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| Name | Symbol | Market | Type |
|---|---|---|---|
| Bupa Fin. 35 | LSE:82GS | London | Bond |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
From Dec 2022 to Dec 2024
TIDM82GS
RNS Number : 1959I
BUPA Finance PLC
03 August 2023
Bupa Finance plc (Bupa Finance)
HALF YEAR STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2023
Financial headlines(1)
Hot Features
Premium
-- Revenue(2) of GBP7.4bn was up 9% (HY 2022: GBP6.8bn) at Constant
Exchange Rates (CER) with period-on-period growth across all
lines of business and Market Units driven by:
* Customer volume growth with insurance customers
increasing by over four million, provision customers
increasing by one million and occupancy rates in aged
care 4ppt higher period-on-period; and
* The impact of pricing action, as we seek to balance
continued high inflation, remaining competitive for
customers and maintaining discipline in our
underwriting of insurance risk.
This half year report for 2023 marks our first set of results
reporting on the new IFRS 17 accounting standard for insurance
contracts which does not impact the overall economics of our
business or strategy, but does change the presentation of
our results and specifically the following:
-- Under the new accounting rules, we are no longer able to hold
certain provisions(3) in Australia related to the COVID-19
pandemic. The absence of these provisions has led to significant
fluctuations in both our restated H1 2022 and H1 2023 reported
profits.
Underlying profit(4) before taxation of GBP321m was down 15%
at CER (HY 2022: GBP379m). This was principally driven by
Australian health insurance where:
* In the first half of 2022 we experienced lower claims
frequency and higher margins due to the impact of
COVID-19; and
* In the first half of 2023, costs associated with
returning claims savings to customers increased to
GBP231m (HY 2022: GBP109m).
Profits in our other Market Units grew significantly driven
by higher investment returns, customer volume growth and the
impact of premium rate changes in the Chile Isapre business
reducing losses.
Statutory profit before taxation of GBP310m increased by 8%
at AER (HY 2022: GBP286m) with the reduction in underlying
profit offset by favourable movements in non-underlying items.
Solvency II capital coverage ratio remains strong at 171%(5)
(FY 2022: 181%) with leverage (excluding IFRS 16 lease liabilities)
of 20.1% (FY 2022: 19.4%).
Business context
Our performance is driven by continued good customer volume growth in health insurance, increased activity in health provision and higher occupancy rates in aged care leading to period-on-period revenue growth in all lines of business. The announcement of a further return of GBP175m (A$320m) claims savings to Australian Health insurance customers in June takes the total financial impact of claims savings returned in H1 2023 to GBP231m (HY 2022: GBP109m). The global macro-economic, political and regulatory environment within which we operate remains uncertain, with high and more persistent levels of inflation than expected. Interest rates have risen in response as central banks have sought to tackle inflation. Through these challenging times we are committed to keeping our pricing as competitive as possible for our customers, maintaining a tight focus on efficiencies across the Group.
Iñaki Ereño, Bupa Group CEO, commented:
"These results reflect continuing good organic growth across our health insurance businesses, increased activity in our health provision businesses to meet growing customer demand and improving occupancy rates in aged care. We continue to be encouraged by the overall performance of the Group as we become an increasingly digital business while navigating market challenges.
"We are confident for the future and there is positive momentum behind our strategy and our ambition to be the world's most customer-centric healthcare company. We are seeing the results of our 3x6 strategy which continues to inspire our people in the delivery of great customer service alongside high standards of care. There is much to do, but we are well positioned to meet our customers' healthcare needs. We also remain focused on our purpose, as we support wider communities where we can while tackling environmental issues."
Market performance (all at CER)
-- Bupa Asia Pacific: Revenue increased by 1% to GBP2,773m.
Excluding the financial impact of returning claims savings
to customers, revenues increased by 5% to GBP3,004m. This
was driven by pricing action, customer growth in Australian
health insurance, higher occupancy in aged care and revenue
growth in our Hong Kong(6) business with higher volumes in
health services. On a reported basis, underlying profit reduced
by 84% to GBP40m as an increase in revenues was offset by
a margin reduction in Australia Health insurance, following
higher claims frequency and the cost of returning COVID-19
claims savings to customers.
-- Europe and Latin America: Revenue grew by 16% to GBP2,552m
with every business unit delivering growth period-on-period
driven by customer growth and pricing to keep pace with rates
of inflation. Underlying profit increased by 107% to GBP145m
in the year, driven by revenue growth and higher investment
returns. In Bupa Chile, the regulator-approved GES(7) pricing
increases in the Isapre business in October 2022 significantly
reduced reported losses. However, the outlook for this business
remains uncertain as regulatory interventions and legislative
and judicial decisions remain unclear around the Isapre insurance
sector (see note on Chile in the Financial Review section
for further detail).
-- Bupa Global and UK: Revenue grew by 10% to GBP2,063m driven
by higher customer volumes in insurance. Underlying profit
increased by 112% to GBP142m driven by revenue growth and
higher investment returns in UK Insurance and continued delivery
of the turnaround in Bupa Global, our international private
medical insurance (IPMI) business. UK Insurance profit was
temporarily increased by the release of the return of premium
provision (GBP59m) in response to deferred claims costs, a
significant proportion of which are now expected to arise
later in 2023 and into 2024 following evidence of increased
deferred claims in the first half of 2023. UK Dental underlying
losses also reduced as delivery of the turnaround strategy
commenced.
-- Other businesses: Our businesses in Saudi Arabia and India
have delivered significant growth, with underlying profit
increasing by 112% to GBP43m largely driven by increased customer
volumes in both businesses.
Financial position
-- Solvency II capital coverage ratio remained strong at 171%
(FY 2022: 181%).
-- Leverage ratio is 28.0% (FY 2022: 27.3%) when including IFRS
16 lease liabilities. Excluding these liabilities, the leverage
ratio is 20.1% (FY 2022: 19.4%). In the first half of the
year, we repaid GBP250m of maturing Tier 2 debt, drawing down
on our revolving credit facility to finance the repayment.
-- Net cash generated from operating activities increased by
GBP208m period-on-period to GBP875m, driven by higher revenue
and profitability across market units partly offset by higher
claims frequency in Australia.
Other highlights
-- We launched Viva, a package of Group-wide health and well-being
initiatives which will give all of Bupa's workforce access
to health benefits by the end of 2023. Viva amounts to GBP26m
of extra investment in our people's health each year and will
help us to both recruit new employees and retain existing
employees.
-- We scaled up our Healthy Cities programme to help us reach
our goal of supporting one million people each year, an initiative
that aims to improve peoples' health through the regeneration
and restoration of nature.
-- We held our first Bupa Healthcare Symposium in May, a major
clinical conference for leaders across the healthcare sector
to discuss the challenges and opportunities we face together.
-- We hosted our Bupa eco-Disruptive Live event in July, an immersive
experience showcasing our sustainability strategy alongside
many of the start-ups from our eco-Disruptive programme (which
is now in its third year) who are working to tackle the threat
of climate change.
Following the devastating earthquake in Türkiye in February,
we approved a funding package of GBP3m for humanitarian aid
and healthcare through our local business, Bupa Acibadem Sigorta.
Our LUX MED team in Poland are maintaining their support for
Ukrainian refugees who have been forced to flee the war. To
date, we have provided 388,000 free treatments to over 217,000
people and have employed 271 healthcare workers from Ukraine.
Note on Chile
As stated in the Full Year results for 2022, the Isapre insurance industry in Chile continues to be negatively impacted by judicial and regulatory action. The Chilean Supreme Court has significantly shifted its interpretation of Isapre pricing in recent years, with the cumulative effect of restricting the previously permitted, and generally accepted, pricing/rate-setting approach. In December 2022, the Supreme Court issued a ruling which requires Isapres to use a statutory risk factor table with retrospective effect - meaning product coverage is not matched by the ability to increase rates to reflect the cost of such coverage. The situation remains as described in the Full Year results for 2022, other than that the date by which the relevant regulator has to implement it has been extended from May 2023 to November 2023. The potential short- and long-term implications for Isapre Cruz Blanca are highly uncertain. Further details regarding the potential retrospective financial implications of these developments are included in the Financial Review.
Enquiries
Media
Mark Street (External Communications): mark.street@bupa.com
Duncan West (External Communications): duncan.west@bupa.com
Investors
Gareth Evans (Treasury): ir@bupa.com
About Bupa Finance plc
Bupa Finance plc (the Company) is a company incorporated in England and Wales. The Condensed Consolidated Half Year Financial Statements comprise the financial results and position of the Company and its subsidiary companies (together referred to as the Group). The immediate and ultimate parent of the Company is The British United Provident Association Limited (the Parent), which is also the ultimate parent company of the Bupa Group (Bupa).
Bupa's purpose is helping people live longer, healthier, happier lives and making a better world. We are an international healthcare company serving over 43 million(8) customers worldwide. With no shareholders, Bupa Group reinvests profits into providing more and better healthcare for the benefit of current and future customers.
We directly employ around 82,000 people, principally in the UK, Australia, Spain, Chile, Poland, New Zealand, Hong Kong, Türkiye, Brazil, Mexico, the US, Middle East and Ireland. We also have associate businesses in Saudi Arabia and India.
Disclaimer: Cautionary statement concerning forward-looking statements
This document may contain certain 'forward-looking statements'. Forward-looking statements often use words such as 'intend', 'aim', 'project', 'anticipate', 'estimate', 'plan', 'believe', 'expect', 'forecasts', 'may', 'could', 'should', 'will', 'continue' or other words of similar meaning. 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, risks arising out of health crises and pandemics, 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. Recipients should not place reliance on, and are cautioned against relying on, any forward-looking statements. Except as required by any laws and regulations,, 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.
Forward-looking statements in this document are current only as of the date on which such statements are made. No statement in this document is intended to be a profit forecast. Neither the content of Bupa's website nor the content of any other website accessible from hyperlinks on Bupa's website is incorporated into, or forms part of, this document.
Bupa Group CEO's review
These results reflect continuing good organic growth across many of our health insurance businesses, increased activity in our health provision businesses to meet growing customer demand and improving occupancy rates in aged care. We continue to be encouraged by the overall performance of the Group as we transform our businesses while navigating market challenges.
The macro-economic environment over the past year has presented challenges for all businesses. As an international healthcare company, we face into this from a position of strength with customer demand for our services growing. Our size enables us to be more competitive on costs and our increasing vertical integration across funding and provision affords us more control over the expense base.
We are committed to serving our customers across health insurance, provision and aged care, and we have made great progress since we launched the 3x6 strategy in March 2021. The strategy is inspiring our people to prioritise customer experience alongside high standards of care as well as transforming the organisation. In this way, we are 'running' and 'changing' Bupa at the same time.
We are continuing to drive strong customer growth in our health insurance businesses across all of our Market Units. We're responding to increasing demand for high quality healthcare services and meeting changing customer needs by continuing to progress digital access to healthcare via Blua and our other digital health solutions. For example, we have over one million customers in the UK holding a digital account with us, giving them access to our healthcare apps.
In our health provision businesses, we are seeing the benefit of increasing customer demand for healthcare services. Occupancy rates have increased across all our aged care businesses as numbers continue to improve following the impact of the pandemic.
Our people are at the heart of our 3x6 strategy. This year we launched Viva, a package of health and wellbeing initiatives to help our employees worldwide. Viva represents the doubling of our spend on medical benefits and GBP26m of extra investment each year in our people's health. By the end of this year, all 82,000 of our people globally will have improved health benefits, with the vast majority using Bupa products.
Outlook
Our outlook on the economic backdrop for the business is broadly unchanged since the full year results for 2022. We continue to see high levels of inflation increasing costs for our business and for our customers. The labour market in certain sectors continues to be a challenge impacting some aged care and provision businesses.
We are encouraged by the positive overall performance across the Group and how our businesses are transforming against the strategic mandates they are given as part of our portfolio management strategy. Bupa Global continues to deliver strong growth in profitability. In UK Dental, actions are well underway to exit loss-making practices and management are making good progress on their new strategy.
As stated in the Business Risk section, changes in governmental and regulatory policy continue to be one of our top risks given the nature of our businesses. This risk is present in Chile, where the Isapre insurance industry continues to be negatively impacted by political uncertainty, potential changes in law and regulatory and judicial action. This results in Contingent Liabilities being present as at 30 June 2023, as summarised in the Financial Review. The situation remains highly uncertain with a broad range of possible outcomes from these exposures, which, depending on the outcome of the current uncertainty, could result in material liabilities arising and material ongoing losses within the Isapre business.
We are confident for the future and there is positive momentum behind our 3x6 strategy and our ambition to be the world's most customer-centric healthcare company. There is much to do, but we are well positioned to meet customer healthcare needs with an ever-increasing focus on health and wellbeing in society at large.
FINANCIAL REVIEW
Summary
HY 2023 HY 2022 % growth/ HY 2022 % growth/
(AER) (decline) (CER) (decline)
Revenue GBP7.4bn GBP6.7bn 10% GBP6.8bn 9%
---------------------- -------- -------- ---------- --------
Underlying profit GBP321m GBP378m (15)% GBP379m (15)%
---------------------- -------- -------- ---------- --------
Cash generated from GBP875m GBP667m 31% n/a n/a
operating activities
---------------------- -------- -------- ---------- --------
Statutory Profit GBP310m GBP286m 8% n/a n/a
before tax
---------------------- -------- -------- ---------- --------
Leverage (excl.
IFRS 16) 20.1% 19.5% (0.6)ppts n/a n/a
---------------------- -------- -------- ---------- --------
Leverage (incl.
IFRS 16) 28.0% 26.8% (1.2)ppts n/a n/a
---------------------- -------- -------- ---------- -------- Solvency 171% 181% (10)ppts n/a n/a ---------------------- -------- -------- ---------- --------
Revenue (CER)
Group revenue was up 9% as a result of customer growth in insurance, increased activity in health provision and higher occupancy in aged care. This was partially offset by a significant increase in the cost of returning claims savings to customers in Australian health insurance taking the total cost of the return in the first half of 2023 to GBP231m (HY 2022: GBP109m). Pricing action drove revenue growth across all lines of business as we seek to balance continued high inflation, remaining competitive for customers and maintaining discipline in our underwriting of insurance risk
Revenue in health insurance grew by 8% with customer growth of 9%(9) period-on-period. Our businesses in the Europe and Latin America and Bupa Global and UK Market Units were the key drivers of growth while good growth in APAC was offset by the increased financial impact of returning of claims savings to customers under our COVID-19 customer support programme.
Our health provision businesses saw revenue growth of 12% driven by higher levels of activity and pricing action.
In aged care, revenue was up 8% as occupancy rates increased. All of our businesses in the UK, Spain, Australia and New Zealand contributed to the improvement.
Underlying profit (CER)
Group underlying profit decreased 15% to GBP321m (HY 2022: GBP379m). This was principally driven by Australian health insurance where in the first half of 2022 we experienced lower claims frequency and higher margins due to the impact of COVID-19. In the first half of 2023, costs associated with returning claims savings to customers increased to GBP231m (HY 2022: GBP109m). Profits in our other Market Units grew significantly driven by higher investment returns and customer volume growth. In part the impact of the return of premium release in UK insurance also contributed to the increase, along with premium rate changes in the Isapre business reducing losses.
Health insurance underlying profit decreased as growth in revenues and investment returns across all Market Units were offset by lower margins in Australian health insurance as claims frequency increased following lower claims frequency in H1 2022 due to the impact of COVID-19. Margins across our Europe and Latin America Market Unit improved, driven in part by the impact of premium rate changes in the Isapre business. In Bupa Global and UK, UK Insurance profit was temporarily increased by the release of the return of premium provision (GBP59m) in response to deferred claims costs, a significant proportion of which are now expected to arise later in 2023 and into 2024 following evidence of increased deferred claims in the first half of 2023.
Profitability grew strongly in health provision due to a favourable CPI update on our public private health partnership in Spain, improved margins and customer growth, except in Chile where provision volumes are lower as a result of challenges in the Isapre business.
Aged care returned to profitability in the period driven by increasing levels of occupancy. Price increases and higher government funding were broadly offset by the impact of higher operating expenses and staffing costs.
Group functions costs increased to GBP(49)m (HY 2022: GBP(32)m) mainly driven by higher interest rates on variable rate debt, an increase in centrally funded investments into ESG initiatives and higher staff costs.
Statutory profit
Statutory profit before taxation was GBP310m up 8% at AER (HY 2022: GBP286m), as the lower underlying result was offset by the movement in non-underlying items which totalled an GBP11m cost at HY 2023, compared with a GBP92m cost at HY 2022.
The key drivers of the movement in non-underlying items at HY 2023 were short-term fluctuations on investment returns where we reported a gain of GBP6m (HY 2022: GBP44m loss). Our return-seeking asset portfolio delivered a positive return in H1 2023, with higher yields seen on floating rate assets and relatively stable valuations on longer-dated funds with the adverse impact from higher yields being offset by tighter credit spreads. This compares to material mark-to-market losses we saw across the portfolio in H1 2022 following general market volatility and inflationary pressure which led to a significant increase in both interest rates and credit spreads in the period. We also reported a gain on realised and unrealised foreign exchange in the period of GBP12m (HY 2022: GBP18m loss).
Also included is a GBP16m (HY 2022: GBP17m) amortisation charge on intangible assets in Bupa Villages and Aged Care Australia following the government announcement to deregulate bed licences from 2024; and other items of (GBP(11)m) (HY 2022: GBP(10)m) which primarily relates to restructuring.
HY 2023 HY 2022
GBPm GBPm
Bupa Asia Pacific at CER 40 254
----------------------------------------------------- -------
Europe and Latin America at CER 145 70
----------------------------------------------------- -------
Bupa Global and UK at CER 142 67
----------------------------------------------------- -------
Other businesses at CER 43 20
----------------------------------------------------- -------
Group functions (49) (32)
----------------------------------------------------- -------
Consolidated underlying profit before taxation
at CER 321 379
----------------------------------------------------- -------
Foreign exchange re-translation on 2022 results
(CER/AER) - (1)
----------------------------------------------------- -------
Consolidated underlying profit before taxation
at AER 321 378
----------------------------------------------------- -------
Short-term fluctuation on investment returns
inc. Mark to Market 6 (44)
----------------------------------------------------- -------
Net loss on disposal of businesses and transaction
costs on business combinations (2) (2)
----------------------------------------------------- -------
Net property revaluation loss - (1)
----------------------------------------------------- -------
Realised and unrealised foreign exchange gain/(loss) 12 (18)
----------------------------------------------------- -------
Amortisation of bed licences (16) (17)
----------------------------------------------------- -------
Other non-underlying items (11) (10)
----------------------------------------------------- -------
Total non-underlying items (11) (92)
----------------------------------------------------- -------
Statutory profit before taxation at AER 310 286
----------------------------------------------------- -------
IFRS 17 Insurance Contracts
The IFRS 17 Insurance Contracts standard was issued in May 2017 as a replacement for IFRS 4 Insurance Contracts, with effect for annual accounting periods beginning on or after 1 January 2023. In applying the new standard, the Group is applying the simplified Premium Allocation Approach leading to revenue recognition that is consistent with that used under IFRS 4. The Group's net assets at transition on 1 January 2022 were reduced by GBP56m. This is due to the derecognition of deferred acquisition costs assets and the recognition of the loss component on onerous contracts, offset by the derecognition of both deferred claims liabilities and the premium deferral provision in our Australian insurance business, as these are not included under IFRS 17. The change to IFRS 17 results in a restatement of our reported Half Year 2022 underlying profit from GBP280m to GBP363m(10) . This increase is mainly driven by the derecognition of the deferred claims liability and premium rate increase deferral provisions. Beyond this, the impact of IFRS 17 is small, with other factors driving the restatement of profits including the change from deferring acquisition costs to expensing up front and the recognition of losses on onerous contracts up front. See note 1.4 of the accounts for further detail on the impacts of IFRS 17.
Insurance service result
Following the transition to IFRS 17 we are required to report an insurance service result which comprises: insurance revenue, less insurance service expenses. This result excludes financial income and expenses. For HY 2023 the Group insurance service result was GBP176m (HY 2022: GBP315m) driving a combined operating ratio of 97% (HY 2022: 93%). The reduction in the insurance service result is driven by higher revenues across all market units, offset by lower margins in Australian health insurance due to higher claims frequency and increased cost of returning claims savings to customers. Margins across our Europe and Latin America market improved, driven in part by the impact of the GES price increase. In Bupa Global and UK, UK Insurance profit was temporarily increased by the release of the return of premium provision (GBP59m) in response to deferred claims costs, a significant proportion of which are now expected to arise later in 2023 and into 2024 following evidence of increased deferred claims in the first half of 2023.
Taxation
The Group's effective taxation rate for the period was 22% (HY 2022: 33%; FY 2022: (48)%), which is in line with the current UK corporation taxation rate of 23.5%.
The Group operates in the UK where new tax legislation to implement a global minimum top-up tax has been substantively enacted. Since the newly enacted tax legislation in the UK is effective only from 1 January 2024, there is no current tax impact in the period (HY 2022: GBPnil). The Group has applied a temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax, and instead accounts for it as a current tax when it is incurred. If the top-up tax had applied in 2023, the impact would not have been material for the Group.
Cash flow
Net cash generated from operating activities increased by GBP208m period-on-period to GBP875m driven by higher revenue and profitability across Market Units partially offset by higher claims frequency in Australia. Net cash flow from investing activities reduced by GBP234m to GBP503m driven by lower cash invested into financial assets versus the same period last year due to higher claims volumes in APAC coupled with higher cash balances in ELA. Higher cash repatriations reduced cash used in financing activities by GBP4m to GBP170m.
Funding
We manage our funding prudently to ensure a strong platform for continued growth. Bupa's policy is to maintain investment grade access to both the senior and subordinated bond markets. Fitch and Moody's reviewed Bupa's credit ratings during 2022 with Moody's changing the outlook for Bupa's ratings to stable from negative. There have been no rating changes in 2023.
We continue to hold a good level of Group liquidity. At 30 June 2023, our GBP900m Revolving Credit Facility was drawn by GBP381m (FY 2022: GBP70m). We used the facility in the first half of the year to repay a subordinated bond on its scheduled maturity date. Coverage of financial covenants within the facility remains strong.
We focus on managing our leverage in line with our credit rating objectives. Leverage excluding IFRS 16 leases at 30 June 2023 was 20.1% ( FY 2022: 19.4%; HY 2022: 19.5%) and was 28.0% (FY 2022: 27.3%; HY 2022: 26.8% ) when IFRS 16 lease liabilities are included.
Chile - Isapre Cruz Blanca contingent liabilities
As disclosed in the 2022 Annual Report and Accounts, the Isapre insurance industry in Chile continues to be negatively impacted by judicial and regulatory action. We continue to recognise a material contingent liability as a result of the December 2022 Supreme Court ruling in Chile. The method of implementation of the statutory risk factor table following the Supreme Court decision of December 2022 remains unclear. Given the continuing uncertainty, Cruz Blanca is unable to reliably estimate the value of any such future retrospective payments, therefore, no IFRS provision has been recognised as at 30 June 2023.
There are a wide range of possible outcomes, however, in contrast to the requirements of IFRS, under Solvency II the Group is required to include a value for contingent liabilities, even if the amount of the obligation cannot be measured with sufficient reliability. The Group has included an allowance of GBP160m (FY 2022: GBP100m) for this contingent liability for retrospective payments within the Solvency II regulatory balance sheet. As previously stated, the final impact is likely to differ materially from this value and this is a calculation for Solvency II purposes and not a pre-estimate of all actual or potential losses relating to Isapre Cruz Blanca. Any retrospective payments finally determined to be due in respect of historic policies as a result of this ruling would be liabilities for Isapre Cruz Blanca.
In addition, the regulator approved Garantias Explicitas en Salud (GES) pricing increases, in place since October 2022, are subject to judicialisation. A ruling is expected later in the year which could lead to liabilities for retrospective payments. The situation is uncertain and any potential financial impact is contingent on the future outcome of the judicialisation.
See the Commitments and Contingencies note (Note 19) within the financial statements for further details.
Solvency
Our solvency coverage ratio of 171%(11) remains strong and is above our target working range of 140-170%.
The Group holds capital to cover its Solvency Capital Requirement (SCR), calculated on a Standard Formula basis, considering all our risks, including those related to non-insurance businesses. As at 30 June 2023, the estimated SCR of GBP2.7bn was GBP0.05bn higher and Own Funds of GBP4.6bn was GBP0.3bn lower when compared to 31 December 2022.
Our surplus capital was estimated to be GBP1.9bn, compared to GBP2.2bn at 31 December 2022, representing a solvency coverage ratio of 171%(11) (FY 2022: 181%). Our business continued to generate capital through our underlying profitability. This capital generation was more than offset by the GBP250m repayment of Tier 2 subordinated debt, capital expenditure, and debt financing costs.
We perform an analysis of the relative sensitivity of our estimated solvency coverage ratio to changes in market conditions and underwriting performance. Each sensitivity is an independent stress of a single risk and before any management actions. The selected sensitivities do not represent our expectations for future market and business conditions. A movement in values of properties that we own continues to be the most sensitive item, with a 10% decrease having a 11 percentage point reduction to the solvency coverage ratio.
Our capital position is resilient in the face of the individual risks, illustrating the strength of our balance sheet.
Solvency II
Risk Sensitivities coverage ratio
Solvency coverage ratio(11) 171%
----------------------------------------------
Property values -10% 160%
----------------------------------------------
Loss ratio worsening by 2%(12) 163%
----------------------------------------------
Sterling depreciates by 20% 165%
----------------------------------------------
Group Specific Parameter (GSP) +0.2%(13) 169%
----------------------------------------------
Credit spreads +100bps (no credit transition) 170%
----------------------------------------------
Interest rate -100bps 170%
----------------------------------------------
Pension risk +10% 171%
----------------------------------------------
Equity markets -20% 171%
----------------------------------------------
We include a GSP in respect of the insurance risk parameter in the Standard Formula. We apply a premium recognition adjustment to the GSP loss ratio data to allow for the distorting impact of the COVID-19 pandemic.
MARKET UNIT PERFORMANCE
Bupa Asia Pacific
Revenue Underlying profit
HY 2023 GBP2,773m GBP40m
HY 2022 (AER) GBP2,759m GBP257m
% growth 1% (84)%
HY 2022 (CER) GBP2,741m GBP254m
% growth 1% (84)%
(Commentary on a CER basis)
Excluding the impact of returning claims savings to Australian insurance customers, revenue increased 5%, primarily driven by Australian health insurance, an increase in Australia and New Zealand aged care occupancy, and revenue growth in Hong Kong due to higher volumes in health services. On a reported basis, revenue grew by 1% including a GBP231m reduction in revenue as a result of returning claims savings to customers (HY 2022: GBP109m).
Reported profit reduced as a result of returning COVID-19 claim savings to Australian health insurance customers and lower claims frequency in H1 2022 due to COVID-19.
We have continued to support our customers and, in June, announced the return of GBP175m (A$320m) to Australian health insurance customers under our COVID-19 customer support programme, taking the total support delivered to customers since the start of the pandemic to GBP0.7bn (A$1.27bn). The June cashback was on top of the six-month premium rate deferral from 1 April 2023 to 1 October 2023 that was announced earlier in the year. The customer support programme and the implementation of IFRS 17 has introduced significant fluctuations into our profits as we return claims savings to our customers.
Excluding the impact of returning claims savings, Australian health insurance, revenues increased by 6% as a result of strong growth in domestic and international customer numbers and the November 2022 premium rate increase. On a reported basis the combined operating ratio (COR) increased to 100% (HY 2022: 86%) as the cost of returning COVID-19 claim savings to customers increased and claims frequency was higher. Health Insurance has continued to deliver strong growth across all service propositions, including Blua (virtual GP consultations for international members), Healthcare Programmes (including rehabilitation and chemotherapy in the home) and Bupa Telehealth. We continue to negotiate with hospitals on new contracts, amidst increased indexation pressures from hospitals, including signing a two-year agreement with St John of God Health Care to deliver Bupa customers greater choice and access to services and to limit out of pocket costs.
Australian Health Services revenue was marginally lower due to a temporary policy change affecting the Bupa Medical Visa Services business which impacted assessment volumes, coupled with the closure of a small number of Australian dental clinics over the past year. Overall, underlying profit increased driven by dental. A new Microvascular Health Assessment, a first in the Australian optometry industry, was launched in Bupa Optical and Hearing, involving artificial intelligence assessing cardiovascular disease risk during a standard eye test.
In Australian Villages and Aged Care, revenue grew due to an increase in occupancy as the sector recovers from the impact of the COVID-19 pandemic. We are working through the implications of a revised funding model, following an announcement in October 2022 by the Australian Federal Government, with the objective of improving levels of care for residents and addressing funding shortfalls in the sector. Underlying losses reduced due to the benefit of higher revenue and lower operating costs, despite homes in regional areas continuing to face significant workforce challenges. Closing occupancy was 87% (HY 2022: 83%).
In New Zealand Villages and Aged Care, revenue increased due to higher occupancy, daily bed rate increases and additional government funding to support aged care nurse pay parity within the hospital sector. Closing occupancy was 91% (HY 2022: 85%).
In Hong Kong, revenue increased due to volume growth in Health Services and re-pricing in Insurance. Underlying losses increased due to higher insurance claims following the relaxing of COVID-19 mandates. This impact was partially offset by strong demand in Hong Kong Health Services for provision services, with the number of customers in the first half of the year increasing by over 200,000 relative to last year, and increased investment returns.
Europe and Latin America
Revenue Underlying profit HY 2023 GBP2,552m GBP145m HY 2022 (AER) GBP2,108m GBP66m % growth 21% 118% HY 2022 (CER) GBP2,195m GBP70m % growth 16% 107%
(Commentary on a CER basis)
Revenue in our Europe and Latin America Market Unit grew by 16% to GBP2,552m as a result of strong customer growth and the impact of pricing action to keep pace with the impact of inflation. Underlying profit increased by 107% to GBP145m at CER driven by the increase in revenues whilst margins improved.
Sanitas Seguros, our health insurance business in Spain, delivered strong revenue growth driven by increased organic customer volumes and the impact of a new strategic alliance with Generali. Underlying profits increased significantly driven by a stable COR, combined with higher revenues and investment returns. The COR for the half year was 93% (HY 2022: 93%). Other business highlights include the acquisition of the health business of Asefa Seguros in June, which increased our health insurance portfolio by 37,000 customers. We also continued to expand digital services and, in June, we reached an average of 71,000 video consultations per month (compared to an average of 66,000 per month in June 2022).
Our dental business in Spain saw increased revenue and underlying profit, driven by higher customer volumes.
In our hospitals business in Spain, revenue increased due to higher levels of activity and favourable CPI update on our public private health partnership. Underlying profit increased due to higher revenues and improved margins. We launched our new physiotherapy model, new clinical units and also announced plans for a new hospital in Madrid.
In Sanitas Mayores, our aged care business in Spain, revenue and underlying performance improved through higher occupancy levels and price increases. Closing occupancy rates increased to 95% (HY 2022: 91%).
In Bupa Chile, we returned to profitability in the first half of the year, due to operating efficiencies and revenue growth driven by regulator-approved price increases relating to a component of Isapre premiums (Garantias Explicitas en Salud or GES) which cover the treatments and medical conditions which Chilean regulation stipulates as mandatory minimum cover by Isapres. This component has been applied at a rate which has resulted in significantly reduced losses in Isapre Cruz Blanca. However, the GES increase is the subject of a Supreme Court action. The outcome of this is uncertain and, in a worst case, could mean the GES increase is cancelled with effect to the date the increase was first put in place (October 2022). Furthermore, Isapre pricing continues to be based on risk factor tables in line with the prior period. In December 2022, the Supreme Court issued a ruling which requires Isapres to use an alternative statutory risk factor table with retrospective effect. The method of implementation of the statutory risk factor table following the Supreme Court decision remains unclear. The deadline for such implementation has been extended to November 2023 and may be extended further. As detailed above in the financial review, contingent liabilities exist in relation to both the risk factor tables and GES uncertainties.
In Poland, LUX MED revenue increased and underlying profit was up as result of strong performance in health provision. Through the period, we have maintained our support for Ukrainian refugees who have been forced to flee the war.
Bupa Acıbadem Sigorta, our health insurance business in Türkiye, delivered substantial revenue growth, driven by organic growth in customers and pricing increases to keep pace with higher rates of inflation. The business moved to profitability in the period due to an improved COR and higher investment returns. The economy is classified as being a hyperinflationary environment, leading to the application of IAS 29. A net monetary loss of GBP5m has been recorded outside of underlying profit for the period. Following the devastating earthquake in Türkiye in February, we approved a funding package of GBP3m for humanitarian aid and healthcare through our local business, Bupa Acibadem Sigorta.
Care Plus in Brazil delivered strong revenue growth in all lines of business. Underlying profits reduced for the period driven by a provision release for onerous contracts impacting the half year 2022 comparator.
Bupa Mexico delivered strong revenue and profit growth due to higher renewal rates in our insurance business combined with good performance from Bité Hospital which we acquired in the last quarter of 2022.
Bupa Global Latin America revenue increased due to higher volumes in the domestic health insurance market in Ecuador and higher price increases across the region. Underlying profits increased driven by higher revenue, investment returns and improved COR. In the period, we finalised an important alliance with Mapfre to jointly develop and offer new health products. The alliance commenced business in Peru and will gradually expand to other countries in Latin America.
Bupa Global and UK
Revenue Underlying profit
HY 2023 GBP2,063m GBP142m
HY 2022 (AER) GBP1,861m GBP67m
% growth 11% 111%
HY 2022 (CER) GBP1,874m GBP67m
% growth 10% 112%
(Commentary on a CER basis)
We achieved good revenue growth in our Bupa Global and UK Market Unit of 10% to GBP2,063m driven by an increase in the number of UK Insurance and Bupa Global customers, improved occupancy rates in UK Care Services and increased customer activity in Health Services. Underlying profit grew by 112% due to the strong performance in UK Insurance and Bupa Global.
In UK Insurance, underlying profit increased through higher investment returns and strong revenue growth, as we grew by over 250,000 net customers across medical insurance, health trusts, dental insurance and cash plan in the first half of 2023. The UK Insurance profit was temporarily increased by the release of the return of premium provision (GBP59m) in response to deferred claims costs, a significant proportion of which are now expected to arise later in 2023 and into 2024 following evidence of increased deferred claims in the first half of 2023.
We launched the Workplace Mental Health Advantage, a new proposition for corporates focused on early intervention and supporting their workforce to maintain good mental health. We continue to expand our digital services, passing a significant milestone with over one million customers holding a digital account, and we delivered record numbers of digital primary care appointments through our Blua Health app.
In Bupa Global, our IPMI business, revenue and profit improved driven by increased customer volumes in our continuing businesses and strong corporate revenue performance. Under the new regional commercial structure, we continue to make strong progress against targets to deliver long-term sustainable growth. We are achieving this by responding to the distinct needs of our customers and people across global locations, with a focus on maximising efficiency in our operating model, improving systems and digital support for our customers.
The combined operating ratio (COR) for Bupa Insurance Limited, the UK based insurance entity that underwrites both domestic and international insurance, was 93% (HY 2022: 95%).
UK Dental Care's underlying losses reduced as delivery of the turnaround strategy has commenced. This included the decision in March to close, sell or merge 85 of our 475 dental practices in the UK and Ireland, due to the national shortage of dentists to deliver NHS care and heightened operational challenges due to macro-economic pressures, rising inflation and energy costs. Bupa Dental Care is seeking to be an employer of choice, launching Viva, our new market-leading health benefits proposition, for UK frontline colleagues and clinicians(14) .
UK Care Services, our aged care business, delivered good growth in revenue and occupancy has reached 89% so far in 2023 (HY 2022: 84%), which is higher than pre-pandemic levels (2019 average: 87%). We are working with local authorities to ensure fee increases match cost increases. Underlying profits increased, however our business continues to be impacted by sector-wide staffing challenges, high energy costs and other inflationary pressures. Digital transformation continues to progress at pace with electronic care planning in place in almost all care homes and a pilot for a new electronic medications management system underway.
Health Services delivered good growth in revenue and underlying losses reduced, driven by higher customer numbers in Clinics and the Cromwell Hospital and strong growth across all product and service lines. We opened five new clinics and nine partner centres as we ended our franchise agreement with Spire Healthcare. The Cromwell Hospital opened a new walk-in urgent care centre providing fast treatment for injuries and illnesses.
Other businesses
Revenue Underlying profit HY 2023 GBP4m GBP43m HY 2022 (AER) GBP3m GBP20m % growth 30% 113% HY 2022 (CER) GBP3m GBP20m % growth 23% 112%
Underlying profit growth was very strong in the first half of 2023 driven by an increase in profits from Bupa Arabia. Customer growth was substantial across the associate businesses.
BUSINESS RISKS
We described our main risks in the Risk section of the Annual Report and Accounts 2022, which are available on www.bupa.com. While economic volatility, information security and strategic workforce challenges remain heightened, the principal risks and themes previously identified at the 2022 year-end remain.
Strategic and financial risks and risks impacting our ability to deliver for our customers:
The macroeconomic environment is challenging in most markets we operate in. In particular, in many markets we are seeing heightened inflationary pressures and rising interest rates.
Heightened inflation, particularly in the UK, is likely to impact our businesses in a variety of ways, including: increased costs, higher interest rates impacting households, reduced personal expenditure and affordability issues, and changes in government funding levels. In all businesses we are taking actions to mitigate the impacts, including pricing action and cost control measures.
In many markets, we continue to see strategic challenges associated with workforce availability, particularly medical professionals, which may impact our ability to deliver services.
Governmental and regulatory policy risks:
Changes in governmental and regulatory policy has consistently been one of our top risks given the nature of our businesses and this remains true. The situation affecting our Isapre business in Chile demonstrates that future legislation, regulation and government decisions could have a material impact on the Group. We continue to engage governments and regulators in the markets we operate in to understand and influence potential changes to ensure we are able to continue to deliver quality and value for our customers.
Operational risks:
Information Security and Privacy remain key risks for the Group. Our focus on information security, technology and operational resilience in recent years is supported by significant investment to uplift capability and capacity in this area across the Group.
Social and environmental risks:
Climate change remains one of the major risks we face as a society and is a key area of focus for us as Sustainability is a core pillar of our 3x6 strategy. We closely manage our environmental impacts and promote positive environmental practices. A key focus is our commitment to become a net zero business by 2040 across all our operations and throughout our value chain, underpinned by our 1.5 degree aligned science-based targets.
We have identified our key climate-related risks over the short, medium and long term and these are set out in the Annual Report and Accounts 2022.
Our approach to risk management:
We have a well-established process for identifying and managing all business risks, including all types of operational risk such as information security and privacy. Monitoring and managing our risks is key to ensuring that we achieve our strategic objectives in the long-term, meeting the evolving expectations of our customers, people, bondholders and regulators. Internal controls, particularly regarding customer conduct and information security and privacy, and operational resilience continue to be key areas of focus.
BUPA AROUND THE WORLD
Bupa Asia Pacific
-- Bupa Health Insurance Australia, with 4.2m customers, is a
leading health insurance provider in Australia and also offers
health insurance for overseas workers and visitors.
Bupa Health Services in Australia is a health provision business,
comprising dental, optical, audiology, medical assessment
services, and healthcare for the Australian Defence Force.
-- Bupa Villages and Aged Care Australia cares for around 5,200
residents across 59 homes. It also operates 1 retirement village
in Australia.
-- Bupa Villages and Aged Care New Zealand cares for around 3,300
residents across 44 care homes. It also operates 37 retirement
villages.
-- Bupa Hong Kong comprises a health insurance business with
419,000 customers and a Health Services business operating
78 medical centres providing healthcare services to around
689,000 customers.
Europe and Latin America
Sanitas Seguros is the second largest health insurance provider
in Spain with more than 2.2m customers.
-- Sanitas Dental provides dental services through 205 centres
and third-party networks in Spain.
-- Sanitas Hospitales and New Services comprises four private
hospitals and 47 medical, health and wellness clinics.
-- Sanitas Mayores cares for around 5,700 people in 43 care homes,
operates four day-care centres and has professional home care
services with digital medical support for seniors in Spain.
-- LUX MED is a leading private healthcare business in Poland,
operating in health funding and provision through 15 hospitals
and 270 private clinics with around 6.1m customers and 279,000
insurance customers.
-- Bupa Chile is a leading health funding and provision business
serving more than 789,000 customers through the Isapre business
and Bupa Chile Seguros and offering provision services to
around 1.7m customers across four hospitals and 37 medical
clinics.
-- Bupa Acıbadem Sigorta is Turkey's second largest health
insurer, with products for corporate and individual customers,
and has 1.4m customers.
-- Care Plus is a leading health insurance company in Brazil,
with around 198,000 funding customers and 216,000 provision
related customers, concentrated in São Paulo.
-- Bupa Mexico is a health insurer offering international and
local private medical insurance to individuals and corporates
in Mexico, with more than 467,000 customers. During 2022,
we acquired Bite Medica, our first hospital in Mexico.
-- Bupa Global Latin America provides international health insurance
and local health insurance in Latin America to more than 85,000
customers. It is headquartered in Miami and has operations
in Ecuador, Dominican Republic, Guatemala, Panama, and Bolivia.
Bupa Global and UK
Bupa UK Insurance is a leading health insurer with 3.3m customers
across medical insurance, health trusts, dental insurance
and cash plans.
-- Bupa Global serves over 364,000 IPMI customers and administers
medical assistance for individuals, small businesses and corporate
customers.
-- Bupa Dental Care is a leading provider of private dentistry,
providing dental services through over 441 centres across
the UK and the Republic of Ireland.
-- Bupa Care Services cares for around 6,400 residents in 120
care homes and 10 Richmond care villages.
-- Bupa Health Services comprises 46 health clinics, and the
Cromwell Hospital.
Other businesses
We also have associate health insurance businesses in Saudi Arabia (Bupa Arabia) and India (Niva Bupa) and an interest in MyClinic in Saudi Arabia.
Bupa Finance plc
(Company Number 2779134)
Condensed Consolidated Half Year Financial Statements (unaudited)
Six months ended 30 June 2023
Bupa Finance plc
Condensed Consolidated Income Statement
for six months ended 30 June 2023 (unaudited)
For year
For six months ended 31
For six ended 30 December
months ended June 2022 2022
30 June 2023 restated(1),(2) restated(1),(2)
Note GBPm GBPm GBPm
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Insurance revenue 2,13 5,234 4,809 10,033
Insurance service
expenses 13 (5,051) (4,480) (9,339)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Insurance service
result
before
reinsurance
contracts
held 13 183 329 694
Net expense from
reinsurance
contracts held 13 (7) (14) (22)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Insurance service
result 176 315 672
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Care, health and
other customer
contract revenue 3 2,130 1,893 3,967
Other revenue(1) 3 37 40 81
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Total
non-insurance
revenue 3 2,167 1,933 4,048
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Share of
post-taxation
results
of
equity-accounted
investments(1) 44 17 44
Impairment of
goodwill and
intangible
assets 7 - - (894)
Other operating
expenses(1) (2,138) (1,927) (4,093)
Other income and
charges(2) 4 13 9 (11)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Total other
expenses, income
and charges (2,081) (1,901) (4,954)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Profit/(loss)
before financial
income and
expense 262 347 (234)
Financial income
and expense
Financial
income(2) 5 158 22 158
Financial expense 5 (91) (82) (174)
Financial
(expense)/income
from insurance
contracts
held (8) 22 16
Net monetary
loss(1) 1.5 (4) (18) (25)
Net impairment on
financial
assets (7) (5) (10)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Net financial
income/(expense) 48 (61) (35)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Profit/(loss)
before taxation
expense 310 286 (269)
Taxation expense 6 (68) (93) (130)
Profit/(loss) for
the period 242 193 (399)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Attributable to:
Shareholder of
Bupa Finance
plc 240 192 (402)
Non-controlling
interests 2 1 3
----------------- ---- ------------------------------ ------------------------------ -----------------------------
Profit/(loss) for
the period 242 193 (399)
----------------- ---- ------------------------------ ------------------------------ -----------------------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
2. Surplus on fair value of investment property has been reclassified
from financial income and expense and is now presented within
other income and charges (see Note 4 and 5).
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Comprehensive Income
for six months ended 30 June 2023 (unaudited)
For year
For six months ended 31
For six ended 30 December
months ended June 2022 2022
30 June 2023 restated(1) restated(1)
Note GBPm GBPm GBPm
------------------- ---- ----------------------------- ----------------------------- -----------------------------
Profit/(loss) for
the period(1) 242 193 (399)
------------------- ---- ----------------------------- ----------------------------- -----------------------------
Other comprehensive
income/(expense)
Items that will not
be reclassified
to the Income
Statement
Unrealised
gain/(loss) on
revaluation
of property - 11 (44)
Remeasurement gain
on pension
schemes 10 - - 3
Taxation credit on
income and
expenses
recognised
directly
in other
comprehensive
income - 1 12
Items that may be
reclassified
subsequently to the
Income
Statement
Foreign exchange
translation
differences on
goodwill 7 (92) 98 112
Other foreign
exchange
translation
differences(1) (260) 275 332
Net gain/(loss) on
hedge of
net investment in
overseas
subsidiaries 81 (61) (80)
Share of other
comprehensive
(expense)/income
of
equity-accounted
investments (1) (5) 2
Change in fair
value of financial
investments
through other
comprehensive
income (1) (6) (4)
Change in ECL of
financial
investments through
other comprehensive
income 1 - -
Release of foreign
exchange
translation
reserve on closure
of subsidiaries - 4 4
Taxation credit on
income and
expenses recognised
directly
in other
comprehensive
income - 3 -
------------------- ---- ----------------------------- ----------------------------- -----------------------------
Total other
comprehensive
(expense)/income (272) 320 337
------------------- ---- ----------------------------- ----------------------------- -----------------------------
Comprehensive
(expense)/income
for the period (30) 513 (62)
------------------- ---- ----------------------------- ----------------------------- -----------------------------
Attributable to:
Shareholder of Bupa
Finance
plc(1) (31) 512 (67)
Non-controlling
interests 1 1 5
------------------- ---- ----------------------------- ----------------------------- -----------------------------
Comprehensive
(expense)/income
for the period (30) 513 (62)
------------------- ---- ----------------------------- ----------------------------- -----------------------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Financial Position
as at 30 June 2023 (unaudited)
At 31 December At 30 June
At 30 June 2022 2022
2023 restated(1) restated(1)
Note GBPm GBPm GBPm
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Assets
Goodwill and
intangible
assets 7 2,633 2,740 3,606
Property, plant
and equipment 8 3,613 3,691 3,832
Investment
property 9 717 750 700
Equity-accounted
investments(1) 972 997 951
Post-employment
benefit
net assets 10 2 2 2
Deferred taxation
assets(1) 172 127 99
Restricted assets 11 126 119 129
Financial
investments 12 4,007 3,716 3,736
Derivative assets 58 28 25
Reinsurance
contract
assets(1) 13 30 21 14
Current taxation
assets 9 23 16
Inventories 89 91 91
Trade and other
receivables(1) 1,084 938 787
Assets held for
sale 14 24 32 22
Cash and cash
equivalents 15 1,548 1,403 1,553
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Total assets 15,084 14,678 15,563
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Liabilities
Subordinated
liabilities 16 (746) (998) (997)
Other
interest-bearing
liabilities 16 (951) (648) (824)
Post-employment
benefit
net liabilities 10 (9) (7) (9)
Lease liabilities (928) (926) (922)
Deferred taxation
liabilities(1) (112) (112) (142)
Derivative
liabilities (83) (137) (113)
Provisions for
liabilities
and charges(1) (294) (287) (280)
Insurance
contract
liabilities(1) 13 (2,916) (2,378) (2,634)
Current taxation
liabilities (52) (34) (61)
Trade and other
payables(1) (2,246) (2,308) (2,083)
Liabilities
associated with
assets held for
sale 14 - (1) (1)
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Total liabilities (8,337) (7,836) (8,066)
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Net assets 6,747 6,842 7,497
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Equity
Share capital 200 200 200
Foreign exchange
translation
reserve(1) 178 437 396
Property
revaluation
reserve 618 634 677
Income and
expenditure
reserve(1) 5,435 5,254 5,910
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Equity
attributable to
shareholder of
Bupa Finance
plc 6,431 6,525 7,183
Restricted Tier 1
notes 17 297 297 297
Non-controlling
interests 19 20 17
----------------- ---- ------------------------------ ------------------------------ ------------------------------
Total equity 6,747 6,842 7,497
----------------- ---- ------------------------------ ------------------------------ ------------------------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Cash Flows
for six months ended 30 June 2023 (unaudited)
For six For six months For year
months ended ended 30 ended 31 December
30 June June 2022 2022
2023 restated(1),(2) restated(1)
Note GBPm GBPm GBPm
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Cash flow from
operating activities
Profit/(loss) before
taxation
expense(1) 310 286 (269)
Adjustments for:
Net financial
(income)/expense(1),
(2) (60) 65 26
Net monetary loss(1) 4 18 25
Depreciation,
amortisation
and impairment 238 251 1,522
Other non-cash
items(1),(2) (51) (35) (49)
Changes in working
capital
and provisions:
Increase in insurance
contract
liabilities 629 377 131
Increase in
reinsurance contract
assets (10) 7 (1)
Funded pension scheme
employer
contributions - - (1)
Increase in trade and
other
receivables, and
other assets (68) (93) (191)
(Decrease)/increase
in trade
and other payables,
and other
liabilities(1) (37) (105) 73
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Cash generated from
operations 955 771 1,266
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Income taxation paid (79) (104) (232)
(Increase)/decrease
in cash
held in restricted
assets(3) 11 (1) - 5
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Net cash generated
from operating
activities 875 667 1,039
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Cash flow from
investing activities
Acquisition of
subsidiaries
and businesses, net
of cash
acquired (25) (12) (29)
Investment in
equity-accounted
investments (9) (8) (14)
Dividends received
from associates - 56 42
Disposal of
subsidiaries and
other businesses,
net of cash
disposed of 8 (7) 3
Purchase of
intangible assets 7 (51) (41) (111)
Purchase of property,
plant
and equipment (95) (71) (208)
Proceeds from sale of
property,
plant and equipment 4 6 7
Purchase of
investment property 9 (13) (12) (29)
Disposal of
investment property 9 - 1 1
Purchases of
financial
investments,
excluding deposits
with credit
institutions (1,042) (908) (1,720)
Proceeds from sale
and maturities
of financial
investments,
excluding
deposits with credit
institutions 790 471 1,222
Net investments into
deposits
with credit
institutions (150) (242) (119)
Interest received 80 30 82
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Net cash used in
investing
activities (503) (737) (873)
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Cash flow from
financing activities
Payment of Restricted
Tier
1 coupon 17 (6) (6) (12)
Proceeds from issue
of interest-bearing
liabilities and
drawdowns on
other borrowings 317 106 51
Repayment of
interest-bearing
liabilities and
other borrowings (262) (87) (194)
Principal repayment
of lease
liabilities (69) (60) (135)
Payment of interest
on lease
liabilities (24) (22) (46)
Interest paid (56) (48) (64)
Net payments on
settlement
of hedging
instruments (10) (41) (57)
Dividends paid (58) (15) (89)
Dividends paid to
non-controlling
interests (2) (1) (2)
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Net cash used in
financing
activities (170) (174) (548)
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Net
increase/(decrease)
in
cash and cash
equivalents 202 (244) (382)
Cash and cash
equivalents at
beginning of
period(3), 1,479 1,850 1,850
Effect of exchange
rate changes (52) 29 11
--------------------- ---- --------------------------- ---------------------------- -------------------------------
Cash and cash
equivalents
at end of period(3), 15 1,629 1,635 1,479
--------------------- ---- --------------------------- ---------------------------- -------------------------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
2. Amounts have been restated for the reclassification of surplus
on fair value of investment property from financial income
and expense to other income and charges (see Note 5).
3. Amounts have been restated for IFRIC Agenda Decision Demand
Deposits with Restrictions on Use arising from a Contract
with a Third Party. Refer to Note 1.4.1.
4 Includes restricted cash of GBP84m (HY 2022: GBP83m; FY
2022: GBP78m) which is considered cash and cash equivalents
along with bank overdrafts of GBP3m (HY 2022: GBP1m; FY
2022: GBP2m) which are not considered a component of cash
and cash equivalents within Note 15.
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Changes in Equity
for six months ended 30 June 2023 (unaudited)
Total
attributable
Foreign to shareholder
exchange Property Income of Bupa Restricted
Share translation revaluation and expenditure Finance Tier Non-controlling Total
Capital reserve reserve reserve plc 1 notes interests equity
For six months
ended 30 June
2023 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at 1
January 2023 200 437 634 5,254 6,525 297 20 6,842
Profit for the
period - - - 240 240 - 2 242
Other comprehensive
income/(expense)
Realised
revaluation
profit on
disposal
of property - - (1) 1 - - - -
Foreign exchange
translation
differences
on goodwill 7 - (92) - - (92) - - (92)
Other foreign
exchange
translation
differences - (248) (15) 4 (259) - (1) (260)
Net gain on hedge
of net
investment
in overseas
subsidiaries - 81 - - 81 - - 81
Share of other
comprehensive
expense
of equity
accounted
investments - - - (1) (1) - - (1)
Change in fair
value of
financial
investments
through
other
comprehensive
income - - - (1) (1) - - (1)
Change in ECL of
financial
investments
through other
comprehensive
income - - - 1 1 - - 1
Other
comprehensive
expense for the
period, net of
taxation - (259) (16) 4 (271) - (1) (272)
Total
comprehensive
(expense)/income
for the period - (259) (16) 244 (31) - 1 (30)
Payment of
Restricted
Tier 1 coupon,
net of taxation 17 - - - (5) (5) - - (5)
Dividends to
equity
holders of the
company - - - (58) (58) - - (58)
Dividends paid to non-controlling interests - - - - - - (2) (2) ----------------- ---- --------- -------------- ---------------- ---------------- ----------------- ------------- ---------------- ------------ Balance as at 30 June 2023 200 178 618 5,435 6,431 297 19 6,747 ----------------- ---- --------- -------------- ---------------- ---------------- ----------------- ------------- ---------------- ------------
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Total
attributable
Foreign to shareholder
exchange Property Income of Bupa Restricted
Share translation revaluation and expenditure Finance Tier Non-controlling Total
Capital reserve(1) reserve reserve(1) plc(1) 1 notes interests equity(1)
For year ended
31 December 2022 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at 1
January 2022, as
previously
reported 200 92 655 5,800 6,747 297 17 7,061
Initial
application
of IFRS 17 1.4 - (1) - (55) (56) - - (56)
----------------- ---- --------- -------------- --------------- --------------- ----------------- ------------- --------------- ----------
Balance as at
1 January 2022,
as restated 200 91 655 5,745 6,691 297 17 7,005
(Loss)/profit
for the year(1) - - - (402) (402) - 3 (399)
Other comprehensive
income/(expense)
Unrealised loss
on revaluation
of property - - (44) - (44) - - (44)
Realised
revaluation
profit on
disposal
of property - - (6) 6 - - - -
Remeasurement
gain
on pension
schemes 10 - - - 3 3 - - 3
Foreign exchange
translation
differences
on goodwill 7 - 112 - - 112 - - 112
Other foreign
exchange
translation
differences(1) - 310 17 3 330 - 2 332
Net loss on hedge
of net
investment
in overseas
subsidiaries - (80) - - (80) - - (80)
Share of other
comprehensive
income
of equity
accounted
investments - - - 2 2 - - 2
Change in fair
value of
financial
investments
through
other
comprehensive
income - - - (4) (4) - - (4)
Release of
foreign
exchange
translation
reserve on
closure
of subsidiaries - 4 - - 4 - - 4
Taxation credit
on income and
expense
recognised
directly
in other
comprehensive
income - - 12 - 12 - - 12
----------------- ---- --------- -------------- --------------- --------------- ----------------- ------------- --------------- ----------
Other
comprehensive
income/(expense)
for the year,
net
of taxation - 346 (21) 10 335 - 2 337
Total
comprehensive
income/(expense)
for the year - 346 (21) (392) (67) - 5 (62)
Payment of
Restricted
Tier 1 coupon,
net of taxation 17 - - - (10) (10) - - (10)
Dividends to
equity
holders of the
company - - - (89) (89) - - (89)
Dividends paid
to
non-controlling
interests - - - - - - (2) (2)
----------------- ---- --------- -------------- --------------- --------------- ----------------- ------------- --------------- ----------
Balance as at
31 December
2022,
as restated 200 437 634 5,254 6,525 297 20 6,842
----------------- ---- --------- -------------- --------------- --------------- ----------------- ------------- --------------- ----------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Total
attributable
Foreign to shareholder
exchange Property Income of Bupa Restricted
Share translation revaluation and expenditure Finance Tier Non-controlling Total
Capital reserve(1) reserve reserve(1) plc(1) 1 notes interests equity(1)
For six months
ended
30 June 2022 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at 1
January 2022, as
previously
reported 200 92 655 5,800 6,747 297 17 7,061
Initial
application
of IFRS 17 1.4 - (1) - (55) (56) - - (56)
----------------- ---- --------- --------------- ---------------- ---------------- ---------------- ------------- ------------------- -------------
Balance as at 1
January 2022, as
restated 200 91 655 5,745 6,691 297 17 7,005
----------------- ---- --------- --------------- ---------------- ---------------- ---------------- ------------- ------------------- -------------
Profit for the
period(1) - - - 192 192 - 1 193
Other comprehensive
income/(expense)
Unrealised gain
on revaluation
of
property - - 11 - 11 - - 11
Realised
revaluation
profit on
disposal
of property - - (2) 2 - - - -
Foreign exchange
translation
differences
on goodwill 7 - 98 - - 98 - - 98
Other foreign
exchange
translation
differences(1) - 262 12 1 275 - - 275
Net loss on hedge
of net
investment
in overseas
subsidiary
companies - (61) - - (61) - - (61)
Share of other
comprehensive
expense of
equity
accounted
investments - - - (5) (5) - - (5)
Change in fair
value
of financial
investments
through other
comprehensive
income - - - (6) (6) - - (6)
Release of
foreign
exchange
translation
reserve on
closure
of subsidiary - 4 - - 4 - 4
Taxation credit
on income and
expense
recognised
directly
in other
comprehensive
income - 2 1 1 4 - - 4
----------------- ---- --------- --------------- ---------------- ---------------- ---------------- ------------- ------------------- -------------
Other
comprehensive
income/(expense)
for the period,
net of taxation - 305 22 (7) 320 - - 320
Total
comprehensive
income for the
period - 305 22 185 512 - 1 513
Payment of
Restricted
Tier 1 coupon,
net
of taxation 17 - - - (5) (5) - - (5)
Dividends to
equity
holders of the
company - - - (15) (15) - - (15)
Dividends paid to
non-controlling
interests - - - - - - (1) (1)
----------------- ---- --------- --------------- ---------------- ---------------- ---------------- ------------- ------------------- -------------
Balance as at 30
June 2022, as
restated 200 396 677 5,910 7,183 297 17 7,497
----------------- ---- --------- --------------- ---------------- ---------------- ---------------- ------------- ------------------- -------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
Notes 1-19 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Notes to the Condensed Consolidated Financial Statements
for six months ended 30 June 2023 (unaudited)
1 Basis of preparation 1.1 Basis of preparation
Bupa Finance plc (the 'Company'), a company incorporated in England and Wales and domiciled in the United Kingdom, together with its subsidiaries (collectively the 'Group') is an international healthcare business, providing health insurance, treatment in clinics, dental centres and hospitals, and operating care homes. The immediate and ultimate parent of the Company is The British United Provident Association Limited (the 'Parent' or 'Bupa' and together with its subsidiaries, the 'Bupa Group').
The Condensed Consolidated Half Year Financial Statements of the Company as at and for the six months ended 30 June 2023 comprise those of the Company and its subsidiary companies.
The interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2022, which have been prepared in accordance with UK-adopted international accounting standards, in conformity with the requirements of the Companies Act 2006. The interim financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 31 December 2022 updated for the application of new and amended accounting standards as set out in Note 1.4.
The interim financial statements were approved by the Board of Directors of Bupa Finance plc on 2 August 2023.
The financial information contained in these interim financial statements does not constitute statutory accounts of Bupa Finance plc within the meaning of Section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2022 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
1.2 Going concern
Following a detailed assessment of the Group's going concern status based on its current position and forecast results, along with scenario-based stress testing and reverse stress testing, the Directors have concluded that the Group has adequate resources to operate for at least the next 12 months from the approval of these financial statements. This assessment considered forecast and reasonably possible adverse changes to the Group's regulatory solvency, liquidity, access to funding and trading profitability over the next 12 months.
The assessment identified the risks and uncertainties most likely to impact the Group and considered the impact to the Group's businesses under a number of reasonably plausible severe scenarios as well as consideration of contingent liabilities. This included an updated 2023 review of potential adverse outcomes on the Isapre industry in Chile, as described in Note 19, including a wide range of outcomes given the inherent political and regulatory uncertainty surrounding the implementation of the Supreme Court judgement. Other scenarios considered included a worsening of the global inflationary outlook driven by strong wage inflation leading to a wage-price inflation spiral and subsequent recession, and a variety of local scenarios developed by each business unit with the majority focusing on strategic workforce-related risks impacting either the availability or cost of staff. Under each such scenario, significant short-term reductions in planned profitability and liquidity may arise, however the Group is expected to remain a going concern. The Group has access to a GBP900m revolving credit facility ('RCF') as described in Note 16. The Group expects to remain compliant with the RCF's covenants under stressed scenarios and may further draw down on the RCF in order to meet liquidity needs. Additional management actions would allow downside impacts to be further mitigated by reducing expenditure, obtaining additional funding or divesting investments or businesses.
Details of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Half Year 2023 Results Announcement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review of the Half Year 2023 Results Announcement.
1.3 Accounting estimates and judgements
The preparation of financial statements requires the use of certain accounting estimates and assumptions that affect the reported assets, liabilities, income and expenses. It also requires management to exercise judgement in applying the Group's accounting policies.
The areas involving a higher degree of judgement or complexity, or where estimates are significant to the Condensed Consolidated Financial Statements, are set out below. These have been updated to include ongoing judgements following the implementation of IFRS 17 Insurance Contracts. Details of judgements applied in the initial application of the standard have been included in Note 1.4 below. Changes in these estimates could lead to a material adjustment to the carrying value of the assets and liabilities in the next financial year. Further detail is in the related notes.
Area Details Note
---------------- ------------------------------------------------------------ ----
Goodwill and intangible assets are recognised on
acquired businesses based on fair values at the
date of acquisition. Goodwill and intangible assets
with indefinite lives are tested for impairment
on an annual basis, or when there are indicators
of impairment. Other intangible assets are tested
for impairment when there are indicators of impairment.
As at 30 June 2023, all CGUs and intangible assets
were reviewed for indicators of impairment. Following
the impairment at 31 December 2022, a full assessment
was performed on Bupa Dental Care UK, the results
of which are included in Note 7.
Sources of estimation uncertainty
Impairment tests include a number of sources of
estimation uncertainty as the key assumptions used
when modelling the recoverable amount include estimating
the discount rate, terminal growth rate and the
forecast cash flows. Estimation uncertainties within
these cash flows vary by CGU. For provision business
this includes the number of customers, available
clinician hours, fee rates and operating expenses.
Key estimation uncertainty in the period has been
driven by economic volatility including the associated
inflationary
pressures across Bupa's key markets. This has primarily
impacted the determination of appropriate discount
rates.
In addition, there is increased uncertainty in
the underlying cash flow forecasts driven by this
economic uncertainty.
Accounting judgements
Judgement has been applied to determine whether
there is an indication of impairment to intangible
assets and goodwill or an indication that impairments
should be reversed for intangible assets. In making
these judgements, the Group has considered current
trading and future plans associated with each of
the assets, along with external market factors,
Goodwill in order to assess whether a full valuation is
and intangible required to assess for impairments or reversal
assets of impairments. 7
---------------- ------------------------------------------------------------ ----
The Group has a significant portfolio of care home,
hospital and office properties. These are subject
to periodic and at least triennial valuations performed
by external independent valuers, with directors'
valuations performed in intervening years. In addition,
the Group has a significant portfolio of investment
properties, primarily retirement villages in New
Zealand. These properties are revalued annually.
Sources of estimation uncertainty
Significant assumptions for freehold properties
are normalised earnings, average occupancy and
capitalisation rates, whereas for investment property
key assumptions are discount and capital growth
rates.
Accounting judgements
In valuing care home property, a judgement is made
on the highest and best use of the property. In
the majority of cases this leads to the property
being valued as part of a group of assets making
up a going concern business using market-based
assumptions. The business is valued on a fair maintainable
trade basis with the fair value thus calculated
being allocated to plant and equipment and bed
licences where applicable at net book value (as
Property a proxy for fair value), with the residual value
valuations being allocated to property. 8,9
---------------- ------------------------------------------------------------ ----
Accounting Judgements
Premium allocation approach (PAA)
The Group exercises judgement in determining whether
the PAA eligibility criteria are met at initial
recognition. For a small number of insurance contracts,
which have a coverage period that is greater than
12 months, the Group elects to apply the PAA, if
at the inception of the contract the Group reasonably
expects that it will provide a liability for remaining
Insurance coverage that would not differ materially from
contracts the General Measurement Model. 13
Sources of estimation uncertainty
Best estimate of claims provisioning
Estimates included in the insurance contract liabilities
include expected claims payments and expenses required
to settle existing insurance contract obligations.
The key assumptions used in the calculation of
the liability for incurred claims include claims
development, claims costs inflation, medical trends
and seasonality.
The Group has circumstances arising in the ordinary
course of business, including losses which might
arise from litigation, disputes, and interpretation
of tax law or local regulations. Judgement is exercised
in determining whether the circumstances should
give rise to the recognition of provisions or contingent
liabilities. In the case of material contingent
liabilities further judgment is required in arriving
at appropriate disclosure of such matters.
Accounting judgement
Significant judgment has been applied in assessing
Provisions whether a contingent liability or provision exists
and as a result of the ruling issued by the Supreme
contingent Court in Chile that obliges Isapres to make use
liability of a specific table of risk factors. 19
---------------- ------------------------------------------------------------ ----
1.4 New and amended accounting standards
Except for the changes detailed below, the interim financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 31 December 2022.
1.4.1 New and amended standards adopted by the Group
IFRS 17 Insurance Contracts
IFRS 17 sets out the principles for the recognition, measurement and presentation of insurance contracts and supersedes IFRS 4 Insurance Contracts. The Group has adopted IFRS 17 Insurance Contracts in these financial statements on a fully retrospective basis for the majority of the Group's business. The Group has used the fair value approach for a small legacy portfolio of individual health contracts in Brazil, as set out below.
Significant judgements on implementation of IFRS 17
On implementation of IFRS 17, significant judgements include the level of aggregation and the determination of the unit of account, the application of premium allocation approach (PAA), and the determination of which expenses are directly attributable to insurance contracts and the identification of onerous contracts. The key considerations made by the Group on application of IFRS 17 are set out below.
Refer to Note 1.3 for significant judgements and estimates relating to the application of IFRS 17 that are reassessed each reporting period.
Insurance contract classification
As a result of the Standard's specificity regarding the contracts that it is applicable to, the Group has reviewed contracts issued to customers by non-insurance businesses to ensure that no additional business has fallen within the scope of IFRS 17. This concluded that no additional contracts should be brought into scope on adoption of IFRS 17.
Level of aggregation
IFRS 17 defines a portfolio of insurance contracts as 'Insurance contracts subject to similar risks and managed together'. As the Group essentially sells one 'health insurance' product line, where cash flows are generally expected to respond similarly in direction and timing to changes in assumptions, and the Group manages the insurance business at geographic 'Business Unit' level, the Group has defined portfolios as insurance Business Units at a minimum, with further disaggregation if there are business lines which are managed separately and have different risk profiles. Portfolios are further divided into groups of contracts for the identification of onerous contracts.
There is a presumption under the PAA that no contracts are onerous unless there are facts and circumstances that indicate otherwise. However, the requirement to identify onerous contracts means that business is generally accounted for at a level lower than portfolios, being profitability groupings. This is the basis on which the standard requires various assessments to be made, e.g. PAA eligibility.
Contract boundary and PAA
IFRS 17 requires a current measurement model for insurance contracts where estimates are remeasured each reporting period. Under the general measurement model (GMM), contracts are measured using the building blocks of discounted probability-weighted cash flows, an explicit risk adjustment, and a contractual service margin (CSM) representing the unearned profit of the contract which is recognised as revenue over the coverage period. An optional, simplified PAA is permitted for eligible short-duration contracts.
In applying the standard, the Group has reviewed its insurance and reinsurance contracts and considered the contract boundary for each type of policy. The majority of policies have a coverage period of one year or less. As a result, the Group has taken the available policy choice to apply the PAA to these contracts. This approach leads to simplified measurement and presentation relative to the GMM.
The Group has a small number of policy groups with a coverage period of greater than a year. For these groups of contracts, the Group has assessed whether the measurement of the liability for remaining coverage (LFRC) under the PAA is expected to differ materially from that under the GMM. This required the use of a GMM and materiality thresholds determined by management for these policies, as well as the selection of reasonably expected scenarios against which eligibility is assessed. The majority of contracts are eligible for the PAA measurement model either automatically or through this assessment.
Liability for incurred claims
The liability for incurred claims (LFIC) is consistent under the GMM and the PAA. The LFIC is made up of the best estimate outstanding claims provision, expenses already incurred but not yet paid in relation to claims and the cost of handling incurred claims at the reporting date.
Liability for remaining coverage
The liability for remaining coverage (LFRC) under the PAA is valued at initial recognition based on premium received, less any directly attributable acquisition costs deferred. In subsequent periods, the LFRC is amortised to recognise the revenue and insurance expenses (insurance acquisition cash flows) on a passage of time basis over the coverage period. This is recognised on a straight line basis as the expected pattern of the release of risk during the coverage period does not differ significantly over the passage of time. If certain acquisition cash flows paid on new contracts are allocated to future renewals, outside the boundary of the current contract, the deferred portion is recognised in the carrying amount of the related portfolio of the insurance contract issued. Deferred acquisition costs relating to groups of contracts within their coverage period and insurance receivables are included within the LFRC,
For groups of contracts where all contracts have a coverage period of one year or less, the Group has taken the policy decision available to expense insurance acquisition cash flows as incurred. Where the contracts within a group have a coverage period that is greater than one year, this policy choice is not available and these amounts are deferred.
Under the PAA, a risk adjustment is recognised on all LFIC balances and on LFRC balances for onerous contracts issued. The Group has taken the decision to use a confidence level technique to estimate the risk adjustment.
Discounting
Discounting is optional for the LFRC carrying amount if the time between providing each part of the coverage and the related premium due date is one year or less and is optional for the LFIC if claims are expected to be paid in one year or less from the date the claims are incurred.
The Group does not apply discounting to the majority of policies. However, at transition, Bupa Acıbadem Sigorta has applied discounting to both the LFRC and LFIC due to the high interest rate and high inflation environment in Türkiye and Bupa Global have applied discounting to LFIC as a proportion of claims are settled in a period in excess of one year. In addition, the LFRC for the legacy individual health policies in Brazil has been discounted due to the long-term nature of these contracts as detailed below. Where discounting is applied, the Group policy is to use European Insurance and Occupational Pensions Authority (EIOPA) specified discount rates.
Onerous contracts
To identify potentially onerous contracts, the Group has considered information reviewed by senior management in monitoring financial performance. The Group assumes that no PAA contracts are onerous at initial recognition. Where facts and circumstances are identified that may indicate an onerous contract exists, detailed testing is performed. The loss component is valued by comparing the carrying amount of the LFRC to the estimated fulfilment cash flows which include an assessment of the risk adjustment using a confidence level approach. In subsequent periods, the loss component is reassessed and any movements are recognised within the Condensed Consolidated Income Statement.
Key estimation uncertainty is driven by the future cash flows which are uncertain due to their timing, size and, or probability. The underlying cash flows are determined by forecasting future claims based on internal and external historical claims and other experience data and updated to reflect current expectations of future events and current conditions at the reporting date.
Legacy individual health policies in Brazil
The Group has a small legacy portfolio of individual health contracts in Brazil. On transition to IFRS 17, the contract boundary of the policies has been deemed to be the lifetime of the policyholders due to mandatory renewal clauses included in the policies. These contracts are onerous and a GMM valuation has been used to calculate the loss component of GBP47m at transition on 1 January 2022. The loss component has been discounted due to the long-term nature of these contracts. IFRS 17 has been implemented for these contracts using the fair value approach.
Insurance service expenses
Judgement is exercised in determining which expenses are directly attributable to insurance contracts, and therefore included within insurance service expenses. The Group classifies the majority of expenses incurred by Insurance entities within insurance service expenses, except for those not directly attributable to insurance contracts.
Return of COVID-19 claims savings
In Australia Health Insurance, premium rate increase deferrals have been implemented to return claims savings to customers. The reduced premium received from customers is recognised on a passage of time basis over the policy coverage period.
In addition, Australia Health Insurance have announced cash payments to customers. A provision is recognised at the point the Group formally announces the cash payments and insurance revenue recognised within the Condensed Consolidated Income Statement is reduced accordingly. The provision is subsequently utilised on payment to the eligible customers. As the payment reflects a distinct promise associated with the return of COVID-19 savings to customers, the provision is reflected as a non-distinct investment component.
Restatements
The Group's net assets at transition on 1 January 2022 were reduced by GBP56m. The primary adjustments impacting net assets were:
- the write off of deferred acquisition costs (DAC) assets
- the recognition of the loss component on onerous contracts
in excess of the unexpired risk reserve (URR) held under
IFRS 4
- in the Group's Australian insurance business, the derecognition
of the deferred claims liabilities which cannot be held
under IFRS 17 and the change in recognition of premium deferrals.
Other adjustments include changes to the net monetary loss recognised under IAS 29 Financial Reporting in Hyperinflationary Economies as a result of IFRS 17 deeming all components of an insurance contract to be monetary items. Taxation has been restated to reflect the taxation impact of the above adjustments. Any deferred taxation assets recognised on the adoption of IFRS 17 should unwind through the Condensed Consolidated Income Statement in future periods, as and when taxation deductions are taken, alongside the associated impact to current taxation.
Restatement of the legacy individual health portfolio in Brazil, adopted using the alternate fair value approach, is not shown separately due to the low value of that portfolio.
Total
1 January 2022 GBPm
---------------------------------------------------------- ------------------------
Net assets under IFRS 4 7,061
Derecognition of DAC (136)
Recognition of loss component for onerous contracts
in excess of URR (76)
Derecognition of deferred claims liabilities and change
in recognition of premium deferrals 163
Other adjustments (15)
Taxation adjustments 8
---------------------------------------------------------- ------------------------
Net assets under IFRS 17 7,005
---------------------------------------------------------- ------------------------
As published Reclassification Measurement Restated
1 January 2022 GBPm GBPm GBPm GBPm
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Equity-accounted
investments 905 - (20) 885
Assets arising
from insurance
business 1,380 (1,244) (136) -
Deferred taxation
assets 89 - (25) 64
Reinsurance
contract assets - 18 - 18
Trade and other
receivables 618 (2) - 616
Deferred taxation
liabilities (177) - 33 (144)
Provisions
arising from
insurance
contracts (3,237) 3,237 - -
Provisions for
liabilities
and charges (270) 5 - (265)
Insurance
contract
liabilities - (2,283) 92 (2,191)
Other liabilities
arising
from insurance
business (213) 213 - -
Trade and other
payables (2,170) 56 - (2,114)
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Total net asset
restatement - (56)
----------------- ------------------------ ------------------------ ------------------------ ----------------------
The 30 June 2022 and 31 December 2022 comparatives have also been restated for the impact of applying IFRS 17. The impact on profit for the period and net assets are set out in the tables below.
Total
30 June 2022 GBPm
---------------------------------------------------------- --------------------------
Profit after tax under IFRS 4 129
Derecognition of DAC (28)
Recognition of loss component for onerous contracts
in excess of URR 7
Derecognition of deferred claims liabilities and change
in recognition of premium deferrals 122
Other adjustments (4)
Taxation adjustments (33)
---------------------------------------------------------- --------------------------
Profit after tax under IFRS 17 193
---------------------------------------------------------- --------------------------
As published Reclassification Measurement Restated
30 June 2022 GBPm GBPm GBPm GBPm
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Equity-accounted
investments 985 - (34) 951
Assets arising
from insurance
business 2,122 (1,950) (172) -
Deferred taxation
assets 167 - (68) 99
Reinsurance
contract assets - 14 - 14
Trade and other
receivables 788 (1) - 787
Deferred taxation
liabilities (185) - 43 (142)
Provisions
arising from
insurance
contracts (4,407) 4,407 - -
Provisions for
liabilities
and charges (372) 92 - (280)
Insurance
contract
liabilities - (2,863) 229 (2,634)
Other liabilities
arising
from insurance
business (229) 229 - -
Trade and other
payables (2,155) 72 - (2,083)
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Total net asset
restatement - (2)
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Total
31 December 2022 GBPm
---------------------------------------------------------- --------------------------
Loss after tax under IFRS 4 (418)
Derecognition of DAC (19)
Recognition of loss component for onerous contracts
in excess of URR (11)
Derecognition of deferred claims liabilities and change
in recognition of premium deferrals 81
Other adjustments (14)
Taxation adjustments (18)
---------------------------------------------------------- --------------------------
Loss after tax under IFRS 17 (399)
---------------------------------------------------------- --------------------------
As published Reclassification Measurement Restated
31 December 2022 GBPm GBPm GBPm GBPm
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Equity-accounted
investments 1,032 - (35) 997
Assets arising
from insurance
business 1,626 (1,470) (156) -
Deferred taxation
assets 146 - (19) 127
Reinsurance
contract assets - 21 - 21
Trade and other
receivables 939 (1) - 938
Deferred taxation
liabilities (121) - 9 (112)
Provisions
arising from
insurance
contracts (3,709) 3,709 - -
Provisions for
liabilities
and charges (290) 3 - (287)
Insurance
contract
liabilities - (2,528) 150 (2,378)
Other liabilities
arising
from insurance
business (221) 221 - -
Trade and other
payables (2,353) 45 - (2,308)
----------------- ------------------------ ------------------------ ------------------------ ----------------------
Total net asset
restatement - (51)
----------------- ------------------------ ------------------------ ------------------------ ----------------------
IAS 1 amendments
The Group has adopted Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) from 1 January 2023. The amendments aim to help improve accounting policy disclosures for the primary users of financial statements. Entities must disclose material accounting policies, rather than the previous requirement to disclose significant accounting policies, and the concept of materiality in the context of accounting policies is further defined. The accounting policy disclosures provided for IFRS 17 above are in line with the new requirements and all material accounting policies will be disclosed in the annual financial statements for the year ended 31 December 2023.
IAS 8 amendments
The Group has adopted Definition of Accounting Estimates (Amendments to IAS 8) from 1 January 2023. The amendments introduce the definition of accounting estimates and include further amendments to help entities distinguish changes in accounting estimates from changes in accounting policies. On adoption there was no impact on the Group. Any future changes in accounting estimate or changes in accounting policy will be assessed under the new requirements.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
The Group has adopted Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) from 1 January 2023. The amendments remove a previous deferred tax recognition exemption for transactions that give rise to equal taxable and deductible temporary differences on initial recognition. A lessee's recognition of assets and liabilities on inception of a lease is potentially such a transaction, depending on applicable tax law. The Group previously accounted for deferred tax on leases on a net basis in certain jurisdictions. As a result of adopting the amendments, in these jurisdictions the Group recognised separate deferred taxation assets on the lease liabilities and deferred taxation liabilities on the right-of-use assets of GBP16m each at 31 December 2022 (1 January 2022: GBP15m, 30 June 2022: GBP15m). As these balances qualify for offset, there was no impact on the Consolidated Statement of Financial Position.
International Tax Reform-Pillar Two Model Rules (Amendments to IAS 12)
The Group has adopted International Tax Reform-Pillar Two Model Rules (Amendments to IAS 12) from 1 January 2023. Pillar Two seeks to establish a 15% global minimum tax rate for multinational enterprises. On 20 June 2023, Finance (No.2) Bill 2023, which implements a domestic top-up tax and a multinational top-up tax in the UK effective for accounting periods starting on or after 31 December 2023, was substantively enacted. If the top-up tax had applied in 2023, the impact would not have been material for the Group. The IAS 12 amendments provide a temporary mandatory exception from deferred tax accounting for the Pillar Two top-up tax, which the Group has applied. The amendments also require additional qualitative and quantitative disclosures about the actual and potential impact of Pillar Two taxes. The Group will first provide these disclosures in its Consolidated Financial Statements for the year ended 31 December 2023.
IFRS Interpretations Committee decision Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows)
In March 2022, the IFRS Interpretations Committee (IFRS IC) published its final agenda decision Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows). This agenda decision considered whether an entity should include a demand deposit as a component of cash and cash equivalents in its statement of cash flows and financial position when the demand deposit is subject to contractual restrictions on use agreed with a third party.
The IFRS IC concluded that restrictions on the use of a demand deposit arising from a contract with a third party do not result in the deposit no longer being cash unless those restrictions result in the deposit no longer meeting the definition of cash. A deposit still meeting this definition would be presented as part of cash and cash equivalents on the statement of financial position, although it could be presented separately if relevant to an understanding of an entity's financial position. Such a deposit would also be considered part of cash and cash equivalents on the statement of cash flows.
The Group has reviewed the nature of its restricted assets and concluded that certain amounts should be considered part of cash and cash equivalents on the Consolidated Statement of Cash Flows. The Consolidated Statement of Cash Flows for the six months ended 30 June 2022 has therefore been restated, resulting in an increase in cash and cash equivalents at the beginning of the period of GBP112m, an increase in cash and cash equivalents at the end of the period of GBP83m and a reduction in decrease in cash held in restricted assets of GBP29m. This restatement had no impact on the Consolidated Statement of Financial Position. All restricted assets continue to be presented separately on the face of the Consolidated Statement of Financial Position. The agenda decision was previously implemented in the Group's annual financial statements for the year ended 31 December 2022 and no restatement of comparative amounts for that period is required.
Other
A number of amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amended standards.
1.4.2 Impact of standards issued but not yet applied by the Group
Non-current Liabilities with Covenants (Amendments to IAS 1)
In October 2022 the International Accounting Standards Board (IASB) issued Non-current Liabilities with Covenants (Amendments to IAS 1). The amendments clarify that the need to comply with covenants beyond the reporting date does not prevent a liability from being classified as non-current. Entities must disclose any such liability balances along with the presence and nature of relevant covenants and additionally disclose if the covenants are likely to be breached within the following twelve months. The amendments are effective from 1 January 2024. The application of these amendments is currently being evaluated by the Group. The amendments may impact the classification of certain liabilities as current or non-current and require additional disclosure, but are expected to have no other impact on recognition or measurement.
1.5 Foreign exchange
The following significant exchange rates applied during the period:
Average rate Closing rate
--------------------------------------------------------------------- ---------------------------------------------------------------------
30 June 31 December 30 June 30 June 31 December 30 June
2023 2022 2022 2023 2022 2022
----------- --------------------- ----------------------- --------------------- --------------------- ----------------------- ---------------------
Australian
dollar 1.83 1.78 1.80 1.91 1.77 1.77
Brazilian
real 6.25 6.38 6.59 6.09 6.38 6.37
Chilean
peso 994.36 1,076.32 1,071.81 1,017.72 1,023.92 1,117.88
Danish
krone 8.50 8.73 8.83 8.66 8.39 8.64
Euro 1.14 1.17 1.19 1.16 1.13 1.16
Hong Kong
dollar 9.67 9.68 10.16 9.95 9.42 9.55
Mexican
peso 22.40 24.88 26.32 21.78 23.54 24.54
New Zealand
dollar 1.98 1.94 1.96 2.07 1.91 1.95
Polish
zloty 5.28 5.50 5.51 5.16 5.28 5.46
Saudi riyal 4.63 4.64 4.87 4.76 4.54 4.57
Turkish
lira(1) 33.04 22.58 20.32 33.04 22.58 20.32
US dollar 1.23 1.24 1.30 1.27 1.21 1.22
----------- --------------------- ----------------------- --------------------- --------------------- ----------------------- ---------------------
1. Closing rate of Turkish lira applied to average rate following
the application of IAS 29.
Türkiye is a hyperinflationary economy and IAS 29 Financial Reporting in Hyperinflationary Economies has been applied from June 2022 onwards. As a consequence, the results and balances for the Group's Turkish operations have been adjusted for changes in the general purchasing power of the Turkish lira. In order to make this adjustment the Group refers to the CPI index published by the Turkish Statistical Institute. The value of CPI at 30 June 2023 was 1,351.59 (HY 2022: 977.88; FY 2022: 1,128.40) and the movement in CPI for the period ended 30 June 2023 was 223.19 (HY 2022: 290.93; FY 2022: 441.45), an increase of 19.8% (HY 2022: 42.4%; FY 2022: 64.3%). The introduction of IFRS 17 has impacted the application of IAS 29 in prior periods as it deems all components of an insurance contract to be monetary items, whereas under IFRS 4, the unearned premium provision and deferred acquisition costs were deemed to be non-monetary items. This has led to the restatement of the monetary loss and the net impact to profit before taxation for HY 2022 and FY 2022.
A loss of GBP4m (HY 2022 (restated): GBP18m; FY 2022 (restated): GBP25m) arising from the devaluation of net monetary assets has been recognised within net financial expense in the Condensed Consolidated Income Statement. This includes the impact of indexing amounts in the Condensed Consolidated Income Statement for the application of IAS 29, reducing profit before taxation by GBP5m for the period (HY 2022 (restated): GBP18m; FY 2022 (restated): GBP29m).
For segmental reporting purposes, the net impact of applying hyperinflationary accounting has been excluded from underlying profit and included within realised and unrealised FX gain/loss as this is how the Group measures performance of the business.
All Turkish lira amounts are translated to the Group's presentation currency of sterling, using the closing exchange rate in effect on 30 June 2023 of 33.04 (HY 2022: 20.32; FY 2022: 22.58). The impact of this adjustment is recorded within other foreign exchange translation differences in the Condensed Consolidated Statement of Comprehensive Income and within the foreign exchange translation reserve in the Condensed Consolidated Statement of Financial Position. The Group recognises the remaining exchange difference arising on consolidation within other foreign exchange translation differences through other comprehensive income in the foreign exchange translation reserve.
2 Operating segments
The Group operates in three Market Units, Bupa Asia Pacific; Europe and Latin America; and Bupa Global and UK. Management monitors the operating results of the Market Units separately to assess performance and make decisions about the allocation of resources. The Group's associate investments, Bupa Arabia and Niva Bupa are reported within Other businesses.
Reportable Services and Products
Segments
---------------- ------------------------------------------------------------
Bupa Asia Bupa Health Insurance: Health insurance, international
Pacific health cover in Australia.
Bupa Health Services: Health provision business,
comprising dental, optical, audiology, medical assessment
services, and healthcare for the Australian Defence
Force.
Bupa Villages and Aged Care Australia: Nursing,
residential, respite care and residential villages.
Bupa Villages and Aged Care New Zealand: Nursing,
residential, respite care and residential villages.
Bupa Hong Kong: Domestic health insurance, primary
healthcare and day care clinics including diagnostics.
---------------- ------------------------------------------------------------
Europe and Sanitas Seguros: Health insurance and related products
Latin America in Spain.
Sanitas Dental: Insurance and dental services through
clinics and third-party networks in Spain.
Sanitas Hospitales and New Services: Management
and operation of hospitals, rehabilitation centres
and health clinics in Spain.
Sanitas Mayores: Nursing, residential and respite
care in care homes and day centres in Spain.
LUX MED: Medical subscriptions, health insurance,
and the management and operation of diagnostics,
health clinics and hospitals in Poland.
Bupa Acıbadem Sigorta: Domestic health insurance
in Türkiye.
Bupa Chile: Domestic health funding and the management
and operation of health clinics and hospitals in
Chile.
Care Plus: Domestic health insurance in Brazil.
Bupa Mexico: Health insurance and the management
and operation of a hospital in Mexico.
Bupa Global Latin America: International health
insurance.
---------------- ------------------------------------------------------------
Bupa Global Bupa UK Insurance: Domestic health insurance, and
and UK administration services for Bupa health trusts.
Bupa Dental Care UK: Dental services and related
products.
Bupa Care Services: Nursing, residential, respite
care and care villages.
Bupa Health Services: Clinical services, health
assessment related products and management and operation
of a private hospital.
Bupa Global: International health insurance to individuals,
small businesses and corporate customers.
Associate: Highway to Health (United States of America)
(operating as GeoBlue).
---------------- ------------------------------------------------------------
Other businesses Associates: Bupa Arabia (Kingdom of Saudi Arabia)
and Niva Bupa (India): Health insurance.
---------------- ------------------------------------------------------------
A key performance measure of operating segments utilised by the Group is underlying profit. Underlying profit is used to distinguish underlying profit from other constituents of the IFRS reported profit before taxation not directly related to the trading performance of the business. This measurement basis has been updated in 2023 to maintain consistency with the metric used internally for managing the business.
The following changes have been made to the metric:
- Investment property returns have been included within underlying
profit.
- Financial investment returns have been included in Market
Unit underlying profit to better reflect expected financial
asset returns. This includes the actual returns on cash,
cash-like instruments and assets where returns do not fluctuate
with market movements. Expected returns are used for return-seeking
asset portfolios. Short-term fluctuations on investment
returns are removed from underlying profit as they are not
related to underlying trading performance.
Presentational updates have been made to show revenue before IAS 29 adjustments, which reflects the view that is presented to management. In addition, Group investment funding costs, which principally include investment in ESG initiatives, have been presented separately.
The segmental tables have been restated to reflect the revised definition of underlying profit. A reconciliation between the old and new definition of underlying profit, including the impacts of IFRS 17, is included under the tables for HY 2022 and FY 2022.
Underlying profit
The following items are excluded from underlying profit:
- Impairment of intangible assets and goodwill arising on
business combinations - these impairments are considered
to be one-off and not reflective of the in-year trading
performance of the business.
- Short-term fluctuations on investment return - underlying
profit includes an expected long-term investment return
over the period for return-seeking financial assets. Any
variance between the total investment return (including
realised and unrealised gains) and the expected return over
the period is not included in underlying profit. These fluctuations
are not related to underlying trading performance.
- Net gains/losses on disposal of businesses and transaction
costs on business combinations - gains/losses on disposal
of businesses that are material and one-off in nature to
the reportable segment are not considered part of the continuing
business. Transaction costs that relate to material acquisitions
or disposals are not related to the ongoing trading performance
of the business.
- Net property revaluation gains/losses - short-term fluctuations
which would distort underlying trading performance. This
includes deficit on the revaluation of freehold properties
and property impairment losses.
- Realised and unrealised foreign exchange gains/losses -
fluctuations outside of management control, which would
distort underlying trading performance. This includes the
net impact of applying hyperinflationary accounting.
- Amortisation of bed licences - following the Australian
Government's announcement of the deregulation of bed licences
from 1 July 2024, their amortisation term was reviewed and
updated from having an indefinite useful life to amortising
over the period to 1 July 2024. The impact of this is not
considered reflective of the trading performance of the
business.
- Other Market Unit/Group non-underlying items - includes
items that are considered material to the reportable segment
or Group and are not reflective of ongoing trading performance.
This includes items such as restructuring costs and profit
or loss amounts related to changes to strategic investments.
The total underlying profit of the reportable segments is reconciled below to the profit before taxation expense in the Condensed Consolidated Income Statement.
Europe Bupa
Bupa and Global
Asia Latin and Other Group
Pacific America UK businesses Functions Adjustments(1) Total
For six months
ended
30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
Revenues
Insurance
revenue 2,132 1,667 1,426 - - 9 5,234
Inter-Market
Unit revenue (29) - 29 - - - -
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
Insurance
revenue for
reportable
segments 2,103 1,667 1,455 - - 9 5,234
Care, health
and other
customer
contract
revenue 644 880 606 - - - 2,130
Other revenue 26 5 2 4 - - 37
Non-insurance
revenue
for reportable
segments 670 885 608 4 - - 2,167
Total revenue
reportable
for segments 2,773 2,552 2,063 4 - 9 7,401
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
Segmental
result
Underlying
profit for
reportable
segments 40 145 142 43 (3) - 367
Borrowing costs - - - - (38) - (38)
Group
investment
funding - - - - (8) - (8)
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
Consolidated
underlying
profit before
taxation
expense 40 145 142 43 (49) - 321
Non-underlying
items:
Short-term
fluctuation
on investment
returns 4 - 4 - (2) - 6
Net loss on
disposal
of businesses
and
transaction
costs on
business
combinations (1) - (1) - - - (2)
Realised and
unrealised
FX (loss)/gain - (1) 13 2 3 (5) 12
Amortisation of
bed licenses (16) - - - - - (16)
Other
non-underlying
items(2) - (4) (7) - - - (11)
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
Total
non-underlying
items (11)
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
Consolidated
profit
before
taxation
expense 310
--------------- ------------ -------------- -------------- ---------------- -------------- -------------------- ----------
1. Adjustments include impacts of applying IAS 29.
2. Other non-underlying items includes GBP4m and GBP7m relating
to restructuring costs in Europe and Latin America and Bupa
Global and UK.
Europe Bupa
Bupa and Global
Asia Latin and Other Group
Pacific America UK businesses Functions Adjustments(2) Total
For six months
ended
30 June 2022
(restated)(1) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- -------------- -------------- --------------- ------------- ------------------ ------------
Revenues
Insurance
revenue 2,136 1,393 1,269 - - 11 4,809
Inter-Market
Unit revenue (27) - 27 - - - -
--------------- ----------- -------------- -------------- --------------- ------------- ------------------ ------------
Insurance
revenue for
reportable
segments 2,109 1,393 1,296 - - 11 4,809
Care, health
and other
customer
contract
revenue 620 709 564 - - - 1,893
Other
revenue(1) 30 6 1 3 - - 40
Non-insurance
revenue
for reportable
segments 650 715 565 3 - - 1,933
Total revenue
reportable
for segments 2,759 2,108 1,861 3 - 11 6,742
--------------- ----------- -------------- -------------- --------------- ------------- ------------------ ------------
Segmental
result
Underlying
profit for
reportable
segments(1) 257 66 67 20 (1) - 409
Borrowing costs - - - - (31) - (31)
Consolidated
underlying
profit before
taxation
expense 257 66 67 20 (32) - 378
Non-underlying
items:
Short-term
fluctuation
on investment
returns (11) - (34) - 1 - (44)
Net gain/(loss)
on disposal
of businesses
and
transaction
costs on
business
combinations 4 (2) - (4) - - (2)
Net property
revaluation
loss - - (1) - - - (1)
Realised and
unrealised
FX gain/(loss) - 3 (3) - (1) (17) (18)
Amortisation of
bed licenses (17) - - - - - (17)
Other
non-underlying
items(3) - (10) - - - - (10)
--------------- ----------- -------------- -------------- --------------- ------------- ------------------ ------------
Total
non-underlying
items (92)
--------------- ----------- -------------- -------------- --------------- ------------- ------------------ ------------
Consolidated
profit
before
taxation
expense 286
--------------- ----------- -------------- -------------- --------------- ------------- ------------------ ------------
1. Amounts have been restated for the adoption of IFRS 17 (refer
to Note 1.4.1) and to reflect the revised definition of
underlying profit.
2. Adjustments include impacts of applying IAS 29.
3. Europe and Latin America segment includes GBP10m restructuring
costs.
Consolidated
underlying
profit
before
taxation
expense 257 66 67 20 (32) - 378
------------- ----------- ------------- -------------- ----------------- ------------- --------------- ------------
Impact of
applying
IFRS
17 (118) 15 8 10 2 - (83)
Net gains on
investment
property (12) - - - - - (12)
Investment
returns 4 (24) (1) - 18 - (3)
------------- ----------- ------------- -------------- ----------------- ------------- --------------- ------------
Underlying
profit by
reportable
segments as
previously
reported 131 57 74 30 (12) - 280
------------- ----------- ------------- -------------- ----------------- ------------- --------------- ------------
Europe Bupa
Bupa and Global
Asia Latin and Other Group
Pacific America UK businesses Functions Adjustments(2) Total
For year ended
31 December
2022
(restated)(1) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ -------------- -------------- --------------- ------------- ------------------ ------------
Revenues
Insurance
revenue 4,431 2,926 2,647 - - 29 10,033
Inter-Market
Unit revenue (57) - 57 - - - -
---------------- ------------ -------------- -------------- --------------- ------------- ------------------ ------------
Insurance
revenue for
reportable
segments 4,374 2,926 2,704 - - 29 10,033
Care, health and
other
customer
contract
revenue 1,282 1,550 1,135 - - - 3,967
Other revenue(1) 60 11 3 7 - - 81
Non-insurance
revenue
for reportable
segments 1,342 1,561 1,138 7 - - 4,048
Total revenue
reportable
for segments 5,716 4,487 3,842 7 - 29 14,081
---------------- ------------ -------------- -------------- --------------- ------------- ------------------ ------------
Segmental result
Underlying
profit for
reportable
segments(1) 424 300 47 49 (6) - 814
Borrowing costs - - - - (66) - (66)
Consolidated
underlying
profit before
taxation
expense 424 300 47 49 (72) - 748
Non-underlying
items:
Impairments of
intangible
assets and
goodwill
arising
on business
combinations(3) (108) (161) (619) - - - (888)
Short-term
fluctuation
on investment
returns 6 - (34) - 6 - (22)
Net gain/(loss)
on disposal
of businesses
and transaction
costs on
business
combinations 4 (3) (1) (4) - - (4)
Net property
revaluation
(loss)/gain (6) 5 (32) - - - (33)
Realised and
unrealised
FX gain/(loss) - 5 8 - 1 (29) (15)
Amortisation of
bed licenses (34) - - - - - (34)
Other
non-underlying
items (4) (16) (1) - - - (21)
---------------- ------------ -------------- -------------- --------------- ------------- ------------------ ------------
Total
non-underlying
items (1,017)
---------------- ------------ -------------- -------------- --------------- ------------- ------------------ ------------
Consolidated
profit
before taxation
expense (269)
---------------- ------------ -------------- -------------- --------------- ------------- ------------------ ------------
1. Amounts have been restated for the adoption of IFRS 17 (refer
to Note 1.4.1) and to reflect the revised definition of
underlying profit.
2. Adjustments include impacts of applying IAS 29.
3. Includes impairments recognised within Bupa Asia Pacific
(Bupa Villages and Aged Care Australia), Europe and Latin
America (Bupa Chile) and
Bupa Global and UK (Bupa Dental Care UK and Bupa Care Services).
4. Europe and Latin America segment includes GBP16m restructuring
costs.
Consolidated
underlying
profit
before
taxation
expense 424 300 47 49 (72) - 748
------------- ------------ ------------- ------------- ----------------- ------------- --------------- -----------
Impact of
applying
IFRS
17 (59) 11 6 9 (13) - (46)
Net gains on
investment
property (28) - - - - - (28)
Investment
returns (6) (52) (14) - 91 - 19
------------- ------------ ------------- ------------- ----------------- ------------- --------------- -----------
Underlying
profit by
reportable
segments as
previously
reported 331 259 39 58 6 - 693
------------- ------------ ------------- ------------- ----------------- ------------- --------------- -----------
3 Non-insurance revenue
Non-insurance revenue has been analysed at Business Unit level reflecting the nature of services provided by each geography that is reported internally to management.
Care, health
and other
customer contract Total non-insurance
revenue Other revenue revenues
For six months GBPm GBPm GBPm
ended 30 June
2023
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa Health
Insurance 5 1 6
Bupa Health
Services 295 - 295
Bupa Villages and
Aged Care
Australia 165 16 181
Bupa Villages and
Aged Care
New Zealand 77 9 86
Bupa Hong Kong 102 - 102
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa Asia Pacific 644 26 670
------------------- ------------------------------- ------------------------------- -------------------------------
Sanitas Seguros 7 1 8
Sanitas Dental 72 3 75
Sanitas Hospitales
and New
Services 132 - 132
Sanitas Mayores 80 - 80
LUX MED 371 - 371
Bupa Acıbadem
Sigorta - 1 1
Bupa Chile 207 - 207
Care Plus 3 - 3
Bupa Mexico 8 - 8
Europe and Latin
America 880 5 885
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa UK Insurance 12 1 13
Bupa Dental Care UK 265 - 265
Bupa Care Services 228 - 228
Bupa Health
Services 101 1 102
Bupa Global and UK 606 2 608
------------------- ------------------------------- ------------------------------- -------------------------------
Other - 4 4
------------------- ------------------------------- ------------------------------- -------------------------------
Other businesses - 4 4
------------------- ------------------------------- ------------------------------- -------------------------------
Consolidated
non-insurance
revenues 2,130 37 2,167
------------------- ------------------------------- ------------------------------- -------------------------------
Care, health
and other Total non-insurance
customer contract Other revenue revenues
revenue restated(1) restated(1)
For six months
ended 30 June
2022 GBPm GBPm GBPm
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa Health
Insurance 2 2 4
Bupa Health
Services 306 - 306
Bupa Villages and
Aged Care
Australia 153 19 172
Bupa Villages and
Aged Care
New Zealand 72 8 80
Bupa Hong Kong 87 1 88
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa Asia Pacific 620 30 650
------------------- ------------------------------- ------------------------------- -------------------------------
Sanitas Seguros 5 1 6
Sanitas Dental 62 2 64
Sanitas Hospitales
and New
Services 94 1 95
Sanitas Mayores 70 - 70
LUX MED 266 - 266
Bupa Acıbadem
Sigorta(1) - 2 2
Bupa Chile 198 - 198
Care Plus 2 - 2
Bupa Mexico 5 - 5
Bupa Global Latin
America 7 - 7
------------------- ------------------------------- ------------------------------- -------------------------------
Europe and Latin
America 709 6 715
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa UK
Insurance(1) 10 - 10
Bupa Dental Care UK 243 - 243
Bupa Care Services 212 - 212
Bupa Health
Services 99 1 100
Bupa Global and UK 564 1 565
------------------- ------------------------------- ------------------------------- -------------------------------
Other - 3 3
------------------- ------------------------------- ------------------------------- -------------------------------
Other businesses - 3 3
------------------- ------------------------------- ------------------------------- -------------------------------
Consolidated
non-insurance
revenues 1,893 40 1,933
------------------- ------------------------------- ------------------------------- -------------------------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
Care, health
and other Total non-insurance
customer contract Other revenue revenues
revenue restated(1) restated(1)
For year ended 31
December
2022 GBPm GBPm GBPm
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa Health
Insurance 7 2 9
Bupa Health
Services 614 1 615
Bupa Villages and
Aged Care
Australia 318 37 355
Bupa Villages and
Aged Care
New Zealand 148 17 165
Bupa Hong Kong 195 3 198
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa Asia Pacific 1,282 60 1,342
------------------- ------------------------------- ------------------------------- -------------------------------
Sanitas Seguros(1) 10 2 12
Sanitas Dental 119 4 123
Sanitas Hospitales
and New
Services 305 1 306
Sanitas Mayores 145 - 145
LUX MED 568 - 568
Bupa Acıbadem
Sigorta(1) - 2 2
Bupa Chile 388 1 389
Care Plus 4 - 4
Bupa Mexico 11 - 11
Bupa Global Latin
America - 1 1
------------------- ------------------------------- ------------------------------- -------------------------------
Europe and Latin
America 1,550 11 1,561
------------------- ------------------------------- ------------------------------- -------------------------------
Bupa UK
Insurance(1) 21 2 23
Bupa Dental Care UK 487 - 487
Bupa Care Services 431 - 431
Bupa Health
Services 196 1 197
Bupa Global and UK 1,135 3 1,138
------------------- ------------------------------- ------------------------------- -------------------------------
Other - 7 7
------------------- ------------------------------- ------------------------------- -------------------------------
Other businesses - 7 7
------------------- ------------------------------- ------------------------------- -------------------------------
Consolidated
non-insurance
revenues 3,967 81 4,048
------------------- ------------------------------- ------------------------------- -------------------------------
1. Amounts have been restated for the adoption of IFRS 17.
Refer to Note 1.4.1.
4 Other income and charges
For year
For six months ended 31
For six ended 30 December
months ended June 2022 2022
30 June 2023 restated(1) restated(1)
GBPm GBPm GBPm
---------------------- ------------------------------ ------------------------------ ------------------------------
Net loss on disposal
and restructuring
of businesses (2) (2) (4)
Loss on revaluation of
property - (1) (33)
Net gain/(loss) on
disposal of
property, plant and
equipment 3 - (2)
Surplus on fair value
of investment
property(1) 12 12 28
---------------------- ------------------------------ ------------------------------ ------------------------------
Total other income and
charges 13 9 (11)
---------------------- ------------------------------ ------------------------------ ------------------------------
1. Surplus on fair value of investment property has been reclassified
from financial income and expense (see Note 5).
5 Financial income and expense
Financial income
For year
For six months ended 31
For six ended 30 December
months ended June 2022 2022
30 June 2023 restated(1) restated(1)
GBPm GBPm GBPm
------------------------- ----------------------------- ----------------------------- -----------------------------
Interest income:
Investments at fair value
through
profit or loss 25 26 61
Investments at fair value
through
other comprehensive
income 5 1 1
Investments at amortised
cost 86 17 72
Net realised gain/(loss):
Net realised gain/(loss)
on investments
at fair value through
profit
or loss 7 8 (13)
Net realised gain on
financial
investments at fair value
through
other comprehensive
income - 1 -
Net movement in fair
value:
Investments at fair value
through
profit or loss 19 (46) (5)
Net foreign exchange
translation
gain 16 15 42
Total financial income 158 22 158
------------------------- ----------------------------- ----------------------------- -----------------------------
1. Surplus on fair value of investment property has been reclassified
and is now presented within other income and charges (see
Note 4).
Financial expense
For year
For six For six months ended 31
months ended ended 30 December
30 June 2023 June 2022 2022(1)
GBPm GBPm GBPm
---------------------------- ---------------------------- ---------------------------- ----------------------------
Interest expense on
financial
liabilities at amortised
cost 54 42 99
Finance charges in respect
of
leases and restoration
provisions 25 23 46
Other financial expense(1) 12 17 29
Total financial expense 91 82 174
---------------------------- ---------------------------- ---------------------------- ----------------------------
1. For year ended 31 December 2022, other financial expense
includes GBP6m loss recognised following the early redemption
of GBP47m of inflation-linked senior unsecured bonds, originally
due to mature on 30 June 2033.
Other financial expenses for the six months ended 30 June 2023 include GBP10m (HY 2022: GBP10m; FY 2022: GBP20m) of imputed financial expenses in relation to interest-free refundable accommodation deposits received by the Group in respect of payment for aged care units in Bupa Villages and Aged Care Australia.
6 Taxation expense
The Group's effective taxation rate for the period was 22% (HY 2022 (restated): 33%; FY 2022 (restated): -48%), which is broadly in line with the current UK corporation taxation rate of 23.5%.
The Group operates in the UK where new tax legislation to implement a global minimum top-up tax has been substantively enacted. Since the newly enacted tax legislation in the UK is effective only from 1 January 2024, there is no current tax impact in the period (HY 2022: GBPnil). The Group has applied a temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax, and instead accounts for it as a current tax when it is incurred. If the top-up tax had applied in 2023, the impact would not have been material for the Group.
7 Goodwill and intangible assets
Computer Customer
Goodwill software Brands/trademarks relationships Other(1) Total
At 30 June
2023 GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------------- -------------------- -------------------- ----------------------- ---------------- --------------------
Net book
value at
beginning of
period 1,981 339 120 187 113 2,740
Assets
arising on
business
combinations 5 1 - 15 10 31
Additions - 51 - - - 51
Amortisation
for
period - (38) (4) (16) (20) (78)
Other - (1) - - - (1)
Foreign
exchange (92) (9) - (1) (8) (110)
Net book
value at
end of
period 1,894 343 116 185 95 2,633
------------- ------------------- -------------------- -------------------- ----------------------- ---------------- --------------------
Computer Customer
Goodwill software Brands/trademarks relationships Other(1) Total
At 31
December 2022 GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------------------- -------------------- -------------------- ---------------------- ---------------- --------------------
Net book
value at
beginning of
period 2,466 291 134 482 145 3,518
Assets
arising on
business
combinations 14 2 3 2 - 21
Additions - 111 - - - 111
Disposals (2) (1) - - - (3)
Amortisation
for
period - (72) (8) (53) (42) (175)
Impairment
loss (609) (6) (22) (255) (2) (894)
Other - (1) - - - (1)
Foreign
exchange 112 15 13 11 12 163
Net book
value at
end of
period 1,981 339 120 187 113 2,740
------------- -------------------- -------------------- -------------------- ---------------------- ---------------- --------------------
Computer Customer
Goodwill software Brands/trademarks relationships Other(1) Total
At 30 June
2022 GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------------------- -------------------- -------------------- ---------------------- ---------------- --------------------
Net book
value at
beginning of
period 2,466 291 134 482 145 3,518
Assets
arising on
business
combinations 3 2 - 1 - 6
Additions - 41 - - - 41
Disposals (1) (1) - - - (2)
Amortisation
for
period - (36) (4) (27) (21) (88)
Foreign
exchange 98 10 5 8 10 131
Net book
value at
end of
period 2,566 307 135 464 134 3,606
------------- -------------------- -------------------- -------------------- ---------------------- ---------------- --------------------
1. Predominantly comprises bed licences, distribution networks
and licences to operate care homes.
Goodwill and intangible assets of GBP2,633m (HY 2022: GBP3,606m; FY 2022: GBP2,740m) include GBP396m (HY 2022: GBP733m; FY 2022: GBP420m) attributable to other intangible assets arising on business combinations, comprising brands/trademarks, customer relationships and other in the above table.
Computer software assets with a net book value of GBP343m (HY 2022: GBP307m; FY 2022: GBP339m) include GBP255m (HY 2022: GBP219m; FY 2022: GBP245m) attributable to capitalised internal development costs. The cost attributable to these assets is GBP551m (HY 2022: GBP477m; FY 2022: GBP526m). GBP47m of costs (HY 2022: GBP36m; FY 2022: GBP93m) were capitalised in the period.
Goodwill by CGU is as follows:
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
-------------- --------------------------------- --------------------------------- ---------------------------------
Bupa Asia
Pacific
Bupa Australia
Health
Insurance 801 863 867
Bupa Health
Services
Australia 278 299 303
Bupa Villages
and Aged Care
Australia - - 104
Hong Kong 122 129 127
Europe and
Latin America
Bupa Chile - - 135
LUX MED 271 265 249
Sanitas
Seguros 53 49 47
Sanitas
Mayores 21 22 21
Bupa
Acıbadem
Sigorta 44 53 50
Care Plus 30 29 29
Other 11 10 6
Bupa Global
and UK
Bupa Care
Services - - 90
Bupa Dental
Care UK 191 191 467
Bupa Global 68 68 68
Other 4 3 3
-------------- --------------------------------- --------------------------------- ---------------------------------
Total 1,894 1,981 2,566
-------------- --------------------------------- --------------------------------- ---------------------------------
Impairment testing of goodwill and indefinite life intangible assets
Goodwill and intangible assets with an indefinite useful life are tested at least annually for impairment in accordance with IAS 36 Impairment of Assets and IAS 38 Intangible Assets. As at 30 June 2023, all CGUs and intangible assets were reviewed for indicators of impairment. Where impairment indicators were identified an impairment test was carried out by comparing the net carrying value with the recoverable amount, using value in use calculations and based on the latest cash flow forecasts for CGUs as at 30 June 2023. Following the impairment recognised at 31 December 2022 in Bupa Dental Care UK, a full impairment test has been performed for the Bupa Dental Care UK CGU.
Key judgements in performing this testing are the assumptions underlying the five-year cash flow forecasts of the businesses. For Bupa Dental Care UK, the cash flows are driven by number of customers, available clinician hours, fee rates and operating expenses. The tests have not indicated that an impairment of goodwill is required, with the headroom increasing in the period. Sensitivities have been provided below showing the impact of a reasonably probable change to the discount rate, terminal growth rate or cash flows, none of which would give rise to an impairment.
Reduction
Reduction in headroom Reduction
in headroom from 0.5% in headroom
from 0.5% reduction from 10%
Terminal increase in terminal reduction
Discount growth in discount growth in cash
Headroom rate rate rate rate flows
GBPm % % GBPm GBPm GBPm
------------ ------------------- ---------- -------- ------------------- ------------------- -------------------
Bupa Dental
Care
UK 33 10.3 2.1 14 18 10
------------ ------------------- ---------- -------- ------------------- ------------------- -------------------
8 Property, plant and equipment
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
----------------------- ------------------------------ ----------------------------- ------------------------------
Net book value at
beginning of
period 3,691 3,793 3,793
Assets arising on
business combinations 1 9 4
Additions 145 262 100
Transfer to assets held
for sale (2) (35) (14)
Disposals (4) (12) (9)
Revaluations - (77) 10
Remeasurements 35 58 24
Depreciation charge for
the period (157) (329) (163)
Impairment loss - (124) -
Other - 1 -
Foreign exchange (96) 145 87
----------------------- ------------------------------ ----------------------------- ------------------------------
Net book value at end
of period 3,613 3,691 3,832 ----------------------- ------------------------------ ----------------------------- ------------------------------
Property, plant and equipment are the physical assets or rights to use leased assets, which are utilised by the Group to carry out business activities and generate revenues and profits. The majority of assets held relate to care homes, hospital properties, equipment and office buildings. Leased right-of-use assets relate primarily to property leases.
Freehold properties are initially measured at cost and subsequently at revalued amount less accumulated depreciation and impairment losses. These properties are subject to external valuations at least every three years. In years where a full external valuation is not completed, a directors' valuation is conducted based on significant underlying assumptions such as cash flows and other market variables. An internal review of the significant underlying assumptions is conducted during interim periods. Consideration is also given to whether there are any factors which indicate a full out-of-cycle external revaluation is required. Care homes, clinics and hospital freehold property valuations are either determined based on a capitalisation of earnings approach where each facility's normalised earnings are calculated based on what a reasonably efficient operator could be expected to achieve and is divided by an appropriate capitalisation rate to determine a value in use, or based on discounted future cash flow projections where the discount rate is determined according to the time value of money, the level of risk of the industry and the corresponding premium risk. All other properties are valued by external valuers, based on observable market values of similar properties.
No external valuations were performed as at 30 June 2023. An internal review of the significant underlying assumptions underpinning the property valuations as at 30 June 2023 resulted in no uplifts or write-downs in respect of owned property (HY 2022: uplifts of GBP10m, FY 2022: write-downs of GBP77m).
Impairment testing of tangible assets
Right-of-use assets have been reviewed for indicators of impairment as at 30 June 2023. Where impairment indicators were identified an impairment test was carried out by comparing the net carrying value with the recoverable amount, using the higher of fair value or the value in use based on the latest cash flow forecasts for CGUs as at 30 June 2023.
No impairments have been identified as at 30 June 2023 (HY 2022: GBPnil; FY 2022: GBP124m).
9 Investment property
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
----------------------- ----------------------------- ------------------------------ ------------------------------
At beginning of period 750 666 666
Additions 13 29 12
Disposals - (1) (1)
Increase in fair value 12 29 12
Foreign exchange (58) 27 11
----------------------- ----------------------------- ------------------------------ ------------------------------
At end of period 717 750 700
----------------------- ----------------------------- ------------------------------ ------------------------------
Investment properties are physical assets that are not occupied by the Group and are leased to third parties to generate rental income.
Investment properties are initially measured at cost and subsequently at fair value, determined individually, on a basis appropriate to the purpose for which the property is intended and with market transactions for similar properties in the same location. Where no active market exists, as is the case for retirement villages where each village is unique due to building configuration and location, these properties are valued using discounted cash flow projections. Investment property is revalued externally at least annually, with any gain or loss arising from a change in fair value recognised in the Condensed Consolidated Income Statement within other income and charges.
The carrying value of investment properties primarily consists of the Group's portfolio of retirement villages in Australia and New Zealand of GBP704m (HY 2022: GBP689m, FY 2022: GBP736m). At 30 June 2023 the properties were valued by management using internally prepared discounted cash flow projections, supported by the terms of any existing lease and other contracts. Discount rates are used to reflect current market assessments of the uncertainty in the amount or timing of the cash flows.
10 Post-employment benefits
The Group operates several defined benefit and defined contribution pension schemes for the benefit of employees and Directors.
The defined benefit pension schemes provide benefits based on final pensionable salary. The Group's net obligation in respect of the defined benefit pension is calculated separately for each scheme and represents the present value of the defined benefit obligation less the fair value of any scheme assets. The discount rate used is the yield at the reporting date on high-quality corporate bonds denominated in the currency in which the benefit will be paid and taking account of the maturities of the defined benefit obligations. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of any future refunds from the scheme or reductions in future contributions to the scheme.
Amount recognised in the Condensed Consolidated Income Statement
The total amount charged to the Condensed Consolidated Income Statement amounted to GBP2m (HY 2022 and FY 2022: GBPnil).
Amount recognised directly in other comprehensive income
The amounts credited directly to equity are:
For six months For year
For six ended 30 ended 31
months ended June 2022 December
30 June 2023 2022
GBPm GBPm GBPm
---------------------- ------------------------------ ------------------------------ ------------------------------
Actual return less
expected return
on assets - - 23
Gain arising from
changes to
financial assumptions - - (26)
Loss arising from
changes to
experience
assumptions - - 1
Gain arising from
changes to
demographic
assumptions - - (1)
---------------------- ------------------------------ ------------------------------ ------------------------------
Total remeasurement
gains credited
directly to equity - - (3)
---------------------- ------------------------------ ------------------------------ ------------------------------
Assets and liabilities of schemes
The assets and liabilities in respect of the defined benefit pension schemes are as follows:
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
---------------------- ------------------------------ ------------------------------ ------------------------------
Present value of
funded obligations (54) (54) (82)
Fair value of scheme
assets 49 49 75
---------------------- ------------------------------ ------------------------------ ------------------------------
Net assets of funded
schemes (5) (5) (7)
Present value of (2) -
unfunded obligations -
---------------------- ------------------------------ ------------------------------ ------------------------------
Net recognised
liabilities (7) (5) (7)
---------------------- ------------------------------ ------------------------------ ------------------------------
Represented on the Condensed Consolidated
Statement of Financial Position:
Net liabilities (9) (7) (9)
Net assets 2 2 2
---------------------- ------------------------------ ------------------------------ ------------------------------
Net recognised
liabilities (7) (5) (7)
---------------------- ------------------------------ ------------------------------ ------------------------------
11 Restricted assets
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
---------------------------- ---------------------------- ---------------------------- ----------------------------
Non-current restricted
assets 41 40 46
Current restricted assets 85 79 83
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total restricted assets 126 119 129
---------------------------- ---------------------------- ---------------------------- ----------------------------
Restricted assets are amounts held in respect of specific obligations and potential liabilities and may be used only to discharge those obligations and potential liabilities if and when they crystallise. The non-current restricted assets balance of GBP41m (HY 2022: GBP46m; FY 2022: GBP40m) consists of cash deposits held to secure a charge over certain unfunded pension scheme obligations (held in the Parent company). Included in current restricted assets is GBP82m (HY 2022: GBP77m; FY 2022: GBP74m) in respect of claims funds held on behalf of corporate customers.
12 Financial investments
The Group generates cash from its underwriting, trading and financing activities and invests the surplus cash in financial investments. These include government bonds, corporate bonds, pooled investment funds and deposits with credit institutions.
Classification
All financial investments are initially recognised at fair value, which includes transaction costs for financial investments not classified at fair value through profit or loss. Financial investments are recorded using trade date accounting at initial recognition.
Financial investments are derecognised when the rights to receive cash flows from the financial investments have expired or where the Group has transferred substantially all risks and rewards of ownership.
The Group has classified its financial investments into the following categories: at fair value through pro t or loss, at fair value through other comprehensive income (FVOCI) and at amortised cost.
Impairment
Under IFRS 9, impairment provisions for expected credit losses (ECL) are recognised for financial investments measured at amortised cost and FVOCI. An allowance for either a 12-month or lifetime ECL is required, depending on whether there has been a significant increase in credit risk since initial recognition. For trade receivables, lifetime ECL is always applied. An assumption can be made that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date (e.g. it is investment grade). The Group applies a 12-month ECL allowance to all assets other than trade receivables, as no significant increases in credit risk since initial recognition have been identified.
The measurement of ECL should reflect a probability-weighted outcome, the time value of money and the best available forward-looking information.
Financial investments are analysed as follows:
At 30 June At 31 December
2023 2022 At 30 June 2022
-------------- ------------------------------------ ------------------------------------ ------------------------------------
Carrying Fair Carrying Carrying
value value value Fair value value Fair value
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Fair value
through
profit or loss
Corporate debt
securities
and secured
loans 308 308 301 301 307 307
Government
debt
securities 40 40 41 41 45 45
Pooled
investment
funds 482 482 459 459 463 463
Deposits with
credit
institutions 29 29 4 4 7 7
Other loans 6 6 7 7 7 7
Equities 30 30 32 32 14 14
Fair value
through
other
comprehensive
income
Corporate debt
securities
and secured
loans 33 33 41 41 49 49
Government
debt
securities 44 44 19 19 30 30
Amortised cost
Corporate debt
securities
and secured
loans 1,234 1,232 1,114 1,110 1,130 1,127
Government
debt
securities 496 497 468 468 342 344
Deposits with
credit
institutions 1,305 1,305 1,230 1,230 1,342 1,339
Total
financial
investments 4,007 4,006 3,716 3,712 3,736 3,732
-------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Non-current 821 822 756 752 845 842
Current 3,186 3,184 2,960 2,960 2,891 2,890
-------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Fair value of financial investments
An asset's fair value is the price at which an orderly transaction to sell or transfer the asset would take place between market conditions at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of the market participant that holds the asset). The objective of a fair value measurement is to estimate this price.
The fair values of quoted investments in active markets are based on current bid prices. The fair values of unlisted securities and quoted investments for which there is no active market are established by using valuation techniques supported by market transactions and observable market data provided by independent third parties. These may include reference to the current fair value of other investments that are substantially the same and discounted cash flow analysis.
The fair values of financial investments are determined using different valuation inputs categorised into a three-level hierarchy. The different levels are defined by reference to the lowest level input that is significant to the fair value measurement, as follows:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices); and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
An analysis of financial investment fair values by hierarchy level is as follows:
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------- --------------------------- --------------------------- --------------------------- ---------------------------
At 30 June
2023
Fair value
through profit
or loss
Corporate debt
securities
and secured
loans 14 293 1 308
Government
debt
securities 22 18 - 40
Pooled
investment
funds 79 382 21 482
Deposits with
credit
institutions 29 - - 29
Other loans - - 6 6
Equities - - 30 30
Fair value
through other
comprehensive
income
Corporate debt
securities
and secured
loans 33 - - 33
Government
debt
securities 44 - - 44
Amortised cost
Corporate debt
securities
and secured
loans 469 763 - 1,232
Government
debt
securities 292 205 - 497
Deposits with
credit
institutions - 1,305 - 1,305
Total
financial
investments 982 2,966 58 4,006
-------------- --------------------------- --------------------------- --------------------------- ---------------------------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------- --------------------------- --------------------------- --------------------------- ---------------------------
At 31 December
2022
Fair value
through profit
or loss
Corporate debt
securities
and secured
loans 21 279 1 301
Government
debt
securities 22 19 - 41
Pooled
investment
funds 89 347 23 459
Deposits with
credit
institutions 4 - - 4
Other loans - - 7 7
Equities - - 32 32
Fair value
through other
comprehensive
income
Corporate debt
securities
and secured
loans 38 3 - 41
Government
debt
securities 19 - - 19
Amortised cost
Corporate debt
securities
and secured
loans 488 622 - 1,110
Government
debt
securities 290 178 - 468
Deposits with
credit
institutions - 1,230 - 1,230
Total
financial
investments 971 2,678 63 3,712
-------------- --------------------------- --------------------------- --------------------------- ---------------------------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
-------------- --------------------------- --------------------------- --------------------------- ---------------------------
At 30 June
2022
Fair value
through profit
or loss
Corporate debt
securities
and secured
loans 26 280 1 307
Government
debt
securities 27 18 - 45
Pooled
investment
funds 115 326 22 463
Deposits with
credit
institutions 7 - - 7
Other loans - - 7 7
Equities - - 14 14
Fair value
through other
comprehensive
income
Corporate debt
securities
and secured
loans 45 4 - 49
Government
debt
securities 30 - - 30
Amortised cost
Corporate debt
securities
and secured
loans 527 600 - 1,127
Government
debt
securities 171 173 - 344
Deposits with
credit
institutions - 1,339 - 1,339
Total
financial
investments 948 2,740 44 3,732
-------------- --------------------------- --------------------------- --------------------------- ---------------------------
Transfers between fair value hierarchy levels
The Group's policy is to determine whether transfers have occurred between fair value hierarchy levels at the end of a reporting period. Classification is reassessed based on the lowest level input that is significant to the fair value measurement as a whole.
There were no transfers between fair value hierarchy levels in the period (HY 2022: GBPnil; FY 2022: GBPnil).
The Group currently holds Level 3 financial investments totalling GBP58m (HY 2022: GBP44m; FY 2022: GBP63m). The majority of Level 3 investments are unlisted equities and pooled investment funds valued at recent subscription values and conversion prices, which are considered to be unobservable inputs. Changes to the valuation assumptions which are reasonably possible could result in a change in fair value of plus or minus GBP3m.
The table below shows movement in the Level 3 assets measured at fair value:
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
----------------------- ------------------------------ ----------------------------- ------------------------------
Balance at beginning of
period 63 34 34
Additions - 4 3
Disposals - - (1)
Net (decrease)/increase
in fair
value(1) (2) 24 7
Foreign exchange (3) 1 1
----------------------- ------------------------------ ----------------------------- ------------------------------
Balance at end of
period 58 63 44
----------------------- ------------------------------ ----------------------------- ------------------------------
1. All gains and losses are recognised in net financial income/(expense)
in the Condensed Consolidated Income Statement.
13 Insurance contracts
The Group applies the premium allocation approach (PAA) for the measurement for the majority of insurance contracts. The majority of the Group's contracts automatically qualify as the coverage period of each contract in the group is one year or less. For the remaining contracts it is reasonably expected that using the PAA would produce a measurement of the liability for remaining coverage (LFRC) that would not differ materially from the one that would be produced applying the general measurement model (GMM). The Group has one legacy portfolio with a contract boundary of greater than one year where the contracts are onerous and a GMM valuation has been used.
On initial recognition of each group of insurance contracts, the carrying amount of the LFRC is measured at the premiums received less any directly attributable acquisition costs deferred. Revenue is released on a pattern of time basis over the coverage period. The Groups default policy is not to adjust the LFRC to reflect the time value of money and the effect of financial risk, as the Group expects on initial recognition of each group of contracts that the time between providing each part of the services and the related premium due date is no more than one year. However, businesses can seek approval to apply discounting in exceptional circumstances. Acquisition costs are expensed as they are incurred for all contracts with a coverage period of one year or less.
The liability for incurred claims (LFIC) represents the estimated liability arising from claims episodes in current and preceding financial years which have not yet given rise to claims paid. A claims episode is an insured medical service that the Group has an obligation to fund which could be consultation fees, diagnostic investigations, hospitalisation or treatment costs. The liability includes an allowance for claims management and handling expenses.
The Group recognises the LFIC of a group of insurance contracts as the present value of the expected cash flows required to settle the obligation with an adjustment for non-financial risk. The Group does not adjust the future cash flows for the time value of money and the effect of financial risk for portfolios in which incurred claims are expected to be paid within one year of occurrence except for in exceptional circumstances.
The LFIC across the group is set in line with Bupa's Claims Reserving standards, at a level to achieve an appropriate probability of sufficiency and is estimated based on current information. The ultimate liability may vary as a result of subsequent information and events. A risk adjustment is added that reflects the compensation the Group requires for bearing the uncertainty about the amount and timing of the cash flows from non-financial risk as the Group fulfils insurance contracts. The Group has estimated the risk adjustment using a confidence level approach at the 85th percentile (HY 2022 and FY 2022: 85th percentile).
Bupa Acıbadem Sigorta has applied discounting to both the LFRC and LFIC due to the high interest rate and high inflation environment in Türkiye and Bupa Global has applied discounting to LFIC as a proportion of claims are settled over a period that is greater than one year. In addition, the LFRC for the legacy individual health policies in Brazil has been discounted due to the long-term nature of these contracts.
In circumstances where a return of premiums is due to policyholders, a provision is established within the LFIC. A provision for the return of premiums was established in 2020 in respect of Bupa Insurance Limited following the commitment to pass back to eligible customers any exceptional financial benefits experienced by the UK PMI business that ultimately arose as a result of the COVID-19 pandemic. As a result of a step-change in claims, the estimate of deferred claims rebound has been reassessed and has resulted in the return of premium provision being released in full during the first half of 2023 such that there is no provision remaining at 30 June 2023 (FY 2022: GBP59m; HY 2022: GBP60m).
The LFIC also includes a provision of GBP175m (HY 2022: GBP86m; FY 2022: GBP87m) for cash payments to Australian health insurance customers under the COVID-19 customer support programme. A provision is recognised at the point the Group formally announces the payment and insurance revenue recognised within the Condensed Consolidated Income Statement are reduced accordingly. The provision is subsequently utilised on payment to the eligible customers. As the cash payments reflect a distinct promise associated with the return of COVID-19 claims savings to customers, the provision is reflected as a non-distinct investment component. A deferred tax asset of GBP55m has been recognised in relation to the HY 2023 provision.
13.1 Insurance contracts roll forward
Liability for Liability for
remaining coverage incurred claims Total
Estimates
of present
value of
For six months Excluding future
ended loss component Loss component cash flows Risk adjustment
30 June 2023 GBPm GBPm GBPm GBPm GBPm
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Insurance
contract
liabilities
at 1 January 1,081 100 1,176 21 2,378
Insurance
revenue (5,234) - - - (5,234)
Insurance
service
expenses - (26) 5,074 3 5,051
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Incurred
claims and
other
expenses - - 4,919 15 4,934
Losses on
onerous
contracts
and
reversals
of those
losses - (26) - - (26)
Changes to
liabilities
for
incurred
claims
relating to
past
service - - 155 (12) 143
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Insurance
service
result (5,234) (26) 5,074 3 (183)
Foreign
exchange (36) (3) (59) (1) (99)
Finance
expense from
insurance
contracts
issued - 6 2 - 8
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Total changes
in statement
of
comprehensive
income (5,270) (23) 5,017 2 (274)
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Other
movements 2 - 6 - 8
Non-distinct
investment
component (175) - 175 - -
Cash flows
Premiums
received 5,737 1 - - 5,738
Claims and
other
expenses
paid - - (4,934) - (4,934)
Total cash
flows 5,737 1 (4,934) - 804
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Insurance
contract
liabilities
at 30 June 1,375 78 1,440 23 2,916
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Included within the loss component is GBP49m (HY 2022: GBP45m; FY 2022: GBP45m) related to insurance contracts measured on a GMM basis.
Liability for remaining Liability for incurred
coverage claims Total
Estimates
of present
value of
For year ended Excluding future
31 December loss component Loss component cash flows Risk adjustment
2022 GBPm GBPm GBPm GBPm GBPm
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Insurance
contract
liabilities
at 1 January 985 94 1,098 14 2,191
Insurance
revenue (10,033) - - - (10,033)
Insurance
service
expenses - 8 9,326 5 9,339
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Incurred
claims and
other
expenses - - 9,302 - 9,302
Losses on
onerous
contracts
and
reversals
of those
losses - 8 - - 8
Changes to
liabilities
for
incurred
claims
relating to
past
service - - 24 5 29
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Insurance
service
result (10,033) 8 9,326 5 (694)
Foreign
exchange 20 10 62 2 94
Finance income
from
insurance
contracts
issued - (16) - - (16)
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Total changes
in statement
of
comprehensive
income (10,013) 2 9,388 7 (616)
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Other
movements - - (38) - (38)
Non-distinct
investment
component (87) - 87 - -
Cash flows
Premiums
received 10,196 4 - - 10,200
Claims and
other
expenses
paid - - (9,359) - (9,359)
Total cash
flows 10,196 4 (9,359) - 841
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Insurance
contract
liabilities
at 31
December 1,081 100 1,176 21 2,378
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Liability for remaining Liability for incurred
coverage claims Total
Estimates
of present
value of
For six months Excluding future
ended loss component Loss component cash flows Risk adjustment
30 June 2022 GBPm GBPm GBPm GBPm GBPm
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Insurance
contract
liabilities
at 1 January 985 94 1,098 14 2,191
Insurance
revenue (4,809) - - - (4,809)
Insurance
service
expenses - 4 4,474 2 4,480
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Incurred
claims and
other
expenses - - 4,368 3 4,371
Losses on
onerous
contracts
and
reversals
of those
losses - 4 - - 4
Changes to
liabilities
for
incurred
claims
relating to
past
service - - 106 (1) 105
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Insurance
service
result (4,809) 4 4,474 2 (329)
Foreign
exchange 46 10 44 - 100
Finance income
from
insurance
contracts
issued - (22) - - (22)
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Total changes
in statement
of
comprehensive
income (4,763) (8) 4,518 2 (251)
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
Other
movements - - (38) - (38)
Non-distinct
investment
component (86) - 86 - -
Cash flows
Premiums
received 5,117 3 - - 5,120
Claims and
other
expenses
paid - - (4,388) - (4,388)
Total cash
flows 5,117 3 (4,388) - 732
Insurance
contract
liabilities
at 30 June 1,253 89 1,276 16 2,634
-------------- ---------------------- ----------------------- ---------------------- ----------------------- ----------------------
13.2 Reinsurance contracts roll forward
Asset for Amount recoverable
For six months ended 30 remaining on incurred
June coverage claims Total
2023 GBPm GBPm GBPm
Reinsurance contract
assets
at 1 January (18) 39 21
----------------------- ----------------------------- ------------------------------ ------------------------------
Allocation of
reinsurance premiums (73) - (73)
Amounts recoverable
from reinsurers
for incurred claims:
Amounts recoverable
for incurred
claims and other
expenses - 53 53
Changes to amounts
recoverable for incurred claims relating to past service - 13 13 Net expense from reinsurance contracts held (73) 66 (7) ----------------------- ----------------------------- ------------------------------ ------------------------------ Foreign exchange - (1) (1) Cash flows Premiums paid 71 - 71 Recoveries from reinsurance - (54) (54) ----------------------- ----------------------------- ------------------------------ ------------------------------ Total cash flows 71 (54) 17 Reinsurance contract assets at 30 June (20) 50 30 ----------------------- ----------------------------- ------------------------------ ------------------------------
A risk adjustment is estimated on the amount recoverable on incurred claims using a confidence level approach at the 85th percentile (HY 2022 and FY 2022: 85th percentile). As this totals less than GBP1m, this has not been separately presented.
Asset for Amount recoverable
remaining on incurred
For year ended 31 coverage claims Total
December 2022 GBPm GBPm GBPm
Reinsurance contract
assets
at 1 January (17) 35 18
------------------------ ----------------------------- ------------------------------ -----------------------------
Allocation of
reinsurance premiums (116) - (116)
Amounts recoverable from
reinsurers
for incurred claims:
Amounts recoverable
for incurred
claims and other
expenses - 94 94
Net expense from
reinsurance
contracts held (116) 94 (22)
------------------------ ----------------------------- ------------------------------ -----------------------------
Foreign exchange 2 (1) 1
Cash flows
Premiums paid 113 - 113
Recoveries from
reinsurance - (89) (89)
------------------------ ----------------------------- ------------------------------ -----------------------------
Total cash flows 113 (89) 24
Reinsurance contract
assets
at 31 December (18) 39 21
------------------------ ----------------------------- ------------------------------ -----------------------------
Asset for Amount recoverable
For six months ended 30 remaining on incurred
June coverage claims Total
2022 GBPm GBPm GBPm
Reinsurance contract
assets
at 1 January (17) 35 18
------------------------- ----------------------------- ----------------------------- -----------------------------
Allocation of reinsurance
premiums (57) - (57)
Amounts recoverable from
reinsurers
for incurred claims:
Amounts recoverable for
incurred
claims and other
expenses - 43 43
Net expense from
reinsurance
contracts held (57) 43 (14)
------------------------- ----------------------------- ----------------------------- -----------------------------
Foreign exchange - 1 1
Cash flows
Premiums paid 44 - 44
Recoveries from
reinsurance - (35) (35)
------------------------- ----------------------------- ----------------------------- -----------------------------
Total cash flows 44 (35) 9
Reinsurance contract
assets
at 30 June (30) 44 14
------------------------- ----------------------------- ----------------------------- -----------------------------
14 Assets and liabilities held for sale
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
-------------------------------- ---------- -------------- ----------
Assets held for sale
Property, plant and equipment 22 31 21
Investment property 1 1 1
Inventories 1 - -
Total assets held for sale 24 32 22
-------------------------------- ---------- -------------- ----------
Liabilities associated with
assets held for sale
Provisions for liabilities and
charges - (1) (1)
Total liabilities held for sale - (1) (1)
-------------------------------- ---------- -------------- ----------
Net assets held for sale 24 31 21
-------------------------------- ---------- -------------- ----------
Net assets held for sale as at 30 June 2023 predominantly comprise a number of care homes within Bupa UK Care Services, Bupa Villages and Aged Care Australia and Bupa Villages and Aged Care New Zealand, an office within Care Plus in Brazil, as well as a number of dental practices within Bupa Dental Care UK.
Net assets held for sale as at 31 December 2022 predominantly comprised a number of care homes within Bupa UK Care Services, Bupa Villages and Aged Care Australia and Bupa Villages and Aged Care New Zealand and an office within Care Plus in Brazil. As at 30 June 2022, net assets held for sale comprised a number of care homes within Bupa Villages and Aged Care Australia and Bupa Villages and Aged Care New Zealand and an office within Care Plus in Brazil.
15 Cash and cash equivalents
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
-------------------------------- ---------- -------------- ----------
Cash at bank and in hand 1,202 1,141 1,256
Short-term deposits 346 262 297
-------------------------------- ---------- -------------- ----------
Total cash and cash equivalents 1,548 1,403 1,553
-------------------------------- ---------- -------------- ----------
Cash and cash equivalents comprise cash balances, call deposits and other short-term highly liquid investments (including money market funds) with original maturities of three months or less, which are subject to an insignificant risk of change in value.
Bank overdrafts of GBP3m (HY 2022: GBP1m; FY 2022: GBP2m) that are repayable on demand are reported within other interest-bearing liabilities (Note 16) in the Condensed Consolidated Statement of Financial Position. Demand deposits with restrictions on use set by a third party that fundamentally change their nature are reported within restricted assets in the Condensed Consolidated Statement of Financial Position. Both of these are considered components of cash and cash equivalents for the purpose of the Condensed Consolidated Statement of Cash Flows.
16 Borrowings
At 30 June At 31 December At 30 June
2023 2022 2022
GBPm GBPm GBPm
----------------------------------- ---------- -------------- ----------
Subordinated liabilities
Subordinated unguaranteed bonds 746 998 997
----------------------------------- ---------- -------------- ----------
Total subordinated liabilities 746 998 997
----------------------------------- ---------- -------------- ---------- Other interest-bearing liabilities Senior unsecured bonds 599 600 599 Fair value adjustment in respect of hedged interest rate risk (63) (60) (41) Bank loans and overdrafts 415 108 266 ----------------------------------- ---------- -------------- ---------- Total other interest-bearing liabilities 951 648 824 ----------------------------------- ---------- -------------- ---------- Total borrowings 1,697 1,646 1,821 ----------------------------------- ---------- -------------- ---------- Non-current 985 1,287 1,305 Current 712 359 516 ----------------------------------- ---------- -------------- ----------
Subordinated unguaranteed bonds
On 25 April 2023, the Company redeemed the outstanding maturing GBP250m of the GBP500m 5% fixed rate subordinated notes.
Other interest-bearing liabilities
The Group maintains a GBP900m revolving credit facility in the name of the Company, which matures in December 2027, with a one year extension option. The facility was drawn down by GBP380m as at 30 June 2023 (HY 2022: GBP230m; FY 2022: GBP70m). Bank loans and overdrafts bear interest at commercial rates linked to SONIA for sterling or equivalent for other currencies.
Fair value of financial liabilities
The fair value of a financial liability is defined as the amount for which the liability could be exchanged in an arm's-length transaction between informed and willing parties. Fair values of subordinated liabilities and senior unsecured bonds are calculated based on quoted prices. The fair values of quoted liabilities in active markets are based on current offer prices. The fair values of financial liabilities for which there is no active market are established using valuation techniques. These may include reference to the current fair value of other instruments that are substantially the same and discounted cash flow analysis.
Financial liabilities are categorised into a three-level hierarchy. A description of the different levels is detailed in Note 12.
An analysis of borrowings by fair value classification is as follows:
At 31 December
At 30 June 2023 2022 At 30 June 2022
--------------------- --------------------- ---------------------
Level Level Level Level Level Level
1 2 Total 1 2 Total 1 2 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------ ----- ------ ------ ----- ------ ------ ----- ------
Subordinated
liabilities 632 - 632 906 - 906 942 - 942
Senior unsecured
bonds 540 - 540 545 - 545 565 - 565
Bank loans
and overdrafts - 415 415 2 106 108 - 266 266
----------------- ------ ----- ------ ------ ----- ------ ------ ----- ------
Total fair
value 1,172 415 1,587 1,453 106 1,559 1,507 266 1,773
----------------- ------ ----- ------ ------ ----- ------ ------ ----- ------
The Group does not have any Level 3 financial liabilities.
17 Restricted Tier 1 (RT1) notes
On 24 September 2021, the Company issued GBP300m of RT1 notes with a fixed coupon of 4.000% paid semi-annually in arrears. Transaction costs of GBP3m were recognised in respect of the issue. The total coupon paid during the period was GBP6m (HY 2022: GBP6m; FY 2022: GBP12m).
The RT1 notes are perpetual with no fixed maturity or redemption date. The notes have a first call date of 24 March 2032 and interest is payable at the sole and absolute discretion of the Company, with cancelled interest providing no rights to the holder of the notes nor being considered a default. The RT1 notes are therefore treated as equity. The notes are convertible to share capital of the Company on the occurrence of certain trigger events.
18 Business combinations and disposals
In June 2023, the Group acquired the insurance and medical business of Asefa, S.A. Seguros y Reaseguros, an insurance company specialising in the construction industry that operates in Spain, for a consideration of GBP24m. Intangible assets consisting of customer relationships, distribution networks and computer software totalling GBP26m, other net assets of GBP(7)m and resulting goodwill of GBP5m were recognised on acquisition.
During the period, the Group completed the sale of care homes and retirement village in Bupa Villages and Aged Care New Zealand for a consideration of GBP6m and the sale of a care home within Bupa UK Care Services for a consideration of GBP3m. Other minor disposals in the period included dental clinics in Australia and closure of clinics in China.
There was a settlement of deferred and contingent consideration of GBP1m during the period in respect of prior period acquisitions.
19 Commitments and contingencies
Capital commitments
Capital expenditure for the Group contracted at 30 June 2023 but for which no provision has been made in the Condensed Consolidated Financial Statements amounted to GBP32m (HY 2022: GBP54m; FY 2022: GBP40m). Of this, GBP31m (HY 2022: GBP53m; FY 2022: GBP40m) relates to aged care facility and retirement village project commitments in Australia and New Zealand and care homes in the UK; specifically GBP23m (HY 2022: GBP27m; FY 2022: GBP21m) in relation to property, plant and equipment and GBP8m (HY 2022: GBP26m; FY 2022: GBP19m) in relation to investment property.
Contingent assets
The Group currently has no contingent assets.
Contingent liabilities
The Group has contingent liabilities arising in the ordinary course of business. These include losses which might arise from litigation, consumer matters, other disputes, regulatory compliance (including data protection) and interpretation of law (including employment law and tax law). It is not considered that the ultimate outcome of any contingent liabilities other than the items below relating to Isapre Cruz Blanca could have a significant adverse impact on the financial condition of the Group.
As disclosed in the 2022 Annual Report and Accounts, the negative impact of judicial and regulatory action on the Isapre insurance industry in Chile continues. The method of implementation of the statutory risk factor table following the Supreme Court decision of December 2022 remains unclear. The deadline for such implementation has been extended from May 2023 to November 2023 and may be extended further. The Chilean government proposed a new draft law to address the uncertainty in May. This is going through the legislative process and is subject to debate, amendment and other material changes, and even rejection. As part of this process, the local regulator, the Superintendent of Health (SIS), presented to the Senate's Health Committee. As part of this presentation, the SIS shared a draft methodology to illustrate the application of the new draft law. In summary terms, for the period of May 2020 to November 2022 this showed a negative financial impact of the draft law on the Isapre sector of CLP 929bn (GBP913m) and on Isapre Cruz Blanca of CLP 233bn (GBP229m). The value calculated using this basis will increase as time passes. This calculation was shared for illustrative purposes only, is not binding and may be revised. The topic of the timing of payments (if due) was not discussed. The current status of the new draft law is that it is being discussed by the Senate's Health Committee.
Given the continuing uncertainty, Isapre Cruz Blanca consider there to be a wide range of possible outcomes and resultant future cash outflows and is unable to reliably estimate the value of any such future retrospective payments, therefore, no IFRS provision has been recognised as at 30 June 2023.
There continues to be a broad range of possible outcomes, however, in contrast to the requirements of IFRS, under Solvency II the Group is required to include a value for contingent liabilities, even if the amount of the obligation cannot be measured with sufficient reliability. As at 30 June 2023, the Group included an allowance of GBP160m (FY 2022: GBP100m) for this contingent liability for retrospective payments within the Solvency II regulatory balance sheet. As previously stated, the final impact is likely to differ materially from this value and this is a calculation for Solvency II purposes and not a pre-estimate of all actual or potential losses relating to Isapre Cruz Blanca. Any retrospective payments finally determined to be due in respect of historic policies as a result of this ruling would be liabilities for Isapre Cruz Blanca.
In addition to the above Supreme Court decision, the regulator-approved Garantias Explicitas en Salud (GES) pricing increases, in place since October 2022, are subject to judicialisation. The annualised impact to revenue of these price increases is approximately GBP90m. A ruling is expected later in the year which could lead to liabilities for retrospective payments. The situation is uncertain and any potential financial impact is contingent on the future outcome of the judicialisation. Therefore, no IFRS provision has been recognised as at 30 June 2023.
Bupa Finance plc
Statement of Directors' responsibilities for six months ended 30 June 2023
We confirm that to the best of our knowledge:
-- The condensed set of financial statements have been prepared
in accordance with UK-adopted International Accounting Standard
34 Interim Financial Reporting and the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
-- The interim management report includes a fair review of
the information voluntarily provided in accordance with
the requirements of:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year.
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.
The Directors of Bupa Finance plc are listed in the Directors' Report for the year ended 31 December 2022. There have been no changes in Directors since the publication of the Company's Annual Report and Accounts for the year ended 31 December 2022.
By order of the Board
James Lenton Clare Binmore
Director Director
2 August 2023
Independent review report to Bupa Finance plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Bupa Finance plc's condensed consolidated interim financial statements (the "interim financial statements") in the Condensed Consolidated Half Year Financial Statements of Bupa Finance plc for the 6 month period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority as if the company were required to comply with these rules.
The interim financial statements comprise:
-- the Condensed Consolidated Statement of Financial Position as at 30 June 2023; -- the Condensed Consolidated Income Statement for the period then ended; -- the Condensed Consolidated Statement of Comprehensive Income for the period then ended; -- the Condensed Consolidated Statement of Cash Flows for the period then ended; -- the Condensed Consolidated Statement of Changes in Equity for the period then ended; and -- the explanatory notes to the interim financial statements.
The interim financial statements included in the Condensed Consolidated Half Year Financial Statements of Bupa Finance plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority as if the company were required to comply with these rules.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Condensed Consolidated Half Year Financial Statements and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Condensed Consolidated Half Year Financial Statements, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Condensed Consolidated Half Year Financial Statements in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority as if the company were required to comply with these rules. In preparing the Condensed Consolidated Half Year Financial Statements, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the Condensed Consolidated Half Year Financial Statements based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority as if the company were required to comply with these rules and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
2 August 2023
1 All financial results and prior period comparators have
been restated for the new accounting standard for insurance
contracts, IFRS 17 and the updated definition of underlying
profit. See notes 1 and 2 for further details.
2 Revenues from associate businesses are excluded from reported
figures. Customer numbers include 100% of our associate
figures. Economic post-tax profits include the associate
contribution in line with our shareholding.
---------------------------------------------------------------
3 Relates to deferred claims liability and premium increase
deferral.
---------------------------------------------------------------
4 Underlying profit is a non-GAAP financial measure. This
means it is not comparable to other companies. Underlying
profit reflects our trading performance and excludes a
number of items included in statutory profit before taxation,
to facilitate period-on-period comparison. A reconciliation
to statutory profit before taxation can be found in the
notes to the financial statements.
---------------------------------------------------------------
5 The HY 2023 Solvency II capital coverage ratio is an estimate
and unaudited.
---------------------------------------------------------------
6 Refers to Hong Kong SAR (Special Administrative Region)
across the statement
---------------------------------------------------------------
7 Garantías Explícitas en Salud
---------------------------------------------------------------
8 Our total customers as reported in 2022 Annual Report.
---------------------------------------------------------------
9 Excludes insurance customers from the associate businesses.
---------------------------------------------------------------
10 HY 2022 reported underlying profit of GBP378m also includes
GBP15m impact from the change to the underlying profit
definition, our non-GAAP measure of trading profit. Other
and FX balances net to nil
---------------------------------------------------------------
11 The HY 2023 Solvency II capital coverage ratio is an estimate
and unaudited.
---------------------------------------------------------------
12 Calculated as the impact on Own Funds using the retrospective
12-month net earned premium.
---------------------------------------------------------------
13 Group Specific Parameter (GSP) is substituted for the
insurance premium risk parameter in the standard formula,
reflecting the Group's own loss experience.
---------------------------------------------------------------
14 Viva is our new employee health and wellbeing programme
that will provide healthcare benefits to 100% of Bupa's
employees globally by the end of 2023.
---------------------------------------------------------------
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END
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