Half year results presentation 6 months ended 30 June 2018 HY 2018 - - PowerPoint PPT Presentation

Half year results presentation

6 months ended 30 June 2018

Section 1

Overview

Section 2

Market Unit performance

Section 3

Financial Review

Section 4

Outlook and operating priorities

Section 5

Questions and answers

Martin Potkins Corporate Controller Gareth Evans Group Treasurer

Agenda

HY 2018 results presentation

Joy Linton CFO

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Section 1

Overview

CFO Joy Linton

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Customer focus delivers stable performance in tougher conditions

0% CER

• 3% AER

£5.9bn

Revenue

• 13% CER
• 15% AER

£280.3m

Underlying profit before tax

£256.6m

Statutory profit before tax +11% AER

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24.5%

Leverage

Moody’s senior debt rating upgraded to A3 Fitch stable at A-

Solvency coverage ratio(1)

(1) The HY18 Solvency II capital position, SCR and coverage ratio are estimates

+9% pts vs FY2017

189%

FY2017: 25.3%

Other key highlights

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HY 2018 Group highlights

Proposed a further 5% increase in our stake in Bupa Arabia Completed the sale of 22 care homes in the UK Continued emphasis on our customers and digital innovation Strengthened our focus on privacy and information security controls

Section 2

Market Unit performance

CFO Joy Linton

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Stable performance in a difficult market environment

Australia and New Zealand

Operating environment

• Low economic and wage growth are affecting household discretionary

spend and consumer confidence

• Increasing expectations for large businesses from consumers, wider

community and regulators

• Governments in Australia and New Zealand have tightened funding of

aged care Performance

• Stable revenue and profit in Bupa Health Insurance
• New Customer Relationship Management (CRM) system, allowing us

to personalise our service to customers

• Revenue and profit growth in Health Services. We completed a

strategic review of the business to provide a strong foundation for future growth

• Aged care business in Australia achieved stable performance with

average occupancy rate of 95%; in New Zealand, we completed the sale of 12 care homes and four retirement villages and of our medical alarm business

(2017 HY: £2,281.1m CER) +2% CER

• 5% AER

£2,325.2m

Revenue

(2017 HY: £151.8m CER) +1% CER

• 6% AER

£154.0m

Underlying profit Revenue by business

BUPA HEALTH INSURANCE 82% BUPA VILLAGES AND AGED CARE AUSTRALIA AND NEW ZEALAND 11% BUPA HEALTH SERVICES 7%

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Positive revenue growth across all of our businesses in Spain, Poland and Chile

Europe and Latin America

Operating environment

• In Spain, the economy is projected to grow at 2.8% this year
• Political environment in Spain is more stable after change of government in

June

• In Poland, growth is expected to remain strong throughout 2018, with private

consumption growing fast due to a buoyant labour market

• Following a change in government, the Chilean economy is recovering and

forecast to grow at 3.6% in the coming years Performance

• In Spain, Sanitas Seguros delivered a stable performance, with good

contribution on customer numbers from Blua, our digital proposition

• Sanitas Hospitales treated 31% more patients due to a growing portfolio in

health insurance

• Sanitas Mayores performed well; launched Sanitas En Casa Contigo

(Sanitas At Home) service

• LUX MED in Poland delivered robust revenue growth, driven by an increase

in corporate and self-pay customers

• Opened first phase of Clínica Bupa Santiago – a £140m investment. When

completed, will have a capacity of 460 beds

(2017 HY: £1,424.3. CER)

£1,516.5m

Revenue

(2017 HY: £94.0m CER)

£88.2m

Underlying profit Revenue by business

+6% CER +8% AER

• 6% CER
• 4% AER

SANITAS SEGUROS 37% BUPA CHILE 33% SANITAS HOSPITALS AND NEW SERVICES 9% LUX MED 11% SANITAS MAYORES 5% SANITAS DENTAL 5%

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Good performance on a like-for-like basis, driven by health insurance and dental

United Kingdom

Operating environment

• Economic growth in the UK is slow; medical cost inflation continues to
• utstrip price inflation
• Uncertainty remains around the full implications of Brexit and concerns

that restricted access to the EU workforce will worsen the shortage of nurses and medical professionals

• In aged care, demand for local authority-funded beds continues to

increase but public funding remains constrained Performance

• Strong profit growth in Bupa UK Insurance due to improvements in loss

ratios

• Continue to strengthen our market position in dental care by acquiring

practices – we have over 470 across the UK and Ireland

• Bupa Care Services revenue and profits down, mainly due to the sale
• f parts of our business; continued commitment to the sector with four

new homes opened in H1 2018

• Invested in health clinics, opened new centres at our Cromwell

Hospital and in Glasgow, as well as trialling a partnership with Waitrose

(2017 HY: £1,369.6m)

• 9%

£1,251.5m

Revenue

(2017 HY: £84.6m)

• 26%

£62.3m

Underlying profit Revenue by business

BUPA UK INSURANCE 61% BUPA HEALTH SERVICES 6% BUPA CARE SERVICES 16% BUPA DENTAL CARE 17%

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Revenue and profit down driven by expected continued profit decline in Bupa Global and disposal of Bupa Thailand

International Markets

Operating environment

• Economic and regulatory environments in our markets continue to evolve
• Customer experience remains an increasingly important differentiator, with a focus
• n omnichannel capability
• IPMI market remains competitive, particularly from leading regional competitors,

domestic insurers providing richer benefits and global players leveraging local licenses and distribution networks to build IPMI Performance

• Bupa Global continues to be impacted by strategic repositioning we began a

number of years ago, to focus on selected strategic markets

• Submitted application for the authorisation of a new insurance entity in Ireland to

enable Bupa Global to continue relationships with EEA customers after the UK leaves the EU

• In Colombia, launched our first IPMI product in partnership with Seguros Bolivar
• Hong Kong achieved solid revenue growth. Continued to focus on customer

retention in all channels, and opened our first Bupa-branded dental clinic

• Proposed to increase our stake in Bupa Arabia by a further 5% to 39.25%
• In India, our associate business, Max Bupa, launched GOActive health insurance

plan - its first digital product

(2017 HY: £802.7m CER)

£785.8m

Revenue

(2017 HY: £22.7m CER)

£11.7m

Underlying profit(1) Revenue by business(2)

• 2% CER
• 9% AER
• 48% CER
• 54% AER

(1) While revenues from our associates and joint ventures are excluded from our reported figures, customer numbers and the appropriate share of profit from these business are included in our reported numbers (2) Chart includes Bupa’s revenues from all businesses including our share of revenues from associates to give a sense of scale

BUPA GLOBAL 57% BUPA ARABIA 24% MAX BUPA (INDIA) 2% HONG KONG 17%

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Section 3

Financial Review

Corporate Controller Martin Potkins Group Treasurer Gareth Evans

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Financial highlights

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HY 2018 Financial overview

Solvency capital coverage 189%(1) Leverage down since December Net cash flow down 13%

(1) The HY18 Solvency II capital position, SCR and coverage ratio are estimates

(1) To derive underlying profit, profit before taxation is adjusted for amortisation and impairment of intangible assets and goodwill arising on business combinations, net property revaluation gains or losses, realised and unrealised foreign exchange gains and losses, gains or losses on return seeking assets, profits or losses on the sale of businesses and fixed assets, transaction costs on acquisitions and disposals, restructuring costs and other one-off items (2) Combined operating ratio is calculated based on incurred claims and operating expenses divided by net earned premiums. These are calculated based on local reporting or regulatory requirements

HY 2018 Financial overview

• Revenue was flat at £5.9bn, but grew

by 4% on a like-for-like basis

• Insurance revenue broadly

unchanged from the position at full year +0% at CER

• 3% at AER

Revenues

• Underlying profit decreased by 13%
• Excluding divestments, underlying

profit decreased by 4% on a like-for- like basis Underlying profit before tax(1) Combined operating ratios (2) HY 2018 HY 2017 (CER) £5.9bn £5.9bn

• 13% at CER
• 15% at AER

HY 2018 HY 2017 (CER) £280.3m £320.9m HY 2018 HY 2017 94% 95% Insurance regulated entities

Bupa HI Pty Ltd (Australia) Bupa Insurance Ltd (UK) Sanitas S.A. de Seguros (Spain)

HY 2018 HY 2017 HY 2018 HY 2017 HY 2018 HY 2017 93% 93% 94% 98% 91% 91%

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Group

• Higher statutory profit due to positive movements

in property revaluations and foreign exchange compared to 2017 +11% at AER HY 2018 £m HY 2017 (AER) £m Underlying profit before tax 280.3 330.9 Amortisation and impairments of intangible assets and goodwill arising on business combinations (33.8) (32.7) Net gains on disposal of businesses and transaction costs on business combinations 8.0 (9.1) Net property revaluation gains/(losses) 0.6 (42.4) Realised and unrealised foreign exchange gains/(losses) 4.8 (26.8) Other Market Unit non-underlying items 0.6

• (Loss)/gains on return seeking assets, net of

hedging (4.2) 10.9 Central non-underlying items 0.3 0.5 Total non-underlying items (23.7) (99.6) Statutory profit before tax 256.6 231.3 HY 2018 HY 2017 (AER) £256.6m £231.3m

Statutory profit up 11%

Statutory profit

Statutory profit before tax

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Solvency(1)

Growth in capital coverage through continued profit generation

(1) The HY18 Solvency II capital position, SCR and coverage ratio are estimates (2) In March 2018 we signed a sale and purchase agreement to further increase our stake in Bupa Arabia by 5% to 39.25%. This transaction would decrease our 30 June 2018 coverage ratio by approximately 5% points

Solvency II coverage ratio HY 2018(2) FY 2017 189% 180% 160% HY 2017 Own Funds SCR £3,906m £2,066m HY 2018

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189% 188% 187% 189% 178% 189% 188% 186% 180% 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) + 0.2% Loss Ratio worsening by 2%

Solvency(1)

Risk sensitivities(2)

(1) The HY18 Solvency II capital position, SCR and coverage ratio are estimates (2) Note: 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

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• Goodwill and intangibles have zero value under Solvency II
• Technical provisions are adjusted to best estimate liabilities plus a risk margin
• Implied goodwill within associate investments has zero value under Solvency II
• Subordinated debt is treated as capital under Solvency II but as a liability under IFRS
• Pension surplus in excess of the Group SCR attributable to pension risk is excluded from Own Funds

7,440 3,135 3,906 249 1,288 4,180 351 23 502 15 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 IFRS Goodwill & Intangibles Technical Provisions Associates Other SII Balance sheet Subordinated Debt Recognised As Capital Non-available Own Funds Non-controlling Interest Total SII Eligible Own Funds

£m

Bridge from IFRS Net Assets to Solvency II Eligible Own Funds

Solvency(1)

(1) The HY18 Solvency II capital position, SCR and coverage ratio are estimates

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Movement in Solvency II capital surplus from FY 2017 to HY 2018 (£m)

Solvency(1)

(1)The HY18 Solvency II capital position, SCR and coverage ratio are estimates (2)Operating capital includes comprehensive income of £161m 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

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Solvency(1)

Breakdown of SCR

(1) The HY18 Solvency II capital position, SCR and coverage ratio are estimates

HY 2018 FY 2017 HY 2017 Market risk 58% 57% 57% Pension scheme 6% 6% 6% Spread risk 3% 3% 3% Property risk 34% 32% 34% Equity risk 3% 3% 3% Currency risk 12% 13% 11% Counterparty risk 4% 5% 4% Insurance risk 17% 18% 19% Operational risk 12% 12% 12% Participations (Associates) 9% 8% 8% Total 100% 100% 100%

• There is no significant change to the profile our SCR
• Property risk remains Bupa’s single largest component which relates primarily

to our care home portfolio in the UK, Australia, New Zealand and Spain

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Cash flow

Lower cash generation due to reduced receipts in ANZ aged care businesses

Net cash generated from operating activities HY 2018 HY 2017 (AER) £483.9m £554.4m

• 13% at AER

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Funding

Leverage down since FY 2017

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

• Leverage reduced to

24.5% (FY 2017: 25.3%)

• Moody’s senior debt

rating upgraded to A3. Fitch stable at A-

Leverage(1) 24.3% 22.6% 30.2% 25.3% 24.5% HY 2017 FY 2016 HY 2016 FY 2017 HY 2018

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(226) (49) (49) (210) 174 82 (47) (49) (95) FY 2017 Repayment of Bridge Facility Insurance Repatriations: UK, Spain and Australia Disposal Proceeds Refinancing Debt in Subsidiary Central Costs Other HY 2018 Acquisition Facility Drawing £800m RCF Drawing

Bank facility drawings (£m)

(1)

Cash repatriations used to fund the business

Funding

(1) Amounts include outstanding letters of credit on the RCF (HY:2018: £nil, FY:2017: £6m)

(1)

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Investments remain conservatively managed

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Cash and Financial Investments

• £4.2bn cash and financial investments
• Approximately 85% of portfolio held in investments rated at least A-/A3
• £418m return-seeking assets (externally-managed bond and loan funds)

held in UK and Australian regulated entities

• Mark to market losses in HY 2018 from bond and loan portfolio of £4.2m

(HY 2017 gains of £10.9m)

• Low yield environment continues to provide a challenging investment

backdrop HY 2018 Cash and investments by credit rating (%) Cash and investment portfolio HY 2018 FY 2017 Cash and cash-like instruments (e.g. deposits, liquidity funds, covered bonds) Return seeking assets HY 2017 £4.2bn £3.8bn £3.9bn

AAA 7% <BBB-/NR 9% BBB 6% A 38% AA 40%

Section 4

Outlook and

• perating priorities

CFO Joy Linton

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Outlook and operating priorities

Market conditions likely to remain tough in some of our key markets. We will stay focused on improving customer experience

Outlook

• Conditions in some of our key markets are likely to remain tough in the

second half of 2018

• Volatile political and uncertain economic environment expected to

continue in our markets Operating priorities

• Focus on customers’ needs, delivering high quality services
• Continuing to invest in the strength and depth of our market-leading

businesses

• Investing to strengthen privacy and security controls across our

businesses

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Section 5

Questions and answers

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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/our-performance

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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 & Latin America

• Sanitas Seguros
• Sanitas Hospitales and

New Services

• Sanitas Dental
• Sanitas Mayores
• LUX MED (Poland)
• Bupa Chile

International Markets

• Bupa Global
• Bupa Arabia
• Bupa Hong Kong and

Quality HealthCare

• Max Bupa (India)
• Bupa China

United Kingdom

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

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Funding

Health insurance Pay-as-you-go Dental insurance Travel insurance Clinics Hospitals Dental clinics Optical and audiology

Healthcare provision

Care homes Retirement villages

Aged care provision

International Markets

Australia New Zealand(4)

Australia and New Zealand

Bupa Global China Saudi Arabia(1) India(1) Hong Kong

(2)

UK

UK

(3)

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

Poland Spain

Europe and Latin America

Chile

(5)

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HY 2018 £m FY 2017 £m HY 2017 £m Borrowings under £800m bank facility(1) 210 220 395 Acquisition facility

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353 £330m perpetual hybrid bond (guaranteed by Bupa Insurance Ltd) 374 371 389 £350m senior bond due 2021 349 349 348 £500m subordinated bond due 2023 501 501 501 £300m senior bond due 2024 293 296 295 £400m subordinated bond due 2026 396 395 395 Bupa Chile borrowings 201 205 185 Other 84 87 87 Total borrowings 2,408 2,473 2,948

Breakdown of borrowings

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

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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 Group (“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. The information contained in this presentation is intended to be read in conjunction with, and not as a substitute for, Bupa’s half year statement for the 6 months ended 30 June 2018 (the “HY18 Report”). In the event of any inconsistency, the HY18 Report should be considered to prevail.

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