section 1 section 2 section 3 section 4 section 5 bupa .../media/files/site-specific... ·...

Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018

FY 2018 results presentation

2018

Full year results presentation12 months ended 31 December 2018

1



Agenda

2

Section 5

Questions

and answers

Section 1

OverviewSection 4

Outlook and

operating

priorities

Section 2

Market Unit

performance

Section 3

Financial

review

Joy Linton

Chief Financial Officer

Gareth Roberts

Group Financial Controller

Gareth Evans

Group Treasurer


Section 1

Overview

Joy LintonChief Financial Officer

3


2018 Group highlights

-19% AER

£502m

Statutory profit

before tax

180% FY 2017

191%

Solvency coverage

ratio1

Revenue flat, underlying profit down due to disposals and challenges in Australia. Growth in health insurance, including Spain and the UK

Excluding UK aged

care divestment

(CER)

25.3% FY 2017

23.5%

Leverage

-3% AER

0% CER

£11.9bn

Revenue

(1) The FY18 Solvency II capital position, SCR and coverage ratio are estimates

Moody’s senior debt

rating upgraded to

A3Fitch stable at

A-

-15% AER

-12% CER

£613m

Underlying profit

before tax

Revenue +3%

Underlying

profit -6%

180% FY 2017

191%

Solvency coverage

ratio1

Ratings

4


2018 Group highlights

Innovating and investing to meet customers’ evolving expectations

Australian customer

transformation

programme making

things easier and

faster for customers

Entered into the

Turkish health

insurance market

through the

acquisition

of Acıbadem Sigorta

Set up a new

insurance entity in

Ireland to maintain

service for IPMI

customers living in

the EU (but outside

the UK and Ireland)

after Brexit

Continued to invest in

the dental sector,

including acquiring

24 practices in the

UK and Ireland

Launched Business

Mental Health

Advantage in UK

health insurance

Increased our stake in

Bupa Arabia by 5% to

39.25%

Sanitas Seguros

enhanced our Blua

digital proposition in

Spain

In Spain, we acquired

Néctar Seguros and

Ginemed

5

Section 2


Market unitperformance

Joy LintonChief Financial Officer

6


Operating environment

− Australian and New Zealand economies remained subdued in 2018.

− In Australia, the government restricted health insurance sector price increases at a lower rate than claims inflation.

− Continued strong government interest in health insurance in Australia, with an expert committee looking at health insurance out-of-pocket costs.

− Australian Federal election to be held in the first half of 2019.

− Royal Commission into Aged Care Quality and Safety underway.

(2017 FY: £4,635m CER)

0% CER

-5% AER £4,656m

Revenue

(2017 FY: £344m CER)

-9% CER

-15% AER £313m

Underlying profit

Revenue by business

BUPA HEALTH INSURANCE82%

BUPA VILLAGES AND AGED CARE AUSTRALIA AND NEW ZEALAND11%

BUPA HEALTH SERVICES7%

Australia and

New Zealand

Stable revenue, underlying profit down, driven by challenges

in aged care and health insurance

Performance

− Affordability pressures and product changes impacted the profitability of our health insurance business.

− Progress made on health insurance customer transformation programme.

− Bupa Medical Visa Services contract renewed; selected as the health service provider for the Australian Defence Force from July 2019.

− Profit in our aged care business in Australia fell significantly, due to funding pressures, lower occupancy and higher costs.

− New Zealand profits up; portfolio reshaped.

7


Steady growth driven by Spanish health insurance

and dental businesses


− The Spanish economy grew at 2.6% with stable inflation. Political uncertainty continues with General Elections in Spain announced for April.

− The Polish economy grew strongly, and consumer consumption increased due to a buoyant labour market.

− The Chilean economy grew at 4% in 2018. The Chilean Government is leading the Isapre(1) reform project engaging with all players in the sector.

Performance

− Good results in Spanish health insurance business, driven by partnerships and Blua. Acquired Néctar Seguros.

− Growth in dental insurance customers and in our dental centres.

− Acquired fertility services provider, Ginemed. Sold our stake in Torrejón Salud hospital.

− Strong performance in Sanitas Mayores, with high occupancy rate.

− In Poland, LUX MED grew organically and through acquisitions.

− In Chile, insurance business reserve strengthened. Health services customer numbers up. Opened Clinica Bupa Santiago hospital, a £140m investment.

Europe and

Latin America

(2017 FY: £2,865 CER)

£3,041m

Revenue

(2017 FY: £179m CER)

£182m

Underlying profit

Revenue by business

+6% CER+6% AER

+2% CER+2% AER

SANITAS SEGUROS37%

BUPACHILE33%

SANITASHOSPITALESAND NEW SERVICES10%

LUX MED11%

SANITAS MAYORES5%

SANITAS DENTAL4%

8(1) Healthcare in Chile is provided by the government via Fondo Nacional de Salud (FONASA) and by private insurers via Instituciones de Salud Previsional (ISAPREs)


Reshaping and investing in the UK to focus on changing

customer needs


− Uncertainty remains around the full implications of Brexit. Low economic growth.

− Continuing pressure on the NHS with government commitment to increase future funding.

− Dental market remains competitive with a UK-wide review of NHS orthodontic contracts that will continue into 2019, and a shortage of dentists.

− In aged care, demand for local authority-funded beds continues to increase but public funding remains constrained.

Performance

− Profit growth in our health insurance business driven by improved claims performance. Launched new mental health, cancer and digital services.

− Further acquisitions in dental, strengthening our market position to c.480 centres.

− The sale of 132 care homes in December 2017 and February 2018, reflected in aged care revenue and profit

United

Kingdom

2017 FY: £2,807m)

-10% £2,537m

Revenue

(2017 FY: £199m)

-22%£156m

Underlying profit

Revenue by business

BUPA UK INSURANCE61%

BUPA HEALTH SERVICES6%

BUPA CARE SERVICES16%

BUPA DENTAL CARE17%

9


Strategic investment in rapidly-developing and growing

markets


− International Private Medical Insurance market remained competitive

− Saudi Arabia operating environment remained challenging with increasing regulation and intense competition

− Hong Kong’s economy expanded moderately. Risks are increasing due to US-China relations

− India remained one of the world’s fastest growing economies; health insurance sector is increasingly competitive

− Growth in the Turkish economy slowed due to geopolitical tensions; health insurance remains an attractive long-term market

Performance

− Bupa Global IPMI business stabilised, with progress in customer retention and customer satisfaction. Post-Brexit arrangements established.

− Integration of Care Plus in Brazil continues to progress well.

− Increased our stake in Bupa Arabia associate business to 39.25%. Signed third-party administration services agreement with Saudi Aramco.

− Hong Kong grew revenue. Heath services opened four medical centres and first Bupa-branded dental centre.

− Announced a new partner (True North) for Max Bupa associate business in India, subject to regulatory approval.

− Entered the Turkish health insurance market with the acquisition of Acıbadem Sigorta in January 2019.

International

Markets

(2017 FY: £1,581m CER)

£1,626m

Revenue

(2017 FY: £36m CER)

£36m

Underlying profit(1)

Revenue by business(2)

+3% CER

+1% CER-7% AER

BUPA GLOBAL55%

BUPA ARABIA25%

MAX BUPA (INDIA)2%

HONG KONG18%

(1) Revenues from our associates and joint ventures are excluded from our reported figures. The appropriate share of profit from these businesses are included in our reported figures.

(2) Chart includes our share of revenues from associates to give a sense of scale. 10

-1% AER

Section 3


Financial Review

Gareth RobertsGroup Financial Controller

Gareth EvansGroup Treasurer

[Image to come]

11


Financial highlightsFY 2018 Financial Overview

£808mDown 13% on 2017

Net cash flow

generated from

operating activities

23.5%

Leverage ratio

191%(1)

Solvency capital

coverage

(1) The FY18 Solvency II capital position, SCR and coverage ratio are estimates and unaudited

2017: 25.3%

2017: 180%

12


FY 2018 Financial Overview

HY 2017 91%

Underlying profit before tax(1)Revenue

• Revenue was flat at £11.9bn, but improved by

3% excluding the UK aged care divestments

• Insurance revenue grew by 2% compared to

2017

flat at CER

-3% at AERFY 2018

FY 2017 (CER)

£11.9bn

£11.9bn

• Underlying profit decreased by 12%

• Excluding the impact of the UK care home

disposals, underlying profit decreased by

6% on a like-for-like basis at CER

-15% at AERFY 2018

FY 2017 (CER)

£613m

£698m

(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 (unaudited); BUPA HI Pty Ltd (Australia): HRF 602 Australian Prudential Regulation Authority quarterly returns (unaudited).; Sanitas S.A. de Seguros (Spain): Annual Report and Accounts; Bupa Insurance Limited (UK): Annual Report and Accounts.

Insurance regulated entities

Group

Combined operating ratios (2)

Bupa HI Pty Ltd

(Australia)

Bupa Insurance

Ltd (UK)

Sanitas S.A. de

Seguros

(Spain)

FY 2018

FY 2017

FY 2018

FY 2017

FY 2018

FY 2017

92%

92%

93%

94%

88%

88%

FY 2018

FY 2017

93%

93%

Group results impacted by challenges in Australia; with growth in health insurance in Spain and the UK

-12% at CER

13


FY 2018

£m

FY 2017 (AER)

£m

Underlying profit before tax 613 719

Impairments of intangible assets and goodwill

arising on business combinations(36) (16)

Net (losses)/gains on disposal of businesses and transaction costs on

business combinations(36) 34

Net property revaluation gains/(losses) - (111)

Realised and unrealised foreign exchange gains/(losses) (8) (24)

Other material non-underlying items (30) -

(Losses)/gains on return seeking assets, net of hedging (1) 18

Total non-underlying items (111) (99)

Statutory profit before tax 502 620

Statutory profit down 19%Statutory profit

• Lower statutory profit reflects the reduced

trading profitability on prior year, with the

quantum of non-underlying items comparable,

but slightly higher than 2017.

-19% at AERFY 2018

FY 2017 (AER)

£502m

£620m

Statutory profit before tax

14


Solvency coverage ratio remains well within capital risk appetite

Solvency1

(1) The FY18 Solvency II capital position, SCR and coverage ratio are estimates

Solvency II coverage ratio

FY 2018 191%

180%FY 2017

Solvency Capital Requirement £2.1bn

FY 2018

Own Funds

Surplus £1.8bn

£3.9bn

• Estimated value of both lease assets and liabilities to be

recognised on the solvency II balance sheet at 1

January 2019 is £1.0bn; solvency coverage ratio

reduces by 16 percentage points.

• Acibadem Sigorta acquisition completed January 2019,

reduced coverage ratio 6 percentage points

• Proforma solvency coverage ratio estimated to be

169%, well within capital risk appetite.

15


Movement in Solvency II capital surplus from FY 2017 to FY 2018 £210m

Solvency1

(1)The FY 2018 Solvency II capital position, SCR and coverage ratio are estimates

(2)Operating capital includes comprehensive income of £251m 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

1,656

1,866

656

9

50

107

134

264

SolvencySurplusFY 2017

Operating Capital Cost of debtfinancing

Net capex Propertyrevaluations

M&A activity Other inc.market & FX

SolvencySurplusFY 2018

23

16


IFRS 16 will apply from 1st January 2019 – will impact metricsIFRS16

• Expect to recognise both lease assets and liabilities on the IFRS balance

sheet of £1.1bn, because of our substantial property assets including

hospitals, clinics and care homes.

• Rating agencies already factor in leases although headline leverage figures

may increase.

• Group solvency coverage at 2018 year-end estimated to be 16 percentage

points lower under IFRS 16.

• Impacts both the phasing and presentation impact in the income statement.

• Lease assets attract a property risk charge under the SCR Standard

Formula. Together with interest rate risk on the associated liability, it is

estimated to increase the SCR charge by c. £230m.

17


Lower cash generation in line with reduction in operating profitCash flow

Net cash generated from operating activities

FY 2018

FY 2017 (AER)

£808m

£929m

-13% at AER

18


Leverage down since FY 2017Funding

• Leverage reduced to 23.5%

(HY 2018: 24.5%)

• Drawings under the revolving credit

facility reduced to £170m at 31

December 2018 (FY17: £220m)

• Moody’s senior debt rating upgraded

to A3. Fitch stable at A-

Leverage(1)

22.6%

30.2%

25.3%

24.5%

23.5%

FY 2017

HY 2017

FY 2016

HY 2018

FY 2018

(1) Gross debt (including hybrid debt) / gross debt plus equity

19


Investments remain conservatively managed

• £4.1bn cash and financial investments

• Approximately 85% of portfolio held in investments rated at least A-/A3

• £452m return-seeking assets (externally-managed bond and loan funds) held in UK and Australian regulated entities

• Mark-to-market losses in FY 2018 from bond and loan portfolio of £1.0m (FY 2017 gains of £18m)

• Low yield environment continues to provide a challenging investment backdrop

Cash and Financial Investments

Cash and investment portfolio

FY 2018

Cash and cash-like instruments

(e.g. deposits, liquidity funds, covered bonds)

Return seeking assets

FY 2017

£4.1bn

£3.8bn

FY 2018 Cash and investments by credit rating (%)

AAA7%

<BBB-/NR8%

BBB7%

A35%

AA43%

20


Section 4

Outlook and operating priorities

21

Joy LintonCFO

21


• Conditions in some of our key markets will continue to be challenging, given the economic and political environments. In Australia, our businesses will continue to manage headwinds.

• We are focused on:• Improving customer experience, including harnessing digital and

enhancing propositions.• Continuing to strengthen risk management, privacy and information

security• Being more cost efficient.• Looking for further opportunities to grow.

• Our balance sheet remains strong. This financial strength, and our status, enables us to balance short-term and long-term decision making and invest for sustainable growth.

Outlook and operating priorities

Challenging market conditions continue. We are focused on the customer experience and delivering sustainable performance

22



Q&A

Section 5

Questions

and answers

Section 1

OverviewSection 4

Outlook and

operating

priorities

Section 2

Market Unit

performance

Section 3

Financial

review

Joy Linton

Chief Financial Officer

Gareth Roberts

Group Financial Controller

Gareth Evans

Group Treasurer

23



Further information

One-to-one

investor

meetings

We are planning one-to-one

meetings with interested

investors in the coming

weeks.

Please email [email protected]

for further information

Information

For further information

email:

[email protected]

Results

All financial results and

Solvency and Financial

Condition Reports are

available on:

www.bupa.com/Corporate/

our-performance

24

Bupa Full year results presentation 2018

Appendix

25

25


(1)

Risk sensitivities2Solvency1

191%

190%

190%

191%

180%

187%

190%

188%

182%

Solvency Coverage Ratio

Interest rate +100bps

Credit spreads +100bps (assuming no credit transition)

Equity markets -20%

Property values -10%

Sterling appreciates by 10%

Pension risk +10%

Group Specific Parameter (GSP) 3 + 0.2%

Loss Ratio worsening by 2%

(1) The 2018 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.

26


Organisation structure: Market Units

Australia and New Zealand

• Bupa Health Insurance

• Bupa Health Services

• Bupa Villages and Aged

Care Australia and New

Zealand

Europe and Latin America

• Sanitas Seguros

• Sanitas Dental

• Sanitas Hospitales and

New Services

• Sanitas Mayores

• LUX MED (Poland)

• Bupa Chile

International Markets

• Bupa Global

• Care Plus (Brazil)

• Acıbadem Sigorta (Turkey)

• Bupa Hong Kong

• Bupa Arabia

• Max Bupa (India)

• Bupa China

United Kingdom

• Bupa UK Insurance

• Bupa Dental Care

• Bupa Care Services

• Bupa Health Services

(1) In January 2019, we completed the acquisition of Acıbadem Sigorta

(1)

27


Bupa’s footprint and participation

(1) Bupa Arabia in Saudi Arabia and Max Bupa in India are associate businesses

(2) Global international insurance available in most countries. Includes 49% stake in Highway to Health (GeoBlue) in the US

(3) Domestic insurance and clinics in Brazil

(4) In addition to care homes and villages, New Zealand also has a brain rehabilitation business

(5) In Spain we also have day centres

(6) In January 2019, we completed the acquisition of Acıbadem Sigorta

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 ZealandUK

Europe and

Latin America

AustraliaNew

Zealand(4)

Bupa

GlobalChina

Saudi

Arabia(1) India(1)Hong

KongUKPolandSpain Chile Turkey(6)

(2)

(3)

(5)

28


(1)

Solvency1

FY 2018

£m

HY 2018

£m

FY 2017

£m

Borrowings under £800m bank facility(1) 170 210 220

Acquisition facility - - 49

£330m perpetual hybrid bond (guaranteed by Bupa Insurance Ltd) 357 374 371

£350m senior bond due 2021 349 349 349

£500m subordinated bond due 2023 502 501 501

£300m senior bond due 2024 295 293 296

£400m subordinated bond due 2026 396 396 395

Bupa Chile borrowings 188 201 205

Other 53 84 87

Total borrowings 2,310 2,408 2,473

(1) Excludes outstanding letters of credit (FY 2018: £nil, HY 2018: £nil, FY 2017: £6m)

Breakdown of borrowings

29

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. 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.

30

section 1 section 2 section 3 section 4 section 5 bupa .../media/files/site-specific... ·...

Documents