2018 Full year results presentation 12 months ended 31 December - - PowerPoint PPT Presentation

FY 2018 results presentation

2018

Full year results presentation

12 months ended 31 December 2018

FY 2018 results presentation

Agenda

2 Section 5

Questions and answers

Section 1

Overview

Section 4

Outlook and

• perating

priorities

Section 2

Market Unit performance

Section 3

Financial review

Section 1

Overview

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

Moody’s senior debt rating upgraded to

A3

Fitch 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

• f 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 unit performance

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.

• 5% AER

£4,656m

Revenue

• 9% CER
• 15% AER

£313m

Underlying profit Revenue by business

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

• ccupancy and higher costs.

− New Zealand profits up; portfolio reshaped.

7

Steady growth driven by Spanish health insurance and dental businesses

Operating environment − 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

• ur stake in Torrejón Salud hospital.

− Strong performance in Sanitas Mayores, with high

• ccupancy 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

£3,041m

Revenue

£182m

Underlying profit Revenue by business

8

Reshaping and investing in the UK to focus on changing customer needs

Operating environment − Uncertainty remains around the full implications

• f 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

• ur 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

• 10%

£2,537m

Revenue

• 22%

£156m

Underlying profit Revenue by business

9

Strategic investment in rapidly-developing and growing markets

Operating environment − 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

• pened 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

£1,626m

Revenue

£36m

Underlying profit(1) Revenue by business(2)

• 7% AER

10

• 1% AER

Section 3

Financial Review

[Image to come] 11

Financial highlights

FY 2018 Financial Overview

£808m

Down 13% on 2017

Net cash flow generated from

• perating activities

23.5%

Leverage ratio

191%(1)

Solvency capital coverage

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 AER

FY 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 AER

FY 2018 FY 2017 (CER) £613m £698m

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 AER

FY 2018 FY 2017 (AER) £502m £620m

Statutory profit before tax 14

Solvency coverage ratio remains well within capital risk appetite

Solvency1

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

16

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

IFRS16

• 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 profit

Cash flow

Net cash generated from operating activities FY 2018 FY 2017 (AER) £808m £929m

• 13% at AER

18

Leverage down since FY 2017

Funding

• 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

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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 investments by credit rating (%)

20

Section 4

Outlook and

• perating

priorities

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

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FY 2018 results presentation

Q&A

Section 5

Questions and answers

Section 1

Overview

Section 4

Outlook and

• perating

priorities

Section 2

Market Unit performance

Section 3

Financial review

23

FY 2018 results presentation

Further information

One-to-one investor meetings

We are planning one-to-one meetings with interested investors in the coming weeks. Please email ir@bupa.com for further information

Information

For further information email: ir@bupa.com

Results

All financial results and Solvency and Financial Condition Reports are available on: www.bupa.com/Corporate/

• ur-performance

24

Appendix

25

Risk sensitivities2

Solvency1

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%

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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

27

Bupa’s footprint and participation

Funding

Healthcare provision

Aged care provision

International Markets Australia and New Zealand UK Europe and Latin America

28

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

Breakdown of borrowings

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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

• r 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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