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| Name | Symbol | Market | Type |
|---|---|---|---|
| Bupa Fin.bds | LSE:BUPF | London | Bond |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 100.00 | 0 | 01:00:00 |
From Jun 2019 to Jun 2024
TIDMBUPF
RNS Number : 4655H
BUPA Finance PLC
01 August 2019
Bupa Finance plc (Bupa Finance): Half year statement for the six months to 30 June 2019
RESULTS IN LINE WITH EXPECTATIONS
HIGHLIGHTS
o Revenue([1]) GBP6.0bn, up 4% at constant exchange rates (CER)([2]) (2018: GBP5.8bn) o IFRS profit before taxation GBP257m, down 16% at actual exchange rates (AER) (2018: GBP306m) o Underlying profit([3]) before taxation GBP242m, down 19% at CER (2018: GBP298m) o Solvency II capital coverage ratio([4]) of 165% (FY 2018: 191%)
Performance review
We delivered positive results in a number of our businesses across Spain, Poland and Hong Kong, and in Bupa Global. These were more than offset by: the challenges we are experiencing in our Australian health insurance and aged care businesses; our ongoing investment in information technology to enhance security and digitise customer experience; and the impact of implementing the new accounting standard, IFRS 16: Leases.
We have a strong financial position, enabling us to balance short-term profit delivery with long-term investment for sustainable growth. We are committed to growing sustainably, investing in the services we offer to our customers and tightly managing costs. We expect the operating environment to remain challenging in some of our markets in the near-term, especially in Australia and Chile. We are clear about the challenges we face and are confident that we have the right strategy to navigate them.
Market Unit performance (CER)
o Australia and New Zealand: revenue down 1%; underlying profit declined 41%, mainly due to Australian health insurance and aged care businesses o Europe and Latin America: revenue up 5%; underlying profit stable o UK: revenue up 1%; underlying profit down 28%, mainly due to investment in information technology, performance in dental and the impact of IFRS 16 o International Markets: revenue up 17%; underlying profit up 33%
Other operational highlights
o Integration of Bupa Acıbadem Sigorta in Turkey, acquired in January, is on track o Australian Defence Force (ADF) health contract commenced on 1 July, providing healthcare cover to 85,000 personnel o Launched new mental health cover within consumer health insurance policies in the UK o Developed Salud Conectada (Connected Health) programme in Spain, for hospital patients to be monitored remotely by medical professionals, using wearables, Big Data and Artificial Intelligence (AI) o Associate business, Bupa Arabia, was reappointed as the health insurance provider for the Saudi Basic Industries Corporation (SABIC), effective from July o New Irish insurer commenced trading activity in March to serve international private medical insurance customers living in the EU (but outside the UK and Ireland) o Good progress across our corporate responsibility agenda, creating shared value for our customers, people and communities.
Financial position
o Net cash generated from operating activities was GBP506m, up GBP13m (3%) on prior year (2018: GBP493m) o Bupa Finance plc senior debt ratings are unchanged at A3 (stable) by Moody's and A- (stable) by Fitch o Leverage ratio higher at 25.5% (FY 2018: 24.7%), and 33.3% when including the impact of IFRS 16 (FY 2018 Proforma[5]: 32.6%) o Solvency II capital coverage ratio([4]) of 165% (FY 2018 191%, FY 2018 Proforma[6]: 166%)
Enquiries
Media
Rupert Gowrley, Mar Soro (Corporate Affairs): +44 (0) 20 3855 0473
Investors
Gareth Evans (Treasury): +44 (0) 20 3314 1708
(Bupa 10252 LV)
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.
With no shareholders, our customers are our focus. We reinvest profits into providing more and better healthcare for the benefit of current and future customers.
Health insurance accounts for the major part of our business with 16.7m customers and contributes around 75% of revenue. We operate clinics, dental centres and hospitals in some markets, with around 15m customers. We care for around 22,300 residents in our UK, Australia, New Zealand and Spain aged care businesses.
We directly employ around 80,000 people, principally in the UK, Australia, Spain, Poland, Chile, New Zealand, Hong Kong, Turkey, the US, Brazil, the Middle East and Ireland. We also have associate businesses in Saudi Arabia and India.
For more information, visit www.bupa.com.
Disclaimer: Cautionary statement concerning forward-looking statements
This document may contain certain "forward-looking statements". Statements that are not historical facts, including statements about the beliefs and expectations of the Bupa Finance plc Group ("Bupa Finance plc") and Bupa Finance plc's directors or management, are forward-looking statements. In particular, but not exclusively, these may relate to Bupa Finance plc'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 Finance plc's control and all of which are solely based on Bupa Finance plc's current beliefs and expectations about future events. These circumstances include, among others, global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, the impact of competition, the timing, impact and other uncertainties of future mergers or combinations within relevant industries. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual future condition, results, performance or achievements of Bupa Finance plc or its industry to be materially different to those expressed or implied by such forward looking statements. Other than as required by law, Bupa Finance plc 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 Finance plc with regard thereto or any change in events, conditions or circumstances on which any such statement is based. To the fullest extent possible by receipt of, and using, this document, you release Bupa Finance plc and each of its affiliates, advisers, directors, employees and agents, in all circumstances (other than fraud) from any liability whatsoever and howsoever arising from your use of this document. In addition, no responsibility of liability or duty of care is or will be accepted by Bupa Finance plc or its respective affiliates, advisers, directors, employees and agents, for updating the document (or any additional information), correcting any inaccuracies in it or providing any additional information to any person. Accordingly, none of Bupa Finance plc or its affiliates, advisers, directors, employees or agents shall be liable (save in the case of fraud) for any loss (whether direct, indirect or consequential) or damage suffered by any person as a result of relying on any statement in, or omission from, the document.
Management review
Group performance in the first half of 2019 was in line with our expectations and as signalled in the full year 2018 results announcement. Revenue was up by 4% to GBP6.0bn and underlying profit of GBP242m, was down by 19% year-on-year, both at CER.
We delivered positive results in a number of our businesses across Spain, Poland and Hong Kong, and in Bupa Global. These were more than offset by the challenges we are experiencing in our Australian health insurance and aged care businesses; our ongoing investment in information technology to enhance security and digitise customer experience; and the impact of implementing the new accounting standard, IFRS 16: Leases. We have a strong financial position, enabling us to balance short-term profit delivery with long-term investment for sustainable growth.
In Australia, customers face affordability pressures as the cost of living rises and wage growth remains low. This has impacted the take-up of health insurance. The Government has continued to restrict premium increases to a level lower than claims inflation, and this is affecting results across the health insurance industry. We are taking steps to ensure we provide great value for money and quality for our customers. In aged care, we are addressing a number of compliance and service issues in our care home business in Australia, including making investments to drive improvements.
Across the Group, we invested heavily in our businesses, particularly in information technology to enhance security, digitise customer experience and increase efficiency. This investment has an impact on our profitability in the short-term, but it is the right thing to do for our customers and for the Group's future sustainable growth. In Spain, digital propositions like Blua and Salud Conectada, enable us to carve out a distinctive market position as a leading player in healthcare. We are proud of the leadership we are taking in mental health in the UK, with the launch of new mental health cover within consumer health insurance policies.
We invested in complementary health provision services which support and reinforce our health insurance positions. We further expanded our presence in dental with practice acquisitions and new openings in Australia, the UK, Spain and Poland. On 1 July, we started providing healthcare cover to 85,000 Australian Army, Navy and Air Force personnel through our ADF contract.
In January, we entered the Turkish health insurance market. Bupa Acıbadem Sigorta, with over 550,000 customers, is an innovative and growing business and the first stage of the integration process is going well.
We made good progress across our corporate responsibility agenda, creating shared value for our customers, people and communities. We are contributing through the Bupa Foundations in Australia, Spain and the UK, and increasing the use of renewable energy. Our employee engagement score was 78%, with 6,000 more people giving feedback since our last survey launched in October 2018.
We recently announced a simplification of our organisation structure to accelerate organic growth, strengthen governance and increase efficiency. From the second half of the year onwards, the Group will be structured as three Market Units: Australia & New Zealand; Europe & Latin America; and Bupa Global & UK. We will report our full year 2019 results in accordance with this new structure.
Over the period, we appointed new members to the Bupa Executive Team. Mark Glenn joined us from Barclays in July as Chief Information Officer, where he held senior technology roles. We are delighted to have him on board to lead this strategic agenda. Dr Paula Franklin, Bupa Global & UK's Chief Medical and Risk Officer, takes on the leadership of the global medical function from 1 August, alongside her current responsibilities in the UK. Dr Paul Zollinger-Read CBE, who has been Bupa's Chief Medical Officer since 2012, stepped down on 31 July.
Outlook
We are committed to growing sustainably, investing in the services we offer to our customers and tightly managing costs. We expect the operating environment will remain challenging in some of our markets, especially in Australia and Chile. We are clear about the challenges we face and are confident that we have the right strategy to navigate them.
MARKET UNIT PERFORMANCE
Australia and New Zealand
Hot Features
Premium
Revenue Underlying profit
HY 2019 GBP2,254m GBP92m
HY 2018 (CER) GBP2,266m GBP157m
% growth (CER) 1% decline 41% decline
In Australia and New Zealand, we operate in difficult market conditions. Revenue was down 1% and underlying profit decreased 41% on last year. These results were driven by the challenges impacting our Australian health insurance and aged care businesses.
In Australia, customers are facing affordability pressures, with wages growing slower than the cost of living. For this year, we have the lowest health insurance premium increase for our customers in 17 years, after the Government approved an average premium increase of 2.99%. This increase is lower than claims inflation and compares to an industry average of 3.25%. Net Promoter Scores and retention levels have significantly improved as a result of our focus on customer experience, effective communication on rate increases and industry reforms aimed at assisting customer understanding and affordability. Our customer transformation programme is helping to provide more personalised services and improved customer experience.
In Health Services, we performed in line with expectations, with lower revenue in Bupa Dental offset by good performance from Bupa Medical Clinics. Since winning the Australian Defence Force contract in January, we have worked to ensure a smooth transition with services commencing from 1 July.
Our Australian aged care business was materially impacted by lower occupancy and higher costs. We have a number of homes operating under regulatory sanction and we are working with the regulator to make improvements in order to enhance care and support for our residents and their families. In addition, we engaged with the Royal Commission into Aged Care Quality and Safety which is examining the whole aged care system in Australia.
A number of divestments in our New Zealand aged care business resulted in a more focused portfolio. The performance in our retained portfolio was stable year-on-year. We are investing in integrated care home villages with new developments in the pipeline.
Europe and Latin America
Revenue Underlying profit
HY 2019 GBP1,558m GBP86m
HY 2018 (CER) GBP1,487m GBP86m
% growth (CER) 5% 0%
In Europe and Latin America, we delivered good revenue growth of 5% year-on-year, while underlying profit remained flat on last year. Excluding the impact of IFRS 16, underlying profit was up 7% on 2018.
In Spain, our health insurance business delivered steady performance, driven by successful bancassurance partnerships as well as the positive impact of Néctar Seguros which was acquired in 2018. Blua, our digital proposition, goes from strength to strength. In the first half of the year, 460,000 customers had access to video consultations, representing a 57% increase year-on-year, with more than 1,800 doctors across all specialties.
Sanitas Dental delivered strong performance driven by the increase in customer numbers with dental cover. We opened four new dental centres, as part of our dental expansion plan.
Sanitas Hospitales and New Services benefitted from the acquisition of Ginemed, an IVF and fertility service provider, acquired in December 2018. The integration of this business is going well. We made progress in digital innovation, with our programme Salud Conectada. This is a health ecosystem which uses wearables, Big Data and AI, allowing patients to be supported and monitored by our medical professionals remotely. In the first half of the year, over 1,000 patients used this service.
Sanitas Mayores, our aged care business in Spain, maintained an average occupancy rate of 95% in 2019. We opened a new care home in Vitoria and a day care centre in Barcelona.
In Poland, LUX MED delivered strong results, particularly in our corporate subscriptions and inpatient businesses. We opened eight health clinics and 11 dental centres.
Our business in Chile delivered good revenue growth, driven by our outpatient business and increased activity in the Clínica Bupa Santiago hospital. There is some uncertainty in the private health insurance sector with a delay in the approval of the triennial premium rate increase together with wider developments in the reform of the Isapres insurance system. We are monitoring the situation closely and engaging with the Government.
UK
Revenue Underlying profit
HY 2019 GBP1,269m GBP42m
HY 2018 GBP1,252m GBP58m
% growth 1% 28% decline
In the UK, revenue was stable, while underlying profit was down 28% mainly due to our investment in information security, performance in our dental business and the impact of IFRS 16.
Our health insurance portfolio remained stable to 2018 at 2.2m customers. We launched a new mental health cover within our consumer policies. This builds on our Business Mental Health Advantage cover, which was included in corporate customers' policies last year.
We acquired 13 dental practices, growing our market position to a total of 483 centres. Underlying performance was impacted by sector-wide pressures due to a shortage of dentists. We are committed to becoming the dental employer of choice introducing pay increases for dental nurses and a comprehensive enhanced benefits package for dental employees.
In our aged care business, we drove quality improvements and now have eight care homes rated 'Outstanding' by the Care Quality Commission. We opened our eighth Richmond Village in Wood Norton.
In our clinics business, we launched Bupa Smart DNA offering personalised fitness and wellness insights. At the Bupa Cromwell Hospital, we opened our new children and young people's outpatient department.
International Markets
Revenue Underlying profit
HY 2019 GBP945m GBP32m
HY 2018 (CER) GBP811m GBP24m
% growth (CER) 17% 33%
Revenue in International Markets grew by 17% and underlying profit was up 33% year-on-year.
In January, we acquired Acıbadem Sigorta, Turkey's second largest health insurer, and have started the integration of this business, which is progressing well.
We continue to see progress in Bupa Global, as we focus on improving customer retention and Net Promoter Scores. Our authorised insurer in Ireland started operations in March to serve customers living in the EU (but outside the UK and Ireland). Care Plus in Brazil delivered good results.
Bupa Hong Kong focused on customer proposition and service capabilities. Our clinics business, which operates under the Quality HealthCare brand, performed well driven by an increase in corporate customers and a rise in walk-in patients. We are closely following the developments in the social and political situation.
Our associate business, Bupa Arabia, was reappointed as the health insurance provider for the Saudi Basic Industries Corporation (SABIC). Our results also benefitted from the increase in our stake, completed in August 2018.
Max India, our partner in our associate business, is selling its stake to True North, an Indian private equity group, subject to regulatory approval. We look forward to working with True North to grow Max Bupa.
FINANCIAL REVIEW
Overview
The Group's results were in line with expectations. The positive performance in a number of our businesses was more than offset by the challenges in our Australian insurance and aged care businesses, our ongoing investment commitment in information technology and the impact of the new accounting standard, IFRS 16, due to the significant number of leased properties in our provision and aged care businesses.
Revenue was GBP6.0bn, up 4% on prior year (GBP5.8bn at CER). IFRS profit decreased by 16% to GBP257m (2018: GBP306m AER), while underlying profit of GBP242m was down 19% (2018: GBP298m CER). Excluding the acquisition of Acıbadem Sigorta in January 2019, and the impact of IFRS 16, revenue grew 2% and underlying profit was down on prior year by 19% at CER.
We generated cash from operating activities of GBP506m, up GBP13m on prior year. Our Parent's estimated capital coverage ratio of 165% at 30 June 2019 remains strong and comfortably above risk appetite.
Bupa Finance plc's senior debt rating remains unchanged since December 2018.
Revenue (CER)
We achieved revenue growth of 4% across the Group.
Revenue in our insurance businesses grew by 4% versus last year. Our Australian health insurance portfolio remained stable to 2018 with 4 million customers. Revenue was flat to last year due to the benefit of the annual premium rate increase and improvements in retention being offset by lower net new business.
Our Spanish health insurance business grew revenue by 3% through strong performance in the bank partnership channel and from the acquisition of Néctar Seguros, a book of around 34,000 customers, in October 2018. Our insurance business in the UK delivered stable growth compared to 2018. In International Markets, our health insurance businesses increased revenue by 18% driven by the addition of Bupa Acıbadem Sigorta in Turkey, and year-on-year revenue growth in Bupa Global and Bupa Hong Kong.
Our provision businesses grew revenue by 2% and customer numbers were up 4%, with year-on-year increases across the majority of our markets. We delivered strong growth in our corporate subscription business in Poland and in Bupa Chile's outpatient business, Integramédica, as well as Clínica Bupa Santiago hospital which opened in the second quarter of 2018.
In our aged care businesses, revenue was flat to 2018. In Australia, revenue fell by around 4% mainly reflecting the lower average occupancy rate of 89%, down 6 percentage points from last year (2018: 95%). Our Spanish aged care business, Sanitas Mayores, continues to perform well with the average number of residents up 3% on last year. The average occupancy rate remained strong at 95%. In the UK, revenue was up on the prior period with the average care home occupancy rate improving by 3 percentage points on last year to 86% (2018: 83%).
Underlying profit (CER)
As previously reported, the methodology for calculating underlying profit was refined at full year 2018 to provide a better representation of underlying performance while reducing the number of items excluded from underlying profit[7]. Comparators have been restated to reflect this updated methodology.
In line with expectations, Group underlying profit declined by 19% to GBP242m for the first six months of 2019 (2018: GBP298m at CER). On a like-for-like basis, when excluding the acquisition of Acıbadem Sigorta, 4%, and the impact of IFRS 16 (4%), underlying profit decreased on prior year by 19% at CER.
Health insurance, our largest line of business, contributed around 85% of underlying profit for reportable segments. Our health insurance business profit in Australia declined by around 25% on 2018, with the annual premium rate increase being at a lower level than claims inflation. Our Spanish insurance business grew by 3% on the prior year driven by the growth in the portfolio, while Bupa Chile declined on last year reflecting higher claims. Profits in UK Insurance were 5% lower than last year as the improvement in the loss ratio has been more than offset by our investment in information technology. International Markets increased insurance profits by 14% on 2018, reflecting the improvement of Bupa Global coupled with good claims performance. Our results also benefit from the additional 5% stake in Bupa Arabia, acquired in August 2018, bringing our holding to 39.25%.
The Parent's Combined Operating Ratio (COR) of 95% represents a slight deterioration on last year (2018: 94%)([8]) . The Australian health insurance entity's COR deteriorated two percentage points to 95% (2018: 93%)([8]) as a result of the commercial challenges described above. The COR of our Spanish health insurer, Sanitas Seguros, marginally improved to 90% (2018: 91%)([8]) . Bupa Insurance Limited, our UK insurance entity, underwrites both domestic and international private medical insurance, covering the business written by both the UK and parts of Bupa Global. The COR is slightly worse at 95% (2018: 94%)([8]) principally due to increased investment in information technology.
Underlying profit in our provision businesses fell by around 30% on last year. On a like-for-like basis, when excluding the impact of IFRS 16, underlying profit declined by around 15% on 2018 mainly driven by Australia and the UK. Our Europe and Latin America Market Unit delivered strong like-for-like growth, and our health services business in Hong Kong achieved good growth mainly from its outpatient business.
In our aged care businesses, underlying profit declined by around GBP25m compared to 2018. UK Care Services increased profit, while Sanitas Mayores was broadly stable year-on-year. In Australia, our profits fell significantly reflecting the decline in occupancy levels compared to last year. We are addressing a number of compliance and service issues in our Australian care homes and, as a result, operating expenses have increased. In addition, we incurred costs as part of our engagement with the Royal Commission into Aged Care Quality and Safety.
Central expenses and net interest margin were GBP17m lower than the prior year partly reflecting GBP18m of investment income generated in Bupa Acıbadem Sigorta.
IFRS profit (AER)
IFRS profit before taxation was GBP257m (2018: GBP306m) representing a decline of 16% at AER. This reflects the reduced trading profitability on prior year, with the nature of non-underlying items comparable to, but slightly higher than 2018.
HY19 HY18
AER AER
Non-underlying items
Net (losses)/gains on disposal of businesses and
transaction costs on business combinations (2) 8
Net property revaluation gains/(losses) 8 -
Realised and unrealised foreign exchange (losses)/gains (9) 5
Other Market Unit non-underlying items - (5)
Gains/(losses) on return-seeking assets, net of
hedging 24 (4)
Central non-underlying items (6) -
----- -----
Total non-underlying items 15 4
In 2019, losses on disposals are due to additional costs relating to the sale of a number of UK care homes in 2018. This compares with a gain of GBP8m in 2018 relating to the disposal of Bupa Global's shareholding in Forsikringens Datacenter A/S.
There were property revaluation gains in 2019 of GBP8m in our New Zealand aged care business, which were slightly higher than last year (2018: GBP7m), while 2018 also included property write-downs in the UK of GBP7m.
In 2018, other Market Unit non-underlying items of GBP5m relate to the set up of our new Irish insurer in preparation for post-Brexit trading. The return-seeking asset portfolio showed gains in the period of GBP24m, a change of GBP28m on the GBP4m loss in 2018. Central Market Unit non-underlying items includes the provision for expected credit losses on Bupa Acıbadem Sigorta investments.
Taxation
The Group's effective tax rate for the period was 30% (2018: 24%), which is higher than the UK corporation tax rate of 19%. This is mainly due to profits arising in jurisdictions with a higher rate of corporate income tax and one-off items including the release of a deferred tax asset and the recognition of additional provisions in our Latin American markets.
Cashflow
Net cash generated from operating activities grew by GBP13m (3%) to GBP506m. On a like-for-like basis, when excluding the change in presentation arising from IFRS 16 (c.GBP75m)([9]) , and the payment following the one-off tax settlement with the Australian Tax Office (GBP86m) as disclosed in our 2018 full year announcement, net cash generated from operating activities was up GBP24m (5%). This is the result of favourable changes in working capital partly offset by the decrease in pre-tax profit.
Net cash used in investing activities increased by GBP33m to GBP306m in the first half of the year (2018: GBP273m). In January 2019, we completed the acquisition of Acıbadem Sigorta, and invested in growth and development including new build activity in New Zealand, a retirement village development in Australia and expansion of our dental businesses in the UK and Spain. In addition, there have been lower proceeds from sale of property and decreased purchases of financial investments compared to 2018.
Net cashflows generated from financing activities decreased to GBP74m, a change of GBP45m from last year. This reflects a draw down on our revolving credit facility to fund the acquisition of Acıbadem Sigorta and a dividend payment to the Group's parent partly offset by the IFRS 16 presentational change.
Funding
We manage our funding prudently to ensure a strong platform for continued growth. A key element of our funding policy is to target an A-/A3 senior credit rating.
Our Bupa Finance plc senior debt ratings are unchanged at A3 (stable) by Moody's and A- (stable) by Fitch.
At 30 June 2019, we had drawn GBP295m under our GBP800m revolving credit facility, which is due to mature in August 2022. We focus on managing our leverage in line with our credit rating targets. Leverage excluding operating leases at 30 June 2019 was 25.5% (FY 2018: 24.7%). Leverage would be 33.3% when IFRS 16 lease liabilities are taken into account.
Coverage of financial covenants remains well within the levels required in our bank facilities.
Solvency
The Parent 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. The estimated SCR as at 30 June 2019 was GBP0.3bn higher compared to 31 December 2018 at GBP2.4bn and Own Funds were GBP4.0bn, GBP0.1bn higher than at 31 December 2018.
The Parent's surplus capital was estimated to be GBP1.6bn, compared to GBP1.8bn at 31 December 2018, representing a solvency coverage ratio of 165% (FY 2018: 191%).
The decrease in coverage ratio from 31 December 2018 is due to IFRS 16 becoming effective on 1 January 2019 and acquisitions in the period, including Acıbadem Sigorta, offset by capital generation.
While the application of IFRS 16 accounting change does not change our risk profile, it requires all our operating lease assets and liabilities to be capitalised on the IFRS and Solvency II balance sheet. The value of both lease assets and liabilities at 30 June 2019 on the Solvency II balance sheet is GBP1.0bn. The lease assets attract a property risk charge under the Solvency II Standard Formula. This, together with interest rate risk on the liability, has increased the SCR by GBP0.2bn.
Our business is strongly capital generative due to our profitability. This underlying capital generation has offset the reduction in surplus capital due to IFRS 16 and acquisitions. The Parent's solvency coverage ratio of 165% is comfortably within risk appetite.
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 13 percentage point reduction to the solvency coverage ratio.
The Parent's capital position is resilient in the face of the individual risks, illustrating the strength of our balance sheet.
Risk Sensitivities SII Coverage
Ratio
Solvency Coverage Ratio 165%
-------------
Interest rate +100bps 162%
-------------
Credit spreads +100bps (assuming no credit transition) 164%
-------------
Equity markets -20% 165%
-------------
Property values -10% 152%
-------------
GBP depreciates by 10% 162%
-------------
Pension risk +10% 165%
-------------
GSP[10] +0.2% 163%
-------------
Loss ratio worsening by 2% 157%
-------------
Strengthening and streamlining the Group's structure
We recently announced a simplification of our organisation structure to enable organic growth, strengthen governance and increase efficiency. From the second half of the year onwards, the Group will be structured as three Market Units: Australia & New Zealand; Europe & Latin America; and Bupa Global & UK. For our full year Annual Report and Accounts 2019, we will report in accordance with this new structure and restate our 2018 results, where applicable.
Business risks
We described our main risks in the Risk section of the Annual Report and Accounts 2018. In the period to 30 June 2019, there were no significant changes to the nature of these risks.
As previously reported, we have a well-established process for identifying and managing all business risks.
Our business could be affected by changing economic, political and regulatory conditions in the markets in which we operate. This might include economic volatility and structural shifts, such as price restrictions, political changes, high medical inflation or minimum wage increases. There is also increasing regulatory focus across our sectors.
As set out above, the private health insurance and aged care sectors in Australia are facing significant challenges. In Chile, there is some uncertainty following the delay in the approval of the triennial premium price increase alongside wider developments in the government's reform of the Isapres system. We keep our strategy and processes under review to ensure they are flexible enough to deal with changing external conditions.
In order to ensure issues in one business or Market Unit do not spread and impact our brand trust in another, contagion risk remains prominent in our operational and reputational risk management agenda with a focus on resolving and learning from issues faced.
We are continuing to prepare for the operational, commercial and legal implications of an exit of the UK from the EU under different scenarios, including a situation where the UK leaves the EU with no transition period or with no trade deal in place. We are examining an extensive list of issues and working through steps to protect the Group's position in these areas.
Internal controls, particularly regarding customer conduct, information security and privacy are key areas of focus.
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. We keep our focus on strengthening our risk management approach and capability, responding to growth in our business, ensuring we deliver the high standards expected now and in the future.
We continue to monitor the risks set out above. As we hold significant goodwill, intangibles and financial investments on our balance sheet, the crystallisation of these risks could lead to impairments being recognised in future reporting periods. Our annual assessment of impairment of such assets takes place in the second half of the year.
Bupa Finance plc
(Company No. 2779134)
Condensed consolidated half year financial statements (unaudited)
Six months ended 30 June 2019
Bupa Finance plc
Condensed Consolidated Income Statement (unaudited)
for six months ended 30 June 2019
For six
months For six For year
ended months ended ended
30 June 30 June 31 December
2019 2018 2018
Note GBPm GBPm GBPm
================================== ===== ========= ============== =============
Revenues
Gross insurance premiums 4,483 4,340 8,791
Premiums ceded to reinsurers (38) (29) (63)
================================== ===== ========= ============== =============
Net insurance premiums earned 4,445 4,311 8,728
Care, health and other customer
contract revenue 1,566 1,554 3,117
Other revenue 14 14 14
================================== ===== ========= ============== =============
Total revenues 3 6,025 5,879 11,859
================================== ===== ========= ============== =============
Claims and expenses
Insurance claims incurred (3,598) (3,478) (6,912)
Reinsurers' share of claims
incurred 24 22 44
================================== ===== ========= ============== =============
Net insurance claims incurred (3,574) (3,456) (6,868)
================================== ===== ========= ============== =============
Share of post-taxation results
of equity accounted investments 17 9 33
Other operating expenses (2,192) (2,101) (4,316)
Other income and charges 4 (2) 2 (53)
================================== ===== ========= ============== =============
Total claims and expenses (5,751) (5,546) (11,204)
================================== ===== ========= ============== =============
Profit before financial income
and expense 274 333 655
================================== ===== ========= ============== =============
Financial income and expense
Financial income 5 71 23 70 Financial expense 5 (79) (49) (103) Net impairment loss on financial assets (9) (1) (8) ================================== ===== ========= ============== ============= Net financial expense (17) (27) (41) ================================== ===== ========= ============== ============= Profit before taxation expense 257 306 614 Taxation expense 6 (78) (72) (211) Profit for the financial period 179 234 403 ================================== ===== ========= ============== ============= Attributable to: Bupa Finance plc 177 231 397 Non-controlling interests 2 3 6 ================================== ===== ========= ============== ============= Profit for the financial period 179 234 403 ================================== ===== ========= ============== =============
Notes 1-17 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Comprehensive Income (unaudited)
for six months ended 30 June 2019
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Note GBPm GBPm GBPm
====== ========= ========= =============
Profit for the financial
period 179 234 403
============================================== ========= ========= =============
Other comprehensive income/(expense)
Items that will not be reclassified
to the Income Statement
Remeasurement gains on pension
schemes - - 1
Unrealised gains on revaluation
of property 1 21 23
Taxation charge on income
and expenses recognised directly
in other comprehensive income - - (9)
Items that may be reclassified
subsequently to the Income
Statement
Foreign exchange translation
differences on goodwill 6 (65) (73)
Other foreign exchange translation
differences 18 (60) (10)
Net gain on hedge of net
investment in overseas subsidiary
companies 4 18 1
Change in fair value of financial
investments through other
comprehensive income 4 - -
Change in fair value of underlying
derivative of cash flow hedge 1 5 -
Taxation charge on income
and expenses recognised directly
in other comprehensive income - - (10)
============================================== ========= ========= =============
Total other comprehensive
income 34 (81) (77)
============================================== ========= ========= =============
Comprehensive income for
the period 213 153 326
============================================== ========= ========= =============
Attributable to:
Bupa Finance plc 211 151 322
Non-controlling interests 2 2 4
============================================== ========= ========= =============
Comprehensive income for
the period 213 153 326
============================================== ========= ========= =============
Notes 1-17 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Financial Position (unaudited)
as at 30 June 2019
At 30 June At 31 December At 30 June
2019 2018 2018
Note GBPm GBPm GBPm
================================ ===== =========== =============== ===========
Goodwill and intangible
assets 7 4,285 4,197 4,133
Property, plant and equipment 8 4,224 3,181 3,147
Investment property 491 454 407
Equity accounted investments 725 690 562
Post-employment benefit
net assets 9 4 3 3
Restricted assets 10 109 107 88
Financial investments 11 2,519 2,350 2,451
Derivatives assets 27 28 33
Deferred taxation assets 42 52 4
Current taxation asset 25 9 -
Assets arising from insurance
business 12 1,994 1,348 1,853
Inventories 109 109 119
Trade and other receivables 761 745 862
Cash and cash equivalents 13 1,679 1,553 1,585
Assets held for sale 4 7 10
================================ ===== =========== =============== ===========
Total assets 16,998 14,833 15,257
================================ ===== =========== =============== ===========
Subordinated liabilities 14 (1,261) (1,255) (1,306)
Other interest bearing
liabilities 14 (1,180) (1,055) (1,102)
Lease liabilities 1.3 (1,106) - -
Post-employment benefit
net liabilities 9 (8) (10) (11)
Insurance contract liabilities 15 (3,663) (2,753) (3,381)
Derivative liabilities (49) (47) (32)
Provisions for liabilities
and charges (182) (166) (126)
Deferred taxation liabilities (261) (271) (218)
Trade and other payables (1,888) (1,942) (1,873)
Other liabilities under
insurance contracts issued (198) (144) (201)
Current taxation liabilities (89) (146) (81)
================================ ===== =========== =============== ===========
Total liabilities (9,885) (7,789) (8,331)
================================ ===== =========== =============== ===========
Net assets 7,113 7,044 6,926
================================ ===== =========== =============== ===========
Equity
Called up share capital 200 200 200
Property revaluation reserve 696 700 709
Income and expenditure
reserves 5,685 5,640 5,501
Cash flow hedge reserve 21 20 31
Foreign currency translation
reserve 491 464 455
================================ ===== =========== =============== ===========
Equity attributable to
Bupa Finance plc 7,093 7,024 6,896
Equity attributable to
non-controlling interest 20 20 30
================================ ===== =========== =============== ===========
Total equity 7,113 7,044 6,926
================================ ===== =========== =============== ===========
Notes 1-17 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Cash Flows (unaudited)
for six months ended 30 June 2019
For six For six
months months For year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
-----------------------------------------
Note GBPm GBPm GBPm
========================================= ===== ========= ========= =============
Cash flow from operating activities
Profit before taxation expense 257 306 614
Adjustments for:
Net financial expense 17 27 41
Depreciation, amortisation and
impairment 234 155 352
Other non-cash items (3) (10) 19
Changes in working capital and
provisions:
Increase in provisions and other
liabilities under insurance
contracts issued 777 880 165
Increase in assets under insurance
business (554) (636) (104)
Funded pension scheme employer
contributions - - (1)
Increase in trade and other
receivables, and other assets (76) (43) (35)
Decrease in trade and other
payables, and other liabilities (2) (103) (37)
Cash generated from operations 650 576 1,014
========================================= ===== ========= ========= =============
Income taxation paid (142) (71) (173)
Increase in cash held in restricted
assets 10 (2) (12) (31)
Net cash generated from operating
activities 506 493 810
========================================= ===== ========= ========= =============
Cash flow from investing activities
Acquisition of subsidiary companies
and other businesses, net of
cash acquired 16 (140) (23) (146)
Increase of equity accounted
investments (4) - (81)
Dividends received from associates - 12 12
Disposal of subsidiary companies
and other businesses, net of
cash disposed (3) 2 57
Decrease in equity accounted
investments - 7 7
Purchase of intangible assets 7 (31) (16) (60)
Purchase of property, plant
and equipment (91) (106) (256)
Proceeds from sale of property,
plant and equipment 9 75 73
Purchase of investment property (24) (12) (27)
Disposal of investment property - 13 19
Net proceeds from sale/(purchases)
of financial investments, excluding
deposits with credit institutions 56 (229) (232)
Net (investment into)/withdrawal
from deposits with credit institutions (111) (18) 61
Interest received 33 22 68
Net cash used in investing activities (306) (273) (505)
========================================= ===== ========= ========= =============
Cash flow from financing activities
Proceeds from interest bearing
liabilities and drawdowns on
other borrowings 162 25 103
Repayment of interest bearing
liabilities and other borrowings (48) (86) (190)
Principal repayment of lease
liabilities (74) - -
Repayment of interest on lease
liabilities (1) - -
Interest paid (42) (39) (87)
Acquisition of non-controlling
interests in subsidiary company 16 (2) - (8)
Dividends paid (76) (43) (79)
Dividends paid to non-controlling
interests (2) (2) (1)
Receipts from hedging instruments 9 26 18
Net cash used in financing activities (74) (119) (244)
========================================= ===== ========= ========= =============
Net increase in cash and cash
equivalents 126 101 61
Cash and cash equivalents at
the beginning of period 1,552 1,504 1,504
Effect of exchange rate changes (1) (21) (13)
========================================= ===== ========= ========= =============
Cash and cash equivalents at
end of period 13 1,677 1,584 1,552
========================================= ===== ========= ========= =============
Notes 1-17 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Condensed Consolidated Statement of Changes in Equity (unaudited)
for six months ended 30 June 2019
Total
Income Cash Foreign attributable
Property and flow exchange to Bupa Non-
revaluation expenditure hedge translation Finance controlling Total
reserve reserves reserve reserve plc interests equity
----- ------------ ------------ --------- ------------ ------------- ------------- --------
For six months
ended
30 June 2019 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 1
January
2019, as
previously
reported 700 5,640 20 464 6,824 20 6,844
Opening balance
adjustments 1.3 (3) (61) - - (64) - (64)
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 1
January
2019, as
restated 697 5,579 20 464 6,760 20 6,780
Profit for the
financial
period - 177 - - 177 2 179
Other
comprehensive
income/(expense)
Unrealised gain
on revaluation
of property 1 - - - 1 - 1
Realised
revaluation
profit on
disposal of
property (2) 2 - - - - -
Change in fair
value
of financial
investments
through other
comprehensive
income - 4 - - 4 - 4
Foreign exchange
translation
differences on
goodwill - - - 6 6 - 6
Other foreign
exchange
translation
differences - 1 - 17 18 - 18
Net gain on hedge
of
net investment
in overseas
subsidiary
companies - - - 4 4 - 4
Change in fair
value
of underlying
derivative
of cash flow
hedge - - 1 - 1 - 1
================== ===== ============ ============ ========= ============ ============= ============= ========
Other
comprehensive
income/(expense)
for the period,
net of
taxation (1) 7 1 27 34 - 34
================== ===== ============ ============ ========= ============ ============= ============= ========
Total
comprehensive
income/(expense)
for the period (1) 184 1 27 211 2 213
================== ===== ============ ============ ========= ============ ============= ============= ========
Dividends to
equity holders
of the company - (76) - - (76) - (76)
Acquisition of
subsidiary
companies
attributable
to
non-controlling
interests - (2) - - (2) - (2)
Dividends paid to
non-controlling
interests - - - - - (2) (2)
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 30
June 2019 696 5,685 21 491 6,893 20 6,913
================== ===== ============ ============ ========= ============ ============= ============= ========
Share capital at
beginning
and end of
period 200
================== ===== ============ ============ ========= ============ ============= ============= ========
Total equity 7,113
================== ===== ============ ============ ========= ============ ============= ============= ========
Total
Income Cash Foreign attributable
Property and flow exchange to Bupa Non-
revaluation expenditure hedge translation Finance controlling Total
reserve reserves reserve reserve plc interests equity
----- ------------ ------------ --------- ------------ ------------- ------------- --------
For year ended 31
December
2018 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 1
January
2018, as
previously
reported 796 5,221 22 557 6,596 30 6,626
Opening balance
adjustments 1.3 - (8) - - (8) - (8)
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 1
January
2018, as
restated 796 5,213 22 557 6,588 30 6,618
Profit for the
financial
period - 397 - - 397 6 403
Other
comprehensive
income/(expense)
Unrealised gain
on revaluation
of property 23 - - - 23 - 23
Realised
revaluation
profit on
disposal of
property (101) 101 - - - - -
Remeasurement
gain on
pension schemes - 1 - - 1 - 1
Foreign exchange
translation
differences on
goodwill - - - (73) (73) - (73)
Other foreign
exchange
translation
differences (9) 14 (2) (11) (8) (2) (10)
Net gain on hedge
of
net investment
in overseas
subsidiary
companies - - - 1 1 - 1
Taxation charge
on income
and expense
recognised
directly in
other
comprehensive
income (9) - - (10) (19) - (19)
================== ===== ============ ============ ========= ============ ============= ============= ========
Other
comprehensive
income/(expense)
for the period,
net of
taxation (96) 116 (2) (93) (75) (2) (77)
================== ===== ============ ============ ========= ============ ============= ============= ========
Total
comprehensive
income/(expense)
for the period (96) 513 (2) (93) 322 4 326
================== ===== ============ ============ ========= ============ ============= ============= ========
Dividends to
equity holders
of the company - (79) - - (79) - (79)
Acquisition of
subsidiary
companies
attributable
to
non-controlling
interests - (7) - - (7) (4) (11)
Elimination of
non-controlling
interest on
disposal
of subsidiary - - - - - (9) (9)
Dividends paid to
non-controlling
interests - - - - - (1) (1)
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 31
December
2018 700 5,640 20 464 6,824 20 6,844
================== ===== ============ ============ ========= ============ ============= ============= ========
Share capital at
beginning
and end of
period 200
================== ===== ============ ============ ========= ============ ============= ============= ========
Total equity 7,044
================== ===== ============ ============ ========= ============ ============= ============= ========
Total
attributable
Income Cash Foreign to
Property and flow exchange Bupa Non-
revaluation expenditure hedge translation Finance controlling Total
reserve reserves reserve reserve plc interests equity
----- ------------ ------------ --------- ------------ ------------- ------------- --------
For six months
ended
30 June 2018 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 1
January
2018, as
previously
reported 796 5,221 22 557 6,596 30 6,626
Opening balance
adjustments 1.3 - (8) - - (8) - (8)
================== ===== ============ ============ ========= ============ ============= ============= ========
Balance at 1
January
2018, as
restated 796 5,213 22 557 6,588 30 6,618
Profit for the
financial
period - 231 - - 231 3 234
Other
comprehensive
income/(expense)
Unrealised gain
on revaluation
of property 21 - - - 21 - 21
Realised
revaluation
profit on
disposal of
property (100) 100 - - - - -
Foreign exchange
translation
differences on
goodwill - - - (65) (65) - (65)
Other foreign
exchange
translation
differences (8) - 4 (55) (59) (1) (60)
Net gain on hedge
of
net investment
in overseas
subsidiary
companies - - - 18 18 - 18
Change in fair
value
of underlying
derivative
of cash flow
hedge - - 5 - 5 - 5
Other
comprehensive
income/(expense)
for the period,
net of
taxation (87) 100 9 (102) (80) (1) (81)
================== ===== ============ ============ ========= ============ ============= ============= ========
Total
comprehensive
income/(expense)
for the period (87) 331 9 (102) 151 2 153
================== ===== ============ ============ ========= ============ ============= ============= ========
Dividends to
equity holders
of the company - (43) - - (43) - (43)
Dividends paid to
non-controlling
interests - - - - - (2) (2) ================== ===== ============ ============ ========= ============ ============= ============= ======== Balance at 30 June 2018 709 5,501 31 455 6,696 30 6,726 ================== ===== ============ ============ ========= ============ ============= ============= ======== Share capital at beginning and end of period 200 ================== ===== ============ ============ ========= ============ ============= ============= ======== Total equity 6,926 ================== ===== ============ ============ ========= ============ ============= ============= ========
Notes 1-17 form part of these Condensed Consolidated Financial Statements.
Bupa Finance plc
Notes to the Condensed Consolidated Financial Statements (unaudited)
for six months ended 30 June 2019
1 Financial information and basis of preparation 1.1 Basis of preparation
Bupa Finance plc (the Company) is a company incorporated in England and Wales.
The condensed consolidated half year financial statements of the Company as at and for the six months ended 30 June 2019 comprise those of the Company and its subsidiary companies (together referred to as the "Group").
The interim financial statements have been prepared in accordance with Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard ("IAS") 34 Interim Financial Reporting, as adopted by the European Union ("EU") and should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the EU.
The interim financial statements were approved by the Board of Directors of Bupa Finance plc on 31 July 2019.
The financial information contained in these interim results does not constitute statutory accounts of Bupa Finance plc within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2018 are not the Company's statutory accounts for the 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
Management has conducted a detailed assessment of the Group's going concern status based on its current position and forecast results. They have concluded that the Group has adequate resources to operate for the next twelve months. In making this assessment, management have considered the discussions with the relationship banks as well as forecasts which take account of reasonably possible changes in trading performance, solvency capital and recent acquisitions.
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 2019 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 2019 Results Announcement
The Group's GBP800m committed bank facility, which matures in August 2022, was drawn down by GBP295m at 30 June 2019 (30 June 2018: GBP210m, 31 December 2018: GBP170m).
1.3 Changes in accounting policies
Except for the changes below, the Group has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.
1.3.1 Leases - adjustments recognised on adoption of IFRS 16
The Group has adopted IFRS 16 Leases with a date of initial application of 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and supersedes IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC 15 Operating Leases - Incentives, and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The IAS 17 distinction between operating and finance leases is removed under IFRS 16, with all lease rights and obligations now being recognised in the statement of financial position on a similar basis to finance leases under IAS 17. A lease liability is recognised for all leases, reflecting the present value of the lease payments discounted using the relevant individual lessee company's incremental borrowing rate. The lease liability is measured at amortised cost and settled over the life of the lease. A corresponding lease asset is also recognised and depreciated over the life of the lease.
For the majority of leases, the Group has applied IFRS 16 using the modified retrospective approach, where the right-of-use assets equal the lease liabilities on transition, adjusted by the amount of any prepayments, intangible assets and onerous lease provisions. For a small proportion of leases, the right-of-use asset has been determined as if IFRS 16 had been applied since the lease commencement date but discounted using the lessee's incremental borrowing rate at the date of initial application. There is no restatement of comparative information and the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to the opening balance of retained earnings.
In applying IFRS 16 on transition, the Group has used the following practical expedients permitted by the standard:
-- The Group has elected not to reassess whether a contract is or contains a lease as defined in IFRS 16 at the date of initial application. For contracts entered into before the transition date, the Group relied on its assessment made when applying IAS 17 and IFRIC 4.
-- For the majority of leases, reliance has been placed on previous assessments of whether leases are onerous under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. For leases where the right-of-use asset has been determined as if IFRS 16 had been applied since the lease commencement date, this expedient has not been taken.
-- Accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases.
-- The exclusion of initial direct costs for the measurement of the right-of-use asset at transition date.
For leases previously classified as finance leases, the Group has recognised the carrying amount of the finance lease asset and liability under IAS 17 as at 31 December 2018 as the carrying amount of the right-of-use asset and the lease liability under IFRS 16 at 1 January 2019. These leases are subsequently measured under IFRS 16 principles.
IFRS 16 has had no significant impact in cases where Group acts as a lessor.
The impact of the adoption of IFRS 16 is set out below:
Measurement
adjustments Reclassifications Total
GBPm GBPm GBPm
============================================== ============= ================== ========
Goodwill and intangible assets - (18) (18)
Property, plant and equipment (right-of-use
assets) 1,017 28 1,045
Property, plant and equipment (leasehold
property/equipment) - (11) (11)
Investment property (right-of-use
asset) - 2 2
Deferred taxation assets 13 - 13
Trade and other receivables - (23) (23)
Other interest bearing liabilities - 4 4
Lease liabilities (1,094) (1) (1,095)
Trade and other payables - 19 19
============================================== ============= ================== ========
Total impact on net assets (64) - (64)
============================================== ============= ================== ========
In addition, GBP3m has been reclassified from the property revaluation reserve to the income and expenditure reserves as a result of reclassifying finance leased property assets to right-of-use assets on implementation of IFRS 16.
The following reconciliation to the opening balance for the lease liabilities as at 1 January 2019 is based upon the operating lease obligation as at 31 December 2018:
GBPm
========================================================= =======
Operating lease commitments at 31 December 2018
under IAS 17 as disclosed in the Group's consolidated
financial statements 1,294
Less: Recognition exemption under IFRS 16 for:
Short term leases recognised on a straight-line
basis as expense (6)
Leases of low value assets recognised on a straight
line basis as expense (1)
Add: adjustments as a result of the different
treatment of expected lease payments(1) 249
========================================================= =======
Total undiscounted operating lease commitments 1,536
Effect of discounting using the incremental borrowing
rate at 1 January 2019 (442)
Reclassifications in the opening balance sheet:
Add: IAS 17 financial lease liabilities recognised
as at 31 December 2018 2
Less: lease incentives receivable (1)
========================================================= =======
Lease liabilities recognised under IFRS 16 at
1 January 2019 1,095
========================================================= =======
(1) Primarily related to extension options that are reasonably certain to be exercised
The weighted average lessee's incremental borrowing rate applicable to the lease liabilities on 1 January 2019 was 5.3%.
1.3.3 The Group's leasing activities and ongoing accounting treatment
The Group's leases primarily relate to properties. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Property leases will often include extension and termination options, open market rent reviews, indexation uplifts or fixed uplifts.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the individual lessee company's incremental borrowing rate taking into account the duration of the lease.
Lease payments include fixed payments, variable lease payments that depend on an index or a rate, payments related to optional extension and termination periods if the Group is reasonably certain to exercise or not to exercise the option, respectively.
The lease liability is subsequently measured at amortised cost using the effective interest method, with the finance cost charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. It is remeasured when there is a change in future lease payments arising from a change in index or rate, or if the Group changes its assessment of whether it will exercise an extension or termination option. The lease liability is recalculated using a revised discount rate if the lease term changes as a result of a modification or re-assessment of an extension or termination option.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore properties to their original condition, less any lease incentives received. The right-of-use asset, excluding restorations costs, is typically depreciated on a straight-line basis over the lease terms. In addition, the right-of-use asset may be adjusted for certain remeasurements of the lease liability, such as indexation and market rent review uplifts. Restoration costs included in the right-of-use asset are amortised over the same term as the corresponding provision, which may be longer than the IFRS 16 contractual lease term.
Following the adoption of IFRS 16, the Group has reviewed its estimates of restoration provisions. Consequently, the provision has been increased by GBP30m, of which GBP12m has been expensed in the current period and GBP18m adjusted to the right-of-use asset.
The Group has elected not to recognise the right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less or leases that are of low value (GBP4,000). Lease payments associated with these leases are expensed on a straight-line basis over the lease term.
1.3.2 2018 Transitional impacts
In 2018, the Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. Both standards were implemented retrospectively, with the cumulative effect of initially applying the standards recognised as an adjustment to the opening balance of retained earnings at the date of initial application of 1 January 2018. The impacts of this are set out below:
Total
Income Cash Foreign attributable
Property and flow exchange to Bupa
revaluation expenditure hedge translation Finance Non-controlling Total
reserve reserves reserve reserve plc interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ============== ============= ========= ============= ============= ================ ========
IFRS 9
Impact of
reclassification
of financial
investments - (1) - - (1) - (1)
Impact of
expected credit
losses (ECL)
assessment - (6) - - (6) - (6)
IFRS 15
Change in the
timing of
revenue - (1) - - (1) - (1)
================== ============== ============= ========= ============= ============= ================ ========
Total impact on
opening
equity - (8) - - (8) - (8)
================== ============== ============= ========= ============= ============= ================ ========
1.4 Foreign exchange
The following significant exchange rates applied during the period:
Average rate Closing rate
================================ ================================
At 30 At 31 At 30 At 30 At 31 At 30
June December June June December June
2019 2018 2018 2019 2018 2018
============== ========= ========== ========= ========= ========== =========
Australian
dollar 1.8320 1.7860 1.7838 1.8109 1.8097 1.7843
Brazilian
real 4.9679 4.8674 4.7103 4.8661 4.9461 5.0979
Chilean
peso 873.8384 855.7769 841.7955 861.3008 884.3577 861.7499
Danish krone 8.5499 8.4245 8.4655 8.3416 8.3107 8.4175
Euro 1.1453 1.1303 1.1366 1.1176 1.1131 1.1298
Hong Kong
dollar 10.1482 10.4642 10.7870 9.9158 9.9831 10.3524
Mexican
peso 24.7924 25.6624 26.2290 24.3472 25.0650 26.1221
New Zealand
dollar 1.9252 1.9289 1.9223 1.8922 1.8990 1.9488
Polish zloty 4.9157 4.8162 4.7968 4.7440 4.7743 4.9441
Turkish
lira 7.2662 6.4365 - 7.3494 6.7417 -
US dollar 1. 2939 1.3351 1.3763 1.2695 1.2746 1.3194
============== ========= ========== ========= ========= ========== =========
1.5 Events occurring after the reporting period
The Group recently announced a simplification of the organisation structure. From the second half of the year onwards, the Group will be structured as three Market Units: Australia and New Zealand; Europe and Latin America; and Bupa Global and UK. The 2019 financial statements will be reported in line with this new structure and 2018 balances will be restated, where applicable.
2 Operating segments
The Group is managed through four Market Units based on geographic locations and customers. Management monitors the operating results of the Market Units separately to assess performance and make decisions about the allocation of resources. The segmental disclosures are reported consistently with the way the business is managed and reported internally.
The Group recently announced a simplification of the organisation structure. From the second half of the year onwards, the Group will be structured as three Market Units: Australia and New Zealand; Europe and Latin America; and Bupa Global and UK. The 2019 financial statements will be reported in line with this new structure and 2018 balances will be restated, where applicable.
Reportable Segments Service and Products
-------------------- --------------------------------------------------------
Australia and Bupa Health Insurance: Health insurance, international
New Zealand health cover in Australia.
Bupa Health Services: Health provision services
relating to dental, optical, audiology and medical
assessments and therapy.
Bupa Villages and Aged Care Australia and New
Zealand: Nursing, residential and respite care
in Australia and New Zealand. Retirement villages
in New Zealand.
-------------------- --------------------------------------------------------
Europe and Latin Sanitas Seguros (Sanitas PMI): Health insurance
America and related products in Spain.
Sanitas Dental: Dental services through clinics
and third-party networks in Spain.
Sanitas Hospitales and New Services: Management
and operation of hospitals 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 Chile: Health insurance and the management
and operation of health clinics and hospitals
in Chile.
-------------------- --------------------------------------------------------
UK Bupa UK Insurance: Health insurance, and administration
services for Bupa health trusts.
Bupa Dental Care: Dental services and related
products.
Bupa Health Services: Clinical services, health
assessment related products and management and
operation of a private hospital.
Bupa Care Services: Nursing, residential, respite
care and care villages.
-------------------- --------------------------------------------------------
International Bupa Global: International health insurance
Markets to individuals, small businesses and corporate
customers and health insurance in Latin America,
mainly Brazil and Mexico.
Bupa Hong Kong: Domestic health insurance, primary
healthcare and day care clinics including diagnostics.
Bupa Acıbadem Sigorta: Domestic health
insurance in Turkey
Associates: Bupa Arabia (Kingdom of Saudi Arabia),
Highway to Health (USA) and Max Bupa (India):
Health insurance.
==================== ========================================================
A key performance measure of operating segments utilised by the Group is underlying profit. This measurement basis distinguishes underlying profit from other constituents of the IFRS reported profit before tax not directly related to the underlying trading performance of the business.
As reported in our 2018 financial statements, in response to the FRC guidance on Alternative Performance Measures, the definition of underlying profit has been refined with the objective of providing better transparency around the trading performance of the Group. The total underlying profit of the reportable segments for June 2018 has been restated. The key restatement item is the inclusion of amortisation of intangible assets arising on business combinations as part of underlying profit (June 2018: GBP34m). Other refinements have been made to the definition but are not material to the reportable segment or Group
The adjustments made to reported profit before tax are to exclude the following:
- Impairment of intangible assets and goodwill arising on business combinations - impairment reviews are performed at least annually. Goodwill impairments are considered to be one-off and not reflective of the ongoing trading performance of the business.
- 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 or Group are not considered part of the continuing business; transaction costs incurred that relate to material acquisitions or disposals are not considered as part of ongoing trading performance of the business.
- Net property revaluation gains/losses - short-term fluctuations which would distort underlying trading performance. Includes unrealised gains or losses on investment properties, deficit on revaluations and property impairment losses.
- Realised and unrealised foreign exchange gains/losses - short-term fluctuations outside of management control, which would distort underlying trading performance.
- Other Market Unit/Central non-underlying items - includes items that are considered material to the reportable segment or Group and are not reflective of ongoing trading performance.
- Gains/losses on return-seeking assets, net of hedging - fluctuations on investments that are not considered to be directly related to underlying trading performance.
Europe
Australia and
and Latin United International
New Zealand America Kingdom Markets Total
------------- --------- --------- -------------- ------
For six months ended
30 June 2019 GBPm GBPm GBPm GBPm GBPm
================================= ============= ========= ========= ============== ======
(i) Revenues
Gross insurance premiums 1,851 985 774 873 4,483
Premiums ceded to reinsurers - (6) (14) (18) (38)
Internal reinsurance - (2) - 2 -
================================= ============= ========= ========= ============== ======
Net insurance premiums
earned 1,851 977 760 857 4,445
Care, health and other
customer contract revenues 395 579 511 84 1,569
Other revenues 8 2 1 4 15
Intersegment revenues - - (3) - (3)
Total revenues for
reportable segments 2,254 1,558 1,269 945 6,026
================================= ============= ========= ========= ============== ======
Net reclassifications
to other expenses or
financial income and
expense (1)
Consolidated total
revenues 6,025
================================= ============= ========= ========= ============== ======
(ii) Segmental result
Underlying profit for
reportable segments 92 86 42 32 252
Central expenses and
net interest margin (10)
======
Underlying profit for
reportable segments 242
Non-underlying items:
Net loss on disposal
of businesses and transaction
costs on business combinations - - (2) - (2)
Net property revaluation
gains 8 - - - 8
Realised and unrealised
FX losses - (1) - (8) (9)
Gains on return-seeking
assets, net of hedging 24
Central non-underlying
items (6)
======
Total non-underlying
items 15
================================= ============= ========= ========= ============== ======
Consolidated profit
before taxation expense 257
================================= ============= ========= ========= ============== ======
Europe
Australia and
and Latin United International
New Zealand America Kingdom Markets Total
------------- --------- --------- -------------- ------
For six months ended
30 June 2018 GBPm GBPm GBPm GBPm GBPm
================================== ============= ========= ========= ============== ======
(i) Revenues
Gross insurance premiums 1,900 944 770 726 4,340
Premiums ceded to reinsurers - (3) (11) (15) (29)
Internal reinsurance - (3) - 3 -
================================== ============= ========= ========= ============== ======
Net insurance premiums
earned 1,900 938 759 714 4,311
Care, health and other
customer contract revenues 419 574 492 69 1,554
Other revenues 6 5 1 2 14
Total revenue for reportable
segments 2,325 1,517 1,252 785 5,879
================================== ============= ========= ========= ============== ======
Net reclassifications
to other expenses or
financial income and
expense -
Consolidated total revenues 5,879
================================== ============= ========= ========= ============== ======
(ii) Segmental result
Underlying profit for
reportable segments 161 87 58 25 331
Central expenses and
net interest margin (29)
======
Underlying profit for
reportable segments 302
Non-underlying items:
Net gain on disposal
of businesses and transaction
costs on business combinations - - - 8 8
Net property revaluation
gains/losses 7 - (7) - -
Realised and unrealised
FX (losses)/gains - (5) - 10 5
Other Market Unit non-underlying
items - - - (5) (5)
Losses on return-seeking
assets, net of hedging (4)
======
Total non-underlying
items 4
================================== ============= ========= ========= ============== ======
Consolidated profit
before taxation expense 306
================================== ============= ========= ========= ============== ======
Europe
Australia and
and Latin United International
New Zealand America Kingdom Markets Total
------------- --------- --------- -------------- -------
For year ended 31 December
2018 GBPm GBPm GBPm GBPm GBPm
================================== ============= ========= ========= ============== =======
(i) Revenues
Gross insurance premiums 3,829 1,908 1,556 1,498 8,791
Premiums ceded to reinsurers - (9) (22) (32) (63)
Internal reinsurance - (3) - 3 -
================================== ============= ========= ========= ============== =======
Net insurance premiums
earned 3,829 1,896 1,534 1,469 8,728
Care, health and other
customer contract revenues 824 1,141 1,004 154 3,123
Other revenues 3 4 4 3 14
Intersegment revenues - - (5) - (5)
Total revenue for reportable
segments 4,656 3,041 2,537 1,626 11,860
================================== ============= ========= ========= ============== =======
Net reclassifications
to other expenses or
financial income and
expense (1)
Consolidated total revenues 11,859
================================== ============= ========= ========= ============== =======
(ii) Segmental result
Underlying profit for
reportable segments 337 198 165 68 768
Central expenses and
net interest margin (46)
=======
Underlying profit for
reportable segments 722
Non-underlying items:
Impairments of intangible
assets and goodwill
arising on business
combinations (36) - - - (36)
Net gain/(loss) on disposal
of businesses and transaction
costs on business combinations - (23) (18) 8 (33)
Net property revaluation
gains/(losses) 17 (4) (13) - -
Realised and unrealised
FX losses - (6) - (2) (8)
Other Market Unit non-underlying
items (21) - - (9) (30)
Losses on return-seeking
assets, net of hedging (1)
=======
Total non-underlying
items (108)
================================== ============= ========= ========= ============== =======
Consolidated profit
before taxation expense 614
================================== ============= ========= ========= ============== =======
3 Revenue
Revenue has been analysed at Business Unit level reflecting the nature of services provided by geography that is reported internally to management.
Care,
health
and other Net
customer insurance
contract premiums Other Total
revenue earned revenue revenues
For six months ended 30 June 2019 GBPm GBPm GBPm GBPm
=========== =========== ========= ==========
Bupa Health Insurance 4 1,851 1 1,856
Bupa Health Services 151 - 1 152
Bupa Villages and Aged Care Australia
and New Zealand 240 - 6 246
======================================= =========== =========== ========= ==========
Australia and New Zealand 395 1,851 8 2,254
======================================= =========== =========== ========= ==========
Sanitas Seguros 4 570 - 574
Sanitas Dental 42 30 1 73
Sanitas Hospitales and New Services 112 - - 112
Sanitas Mayores 72 - - 72
LUX MED 183 5 - 188
Bupa Chile 166 372 1 539
======================================= =========== =========== ========= ==========
Europe and Latin America 579 977 2 1,558
======================================= =========== =========== ========= ==========
Bupa UK Insurance 8 760 1 769
Bupa Dental Care 224 - - 224
Bupa Health Services 72 - - 72
Bupa Care Services 204 - - 204
======================================= =========== =========== ========= ==========
United Kingdom 508 760 1 1,269
======================================= =========== =========== ========= ==========
Bupa Global 2 624 2 628
Bupa Hong Kong 82 151 - 233
Bupa Acıbadem Sigorta - 82 - 82
Other - - 2 2
======================================= =========== =========== ========= ==========
International Markets 84 857 4 945
======================================= =========== =========== ========= ==========
Net reclassifications to other
expenses or financial income and
expense - - (1) (1)
Consolidated total revenues 1,566 4,445 14 6,025
======================================= =========== =========== ========= ==========
Care,
health
and other Net
customer insurance
contract premiums Other Total
revenue earned revenue revenues
For six months ended 30 June 2018 GBPm GBPm GBPm GBPm
=========== =========== ========= ==========
Bupa Health Insurance 7 1,900 - 1,907
Bupa Health Services 156 - - 156
Bupa Villages and Aged Care Australia
and New Zealand 256 - 6 262
======================================= =========== =========== ========= ==========
Australia and New Zealand 419 1,900 6 2,325
======================================= =========== =========== ========= ==========
Sanitas Seguros 12 575 4 591
Sanitas Dental 38 - - 38
Sanitas Hospitales and New Services 142 - - 142
Sanitas Mayores 69 - - 69
LUX MED 165 5 - 170
Bupa Chile 148 358 1 507
======================================= =========== =========== ========= ==========
Europe and Latin America 574 938 5 1,517
======================================= =========== =========== ========= ==========
Bupa UK Insurance - 759 - 759
Bupa Dental Care 212 - 1 213
Bupa Health Services 81 - - 81
Bupa Care Services 199 - - 199
======================================= =========== =========== ========= ==========
United Kingdom 492 759 1 1,252
======================================= =========== =========== ========= ==========
Bupa Global 1 588 - 589
Bupa Hong Kong(1) 68 126 - 194
Other - - 2 2
======================================= =========== =========== ========= ==========
International Markets 69 714 2 785
======================================= =========== =========== ========= ==========
Net reclassifications to other
expenses or financial income and
expense - - - -
Consolidated total revenues 1,554 4,311 14 5,879
======================================= =========== =========== ========= ==========
(1) Previously disclosed comparatives have been corrected for a GBP25m reclassification of revenue between "Other revenue" and "Care, health and other customer contract revenue".
Care,
health
and other Net
customer insurance
contract premiums Other Total
revenue earned revenue revenues
For year ended 31 December 2018 GBPm GBPm GBPm GBPm
=========== =========== ========= ==========
Bupa Health Insurance 8 3,829 1 3,838
Bupa Health Services 306 - 1 307
Bupa Villages and Aged Care Australia
and New Zealand 510 - 1 511
======================================= =========== =========== ========= ==========
Australia and New Zealand 824 3,829 3 4,656
======================================= =========== =========== ========= ==========
Sanitas Seguros 7 1,106 3 1,116
Sanitas Dental 74 59 - 133
Sanitas Hospitales and New Services 289 - - 289
Sanitas Mayores 140 - - 140
LUX MED 338 10 - 348
Bupa Chile 293 721 1 1,015
======================================= =========== =========== ========= ==========
Europe and Latin America 1,141 1,896 4 3,041
======================================= =========== =========== ========= ==========
Bupa UK Insurance 19 1,534 2 1,555
Bupa Dental Care 436 - 2 438
Bupa Health Services 137 - - 137
Bupa Care Services 407 - - 407
======================================= =========== =========== ========= ==========
United Kingdom 999 1,534 4 2,537
======================================= =========== =========== ========= ==========
Bupa Global 3 1,203 3 1,209
Bupa Hong Kong 147 266 - 413
Other 4 - - 4
======================================= =========== =========== ========= ==========
International Markets 154 1,469 3 1,626
======================================= =========== =========== ========= ==========
Net reclassifications to other
expenses or financial income and
expense (1) - - (1)
Consolidated total revenues 3,117 8,728 14 11,859
======================================= =========== =========== ========= ==========
4 Other income and charges
For year
For six months For six months ended
ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
=============== =============== =============
Net (loss)/gain on disposal
of business(1) (3) 8 (31)
Deficit on revaluation of
property - (6) (21)
Net gain on disposal of property,
plant and equipment 1 1 -
Movement in provision for
equity accounted investments - (1) (1)
=================================== =============== =============== =============
Total other income and charges (2) 2 (53)
=================================== =============== =============== =============
(1) 2019 loss on disposal of business includes GBP2m additional costs relating to the sale of a number of UK care homes in 2018.
2018 loss on disposal of business includes a GBP22m loss on disposal of Torrejón Salud on 28 December 2018, GBP20m of losses relating to ongoing completion costs with respect of the disposal of UK care homes, profits of GBP8m on disposal of a 33.33% share of Forsikringens Datacenter A/S on 3 January 2018 and a net GBP3m profit on other disposals.
5 Financial income and expense
5.1 Financial income
------------------------------------ -------------- --------- -------------
For six
For six months For year
months ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
------------------------------------ -------------- --------- -------------
Interest income:
Investments at fair value through
profit or loss 13 - 5
Investments at fair value through
other comprehensive income 3 - -
Amortised cost 28 25 47
Net realised gains on financial
investments at fair value through
profit or loss 1 7 8
Net increase/(decrease) in
fair value:
Investments at fair value through
profit or loss 27 (9) (8)
Investment property 8 7 21
Net foreign exchange translation
losses (9) (7) (3)
==================================== ============== ========= =============
Total financial income 71 23 70
==================================== ============== ========= =============
Included within financial income is a net gain, after hedging, on the Group's return-seeking asset portfolio of GBP24m (HY 2018: net loss of GBP4m, FY 2018: net loss of GBP1m).
5.2 Financial expense
-------------------------------- --------------- --------------- -------------
For year
For six months For six months ended
ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
================================ =============== =============== =============
Interest expense on financial
liabilities at amortised cost 48 48 100
Finance charges in respect
of leases(1) 29 - -
Other financial expenses 2 1 3
================================ =============== =============== =============
Total financial expenses 79 49 103
================================ =============== =============== =============
(1) For the six months ended 30 June 2019, finance charges in respect of leases relate to leases recognised on the balance sheet in accordance with IFRS 16, whereas finance charges in 2018 only relate to finance leases under IAS 17 (see Note 1.3.1).
6 Taxation expense
The Group's effective tax rate for the period was 30% (HY 2018: 24%, FY 2018: 34%), which is higher than the UK corporation tax rate of 19%. This is mainly due to profits arising in jurisdictions with a higher rate of corporate income tax and one-off items including the release of a deferred tax asset and the recognition of additional provisions in our Latin American markets.
7 Goodwill and intangible assets
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=========== =============== ===========
Net book value at beginning of period 4,197 4,244 4,244
Adoption of IFRS 16 Leases (Note 1.3) (18) - -
Assets arising on business combinations 130 159 24
Additions 31 60 16
Disposals of subsidiary companies - (1) -
Disposals (1) (6) -
Amortisation for the period (71) (132) (63)
Impairment loss (1) (39) (2)
Other 6 3 4
Foreign exchange 12 (91) (90)
========================================= =========== =============== ===========
Net book value at end of period 4,285 4,197 4,133
========================================= =========== =============== ===========
The net book value of intangible assets comprises:
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
----------- --------------- -----------
Goodwill 3,049 2,956 2,922
Computer software 247 242 228
Brands/trademarks 228 224 221
Customer relationships 576 599 582
Other 185 176 180
================================= =========== =============== ===========
Net book value at end of period 4,285 4,197 4,133
================================= =========== =============== ===========
Intangible assets of GBP4,285m (HY 2018: GBP4,133m; FY 2018: GBP4,197m) includes GBP989m (HY 2018: GBP983m; FY 2018: GBP999m) which is attributable to other intangible assets arising on business combinations (included within brands/trademarks, customer relationships and other) as follows:
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=========== =============== ===========
Customer relationships 576 599 582
Bed licences (within Bupa Villages and Aged Care Australia) 114 114 118
Brands and trademarks 228 224 221
Licences to operate care homes 19 22 18
Customer contracts - - 1
Leases 3 23 26
Distribution networks 47 15 15
Present valuation of acquired in-force business 1 1 1
Non-compete agreement 1 1 1
============================================================= =========== =============== ===========
Total 989 999 983
============================================================= =========== =============== ===========
Impairment testing of goodwill
Goodwill is tested at least annually for impairment in accordance with IAS 36 Impairment of Assets and IAS 38 Intangible Assets. A review of goodwill was carried out as at 30 June 2019, which resulted in no impairments.
Goodwill by cash generating unit (CGU) is as follows:
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=========================================== =========== =============== ===========
Australia and New Zealand
Bupa Australia Health Insurance 875 876 890
Bupa Health Services Australia 297 295 299
Bupa Villages and Aged Care - Australia 268 268 271
Bupa Villages and Aged Care - New Zealand - - 34
Europe and Latin America
Bupa Chile 173 168 173
LUX MED 255 252 241
Sanitas Seguros 102 103 41
Sanitas Mayores 22 22 22
Other - - 1
UK
Bupa Care Services UK 90 90 90
UK Dental 677 650 634
Bupa Cromwell Hospital 16 16 16
Other 3 3 2
International Markets
Quality HealthCare 119 119 114
Bupa Global 68 68 68
Care Plus 27 26 26
Acıbadem Sigorta 57 - -
=========================================== =========== =============== ===========
Total 3,049 2,956 2,922
=========================================== =========== =============== ===========
8 Property, plant and equipment
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
================================= =========== =============== ===========
Net book value at beginning
of period 3,181 3,184 3,184
Adoption of IFRS 16 Leases
(Note 1.3) 1,034 - -
Additions through business
combinations 2 14 2
Additions 140 248 94
Transfer to assets held for
sale (1) (16) (2)
Disposals (3) (11) (3)
Revaluations 1 2 14
Remeasurement 25 - -
Depreciation charge for the
period (162) (179) (89)
Impairments - (2) (1)
Other (3) - 2
Foreign exchange 10 (59) (54)
================================= =========== =============== ===========
Net book value at end of period 4,224 3,181 3,147
================================= =========== =============== ===========
Property, plant and equipment are the physical assets utilised by the Group to carry out business activities and generate revenues and profits. Most of the assets held relate to care homes, hospital properties, office buildings and equipment. Lease right-of-use assets, recognised on transition to IFRS 16 Leases, relate primarily to property leases.
9 Post-employment benefits
The defined benefit pension schemes provide benefits based on final pensionable salary. The Group's net obligation in respect of the defined benefit pension schemes is calculated separately for each scheme and represents the present value of the defined benefit obligation less, for funded schemes, the fair value of scheme assets. The discount rate used is the yield at the balance sheet date on high-quality corporate bonds denominated in the currency in which the benefit will be paid. 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 amounts (credited)/charged to other operating expenses for the period are:
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
================================= =========== =============== ===========
Current service cost - 1 1
Gain on settlement (1) - -
Net interest on defined benefit
liability/asset - 1 -
================================= =========== =============== ===========
Total amount (credited)/charged
to the Condensed Consolidated
Income Statement (1) 2 1
================================= =========== =============== ===========
Assets and liabilities of schemes
The assets and liabilities in respect of the defined benefit funded pension schemes are as follows:
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=========== =============== ===========
Present value of funded obligations (74) (92) (99)
Fair value of scheme assets 70 85 91
===================================== =========== =============== ===========
Net recognised liabilities (4) (7) (8)
===================================== =========== =============== ===========
Represented on the Condensed
Consolidated Statement of
Financial Position:
Net liabilities (8) (10) (11)
Net assets 4 3 3
===================================== =========== =============== ===========
Net recognised liabilities (4) (7) (8)
===================================== =========== =============== ===========
10 Restricted assets
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=============================== =========== =============== ===========
Non-current restricted assets 42 42 43
Current restricted assets 67 65 45
=============================== =========== =============== ===========
Total restricted assets 109 107 88
=============================== =========== =============== ===========
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 should they crystallise. The non-current restricted assets balance of GBP42m
(HY 2018: GBP43m, FY 2018: GBP42m) consists of cash deposits held to secure a charge over the non-registered pension arrangement maturing after 2022. Included in current restricted assets is GBP65m (HY 2018: GBP45m, FY 2018: GBP63m) in respect of claims funds held on behalf of corporate customers.
11 Financial investments
The Group generates cash from its underwriting, trading and nancing activities and invests the surplus cash in nancial investments. These include government bonds, corporate bonds, pooled investments 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 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.
Financial investments at initial recognition are recorded using trade date accounting.
The Group has classified its financial investments into the following categories: at amortised cost, at fair value through profit or loss (FVTPL) and at fair value through other comprehensive income (FVOCI).
Impairment
Entities are required to recognise an allowance for either 12-month or lifetime expected credit losses (ECL), depending on whether there has been a significant increase in credit risk since initial recognition. The measurement of ECL reflects a probability-weighted outcome, the time value of money and the best available forward-looking information. The ECL should be based on reasonable and supportable information that is available without undue cost or effort. An entity may assume 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).
As the Group's financial investments at amortised cost or FVOCI are all either investment grade or short term, 12-month ECL is applied. For financial investments, an option pricing probability model is used as the basis for assessing ECL. ECL for trade and other receivables is measured at lifetime ECL using a provision matrix.
At 31 December At 30 June
At 30 June 2019 2018 2018
----------------------------- ------------------ ------------------ --------------------
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ========= ======= ========= ======= =========== =======
Fair value through
profit or loss
Corporate debt securities
and secured loans 349 349 310 310 272 272 Government debt securities 47 47 44 44 57 57 Pooled investment funds 220 220 195 195 230 230 Deposits with credit institutions 2 2 4 4 8 8 Other loans 9 9 9 9 1 1 Equities 21 21 20 20 19 19 Fair value through other comprehensive income Corporate debt securities and secured loans 30 30 - - - - Government debt securities 66 66 - - - - Amortised cost Corporate debt securities and secured loans 702 705 779 778 782 782 Government debt securities 155 159 183 185 193 193 Deposits with credit institutions 917 921 805 807 888 890 Other loans 1 1 1 1 1 1 ============================= ========= ======= ========= ======= =========== ========= Total financial investments 2,519 2,530 2,350 2,353 2,451 2,453 ============================= ========= ======= ========= ======= =========== ========= Non-current 837 840 1,029 1,029 1,000 999 Current 1,682 1,690 1,321 1,324 1,451 1,454 ============================= ========= ======= ========= ======= =========== =========
Fair value of financial investments
Fair value is a market-based measurement for assets for observable market transactions where market information might be available. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the asset would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset).
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 corroborated 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.
Financial investments carried at fair value are measured using different valuation inputs categorised into a three-level hierarchy. The different levels have been 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 one that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
An analysis of financial investment by valuation method is as follows:
Level 1 Level 2 Level 3 Total
At 30 June 2019 GBPm GBPm GBPm GBPm
======== ======== ======== ======
Fair value through profit
or loss
Corporate debt securities
and secured loans 26 323 - 349
Government debt securities 47 - - 47
Pooled investment funds 46 171 3 220
Deposits with credit institutions 2 - - 2
Other loans - - 9 9
Equities - - 21 21
Fair value through other
comprehensive income
Corporate debt securities
and secured loans 30 - - 30
Government debt securities 66 - - 66
Amortised cost
Corporate debt securities
and secured loans 703 2 - 705
Government debt securities 158 1 - 159
Deposits with credit institutions - 921 - 921
Other loans - 1 - 1
=================================== ======== ======== ======== ======
Total financial investments 1,078 1,419 33 2,530
=================================== ======== ======== ======== ======
Level 1 Level 2 Level 3 Total
At 31 December 2018 GBPm GBPm GBPm GBPm
-------- -------- -------- ------
Fair value through profit
or loss
Corporate debt securities
and secured loans 26 284 - 310
Government debt securities 44 - - 44
Pooled investment funds 98 94 3 195
Deposits with credit institutions 4 - - 4
Other loans - - 9 9
Equities - - 20 20
Amortised cost
Corporate debt securities
and secured loans 777 1 - 778
Government debt securities 184 1 - 185
Deposits with credit institutions 1 806 - 807
Other loans - 1 - 1
=================================== ======== ======== ======== ======
Total financial investments 1,134 1,187 32 2,353
=================================== ======== ======== ======== ======
Level 1 Level 2 Level 3 Total
At 30 June 2018 GBPm GBPm GBPm GBPm
-------- -------- -------- ------
Fair value through profit
or loss
Corporate debt securities
and secured loans 195 78 - 273
Government debt securities 29 28 - 57
Pooled investment funds 134 94 2 230
Deposits with credit institutions 8 - - 8
Other loans - 1 - 1
Equities - - 19 19
Amortised cost
Corporate debt securities
and secured loans 780 1 - 781
Government debt securities 192 1 - 193
Deposits with credit institutions - 890 - 890
Other loans - 1 - 1
=================================== ======== ======== ======== ======
Total financial investments 1,338 1,094 21 2,453
=================================== ======== ======== ======== ======
The Group currently holds level 3 investments totalling GBP33m (HY 2018: GBP21m, FY 2018: GBP32m). The majority of investments are valued using an earnings multiple of comparable companies, which are deemed to be unobservable inputs. The average multiple applied is 3.9 (HY 2018: 4.3, FY 2018: 4.6). Changing these multiples to a reasonable alternative would result in a change in fair value of plus or minus GBP6m (HY 2018: GBP5m, FY 2018: GBP6m).
The table below shows movement in the level 3 assets measured at fair value:
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=============================== =========== =============== ===========
Opening balance 32 20 20
Additions - 11 -
Foreign exchange 1 1 1
=============================== =========== =============== ===========
Total level 3 assets measured
at fair value 33 32 21
=============================== =========== =============== ===========
There have been no transfers in or out of level 3 during the period.
12 Assets arising from insurance business
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
======================== ============================ ================================ ============================
Insurance debtors 1,684 1,092 1,589
Ceded insurance
provisions
(see Note 15) 45 23 26
Deferred acquisition
costs 173 139 150
Medicare Rebate 68 71 70 Risk equalisation special account recoveries 24 23 18 ======================== ============================ ================================ ============================ Total assets arising from insurance business 1,994 1,348 1,853 ======================== ============================ ================================ ============================ Non-current 15 24 3 Current 1,979 1,324 1,850 ======================== ============================ ================================ ============================
Due to the nature of insurance business and timing of renewals, half year balances are higher than year end. The increase year on year is due to business growth.
13 Cash and cash equivalents
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
================================= =========== =============== ===========
Cash at bank and in hand 1,098 1,092 1,130
Short-term deposits 581 461 455
================================= =========== =============== ===========
Total cash and cash equivalents 1,679 1,553 1,585
================================= =========== =============== ===========
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.
The Group additionally has bank overdrafts of GBP2m (HY 2018: GBP1m; FY 2018: GBP1m) that are repayable on demand. These are reported within other interest bearing liabilities (Note 14) on the Condensed Consolidated Statement of Financial Position, although are considered as a component of cash and cash equivalents for the purpose of the Condensed Consolidated Statement of Cash Flows.
14 Borrowings
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
==================================== =========== =============== ===========
Subordinated liabilities
Callable subordinated perpetual
guaranteed bonds 346 336 346
Fair value adjustment in respect
of hedged interest rate risk 16 21 28
==================================== =========== =============== ===========
Callable subordinated perpetual
guaranteed bonds at carrying
value 362 357 374
5.0% subordinated unguaranteed
bonds due 2023 and 2026 899 898 897
Other subordinated debt - - 35
==================================== =========== =============== ===========
Total subordinated liabilities 1,261 1,255 1,306
==================================== =========== =============== ===========
Other interest bearing liabilities
Senior unsecured bonds 700 698 694
Fair value adjustment in respect
of hedged interest rate risk 2 (4) -
Bank loans and overdrafts 478 357 403
Finance lease liabilities(1) - 4 5
==================================== =========== =============== ===========
Total other interest bearing
liabilities 1,180 1,055 1,102
==================================== =========== =============== ===========
Total borrowings 2,441 2,310 2,408
==================================== =========== =============== ===========
Non-current 2,095 2,073 2,102
Current 346 237 306
==================================== =========== =============== ===========
(1) On transition to IFRS 16, finance lease liabilities have been reclassified from other interest bearing liabilities to lease liabilities.
Bank loans
Bupa maintains a GBP800m revolving credit facility which matures in August 2022. At 30 June 2019 GBP295m (HY 2018: GBP210m; FY 2018: GBP170m) was drawn under the facility. In November 2018, the Group signed a new 1-year GBP30m bilateral loan. The amount was fully drawn at 30 June 2019, maturing in November 2019.
Fair value of financial liabilities
At 30 June At 31 December At 30 June
2019 2018 2018
GBPm GBPm GBPm
=========== =============== ===========
Subordinated liabilities 1,346 1,294 1,385
Senior unsecured bonds 721 710 726
Bank loans and overdrafts 478 357 403
Finance lease liabilities(1) - 4 5
=============================== =========== =============== ===========
Total fair value of financial
liabilities 2,545 2,365 2,519
=============================== =========== =============== ===========
(1) On transition to IFRS 16, finance lease liabilities have been reclassified from other interest bearing liabilities to lease liabilities.
15 Provisions under insurance contracts issued
At 31 December
At 30 June 2019 2018 At 30 June 2018
=========================== =========================== ===========================
Re- Re- Re-
Gross insurance Net Gross insurance Net Gross insurance Net
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ====== =========== ====== ====== =========== ====== ====== =========== ======
General insurance
business
Provisions
for unearned
premiums 2,636 (37) 2,599 1,845 (14) 1,831 2,433 (19) 2,414
Provisions
for claims 991 (8) 983 875 (8) 867 916 (6) 910
Long-term
business
Life insurance
contract
liabilities 36 - 36 33 (1) 32 32 (1) 31
=================== ====== =========== ====== ====== =========== ====== ====== =========== ======
Total insurance
provisions 3,663 (45) 3,618 2,753 (23) 2,730 3,381 (26) 3,355
=================== ====== =========== ====== ====== =========== ====== ====== =========== ======
Due to the nature of insurance business and timing of renewals, half year provisions for unearned premiums are higher than at year end. The increase in provisions for unearned premiums year on year is due to business growth.
16 Acquisitions and disposals a) 2019 acquisitions
A number of acquisitions were made in the period ended 30 June 2019, the most significant being:
Date of Percentage
acquisition of holdings
================================================= ============== =============
UK
Bupa Dental Care - dental centres Various 100%
================================================== ============== =============
Europe and Latin America
LUX MED - dental centre 20 May 2019 100%
================================================== ============== =============
International Markets
Acıbadem Sa lık ve Hayat
Sigorta A.S. and its subsidiary
Acıbadem Grubu Sigorta Aracılık 17 January
Hizmetleri A 2019 100%
================================================== ============== =============
Fair value
GBPm
======================================================== ===========
Intangible assets 42
Property, plant and equipment 2
Financial investments 91
Trade and other receivables 85
Cash and cash equivalents 29
Provisions for liabilities and charges (6)
Deferred taxation liabilities (4)
Trade and other payables (3)
Provisions under insurance contracts issued (150)
Other liabilities under insurance contracts issued (4)
======================================================== ===========
82
======================================================== ===========
Net assets acquired 82
Goodwill 88
======================================================== ===========
Consideration 170
======================================================== ===========
Consideration satisfied by:
Cash 165
Deferred consideration 5
======================================================== ===========
Total consideration paid 170
======================================================== ===========
Purchase consideration settled in cash 165
Acquisition of non-controlling interest in subsidiary 2
Cash acquired on acquisition (29)
======================================================== ===========
Cash outflow on acquisition 138
======================================================== ===========
Settlement of deferred consideration 4
======================================================== ===========
Net cash outflow associated with acquisitions 142
======================================================== ===========
On 17 January 2019, Bupa acquired 100% of the ordinary share capital of Turkish company, Acıbadem Sa lık ve Hayat Sigorta A.S., the holding company of Acıbadem Grubu Sigorta Aracılık Hizmetleri A (together "Acıbadem"), for cash consideration of GBP138m. Acquired intangible assets of GBP42m comprise key direct customer relationships and distribution channels (relationships with agents and brokers) of GBP34m, brand of GBP5m and software of GBP3m. The associated goodwill of GBP57m reflects expected future synergies from the integration of Acıbadem into the Bupa Group.
During the period, Bupa Dental Care (formerly Oasis Dental Care) has continued to expand, through the acquisition of 13 further dental centres for a total consideration of GBP28m, of which GBP5m is deferred. Goodwill of GBP27m has been recognised which represents the continued future growth expected to be achieved through the development of Bupa's dental insurance business.
Further minor acquisitions during the period generated goodwill of GBP4m.
The acquisition balance sheets of all acquisitions are provisional and will be finalised during 2019.
b) 2018 acquisitions
Refer to the Financial Statements for the year ended 31 December 2018 for details of the acquisitions made during 2018.
During 2018, Bupa Dental Care acquired 24 further dental centres for a total consideration of GBP61m, of which GBP16m was deferred. Identified intangible assets included customer relationships of GBP35m and goodwill of GBP31m was been recognised which represents the continued future growth expected to be achieved through the development of the Group's dental insurance business.
On 13 December 2018, the Group acquired 70% of Ginemed Clinicas S.L., a gynaecological and reproductive medical services provider in Spain for GBP51m. As it is considered virtually certain that a put/call option for the remaining 30% holding, currently valued at GBP15m will be exercised, the Group has recognised 100% ownership under IFRS. On this basis, total consideration is GBP66m. As part of the acquisition, brand intangible assets of GBP12m and goodwill of GBP52m have been recognised.
On 1 October 2018 the Group acquired Sahna-E, Servicios Integrales de Saud S.A. de Seguros y Reaseguos, trading as Néctar Seguros de Salud, a Spanish health insurance company, for consideration of GBP36m. Customer relationships of GBP7m and goodwill of GBP6m have been recognised. Goodwill represents synergies expected to arise following integration with the Group's existing Spanish PMI business.
During 2018, other minor acquisitions occurred in Poland, where the Group acquired four ambulatory clinics, one image diagnostic centre, and three dental clinics, which together generated goodwill of GBP9m. These acquisitions expand the geographic reach of the Group's activity in Poland and the resulting goodwill represents expected synergies.
Other minor acquisitions during 2018 across the Group generated goodwill of GBP6m.
In 2018 additional shares were purchased in Bupa Middle East Holdings Two W.L.L. for GBP8m, bringing the Group shareholding to 75%.
Acquisition transaction costs expensed in the period ended 31 December 2018, within other operating expenses, totalled GBP4m.
c) 2019 disposals
There have been no material disposals in the six month period ended 30 June 2019.
d) 2018 disposal
In December 2018, the Group completed the sale of Torrejón Salud S.A. for cash proceeds received of GBP54m (EUR61m), realising a net loss on disposal of GBP22m (EUR25m). There were no other material disposals during the year ended 31 December 2018.
17 Commitments and contingencies
Capital commitments
Capital expenditure for the Group contracted at 30 June 2019 but for which no provision has been made in the financial statements amounted to GBP273m (HY 2018: GBP209m; FY 2018: GBP175m), primarily due to aged care facilities and retirement village project commitments in the Australia and New Zealand Market Unit and the UK Market Unit.
Contingent assets and contingent liabilities
The Group currently has no contingent assets.
The Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, disputes, regulatory compliance (including data protection) and interpretation of tax law. It is not considered that the ultimate outcome of any contingent liabilities will have a significant adverse impact on the financial condition of the Group.
Bupa Finance plc
Statement of Directors' responsibilities
for the six months ended 30 June 2019
We confirm that to the best of our knowledge:
-- The condensed set of financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
-- The interim management report includes a fair review of the information provided in accordance with the requirements of:
(a) DTR 4.2.7R of the Disclosure 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 year.
(b) DTR 4.2.8R of the Disclosure 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 entity 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 2018. There have been no changes in Directors since the publication of the Company's Annual Report and Accounts for the year ended 31 December 2018.
By order of the Board
Gareth Roberts Joy Linton
Director Director
31 July 2019
Independent review report to the members of Bupa Finance plc ("the company") for the six months ended 30 June 2019
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Cash Flows, the Condensed Consolidated Statement
of Changes in Equity and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. 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. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
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.
The impact of uncertainties due to the UK exiting the European Union on our review
Uncertainties related to the effects of Brexit are relevant to understanding our review of the financial statements. All reviews assess and challenge the reasonableness of estimates made by the directors and related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment and the company's future prospects and performance.
Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. We applied a standardised firm-wide approach in response to that uncertainty when assessing the company's future prospects and performance. However, no review should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Philip Smart
For and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square London, E14 5GL
31 July 2019
[1] Revenues from our associate and joint venture businesses are excluded from our reported figures. Customer numbers and the appropriate share of profit from our associate and joint venture businesses are included in our reported figures.
[2] All figures presented are at constant exchange rates (CER) unless otherwise stated. We use CER to compare trading performance in a consistent manner to the prior year. We have retranslated our 2018 results using 2019 average exchange rates.
[3] Underlying profit is a non-GAAP financial measure which means it is not comparable to other companies. Underlying profit reflects our trading performance and excludes a number of items otherwise included in IFRS profit, to facilitate year-on-year comparison. These items include the impairment of intangible assets and goodwill arising on business combinations, as well as market movements such as gains or losses on foreign exchange, on return-seeking assets, on property revaluations and other material items not considered part of trading performance.
[4] The 2019 Solvency II capital coverage ratio is an estimated value, and unaudited. It represents the position of the Parent (The British United Provident Association Ltd).
[5] Leverage position for FY 2018 when including the impact of IFRS 16.
[6] Solvency coverage position assessed for FY 2018 after taking into consideration the impact of IFRS and the acquisition of Acibadem Sigorta.
[7] Details of non-underlying items can be found on the following page.
[8] Combined Operating Ratio is an alternative performance metric for insurance businesses. It is calculated based on incurred claims and operating expenses divided by net earned premiums. Combined operating ratios are calculated based on local reporting requirements:
- Group: S.05.01 Prudential Regulation Authority (SII) form (estimated and unaudited)
- BUPA HI Pty Ltd (Australia): HRF 602 Australian Prudential Regulation Authority quarterly returns (unaudited)
- Sanitas S.A. de Seguros (Spain): Prepared under local GAAP (unaudited) - Bupa Insurance Limited (UK): Prepared under local GAAP (unaudited)
[9] IFRS 16 moves c.GBP75m of cash outflows in relation to lease payments from operating activities to financing activities.
[10] Group Specific Parameter (GSP) is substituted for the insurance premium risk parameter in the standard formula, reflecting the Group's own loss experience.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR RBMLTMBIJBJL
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