Bupa Finance Announces Half Year Results

Bupa Finance plc (Bupa Finance)

HALF YEAR STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2022

KEY POINTS

Market performance (all at CER)

Financial position

Operational highlights

Enquiries

Media

Duncan West (Corporate Affairs): [email protected] 

Investors

Gareth Evans (Treasury): [email protected]

About Bupa Finance plc

Bupa Finance plc (the Company) is a company incorporated in England and Wales. The Condensed Consolidated Half Year Financial Statements comprise the financial results and position of the Company and its subsidiary companies (together referred to as the Group). The immediate and ultimate parent of the Company is The British United Provident Association Limited (the Parent), which is also the ultimate parent company of the Bupa Group (Bupa).

Bupa's purpose is helping people live longer, healthier, happier lives and making a better world.

We are an international healthcare company serving over 38 million[6] customers worldwide. With no shareholders, we reinvest profits into providing more and better healthcare for the benefit of current and future customers.

We directly employ around 85,000 people, principally in the UK, Australia, Spain, Chile, Poland, New Zealand, Hong Kong SAR, Türkiye, Brazil, Mexico, the US, Middle East and Ireland. We also have associate businesses in Saudi Arabia and India.

Disclaimer: Cautionary statement concerning forward-looking statements

This document may contain certain 'forward-looking statements'. Statements that are not historical facts, including statements about the beliefs and expectations of The British United Provident Association Limited (Bupa) and Bupa's directors or management, are forward-looking statements. In particular, but not exclusively, these may relate to Bupa's plans, current goals and expectations relating to future financial condition, performance and results.

By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur, many of which are beyond Bupa's control and all of which are solely based on Bupa's current beliefs and expectations about future events. These circumstances include, among others, global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, the impact of competition, the timing, impact and other uncertainties of future mergers or combinations within relevant industries. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual future condition, results, performance or achievements of Bupa or its industry to be materially different to those expressed or implied by such forward-looking statements. Other than as required by law, Bupa expressly disclaims any obligations or undertakings to release publicly any updates or revisions to any forward-looking statements to reflect any change in the expectations of Bupa with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Forward-looking statements in this document are current only as of the date on which such statements are made.

Neither the content of Bupa's website nor the content of any other website accessible from hyperlinks on Bupa's website is incorporated into, or forms part of, this document.

Management review

These results demonstrate positive performance across the Group. We are seeing the benefits of our progress during the early stages of the roll-out of our 3x6 strategy. Our strategic focus on driving significant transformation around digitalisation and customer service improvements has led to strong organic growth in a number of our businesses. We have embedded our new values across Bupa and these are guiding our actions in how we support both our customers and employees through a cost of living crisis, and wider society during geopolitical instability. We also finalised our new global approach to Sustainability.

Under the new strategy, we have embedded a portfolio management approach. This enables a sharp focus on how each business unit is contributing to overall performance and aligns to our long term strategy, and how capital should be deployed. In health insurance, in particular, we have had continued customer growth in established businesses such as Sanitas Seguros in Spain and UK Insurance, as well as in businesses with long term potential growth such as Bupa Acıbadem Sigorta in Türkiye. We also achieved positive progress in businesses where performance has been challenged recently, such as Sanitas Mayores, our aged care business in Spain, where occupancy is improving, and in Bupa Global, our IPMI business, where management action is resulting in signs of recovery.

Outlook

We are continuing to navigate the impacts of COVID-19, both direct and indirect, across our markets, although these are generally reducing in most locations. The recruitment and retention of healthcare workers remains an ongoing sector-wide challenge in multiple markets - impacting our health provision businesses, notably UK Dental, and aged care businesses in UK and Australia.

Inflation continues to increase costs for our businesses and for our customers, although we are encouraged by recent customer growth across our markets as they see value from the healthcare services we provide. In Chile, ongoing political and judicial challenges, along with uncertainty regarding future premium rate rises set by the regulator, continue to affect our isapre insurance business and present us with an increasingly uncertain operating environment in the medium term. We are in detailed dialogue with government and relevant national authorities to push for reforms to ensure sector sustainability, although the political and social environment is complex and uncertain, with the outcome of the national referendum taking place in September 2022 giving heightened risk to local financial markets in the near term. 

Although we have challenges in some businesses, we're seeing continued strong demand for our products and services to meet changing customer needs, particularly digital access to healthcare. Through our 3x6 strategy, we are focused on expanding the availability of these services across all of our markets. We are encouraged by the positive overall performance across the Group and how our businesses are transforming while continuing to deliver for our customers.

FINANCIAL REVIEW

Summary

Revenue (CER)

Revenue was up 4% as a result of portfolio growth, price rises in a majority of our health insurance markets to keep pace with global inflation, and increased activity in our health provision businesses.

Revenue in health insurance grew by 4%. Insurance customer growth was 8% (16% year-on-year growth when including our associate businesses), driven by strong new sales in the UK and continued growth in our Polish, Turkish and Brazilian businesses. This was partially offset by the announcement to return further cash to our Australian health insurance customers.

Our health provision businesses saw revenue growth of 4% reflecting higher customer numbers as the impacts of COVID-19 subsided and health facilities continued to remain open.

In our aged care businesses, revenue was up 5% as occupancy rates increased by 2% driven by UK Care Services and Sanitas Mayores. COVID-19 challenges remained in our Australian and New Zealand businesses as localised lockdowns and sector-wide staffing availability continued to impact occupancy levels.

Underlying profit (CER)

Group underlying profit increased by 22% to £280m (HY 2021: £229m at CER).

For our largest line of business, health insurance, underlying profit increased driven by continued portfolio growth. Price increases in a majority of markets were broadly offset by higher claims inflation. We saw reduced claims levels in Australian Health Insurance in the first quarter as localised lockdowns persisted, and we therefore still hold a deferred claims reserve of £231m (30 June 2021: £180m).

In Chile, we continue to see the impacts of regulatory interventions and judicial decisions on the isapre insurance sector which have caused underlying losses to continue to grow in our Chilean insurance business.

In the UK in 2021, we paid £125m to eligible health insurance customers in return of premium following the pledge we made in April 2020 to pass back any exceptional financial benefit ultimately arising from the temporary disruption to some medical treatments as a consequence of COVID-19. As at 30 June 2022, we continue to hold a return of premium provision of £60m. It represents the best estimate of exceptional financial benefits occurring from 23 March 2020 to 31 December 2021.

Profitability continued to grow in our health provision businesses, as restrictions in place reduced in 2022. However, we continue to see challenges in UK Dental driven by sector-wide pressures, including an ongoing shortage of dentists, particularly in NHS work, and of dental nurses. It is clear the pressures on the business mean poor returns will persist in the near term.

Underlying losses in aged care increased slightly year-on-year. Our Australian and New Zealand villages and aged care businesses continued to manage COVID-19 as the Omicron outbreak in early 2022 led to the majority of our 59 Australian care homes either putting in place lockdowns or other restrictions, alongside higher staffing costs to minimise sector wide staff shortages. These losses were offset by improved closing occupancy rates in Sanitas Mayores and UK Care Services.

Central expenses and net interest margin of £12m were lower (HY 2021: £36m at CER). This was driven by higher investment returns from increased interest rates, alongside reduced costs from the redemption of the £250m subordinated bond and maturity of a £350m senior bond in 2021.

Statutory profit

Statutory profit before taxation was £189m down 35% at AER (HY 2021: £291m), driven by non-underlying results. The non-underlying items totalled to a £91m loss in 2022, compared with £57m profit in 2021.

The key drivers for non-underlying items in 2022 include Türkiye being considered a hyperinflationary economy. As a consequence, the results and balances for the Group's Turkish operations have been adjusted for changes in the general purchasing power of the Turkish Lira (£38m) and this is recognised in 'realised and unrealised foreign exchange (losses)/gains'. Losses on our return seeking assets grew as the war in Ukraine and the impact of rising inflation continues to impact market volatility (£41m). Also included is the amortisation of intangible assets in Bupa Villages and Aged Care Australia following the government announcement to deregulate bed licences from 2024 (£17m) and restructuring costs (£10m).

Taxation

The Group's effective taxation rate for the period was 32% (HY 2021: 25%; FY 2021: 18%), which is higher than the current UK corporation taxation rate of 19%. This is mainly due to profits arising in jurisdictions with a higher rate of corporation taxation than the UK, irrecoverable overseas taxation on group dividend income and the impact of non-deductible IAS 29 adjustments applied as a result of hyperinflation in Türkiye.

Cash flow

Net cash generated from operating activities increased by £217m to £696m primarily due to higher revenue across the MUs and lower claims in Australia as a result of the continued disruption due to COVID-19 which has in turn driven the increase in cash used in investing activities by £541m to £737m.

Net cash used in financing activities decreased by £162m to £174m primarily due to the one-off repayment and buy-back of bonds in 2021 and reduction in the use of the Group's revolving credit facility in 2022.

Funding

We manage our funding prudently to ensure a strong platform for continued growth. This requires us to ensure we maintain good access to both senior and subordinated bond markets. A key element of our funding policy is to target an A-/A3 senior credit rating for the Company, the main issuer of Bupa's debt. Our senior ratings are currently A3 (negative) by Moody's and BBB+ (stable) by Fitch. There have been no changes to our ratings in 2022 apart from a one notch improvement to the Moody's rating of Bupa's Restricted Tier 1 bond in January, following a change to their methodology.

We continue to hold a good level of Group liquidity. At 30 June 2022, our £900m Revolving Credit Facility was drawn by £230m. Coverage of financial covenants within the facility remains strong. Liquidity is also managed by Bupa's local insurance entities to ensure they have sufficient stand-alone capacity to absorb future cashflow requirements.

We focus on managing our leverage in line with our credit rating objectives. Leverage excluding operating leases at 30 June 2022 was 19.5% (HY 2021: 25.0%) and was 26.7% (HY 2021: 32.1%) when IFRS 16 lease liabilities are taken into account.

Solvency

Our solvency coverage ratio of 181% remains strong and is above our target working range of 140-170%.

The Group holds capital to cover its Solvency Capital Requirement (SCR), calculated on a Standard Formula basis, considering all our risks, including those related to non-insurance businesses. As at 30 June 2022, the estimated SCR of £2.7bn was £0.2bn higher and Own Funds of £4.9bn was £0.4bn higher when compared to 31 December 2021.

Our surplus capital was estimated to be £2.2bn, compared to £2.0bn at 31 December 2021, representing a solvency coverage ratio of 181% (FY 2021: 179%). Our business continued to generate capital through our underlying profitability. This capital generation was partially offset by capital expenditure and debt financing activities.

We perform an analysis of the relative sensitivity of our estimated solvency coverage ratio to changes in market conditions and underwriting performance. Each sensitivity is an independent stress of a single risk and before any management actions. The selected sensitivities do not represent our expectations for future market and business conditions. A movement in values of properties that we own continues to be the most sensitive item, with a 10% decrease having a 11% percentage point reduction to the solvency coverage ratio.

Our capital position is resilient in the face of the individual risks, illustrating the strength of our balance sheet.

We include a GSP in respect of the insurance risk parameter in the Standard Formula. We apply a premium recognition adjustment to the GSP loss ratio data to allow for the distorting impact of the COVID-19 pandemic. The PRA have confirmed its approval of this approach at the end of 2021.

MARKET UNIT PERFORMANCE

Bupa Asia Pacific[9]

Revenue declined by 3% to £2,691m at CER. This was driven by our decisions to: return cash to Australian health insurance customers; defer health insurance premium increases; and from divestments as part of ongoing portfolio optimisation in our aged care and dental businesses. Underlying profit declined by 5% to £131m, driven by the continued challenge of COVID-19, impacting staff availability in Australian Health Services, and aged care in Australia and New Zealand, where sector-wide staff shortages and localised lockdowns reduced occupancy.

In Australian Health Insurance, revenue declined due to our ongoing commitment to return savings from COVID-19. In June, we announced a further return of cash to customers of £86m (AUD$155m), which will be paid from October 2022. We also announced the deferral of our 2022 premium increase until 1 November. Through our package of cash returns, premium deferrals, financial assistance and other customer support programmes, we have provided £355m (AUD$640m) of support to customers since the pandemic started. The combined operating ratio (COR) was 92%[11] (HY 2021: 93%). Since the beginning of 2022, we have seen a strong take up by new domestic retail customers of our FLEXtras product, which enables customers to select personalised services and limits. We maintained market share at 24.7% as at March 2022 and have held this position for three consecutive quarters[12].

Australian Health Services revenue declined due to localised lockdowns and staff availability driven by the pandemic, clinician vacancies and dental practice divestments as part of ongoing portfolio optimisation. This resulted in underlying profit declining. We continue to develop Blua, our digital healthcare platform, which we launched in December 2021.

Revenue in Australian Villages and Aged Care decreased driven by lower occupancy arising from the COVID-19 Omicron outbreak in early 2022. Underlying losses increased due to lower occupancy, increased pandemic-related staff costs and personal protective equipment costs. Closing occupancy was 83% (HY 2021: 88%). Changes in government regulations regarding the derecognition of bed licences effective in 2024, have led to accelerated amortisation and a loss of £17m for the first half of 2022 being recorded outside of underlying profit.

In New Zealand Villages and Aged Care, revenue was stable as strong village sales volumes offset reduced occupancy. Underlying losses increased from the continued impact of COVID-19 on occupancy and increased staffing costs. As part of continued portfolio optimisation, we opened a new retirement village in March, a care home in May and closed three other care homes. Closing occupancy was 85% (HY 2021: 88%).

In our Hong Kong SAR businesses, revenue was ahead despite the continued disruption from COVID-19. Underlying losses improved driven by operating cost reductions and the closure of one clinic. We opened three new medical and four dental centres. We are also making progress in expanding digital health services and over 200,000 users have now been connected to these services, including 100,000 new users in the first half of 2022.

Europe and Latin America

Revenue grew by 11% to £2,138m and underlying profit declined by 29% to £57m at CER. The impact of customer growth across most businesses was more than offset by increased claims levels in our insurance businesses resulting from the reduced disruption to services from COVID-19.

Sanitas Seguros, our health insurance business in Spain, delivered good revenue growth driven by increased customer volumes as we reached the milestone of two million customers in June 2022, with distribution agreements with bancassurance partners contributing to more than a third of sales. Underlying profit declined as a result of the normalisation of claims following COVID-19 and the COR for the half year was 91%[13] (HY 2021: 89%). We continued to expand digital services and in June, we reached an average of 66,000 video consultations per month.

Revenue and underlying profit in our Dental business in Spain increased compared to June 2021 driven by higher customer volumes as lockdown restrictions eased.

In our Hospitals and New Services business in Spain, revenue was down through the impact of divestments in the second half of 2021, while underlying profit was slightly ahead. We launched our new physiotherapy model, new clinical units (covering robotic surgery, rheumatology, obesity and breast cancer) and also announced a new hospital in Madrid, which is expected to open in 2025. 

In Sanitas Mayores, our aged care business in Spain, revenue and underlying performance improved through higher occupancy levels and as we improved operating efficiency. Closing occupancy rates increased to 91% (HY 2021: 80%).

In Chile, revenue improved, however, underlying losses increased as a result of higher claim volumes in our isapre insurance business. The whole sector is facing severe financial challenges marked by ongoing losses. This is as a result of a series of regulatory interventions and judicial decisions which mean that pricing actions are being challenged and delayed. These decisions include: successive scheduled sector price adjustments being blocked; mandated financing of parental medical leave; and continued judicial challenges towards the premium price base. We expect continued challenges and are engaging directly with the local regulator and other stakeholders to attempt to stabilise the position. If these risks to the isapre business materially deteriorate, there is a future risk of impairment to Bupa Chile. In our health provision business, we opened a new medical centre in Santiago and increased activity drove higher revenue and underlying profit.

In Poland, LuxMed revenue increased and underlying profit was up as a result of strong performance in health provision. We launched a special healthcare and work support programme for Ukrainian refugees forced to flee the war, which continues across our national network.

Bupa Acıbadem Sigorta, our health insurance business in Türkiye, delivered substantial revenue growth driven by organic growth in customers. Underlying losses increased as underlying claims volumes increased and as the country entered a period of hyperinflation. The economy is now a hyperinflationary environment, leading to a change in accounting treatment (IAS 29, see Financial Review for more detail) and a net monetary loss of £38m being recorded outside of underlying profit.

Care Plus in Brazil delivered significant revenue growth as a result of a substantial increase in customer numbers. Underlying profit decreased driven by higher claims and increased inflation. 

Bupa Mexico delivered good revenue due to pricing, portfolio mix and launch of new products in partnership with BBVA. Underlying profit remained flat to 2021. 

Bupa Global Latin America (BGLA) underlying profit improved as a result of entry into the domestic health insurance market in Ecuador and as pandemic related provisions were released.

Bupa Global and UK

We achieved good revenue growth of 9% to £1,822m driven mainly by an increase in UK Insurance customers, the continued return towards normal trading volumes in Health Services, and improved occupancy rates in UK Care Services. Underlying profit grew substantially as a result of the performance of the insurance businesses, with Bupa Global, our IPMI business, returning to profitability. 

UK Insurance delivered strong revenue growth, with a significant growth in customers of over 150,000 across private medical insurance, health trusts, dental and cash plan so far during 2022, and the impact of the return of premium in 2021. Underlying profit increased with volume growth and price increases offsetting claims returning towards normal levels. We launched new specialist centres for bowel cancer within the Bupa Cromwell Hospital and HCA Healthcare UK, giving customers faster access to diagnostics and treatment. We continued to expand our digital services with over 500,000 direct customers now registered on Bupa Touch and almost nine out of ten business customers registered for our Bupa Connect portal, offering online access to cover and benefits.  

In Bupa Global, revenue increased and profitability improved, driven by: increased customer volumes, strong retention, and pricing adjustments to reflect claims inflation. We have reorganised the business by creating three regional units: Middle East & Asia Pacific, Europe and UK & Africa. This supports our plans for long-term sustainable growth by responding to the distinct needs of our customers and our people in each region, with an increased focus on digital experience. 

The COR for Bupa Insurance Limited, the UK based insurance entity that underwrites both domestic and international insurance, improved to 93%[14] (HY 2021: 97%). 

UK Dental's underlying losses increased driven by sector-wide pressures, including an ongoing shortage of dentists, particularly for NHS work, and of dental nurses. Productivity has not yet returned to pre-COVID-19 levels, and the business was impacted by increased costs due to workforce supply constraints, rising energy prices, and growing consumer caution towards elective treatment as a result of cost-of-living pressures. While the long-term opportunity in UK Dental remains attractive, current industry pressures mean poor returns will persist in the near term. We launched our new digital B2C subscription product, Bupa Smile Plan, to help customers access oral care in our clinics. We have also continued the rollout of our cloud-based practice management system, with 60% of the network transitioned and 210,000 digital customer accounts created.

UK Care Services delivered strong revenue growth due to strong fee rates and growing occupancy. Underlying losses are primarily due to sector-wide staffing and inflation pressures, including rising energy costs. We are continuing to transform our business through digital innovation with the rollout of eCare, an electronic care planning system, across 10 Richmond Villages and 39 care homes. Closing occupancy was up to 85% (HY 2021: 82%).

In Health Services, revenue grew substantially and underlying losses reduced, driven by higher customer numbers in Clinics and the Cromwell Hospital and strong growth across all product and service lines. We opened three new health clinics and the Cromwell Hospital opened a new outpatient centre in London. 

Other businesses[15]

Underlying profit is broadly flat to 30 June 2021 driven by the performance of our associate businesses: Niva Bupa in India and Bupa Arabia in Saudi Arabia as both businesses continue to emerge from the impacts of COVID-19.

BUSINESS RISKS

We described our main risks in the Risk section of the Annual Report and Accounts 2021, which are available on www.bupa.com. In the period to 30 June 2022, while we are still seeing impacts from the COVID-19 pandemic in some of our markets, and we continue to take appropriate actions to address these challenges, the principal risks and themes previously identified at the 2021 year-end remain. With a new strategy and a refreshed purpose, we also continue to place significant emphasis on the risks associated with these.

While Bupa does not have businesses in either Ukraine or Russia, the global macro-economic risks and human consequences of the conflict are having an impact through inflation and other business constraints, and we will continue to monitor any potential impacts on Bupa's businesses. 

Strategic and financial risks and risks impacting our ability to deliver for our customers: 

The macroeconomic environment is challenging in most markets we operate in. In particular, in many markets we are seeing heightened inflationary pressures. Medical inflation continues to increase at a higher rate than income inflation and this is likely to be exacerbated by weakened economic environments.  

Heightened inflation is likely to impact our businesses in a variety of ways, including: increased costs, higher interest rates impacting households, reduced personal expenditure and affordability issues, changes in government funding levels and political instability. The potential impacts from inflation will be a key focus of our stress testing programme this year, assessing the impacts on both short-term profit and over the three year plan.

In many markets, we continue to see strategic challenges associated with workforce availability, which may impact our ability to deliver services. We also see other risks associated with the resilience of our own people, particularly as a result of the pandemic, including health, safety and wellbeing, and capacity.

Governmental and regulatory policy risks: 

Changes in governmental and regulatory policy has consistently been one of our top risks given the nature of our businesses and this remains true. The significant governmental and regulatory responses to the pandemic have shown that future legislation, regulations and government funding decisions could have a material impact on the Group, for example, the Australian government's decision to deregulate bed licences. The situation affecting our isapre insurance business in Chile is another example of crystallising government and regulatory risks. We continue to engage governments and regulators in the markets we operate in to understand and influence potential changes to ensure we are able to continue to deliver quality and value for our customers. Global supply chains continue to remain challenged, and we have heightened our supplier monitoring, management and communications to help minimise disruption.

Operational risks: 

Information Security and Privacy remain key risks for the Group. Our focus on information security, technology and operational resilience in recent years is supported by significant investment to uplift capability and capacity in this area across the Group. This investment has equipped us to effectively enhance digital and telehealth services and enabled our people to work remotely.

Social and environmental risks: 

Climate change remains one of the major risks we face as a society and is a key area of focus for us as Sustainability is a core pillar of our 3x6 strategy. We closely manage our environmental impacts and promote positive environmental practices. A key focus is our commitment to become a net zero business by 2040 across all our operations and throughout our value chain, underpinned by our 1.5 degree aligned science-based targets.

We have identified our key climate-related risks over the short, medium and long term. The principal risks we have identified are reputational and regulatory compliance risk (short term), acute and chronic physical risk impacting our property portfolio and aged care businesses (medium to long term), and transition risk impacts in the wider economy impacting affordability of our products and services (medium to long term). The link between planet and human health is clear and, therefore, there are also likely to be health impacts from climate change which will impact health insurance claims in the longer term (long term). We do not expect climate change to have a material impact on our fixed assets or investment and insurance risk exposures in the short term.

Our approach to risk management: 

We have a well-established process for identifying and managing all business risks, including all types of operational risk such as information security and privacy. Monitoring and managing our risks is key to ensuring that we achieve our strategic objectives in the long-term, meeting the evolving expectations of our customers, people, bondholders and regulators. Internal controls, particularly regarding customer conduct and information security and privacy, continue to be key areas of focus. 

BUPA AROUND THE WORLD

Bupa Asia Pacific  

· Bupa Health Insurance Australia, with 4m customers, is a leading health insurance provider in Australia and also offers health insurance for overseas workers and visitors.

· Bupa Health Services in Australia and New Zealand is a health provision business, comprising dental, optical, audiology, medical assessment services, and healthcare for the Australian Defence Force. 

· Bupa Villages and Aged Care Australia cares for around 5,100 residents across 59 homes. It also operates 1 retirement village in Australia. 

· Bupa Villages and Aged Care New Zealand cares for around 3,150 residents across 47 care homes. It also operates 38 retirement villages. 

· Bupa Hong Kong comprises a health insurance business, with more than 400,000 customers, and a Health Services business operating 91 medical centres providing healthcare services to around 480,000 customers. 

Europe and Latin America 

· Sanitas Seguros is the second largest health insurance provider in Spain, with more than 2m customers.

· Sanitas Dental provides dental services through 201 centres and third-party networks in Spain.  

· Sanitas Hospitales and New Services comprise four private hospitals, 30 private medical clinics and one public hospital under a public-private partnership model.  

· Sanitas Mayores cares for around 5,500 people in 43 care homes, operates six day-care centres and has professional home care services with digital medical support for seniors in Spain.  

· LuxMed is a leading private healthcare business in Poland, operating in health funding and provision through 14 hospitals and 267 private clinics.  

· Bupa Chile is a leading health insurer and health provision business. In insurance we serve more than 839,000 customers. In health provision we serve around 1.9m customers across four hospitals and 38 medical clinics. 

· Bupa Acıbadem Sigorta is Türkiye's second largest health insurer, with products for corporate and individual customers, and has over 1.2m customers.  

· Care Plus is a leading health insurance company in Brazil, with around 169,000 customers, concentrated in São Paulo.  

· Bupa Mexico is a health insurer offering international and local private medical insurance to individuals and corporates in Mexico, with more than 87,000 customers, and a health administrator company with more than 300,000 customers.  

· Bupa Global Latin America provides international health insurance, local health insurance, and travel insurance in Latin America to around 68,000 customers. It is headquartered in Miami and has operations in Guatemala, Panama, Dominican Republic, Ecuador and Bolivia as well as a provision business in Peru. 

Bupa Global and UK 

· Bupa UK Insurance is a leading health insurer, with 2.4m customers and 2.9m lives covered.  

· Bupa Global serves over 540,000 IPMI customers and administers medical assistance for individuals, small businesses and corporate customers.  

· Bupa Dental Care is a leading provider of private dentistry, providing dental services through over 480 centres across the UK and the Republic of Ireland.  

· Bupa Care Services cares for around 6,100 residents in 122 care homes and 10 Richmond care villages.  

· Bupa Health Services comprises 52 health clinics, and the Cromwell Hospital.

Other businesses

· We also have associate health insurance businesses in Saudi Arabia (Bupa Arabia) and India (Niva Bupa) and an interest in MyClinic in Saudi Arabia.

Bupa Finance plc

(Company Number 2779134)

Condensed Consolidated Half Year Financial Statements (unaudited)

Six months ended 30 June 2022

Bupa Finance plc

Condensed Consolidated Income Statement

for six months ended 30 June 2022 (unaudited)

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Bupa Finance plc

Condensed Consolidated Statement of Comprehensive Income

for six months ended 30 June 2022 (unaudited)

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Bupa Finance plc

Condensed Consolidated Statement of Financial Position

as at 30 June 2022 (unaudited)

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Bupa Finance plc

Condensed Consolidated Statement of Cash Flows

for six months ended 30 June 2022 (unaudited)

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Bupa Finance plc

Condensed Consolidated Statement of Changes in Equity

for six months ended 30 June 2022 (unaudited)

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Bupa Finance plc

Condensed Consolidated Statement of Changes in Equity continued

for six months ended 30 June 2022 (unaudited)

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Notes 1-20 form part of these Condensed Consolidated Financial Statements.

Bupa Finance plc

Notes to the Condensed Consolidated Financial Statements

for six months ended 30 June 2022 (unaudited)

1 Basis of preparation

1.1 Basis of preparation

Bupa Finance plc (the 'Company'), a company incorporated in England and Wales, together with its subsidiaries (collectively the 'Group') is an international healthcare business, providing health insurance, treatment in clinics, dental centres and hospitals, and operating care homes. The immediate and ultimate parent of the Company is The British United Provident Association Limited (the 'Parent' or 'Bupa' and together with its subsidiaries, the 'Bupa Group').

The Condensed Consolidated Half Year Financial Statements of the Company as at and for the six months ended 30 June 2022 comprise those of the Company and its subsidiary companies.

The interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2021, which have been prepared in accordance with UK-adopted international accounting standards, in conformity with the requirements of the Companies Act 2006. The interim financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 31 December 2021 and in accordance with the accounting policy for IAS 29 Financial Reporting in Hyperinflationary Economies described in note 1.6.

The interim financial statements were approved by the Board of Directors of Bupa Finance plc on 3 August 2022.

The financial information contained in these interim financial statements 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 2021 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

Following a detailed assessment of the Group's going concern status based on its current position and forecast results, the Directors have concluded that the Group has adequate resources to operate for at least the next 12 months from the approval of these financial statements. This assessment considered forecast and reasonably possible adverse changes to the Group's regulatory solvency, liquidity, access to funding and trading profitability over the next 12 months.

The assessment identified the risks and uncertainties most likely to impact the Group and considered the impact to the Group's businesses under a number of reasonably plausible severe scenarios, such as those reflecting potential economic impacts of the COVID-19 pandemic and those including prolonged levels of heightened inflation. Under such scenarios, significant short-term reductions in planned profitability may arise, however, in the absence of a highly material and improbable stress event, the Group would still remain within its risk appetites for liquidity and regulatory solvency. The Group has access to a £900m revolving credit facility (RCF) as described in note 16. The Group expects to remain compliant with the RCF's covenants under stressed scenarios and may further draw down on the RCF in order to meet liquidity needs. Additional management actions would allow downside impacts to be further mitigated by reducing expenditure, obtaining additional funding or divesting investments or businesses.

Details of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Half Year 2022 Results Announcement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are also described in the Financial Review of the Half Year 2022 Results Announcement.

1.3 Accounting estimates and judgements

The preparation of financial statements requires the use of certain accounting estimates and assumptions that affect the reported assets, liabilities, income and expenses. It also requires management to exercise judgement in applying the Group's accounting policies.

The areas involving a higher degree of judgement or complexity, or where assumptions are significant to the Condensed Consolidated Financial Statements, are set out below and in more detail in the related notes.

1.4 Restatements

Following the changes to published 30 June 2021 figures detailed in (a) to (d) below, the Group has consistently applied its accounting policies to all periods presented in these Condensed Consolidated Financial Statements.

Full details of the impact of the below restatements to opening balances as at 1 January 2021 were shown in the 2021 Group Annual Report and Accounts.

(a) Underpayment of employee entitlements

During the second half of the 2021 financial year, the Group was able to quantify historical underpayments of employee entitlements affecting some current and former employees, following an extensive proactive pay compliance review carried out in Australia and New Zealand. Comparative periods have been restated for the error resulting in the impacts shown in the table below.

As at 30 June 2022, the Group is holding a provision of £57m (FY 2021: £62m) in respect of future remediation payments. Remediation payments are expected to be completed by the end of 2022.

(b) Market Unit restructure

With effect from 1 July 2021, the Group announced an update to the organisational structure transferring Bupa Hong Kong from Other businesses into the Australia and New Zealand Market Unit to form Bupa Asia Pacific. Half Year 2021 results by operating segment have been restated to reflect this change. The amounts related to Bupa Hong Kong which have been restated between segments are shown below.

The restructure had no impact on the Condensed Consolidated Statement of Financial Position or Condensed Consolidated Income Statement.

(c) IFRS Interpretations Committee decision Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets)

In April 2021, the IFRS Interpretations Committee (IFRS IC) published its final agenda decision Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets). This agenda decision considered how an entity should account for configuration and customisation costs incurred in implementing a Software as a Service (SaaS) arrangement. The IFRS IC concluded that such costs should be expensed unless the criteria for recognising a separate asset are met. The Group reviewed the historic capitalisation of SaaS costs which led to certain assets being derecognised where capitalisation was judged to have been non-compliant with the new guidance. The impact of this agenda decision was recognised on a fully retrospective basis within the Consolidated Financial Statements for the year ended 31 December 2021 and the resulting impacts on the Condensed Consolidated Half Year Financial Statements for 2021 are shown below. This comparative period has been restated to reflect the change in accounting policy resulting from the new guidance.

(d) Financial asset classification

Following an internal review of financial asset classification in the prior year, £137m of assets have been restated from deposits with credit institutions at amortised cost to corporate debt securities and secured loans at amortised cost as at 30 June 2021. This had no impact on the Condensed Consolidated Statement of Financial Position.

1.5 New and amended accounting standards

1.5.1 New and amended standards adopted by the Group

A number of amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amended standards.

1.5.2 Impact of standards issued but not yet applied by the Group

IFRS 17 Insurance Contracts

IFRS 17 Insurance Contracts was issued in May 2017 as a replacement for IFRS 4 Insurance Contracts, with amendments to IFRS 17 issued in June 2020 and December 2021. The final standard will be effective for annual periods beginning on or after 1 January 2023.

IFRS 17 requires a current measurement model where estimates are remeasured each reporting period. Under the general measurement model, contracts are measured using the building blocks of discounted probability-weighted cash flows, an explicit risk adjustment, and a contractual service margin (CSM) representing the unearned profit of the contract which is recognised as revenue over the coverage period. However, an optional, simplified premium allocation approach, similar in nature to the Group's existing measurement basis, is permitted for short-duration contracts.

The detailed application of IFRS 17 is currently being evaluated by the Group. The majority of the Group's insurance contracts have a duration of one year or less. The Group expects to apply the simplified premium allocation approach for such contracts and to recognise insurance acquisition cash flows as incurred. A significant change in the measurement basis is not anticipated, however the Group continues to assess any recognition impacts on implementation of the new standard. The presentation and disclosure requirements of IFRS 17 will, however, differ considerably compared to the current approach.

IFRS Interpretations Committee decision Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows)

In March 2022, the IFRS IC published its final agenda decision Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows). This agenda decision considered whether an entity should include a demand deposit as a component of cash and cash equivalents in its statements of cash flows and financial position when the demand deposit is subject to contractual restrictions on use agreed with a third party.

The IFRS IC concluded restrictions on the use of a demand deposit arising from a contract with a third party do not result in the deposit no longer being cash unless those restrictions result in the deposit no longer meeting the definition of cash. Such a deposit would be presented as part of cash and cash equivalents on the statement of financial position, although could be presented separately if relevant to an understanding of an entity's financial position.

The impact of this agenda decision is currently being evaluated by the Group. This evaluation is expected to be completed, and any impact of the agenda decision recorded, during the second half of 2022.

1.6 Foreign exchange

The following significant exchange rates applied during the period:

Türkiye is now a hyperinflationary economy and IAS 29 Financial Reporting in Hyperinflationary Economies is required to be applied from June 2022 onwards. As a consequence, the results and balances for the Group's Turkish operations have been adjusted for changes in the general purchasing power of the Turkish lira. In order to make this adjustment the Group refers to the CPI index published by the Turkish Statistical Institute. The value of CPI at 30 June 2022 was 977.88 and the movement in CPI for the period ended 30 June 2022 was 290.93, an increase of 42.4%. A loss of £61m arising from the devaluation of net monetary assets has been recognised within net financial expense in the Condensed Consolidated Income Statement. This is partially offset by the impact of indexing amounts in the Condensed Consolidated Income Statement for the application of IAS 29, with the net impact reducing profit before tax by £38m for the period.

All Turkish lira amounts are translated to the Group's presentation currency of sterling, using the closing exchange rate in effect on 30 June 2022 of 20.32. The impact of this adjustment is recorded within other foreign exchange translation differences in the Condensed Consolidated Statement of Comprehensive Income and within the foreign exchange translation reserve in the Condensed Consolidated Statement of Financial Position. The Group recognises the remaining exchange difference arising on consolidation within other foreign exchange translation differences through other comprehensive income in the foreign exchange translation reserve.

Prior periods have not been restated for the introduction of hyperinflation. The impact as at 1 January 2022 has been recorded as an opening balance adjustment in the current period. This includes an adjustment of £(84)m to the income and expenditure reserve in respect of adjusting balances for changes in the general purchasing power of the Turkish lira to that date, and adjustments to the foreign exchange translation reserve of £105m for the impact of translating the opening balances using the closing 31 December 2021 exchange rates, in addition to the remaining exchange differences arising on consolidation. The split of the opening balance adjustment is consistent with how the current period impacts are reported and will be applied consistently in future periods. Of the opening balance adjustment, £25m is in respect of goodwill and intangible assets and is shown in note 7. The net impact of applying hyperinflationary accounting has been excluded from underlying profit and included within realised and unrealised FX gains/losses as this is how the Group measures performance of the business.

2 Operating segments

The organisational structure of the Group is managed through three Market Units based on geographic locations and customers. The Group announced an update to the organisational structure in the second half of 2021, with the incorporation of Bupa Hong Kong into the previous Australia and New Zealand Market Unit to form Bupa Asia Pacific. The three Market Units are now Bupa Asia Pacific; Europe and Latin America; and Bupa Global and UK. Management monitors the operating results of the Market Units separately to assess performance and make decisions about the allocation of resources. Bupa China and the Group's associate investments, Bupa Arabia and Niva Bupa are reported within Other businesses. The segmental disclosures below are reported consistently with the way the business is managed and reported internally.

Comparative information has been restated to reflect the change in organisational structure. Refer to note 1.4b for further details.