position, SCR and coverage ratio are estimates and unaudited

IFRS profitbefore tax

£207m-19% AER

Underlying profitbefore tax

£195m-23% AER-21% CER

Solvency coverageratio1

165%191% FY 2018

Leverage

24.3%23.5% FY 2018

Ratings

Moody’s senior debt rating stable atA3Fitch stable atA-

4

Section 1 Section 2 Section 3 Section 4 Section 5

HY 2019 Group highlights


Investing in the dental sector in Australia, the UK, Spain and Poland

Australian Defence Force health contract commenced on 1 July

Increased investment for sustainable growth

Invested in information technology to enhance security and privacy and digitise customer experience

Good progress across our social responsibility agenda

Brexit readiness: New Irish insurance company commenced trading activity

Employee engagement score high at 78%

Bupa Arabia reappointed as health insurance provider for the Saudi Basic Industries Corporation (SABIC)

New mental health cover within consumer health insurance policies in the UK

Integration of BupaAcıbadem Sigorta in Turkey on track

Simplification of our organisation structure

5

Section 2

Section 3 Section 4 Section 5Section 1 Section 2 Bupa Half year results presentation 2019

Market unitperformance


6


1.BUPA HEALTH INSURANCE82%

2.BUPA HEALTH SERVICES7%

3.BUPA VILLAGES AND AGED CARE AUSTRALIA AND NEW ZEALAND11%

Australia and New Zealand

Revenue by business

Operating environment

- Economy in Australia remained stagnant; slowed down in New Zealand.

- Coalition Liberals and Nationals returned to Australian Government.

- Australian private health insurance industry facing increasing pressures, affecting results across the sector.

- Royal Commission into Aged Care Quality and Safety commenced in January 2019.

Results affected by challenges in our Australian health insurance and aged care businesses

− Bupa Health Insurance: Addressing industry pressures; with a focus on providing great value for money and quality for our customers.

− Bupa Villages and Aged Care Australia: Profit fell due to lower occupancy and higher costs; addressing a number of compliance and service issues in some homes.

− Bupa Health Services: ADF contract started on 1 July serving 85,000 personnel.

− Bupa Villages and Aged Care New Zealand: More focused portfolio; investing in integrated care home villages.

Revenue

£2,254m(2018 HY: £2,266m CER)

-3% AER-1% CER

Underlying profit

£79m(2018 HY: £144m CER)

-47% AER-45% CER

1

23

7


1.SANITAS SEGUROS37%

2.SANITAS DENTAL5%

3.SANITAS HOSPITALS AND NEW SERVICES7%

4.SANITAS MAYORES5%

5.LUX MED12%

6.BUPA CHILE34%

Europe and Latin America

Revenue by business


- Spain: Political uncertainty following General Election as acting Prime Minister Sánchez tries to form government.

- Poland: Economy projected to grow over 4% in 2019; increasing demand of private medical services.

- Chile: Uncertainty in health insurance sector, with a delay in the approval of triennial premium rate increase and wider developments in the reform of the Isapres system.

Steady performance in Sanitas Seguros, with strong results in Sanitas Dental and LUX MED (Poland)

− Sanitas Seguros: Profit growth driven by increased portfolio.

− Sanitas Dental: Increase in customer numbers with dental cover drove strong performance.

− Sanitas Hospitales and New Services: Integration of Ginemed going well.

− Sanitas Mayores: Good revenue growth; high average occupancy rate at 95%.

− LUX MED: Strong results driven by corporate subscription and inpatient businesses; opened 8 health clinics and 11 dental centres.

− Bupa Chile: Outpatient business and Clínica Bupa Santiago hospital driving good revenue growth; higher claims costs in health insurance.

Revenue

£1,558m(2018 HY: £1,487m CER)

3% AER5% CER

Underlying profit

£77m(2018 HY: £77m CER)

-1% AER0% CER

1

234

5

6

8


United Kingdom

Revenue by business


- Slow economic growth.

- Political uncertainty relating to the outcome of the Brexit process.

- Strong demand in private dentistry market, driven by increasing specialist treatments.

- Pressures impacting dental sector due to shortage of dentists.

Investing in dental and to further improve services for customers

− Bupa UK Insurance: Launched new mental health cover within consumer policies.

− Bupa Dental Care: Strengthened our market position with additional acquisitions; underlying performance impacted by sector-wide pressures.

− Bupa Care Services: Positive results; driving quality in our homes.

− Bupa Health Services: Introduced Bupa Smart DNA testing kit.

Revenue

£1,269m(2018 HY: £1,252m)

+1%

Underlying profit

£36m(2018 HY: £54m)

-33%

1.BUPA UK INSURANCE61%

2.BUPA DENTAL CARE18%

3.BUPA CARE SERVICES16%

4.BUPA HEALTH SERVICES5%

12

3

4

9


International Markets

Revenue by business


- IPMI market remained competitive.

- Brazil: moderate economic growth; market to contract despite reforms.

- Turkey: Economy to contract in 2019; inflation rates dropping.

- Hong Kong: Economic growth slowing down; political and social uncertainty.

- Saudi Arabia: Moderate economic growth due to a cut in oil production.

- India: Remained one of the world’s fastest growing economies.

Positive results, reflecting Bupa Global, acquisition in Turkey and 2018 increase in stake in Bupa Arabia

− Bupa Global: Continued to see improving results; new Irish insurer for IPMI customers commenced trading activity.

− Care Plus (Brazil): Delivered good performance.

− Bupa Acıbadem Sigorta (Turkey): Integration of the business is on track.

− Hong Kong: Clinic business performed well, driven by growth in corporate customers and walk-in patients.

− Bupa Arabia: Reappointed as health insurance provider for SABIC.

− Max Bupa (India): New partner as Max India selling its stake to True North.

1.BUPA GLOBAL(2)

66%

2.HONG KONG25%

3.BUPA ACIBADEM SIGORTA9%

1

2

3

Revenue(1)

£945m(2018 HY: £811m CER)

+20% AER+17% CER

Underlying profit

£15m(2018 HY: £9m CER)

+67% AER+67% CER

(1) Revenues from our associate and joint venture businesses are excluded from our reported figures. The appropriate share of profit from our associate and joint venture businesses are included in our reported figures(2) Includes Care Plus (Brazil) 10

Section 3



Gareth Evans

Group Treasurer

Financial Review

11


Financial highlightsHY 2019 Financial Overview

Net cash flow generated from operating activities

£389mDown 20% on 2018

Solvency capitalcoverage

165%(1)


Leverage ratio

24.3%FY 2018: 23.5%

FY 2018: 191%

12


Group results are in line with expectations HY 2019 Financial Overview

HY 2017 91%

Underlying profit before tax (1)Revenue

• Revenue of £6.0bn increased by 4% at CER.

• Excluding the acquisition of Acibadem Sigorta, revenue grew by 2% on a like-for-like basis at CER.

• Insurance revenue grew by 4% at CER compared to 2018.

+4% at CER

+2% at AERHY 2019

HY 2018 (CER)

£6.0bn

£5.8bn

(1) Underlying profit is a non-GAAP financial measure which means it is not comparable to other companies. Underlying profit reflects our trading performance and excludes a number of items otherwise included in statutory profit, to facilitate year-on-year comparison. These items include the 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

(2) 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. Combined operating ratios are calculated based on local reporting requirements: Group: S.05.01 Prudential Regulation Authority (SII) form (estimated and unaudited); BUPA HI Pty Ltd (Australia): HRF 602 Australian Prudential Regulation Authority quarterly returns (unaudited); Sanitas S.A. de Seguros (Spain): Prepared under local GAAP (unaudited) and Bupa Insurance Limited (UK): Prepared under local GAAP (unaudited)

Combined operating ratios (2)

Insurance regulated entitiesGroup

Bupa HI Pty Ltd (Australia)

Bupa Insurance Ltd (UK)

Sanitas S.A. de Seguros (Spain)

HY 2019

HY 2018

HY 2019

HY 2018

HY 2019

HY 2018

95%

93%

95%

94%

90%

91%

HY 2019 95%

HY 2018 94%

• Underlying profit decreased by 21% at CER.

• Excluding the impact IFRS 16 and the acquisition of Acibadem Sigorta, underlying profit decreased by 22% on a like-for-like basis at CER.

-23% at AERHY 2019

HY 2018 (CER)

£195m

£248m

-21% at CER

13


HY 2019£m

HY 2018 (AER)£m

Underlying profit before tax 195 253Net (losses)/gains on disposal of businesses and transaction costs on business combinations (5) 8

Net property revaluation gains/(losses) 8 -

Realised and unrealised foreign exchange (losses)/gains (9) 5

Gains/(losses) on return seeking assets, net of hedging 24 (4)

Other non-underlying items (6) (5)

Total non-underlying items 12 4

IFRS profit before tax 207 257

IFRS profit down 19%IFRS profit

• Lower IFRS profit reflects the reduced trading profitability on prior year, with the nature of non-underlying items comparable, but slightly higher than 2018.

-19% at AERHY 2019

HY 2018 (AER)

£207m

£257m

IFRS profit before tax

14


Solvency coverage ratio remains well within capital risk appetite

Solvency(1)


Solvency Capital Requirement £2.4bn

HY 2019

Own Funds

Surplus £1.6bn

£4.0bn • £1.0bn of both lease assets and liabilities were recognised on the solvency II balance sheet on 1 January 2019; this reduced the solvency coverage ratio by 18 percentage points.

• The acquisition of Acıbadem Sigorta reduced our coverage ratio by 7 percentage points

• Solvency coverage ratio estimated to be 165%, comfortably in excess of our risk appetite.

• Underlying Solvency II capital generation from our operating activities has supported ongoing investment into our business

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Solvency II coverage ratio

165%

191%

HY 2019 165%

191%FY 2018


Movement in Solvency II capital surplus from FY 2018 to HY 2019

Solvency(1)

(1) The HY 2019 Solvency II capital position, SCR and coverage ratio are estimates and unaudited (2) Operating capital includes comprehensive income of £152m adjusted to reflect changes in the SII valuation, including removing amortisation and impairment of goodwill and intangibles(3) Other includes the effect of market movements including FX

1,866

1,5041,569

201

231

131

39

51

31 15

SolvencySurplusFY 2018

IFRS 16 Acıbadem Sigortaacqusition

Pro-formaSurplus

Operating Capital Cost of debtfinancing

Net Capex M&A Activity Other inc.market & FX

SolvencySurplusHY 2019

(2)(3)

16


165%

162%

164%

165%

152%

162%

165%

163%

157%

Solvency Coverage Ratio

Interest rate +100bps

Credit spreads +100bps (assuming no credit transition)

Equity markets -20%

Property values -10%

Sterling depreciates by 10%

Pension risk +10%

Group Specific Parameter (GSP) 3 + 0.2%

Loss ratio worsening by 2%

Risk sensitivities(2)Solvency(1)

(1) The HY 2019 solvency II capital position, SCR and coverage ratios are estimates and unaudited(2) While this table only shows the impact of individual stresses, it is a helpful illustration of the relatively low risk inherent in our capital base(3) Group Specific Parameter (GSP) is substituted for the insurance premium risk parameter in the standard formula, reflecting the Group’s own loss experience

17


Cash flow

Net cash generated from operating activities

HY 2019

HY 2018 (AER)

£389m

£484m

-20% at AER

Net cash generated from operating activities down 20%

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• On a like-for-like basis(1) operational cashflow earnings before interest, depreciation and amortisation declined broadly in line with pre-tax profit

(1) When excluding the change in presentation arising from IFRS 16, the payment following the one-off tax settlement with Australian Tax Office in 2019, and a one-off working capital receipt in 2018


Leverage up from FY 2018Funding

• Leverage up at 24.3% following acquisition of Bupa Acibadem Sigorta (FY 2018: 23.5%).

• Leverage including IFRS 16 leases within lease liabilities stood at 31.9% at the HY (FY 2018 Proforma(2): 31.2%).

• Drawings under the revolving credit facility increased to £295m at 30 June 2019 (FY18: £170m).

Leverage(1)

30.2%

25.3%

24.5%

23.5%

24.3%

FY 2017

HY 2017

HY 2019

HY 2018

FY 2018

(1) Gross debt (including hybrid debt) / gross debt plus equity (2) When including the impact of IFRS 16

19


Investments remain conservatively managed

• £4.3bn cash and financial investments.• Approximately 82% of portfolio held in

investments rated at least A-/A3.• £507m return-seeking assets (externally-

managed bond and loan funds) held in UK and Australian regulated entities.

• Mark-to-market gains in HY 2019 from bond and loan portfolio of £24m (HY 2018 losses of £4m).

• Low yield environment continues to provide a challenging investment backdrop.

• Continually reviewing our investment risk appetite including ESG considerations.

Cash and Financial Investments

Cash and investment portfolio

HY 2019

Cash and cash-like instruments (e.g. deposits, liquidity funds, covered bonds)Return seeking assets

HY 2018

£4.3bn

£4.2bn

HY 2019 Cash and investments by credit rating (%)

AAA6%

<BBB-/NR10%

BBB8%

A37%

AA39%

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Section 4

Section 2 Section 3 Section 5Section 4Section 1 Bupa Half year results presentation 2019



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Conditions in some markets will remain difficult.Committed to growing sustainably


Driving and investing in organic growth

Improving customer experience; investing in the services we offer to our customers and harnessing digital technology

Continuing to strengthen risk management, privacy and information security

Being more cost efficient. New organisation structure will increase speed and efficiency

Focus areas:

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Q&A



Gareth EvansGroup Treasurer

Section 5

Questions and answers

Section 1

Overview

Section 4


Section 2

Market Unitperformance

Section 3

Financial review

23



InformationFor further information email: [email protected]

ResultsAll financial results and Solvency and Financial Condition Reports are available on: www.bupa.com/Corporate/our-performance

Further information

24


Appendix

25

25


Organisation structure: Market Units (1)

Australia and New Zealand

• Bupa Health Insurance• Bupa Health Services• Bupa Villages and Aged Care

Australia• Bupa Villages and Aged Care

New Zealand

(1) We recently announced some changes to simplify our organisation structure. From the second half of the year onwards, Bupa will be structured as three Market Units (MUs): Australia & New Zealand; Europe & Latin America; and Bupa Global & UK. We will reportour full year 2019 results in accordance with this new structure.

Europe and Latin America

• Sanitas Seguros• Sanitas Dental• Sanitas Hospitales and

New Services• Sanitas Mayores• LUX MED (Poland)• Bupa Chile

United Kingdom

• Bupa UK Insurance• Bupa Dental Care• Bupa Care Services• Bupa Health Services

International Markets (1)

• Bupa Global• Care Plus (Brazil)• Bupa Acıbadem Sigorta

(Turkey) • Bupa Hong Kong• Bupa Arabia• Max Bupa (India)• Bupa China

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Bupa’s footprint and participation(1)

(2) Bupa Arabia in Saudi Arabia and Max Bupa in India are associate businesses(3) Global international insurance available in most countries. Includes 49% stake in Highway to Health (GeoBlue) in the US(4) Domestic insurance and clinics in Brazil(5) In addition to care homes and villages, New Zealand also has a brain rehabilitation business(6) In Spain we also have day care centres

Funding

Health insurance

Pay-as-you-go

Dental insurance

Travel insurance

Clinics

Hospitals

Dental centres

Optical and audiology

Healthcare provision

Care homes

Retirement villagesAged care provision

International Markets

Australia and New Zealand UKEurope and

Latin America

Australia New Zealand(5)

Bupa Global ChinaSaudi

Arabia(2) India(2)Hong KongUKPolandSpain Chile Turkey

(3)

(4)

(6)

(1) We recently announced some changes to simplify our organisation simplification of our organisation structure. From the second half of the year onwards, Bupa will be structured as three Market Units (MUs): Australia & New Zealand, Europe & Latin America and Bupa Global & UK. We will report our full year 2019 results in accordance with this new structure 27


Solvency

HY 2019£m

FY 2018£m

HY 2018£m

Borrowings under £800m bank facility 295 170 210

£330m perpetual hybrid bond (guaranteed by Bupa Insurance Ltd) 362 357 374

£350m senior bond due 2021 349 349 349

£500m subordinated bond due 2023 502 502 501

£300m senior bond due 2024 301 295 293

£400m subordinated bond due 2026 396 396 396

Bupa Chile borrowings 183 188 201

Other 53 53 84

Total borrowings 2,441 2,310 2,408

Breakdown of borrowings

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Disclaimer: Cautionary statement concerning forward-looking statementsThis 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. To the fullest extent possible by receipt of, and using, this document, you release Bupa and each of its affiliates, advisers, directors, employees and agents, in all circumstances (other than fraud) from any liability whatsoever and howsoever arising from your use of this document. In addition, no responsibility of liability or duty of care is or will be accepted by Bupa or its respective affiliates, advisers, directors, employees and agents, for updating the document (or any additional information), correcting any inaccuracies in it or providing any additional information to any person. Accordingly, none of Bupa or its affiliates, advisers, directors, employees or agents shall be liable (save in the case of fraud) for any loss (whether direct, indirect or consequential) or damage suffered by any person as a result of relying on any statement in, or omission from, the document.

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Documents

Financial results presentation - Half Year 2019/media/files/site-specific... · Section 1. Section 2 Section 3 Section 4 Section 5. HY 2019 Group highlights. Bupa. Half year results