Full year results presentation - Bupa
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Full year results presentation 12 months ended 31 December 2016
Overview Financial review Outlook & operating priorities
2016 full year results presentation
Agenda
Section 1 Section 2 Section 3
Overview Financial Outlook and
review operating
priorities
Joy Linton CFO
Evelyn Bourke Group CEO Gareth Evans Group Treasurer Evelyn Bourke Group CEO
2
Overview Financial review Outlook & operating priorities
Section 1
Overview
Evelyn Bourke Group CEO
3
Overview Financial review Outlook & operating priorities
Our business model
Funding and providing services to
help people live longer, healthier, happier lives
We fund We provide
Helping customers fund health and Providing health and care services
care through domestic and international through primary care clinics, hospitals,
health insurance, as well as other dental centres, and aged
funding models care services
Our services Delivering for
Customers
Employees
Partners
Society
Underpinned by
4
Overview Financial review Outlook & operating priorities
Our refreshed Strategic Framework
Our strategy to drive the next phase
of Bupa’s growth in today’s digital age
Investing in strength and depth
Winning locally, enabled globally
5
Ever-focused on quality, efficiency, safety and compliance. Disciplined in risk and capital management
Overview Financial review Outlook & operating priorities
FY 2016 Group highlights
Revenue and profit growth in challenging market conditions
Operating highlights: Operating environment characterised by:
Good profit growth in three largest Market Units Consumer and government affordability pressures
Australia's leading health insurer Weaker macro backdrop and political change
Reshaped UK portfolio, exiting home healthcare
and purchasing Oasis Dental Care (1) Changing customer and regulatory expectations
Reduced from five to four Market Units
Appointments to executive team
(1) Sale of Bupa Home \Healthcare in July 2016. Purchase of Oasis Dental Care on 09 February 2017 subject to CMA approval 6
Overview Financial review Outlook & operating priorities
FY 2016 Group highlights
Revenue +4% CER Customers
£11.0bn
16.5m Insurance +6%
Underlying profit before tax +10% CER
+2% CER(1) 10.6m Provision +14%
£700.7m
33,100 Aged Care +2%
Statutory profit before tax +40% AER
£522.9m
Net cash flow from operations +13% AER Employee Net Promotor Score (eNPS)
£891.0m +30 Oct +9pts
Since July
Solvency coverage ratio (2) +24% pts
204%
(1) Underlying profit is up 2% at CER and up 12% at AER when excluding the impact of the IFRIC 12 adjustment relating to our Spanish Public-Private Partnerships (PPPs) in 2015.
(2) The Solvency II capital coverage ratio for 2016 is an estimated value. This is prior to the completion of the Oasis Dental Care purchase.
7
Overview Financial review Outlook & operating priorities
Australia and New Zealand
Revenue up 7%; profit up 9%
Revenues +7% CER Operating Environment
£4,360.6m +20% AER • Customer affordability remains an industry-wide challenge;
Bupa maintaining focus on service and value
(FY 2015: £4,078.3m CER)
• Continue to engage with Government regarding expected
Underlying profit +9% CER adverse impact of reduced Aged Care Funding Instrument
+23% AER
£344.4m
(FY 2015: £314.7m CER)
Performance
Customers
• Resilient growth in Health Insurance business, becoming
4.0m Insurance Australia’s largest health insurer
1.9m Provision
• Health Services Australia business maintained strong market
10,800 Aged care position; Bupa is the country’s largest dental provider
Revenues by business • Bupa Aged Care Australia remains the country’s leading private
aged care provider, caring for nearly 7,000 residents
• Aged care business in New Zealand grew, with four new care
homes and three retirement villages
• Building new tools and capabilities for meaningful and
personalised customer interactions
8
Overview Financial review Outlook & operating priorities
United Kingdom
Revenue down 3% (up 5% like-for-like(1)); profit up 7%
Revenues
Operating Environment
-3%
• Further increases to the Insurance Premium Tax (IPT).
£2,785.9m Committed to making quality, value-for-money healthcare
(FY 2015: £2,857.8m) more affordable and accessible
Underlying profit
• Continue to negotiate with local authorities to cover the true
+7%
cost of care including impact of National Living Wage
£194.9m • Limited impact from Brexit at this stage
(FY 2015: £182.6m)
Customers
Performance
2.4m Insurance • Decline in revenue of 3% due to sale of Bupa Home
Healthcare in July, up 5% when comparing like-for-like (1)
1.2m Provision
17,400 Aged care • Health insurance business performed well, with profit
driven by improved corporate and consumer loss ratios
Revenues by business
• Digital transformation and innovation remains a priority
• Active management of our Care Services portfolio
• Significant re-shaping of UK portfolio with sale of Home
Healthcare and Oasis Dental Care purchase(2)
(1) When excluding Bupa Home Healthcare from 2015 and 2016.
(2) Bupa Home Healthcare sole July 2017. Purchase of Oasis Dental Care completed February 2017 subject to CMA approval.
9
Overview Financial review Outlook & operating priorities
United Kingdom
Purchase of Oasis Dental Care
UK Dental market size Rationale
£7.1bn • Dentistry is a strategic growth area for Bupa, as it enables us to build
relationships with a broader base of customers
Total Bupa UK dental clinics post purchase • Unique opportunity to establish a national retail presence and cross-sell
c.420
Oasis overview
Dentists
• Customer-centric model: accessible, transparent pricing, high quality care
1,800 • Strong customer satisfaction: Net Promoter Score 2x market average
Customers • First dental chain to advertise nationally
2m
Transaction summary
Pro forma Group Solvency ll coverage ratio(1)
• Purchase announced on 18 November 2016
165% • Transaction completed 9 February 2017 with an enterprise value of £835m (2)
Solvency Impact
• Reduced our coverage ratio to an estimated 165%, comfortably within our
capital risk appetite
(1) Estimated figure 10
(2) Subject to CMA approval.Overview Financial review Outlook & operating priorities
Europe and Latin America
Revenue up 10%; profit up 63% (up 10% like-for-like(1))
Operating Environment
Revenues +10% CER
• Challenging Spanish political environment; we remain
£2,474.7m +22% AER
confident in our PPPs
(FY 2015: £2,251.8m CER) • Mitigating the adverse impact of uncertainties relating to the
Chilean premium increase process on Isapre through tighter
Underlying profit +63% CER cost management
+84% AER
£165.6m Performance
(FY 2015: £101.8m CER)
• Revenue growth across a number of business units in Spain,
Customers
including continued growth in our Sanitas insurance business
2.9m Insurance
• Achieved strong year-on-year revenue growth in Bupa Chile
6.7m Provision driven in part by Isapre performance improvement
4,900 Aged care
• Ongoing investment in full digital transformation delivering
Revenues by business improved customer journey
• Aged care business, Sanitas Mayores, delivering consistently
high occupancy rates
• Increased ownership of Bupa Chile from 73.7% to 100%
• LUX MED in Poland achieved significant revenue growth
(1) Under IFRIC 12, which applies to service concession contracts such as Public-Private Partnerships, we use the average operating
margin for the life of the contract (based on historic performance plus projections) as a means for recognising results. Once there is a
change in performance compared to expectations, the operating margin is reassessed and an adjustment made to the current year
results to bring the contract performance to date in line with the revised margin. In 2015, this negative non-cash adjustment of £52.0m 11
included an amount relating to the current year of £8.8m together with a retrospective adjustment for the years preceding 2015 of
£43.2m. To compare the result on a ‘like for like’ basis with 2016, we have excluded £48.6m (being £43.2m retranslated at 2016 rates)
from underlying profit in 2015.Overview Financial review Outlook & operating priorities
International Markets
Revenue up 1%; profit down 52% driven by Bupa Global
Operating Environment
Revenues(1) +1% CER
• Operate in diverse markets with healthcare regulation and
£1,427.8m +10% AER
economic environment constantly evolving
(FY 2015: £1,418.9m CER) • Challenging market conditions in Saudi Arabia, including a
slowing economy
Underlying profit -52% CER
-48% AER
• Indian health insurance sector attracting new entrants and
£65.9m highly competitive
(FY 2015: £138.1m CER)
Performance
Customers
7.2m Insurance • Decline in Bupa Global profit driven by the ongoing impact of
our 2013 decision to exit non-strategic markets, investment in
0.7m Provision capability and infrastructure, and lower than anticipated rate
of growth in Individual and Small Medium Enterprise books
Revenues by business(2) • Strengthened position in Hong Kong
• Strong customer and revenue growth in Bupa Arabia despite
challenging backdrop
• Increased shareholder in Max Bupa from 26% to 49% in June
• Acquired Care Plus in Brazil in December
(1) Revenue of £1,427.8m does not include the revenues of our equity accounted associates (Max
12
Bupa, India, Bupa Arabia and Highway to Health, part of Bupa Global North America)
(2) Chart includes 100% of Bupa revenues from all businesses to give a sense of scaleOverview Financial review Outlook & operating priorities
Section 2
Financial
review
Joy Linton, CFO
Gareth Evans, Group Treasurer
13Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
Strong financial management discipline
with focus on sustainable growth
Financial highlights:
Strong cash generation
Credit rating improved
Debt restructured
Robust capital base
14Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
Continued growth in revenue and underlying profit
Revenue
+4% at CER • Revenue increased by 4%, with good growth in
FY 2016 £11.0bn
+12% at AER Australia and New Zealand, UK(1) and Europe and
Latin America
FY 2015 (CER) £10.6bn
Underlying profit before tax(2)
+10% at CER • Excluding the impact of the IFRIC 12 non-cash
FY 2016 £700.7m adjustment relating to our Spanish PPPs in 2015(4),
+2%(3) at CER
underlying profit before taxation is up 2% at CER
FY 2015 (CER) £638.1m +20% at AER and up 12% at AER
(1) Like for like growth when adjusted for the disposal of Bupa Home Healthcare in July 2016.
(2) In order to reflect trading performance in a consistent manner year on year, a number of non-trading items that limit comparability are removed from our statutory profit before tax to arrive at underlying profit. This
distinguishes underlying profit from other constituents of the statutory profit before tax, excluding items relating to business combinations and disposals, fluctuations in foreign exchange, property revaluations and
investment returns on return-seeking assets, along with other one-off items.
(3) Underlying profit is up 2% at CER and up 12% at AER when excluding the impact of the IFRIC 12 adjustment relating to our Spanish Public-Private Partnerships (PPPs) in 2015
(4) Under IFRIC 12, which applies to service concession contracts such as PPPs, we use the average operating margin for the life of the contract (based on historic performance plus projections) as a means for recognising 15
results. Once there is a change in performance compared to expectations, the operating margin is reassessed and an adjustment made to the current year results to bring the contract performance to date in line with the
revised margin. In 2015, this non-cash adjustment of £52m included an amount relating to the current year of £8.8m together with a retrospective adjustment for the years preceding 2015 of £43.2m. To compare the
result on a “like for like’ basis with 2016, we have excluded £48.6m (being £43.2m retranslated at 2016 rates) from underlying profit in 2015.Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
Statutory profit up 40%
Revenue
+4% at CER
FY 2016 £11.0bn
+12% at AER
FY 2015 (CER) £10.6bn
Underlying profit before tax
+10% at CER
FY 2016 £700.7m +2% at CER
FY 2015 (CER) £638.1m +20% at AER
Statutory profit before tax
• No significant write downs in 2016 compared to
FY 2016 £522.9m +40% at AER £181.9m in the UK Care Services business in 2015
FY 2015 (AER) £374.3m • Net loss of £112.3m on the redemption of the
secured loan notes in April 2016
• Favourable FX movements
16Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
Continued strong cash generation
Revenue
+4% at CER
FY 2016 £11.0bn
+12% at AER
FY 2015 (CER) £10.6bn
Underlying profit before tax
+10% at CER
FY 2016 £700.7m
+2% at CER
FY 2015 (CER) £638.1m +20% at AER
Statutory profit before tax
FY 2016 £522.9m +40% at AER
FY 2015 (AER) £374.3m
Net cash generated from operating activities
• Strong net cash generated from operating
FY 2016 £891.0m +13% at AER activities with £102.9m increase
• Increase driven by growth in earnings, positive
FY 2015 (AER) £788.1m working capital movements in ANZ and
favourable impact of FX
17Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
High capital coverage pre-Oasis Dental Care completion
Revenue Statutory profit before tax
+4% at CER
FY 2016 £11.0bn FY 2016 £522.9m
+12% at AER +40% at AER
FY 2015 (CER) £10.6bn FY 2015 (AER) £374.3m
Underlying profit before tax Net cash generated from operating activities
+10% at CER
FY 2016 £700.7m FY 2016 £891.0m
+2% at CER +13% at AER
FY 2015 (CER) £638.1m +20% at AER FY 2015 (AER) £788.1m
Solvency II coverage ratio
FY 2016 (1) 204% +24% pts v HY16
HY 2016 180%
FY 2015 (2) 178%
(1) The Solvency II Capital Position (Own Funds and Solvency Capital
Requirement) and related disclosures are estimated values
(2) The 2015 Solvency coverage ratio was updated to 178% from the 180%
18
estimate disclosed in the 2015 Annual Report and Accounts.Overview Financial review Outlook & operating priorities
Solvency
Estimated Solvency capital coverage ratio: 204%, pre-Oasis
Solvency II coverage ratio
FY 2016 Own funds £4.2bn
HY 2016
SCR £2.1bn
180% 204%(1) coverage
HY 2016 HY 2015 (AER)
Own funds £3.4bn
£1.9bn
HY 2015 (AER)
SCR
HY 2016 180%
FY 2015 Own funds £3.1bn
SCR £1.8bn
Risk sensitivities
Solvency Coverage Ratio 204% • As Bupa generates substantial profits
Solvency coverage ratio
Interest rate +/- 100bps
and cash surpluses, solvency
204%
Interest rate +/- 100bps capital builds relatively quickly
Credit spreads + 100bps assuming no credit transaction 204%
Credit spreads + 100bps assuming no credit transaction • A £400m tier 2 subordinated bond
Equity markets - 20% 204%
SCR issued in December 2016 is a key
Property values – 10% 193% contributor to the 24% increase in
SCR
GBP appreciates by 10% 201% coverage
SCR
Pension risk +10% 203% • Bupa’s Solvency II capital position is
SCR
USP + 0.2% 201% relatively insensitive to market related
SCR
Loss ratio worsening by 2% 196%
risks
0 50 100 150 200
(1) The Solvency II Capital Position (Own Funds and Solvency Capital
19
Requirement) and related disclosures are estimated valuesOverview Financial review Outlook & operating priorities
FY 2016 Financial overview
Leverage down following cash repatriations and favourable
FX movements
Revenue Net cash generated from operating activities
+4% at CER
FY 2016 £11.0bn FY 2016 £891.0m +13% at AER
+12% at AER
FY 2015 (CER) £10.6bn FY 2015 (AER) £788.1m
Underlying profit before tax Solvency II coverage ratio
+10% at CER
FY 2016 £700.7m
+2% at CER FY 2016 204% +24% pts v HY16
FY 2015 (CER) £638.1m +20% at AER HY 2016 180%
FY 2015 178%
Statutory profit before tax
FY 2016 £522.9m +40% at AER
Leverage(1)
FY 2015 (AER) £374.3m
FY 2016 22.6% -1.7% pts v HY16
HY 2016 24.3%
FY 2015 27.7%
(1) Gross debt (including hybrid debt) / gross debt plus equity
20Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
A strong year for funding as leverage reduced and our senior
debt rating improved
Leverage
• Leverage fell to 22.6% (HY16: 24.3%)
• Good cash repatriations and favourable FX
Dec-16 22.6%
• Senior debt ratings A- (Fitch) and Baa1
Jun-16 24.3%
(Moody’s) following one notch Moody’s
upgrade in September Dec-15 27.7%
• Simpler debt structure following bond
Jun-15 28.0%
maturity and securitisation redemption
Dec-14 27.6%
• £650m acquisition facility signed January
2017 to part fund Oasis Dental Care
purchase
Debt maturity
Jun-18 profile at 31 December 2016
1200
Bupa Finance plc Senior £m
Bupa Finance plc Tier 2 Subordinated 1000
Bupa Finance plc Tier 1 Subordinated perpetual guaranteed
800
Other Senior unsecured
Bank Loans 600
Other
400
200
0
21Overview Financial review Outlook & operating priorities
FY 2016 Financial overview
Good bond returns; we continue to manage cash prudently
• £3.6bn cash and financial investments CASH AND INVESTMENT PORTFOLIO
• Approximately 86% of portfolio held in
FY16 £3.6bn
investments rated at least A-/A3
• £367m return-seeking assets (externally- HY 16 £3.6bn
managed bond and loan funds) held in UK
and Australian regulated entities FY 15 £3.4bn
• Good returns in 2016 from bond and loan Cash (e.g. deposits, liquidity funds)
Return seeking assets
portfolio £22.9m (2015 £7.0m)
• Low yield environment continues to provide
a challenging investment backdrop
FY16 CASH
Jun-18AND INVESTMENTS BY CREDIT RATING (%)
22Overview Financial review Outlook & operating priorities
Section 3
Outlook and
operating
priorities
Evelyn Bourke, Group CEO
23Overview Financial review Outlook & operating priorities
Outlook and operating priorities
Market conditions remain challenging; focused on enhancing
our services for customers in this digital age
Outlook:
• Demand for high quality, value-for-money healthcare
expected to remain strong
• Consumer and government affordability pressures with
medical costs outpacing inflation
• Changing political environments, including UK preparing
to exit the EU
• Rapidly-changing customer standards of personalisation,
ease and choice; high expectations of quality, safety,
privacy and transparency
Operating priorities:
• High quality, value-for-money services in the digital age
• Empowering our people to deliver for our customers
• Focus on management of risk and compliance, upholding
the high standards our customers and regulators expect
• Disciplined capital management
• Investing in growth in our key existing markets; selective
expansion into new growth marketsOverview Financial review Outlook & operating priorities
Questions
and answers
25Overview Financial review Outlook & operating priorities
Appendices
26Overview Financial review Outlook & operating priorities
Appendix
Organisation structure
Market Units
Australia and UK (1) Europe & International
New Zealand Latin America Markets
• Bupa Health Insurance • Bupa UK Insurance • Sanitas Seguros • Bupa Global
• Bupa Health Services • Bupa Care Services • Sanitas Hospitales and • Bupa Arabia
• Bupa Aged Care Australia New Services
• Bupa Health Clinics • Bupa Hong Kong
• New Zealand Care Services • Sanitas Dental
• Bupa Cromwell Hospital • Quality HealthCare
• Sanitas Mayores (Hong Kong)
• Oasis Dental Care (2)
• LUX MED • Max Bupa (India)
• Bupa Chile • Bupa Thailand
• Bupa China
(1) The sale of Bupa Home Healthcare to Celesio completed on 1 July 2016
(2) Bupa completed the purchase of Oasis Dental Care on 09 February 2017
27Overview Financial review Outlook & operating priorities
Appendix
Bupa’s footprint and participation
Australia and Europe and Latin
UK International Markets
New Zealand America
New Bupa Hong Saudi (1)
Australia UK Spain Chile Poland Thailand India
Zealand Global Kong Arabia (1)
Funding customers 4.0m 2.4m 2.9m 7.2m
(2)
Private medical insurance
Pay-as-you-go
Funding
Dental insurance
Travel insurance
Provision customers 1.9m 1.2m (3) 6.7m 0.7m
(4) (5)
Clinics
Hospitals
Healthcare
provision
Dental clinics
Optical
Aged care residents 10,800 17,400 4,900
(6)
Care homes
Aged care
provision (7)
Retirement villages
(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) Excludes Oasis Dental Care 2017
(4) Domestic insurance and clinics in Brazil 28
(5) In addition to Quality HealthCare Hong Kong, two clinics in development in Guangzhou, China
(6) Home healthcare rather than care homes
(7) In addition to care homes, New Zealand also has brain rehabilitation and home alarm businessesOverview Financial review Outlook & operating priorities
Appendix
Breakdown of borrowings
FY 2016 HY 2016 FY 2015
£m £m £m
Borrowings under £800m bank facility 0 90 -
£500m subordinated bond due 2023 501 500 500
£330m perpetual hybrid bond (g’teed by Bupa Insurance Ltd) 387 407 387
£350m senior bond due 2016 - 363 363
£350m senior bond due 2021 348 348 348
£400m subordinated bond due 2026 395 - -
£235m care homes securitisation due 2029 / 2031 - - 238
Bupa Chile borrowings 207 197 153
Other 83 83 85
Total borrowings 1,921 1,988 2,074
29Overview Financial review Outlook & operating priorities
Appendix
Analysis of Bupa’s Solvency Capital Requirement
FY 2016 HY 2016 FY 2015
Insurance risk 19% 23% 19%
Market risk 60% 56% 61%
Spread risk 2% 2% 3%
Equity risk 2% 2% 1%
Property risk 34% 32% 31%
Currency risk 16% 12% 13%
Pension scheme 6% 8% 13%
Counterparty risk 4% 3% 3%
Operational risk 11% 11% 11%
Participations (Associates and JVs) 6% 7% 6%
Total 100% 100% 100%
30Overview Financial review Outlook & operating priorities
Disclaimer
Cautionary statement concerning
forward-looking statements
This document may contain certain forward-looking statements with respect to
certain of the British United Provident Association Limited Group’s (“Bupa’s”)
plans and its 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 future events and circumstances which are beyond Bupa’s control,
including, 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. As a result, Bupa’s actual future condition, performance and
results may differ materially from the plans, goals and expectations set out in
Bupa’s forward-looking statements. Bupa does not undertake to update forward-
looking statements contained in this document or any other forward-looking
statement it may make.
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