Annual Report
2016
Australia and
New Zealand
Bupa’s status, as a company limited by guarantee with no shareholders, enables us to
make customers our absolute focus. This means we can reinvest our profi ts to provide
more and better healthcare for current and future customers.
As a service organisation, everything we do for our customers relies on our people
and partners, so being a place where people love to work is critical to our success.
We employ 86,000 people, principally in the UK, Australia, Spain, Hong Kong,
Poland, New Zealand, Chile, Brazil, Thailand, China, Saudi Arabia, India and the US.
Around 70% of our revenue is from health insurance, with the rest from health and
care provision. We fund healthcare around the world and run clinics, dental centres,
hospitals, care homes and retirement villages in a number of countries.
UK Europe and
Latin America
International
Markets
2
Our business is managed through four Market Units:
Our nine global functions connect across Bupa:
– Bupa Health Insurance
– Bupa Health Services
– Bupa Aged Care Australia
– New Zealand Care Services
– Bupa UK Insurance
– Bupa Care Services
– Bupa Health Clinics
– Bupa Cromwell Hospital
– Oasis Dental Care
1
– Sanitas Seguros
– Sanitas Hospitales and
New Services
– Sanitas Dental (Spain)
– Sanitas Mayores (Spain)
– LUX MED (Poland)
– Bupa Chile
– Bupa Global
– Bupa Arabia
– Bupa Hong Kong
– Quality HealthCare
(Hong Kong)
– Max Bupa (India)
– Bupa Thailand
Our organisation structure
Revenue
£4,360.6m
Revenue
£2,785.9m
Revenue
£2,474.7m
Revenue
£1,427.8m
Underlying Profi t
£344.4m
Underlying Profi t
£194.9m
Underlying Profi t
£165.6m
Underlying Profi t
£65.9m
With no shareholders, Bupa exists to serve our customers
...is an inspiring and motivating driver of performance
See page 8 See page 9 See page 10 See page 11
Helping people live l g , al i , happi li
Our
purpose
Medical
Information
Services
People Marketing
Corporate
A airs
Finance &
Governance
Strategy
Risk &
Compliance
Legal
Our Group Corporate Centre leads reporting, capital management, coordination and governance.
1 Bupa completed the purchase of Oasis Dental Care on 9 February 2017 with an enterprise value of £835m.
2 While revenues from our associates and joint ventures are excluded from our reported fi gures, customer numbers and the appropriate share of profi t from these businesses are included
in our reported numbers.
01Bupa Annual Report 2016
Strategic report Governance Financial statements
Financial performance summary
1
Revenue
£11.0bn
+4% CER
2015: £10.6bn
+12% AER
2015: £9.8bn
+10% CER
2015: £638.1m
+2% CER
3
+20% AER
2015: £582.5m
+40% AER
2015: £374.3m
+13% AER
2015: £788.1m
Underlying profit
2
£700.7m
Statutory profit before taxation
£522.9m
Net cash generated from
operating activities
£891.0m
2015: 178%
Solvency II capital coverage ratio
4
204%
Strategic report
ifc Our purpose and
structure
01 Financial performance
summary
02 Chairman’s statement
03 Group Chief Executive’s
review
04 Our business model
05 Our strategic framework
06-07 Our performance
08-11 Our Market Unit
strategy in action
12-15 Financial Review
16 Longer term viability
statement
17-21 Risks
Governance
22-23 Chairman’s introduction
24-25 Board of Directors
26-27 Bupa Executive Team
28-30 Leadership
31-32 Eectiveness
33 Engagement
34-37 Audit Committee Report
38-39 Risk Committee Report
40-41 Nomination and
Governance
Committee Report
42-52 Remuneration Report
53 Report of the Board
of Directors
54 Statement of Directors’
Responsibilities
Contents
Financial statements
55-140 Financial statements
56-58 Independent Auditor’s
report
1 We use Constant Exchange Rates (CER) to compare trading performance in a consistent
manner to the prior year. We have therefore retranslated our 2015 results using 2016
average foreign exchange rates. Please refer to the Financial Review for the foreign
exchange rates in our principal currencies. Due to our geographically diverse portfolio,
the impacts of foreign exchange rates fluctuate year on year.
2 To derive underlying profit, profit before taxation is adjusted for amortisation and
impairment of intangible assets and goodwill arising on business combinations, net
property revaluation gains or losses, realised and unrealised foreign exchange gains
and losses, gains or losses on return seeking assets, profits or losses on the sale of
businesses and fixed assets, transaction costs on acquisitions and disposals, and
restructuring costs.
3 Underlying profit is up 2% at CER and up 12% at AER when excluding the impact of the
IFRIC 12 adjustment relating to our Spanish Public-Private Partnerships (PPPs) in 2015.
4 The 2016 Solvency II capital coverage ratio is an estimated value. The 2015 Solvency II
capital coverage ratio has been updated to 178% from the 180% estimate disclosed in
the 2015 Annual Report and Accounts.
See Our performance on pages 6-7
02 Bupa Annual Report 2016
Focused on customers
2016 has been a year of change at Bupa.
Evelyn Bourke became Group Chief Executive
O cer, after Stuart Fletcher stepped down in
April. Stuart left Bupa in a strong position, and
with our thanks. As our former Chief Financial
O cer, Evelyn knows Bupa well. She refreshed
Bupa’s strategy with a renewed emphasis on
high quality service for our customers in this
digital age. The focus is on strengthening
Bupa’s positions in existing geographic
markets, including extending into adjacent
business lines such as dental. Selective
geographic expansion will continue to be
part of Bupa’s strategy, with Asia and Latin
America of interest. Bupa operates in highly
sensitive and regulated sectors and must
uphold the high standards our customers and
regulators expect. During 2016, we increased
our focus on risk and compliance and this
remains a priority going forward as part of our
refreshed strategy. This is key to delivering
strong and sustainable performance, now
and in the future.
Growth in challenging markets
Over the year, Bupa made solid progress
in challenging market conditions amidst
global political uncertainty. Revenue grew
4% and underlying profi t 10%, albeit up 2%
when excluding the impact of the IFRIC 12
adjustment, related to our Spanish Public-
Private Partnerships, made in 2015. Bupa
became Australia’s largest health insurer for
the fi rst time, and progress has been made in
reshaping the UK business. Bupa UK exited
the home healthcare sector and announced a
purchase in the dental market. In Spain, further
progress was made in digitising the customer
journey with the launch of Blua, Sanitas’ digital
health insurance o ering. Our ownership of
Bupa Chile was increased to 100%, while our
stake in Max Bupa in India was also increased
to 49%. Performance in International Markets
was impacted by a large profi t decline in Bupa
Global due to our exit of non-strategic
markets, investment in capability and
infrastructure, and a lower rate of growth.
In December, we acquired Care Plus, a
market-leading health insurer in Brazil.
Culture, diversity and corporate
responsibility
Culture is core to Bupa’s success, with the
company’s purpose and values at the heart
of the customer and employee experience.
It is vital that Bupa’s people are engaged and
empowered to deliver for our customers, and
we place great emphasis on being a place
where people love to work. The Bupa Code –
our code of conduct – sets out the behaviours
we expect, and is complemented by our
confi dential Speak Up hotline. We are an
inclusive organisation and celebrate diversity.
40% of our Board members are female, as
are 45% of the Bupa Executive Team, 41%
of our senior management team and 69% of
our total workforce. Gender is, of course, only
one measure of diversity and is considered
alongside a wide range of relevant skills
and experience. We are proud of the
diverse culture Bupa has fostered and our
commitment to corporate responsibility and
sustainability. We actively engage with the
community to make a positive contribution
on public health matters and promote positive
environmental practices.
Corporate governance
There were a number of changes to the
Bupa Board. With Evelyn’s appointment as
Group CEO, we appointed Joy Linton as Chief
Financial O cer. In January 2016, Simon Blair
and Janet Voûte joined us as Non-Executive
Directors, while Rita Clifton stepped down
from the Board at the AGM in May 2016.
More information about Bupa’s governance is
contained in my introduction to governance
on pages 22-23 of this report.
Well-positioned for the future
I’m incredibly proud of the way Bupa has
navigated the challenging market conditions
in 2016. We anticipate these will continue for
some time to come, and are committed to
delivering the very best for our customers.
I would like to thank all our 86,000 people
around the world. Their commitment to
serving our customers is vital to our success
and something we never take for granted.
Our 2016 Strategic Report, from pages 1-21,
was reviewed and approved by the Board
of Directors on 1 March 2017.
By order of the Board.
Lord Leitch
Chairman
“I’m incredibly proud of the way Bupa has navigated the
challenging market conditions in 2016. We anticipate these
will continue for some time to come, and are committed
to delivering the very best for our customers.”
Lord Leitch
Chairman’s statement
03Bupa Annual Report 2016
Strategic report Governance Financial statements
It is a huge honour to be the Group Chief
Executive of Bupa, a special organisation which
exists to help our customers live longer, healthier,
happier lives. Financially strong, we have a
trusted brand, committed people, and market-
leading positions which we continue to grow.
Delivering for customers in the digital age
We are focused on improving and extending
our services for customers. To equip Bupa for
the next phase of growth, in 2016 we refreshed
our strategy, putting customers front and centre
in the context of today’s digital age. As a service
organisation, it is critical our people love working
at Bupa and delivering for customers. Insurance,
healthcare and care services are highly sensitive
and regulated sectors and we are increasing our
focus on management of risk and compliance
to ensure we continue to uphold the high
standards our customers and regulators expect.
Through rigorous capital management, and
investing in strength and depth in our existing
markets with selective expansion into new growth
markets, we will deliver strong and sustainable
performance for our customers and for Bupa.
In 2016, our businesses performed solidly in
challenging market conditions. We achieved
good profi t growth in our three largest Market
Units – Australia and New Zealand, the UK,
and Europe and Latin America – and, while
performance within International Markets was
impacted by a signifi cant decline in profi t in
Bupa Global, the overall Group grew revenue
4% and underlying profi t 10%, albeit up 2%
when excluding the impact of the IFRIC 12
adjustment made in 2015. Our performance was
bolstered by strong and consistent cash fl ow,
a strong balance sheet, robust management
and an upgrade in one of our credit ratings.
In Australia and New Zealand, we delivered
good revenue and underlying profi t growth in
di cult market conditions, and our Australian
health insurance business became the
country’s biggest health insurer for the
fi rst time. The Australian Government is
considering reforms of the health insurance
sector, and a ordability remains a challenge
for the whole healthcare industry.
In the UK, we achieved good underlying profi t
growth despite continued market pressures.
Revenue was down due to the disposal of
Bupa Home Healthcare (BHH) in July. If BHH
revenue is removed from 2015 and 2016
performance, UK revenue was up 5%. Over
the year we made progress in reshaping our
portfolio. In July, we exited the home healthcare
market. In November, we announced our
agreement to purchase Oasis Dental Care.
We also undertook a review of our UK care
services business.
In Europe and Latin America, we delivered
strong growth in revenue and underlying profit.
In Spain, we grew our dental and health
insurance businesses, while our Public-Private
Partnerships are meeting their profit targets
and providing high quality medical services in
a difficult political environment. LUX MED, our
business in Poland, performed well primarily
due to good performance in our ambulatory
and inpatient businesses. Bupa Chile achieved
strong revenue growth.
In International Markets, performance was
impacted by a large profit decline in Bupa
Global. This was driven by the ongoing impact
of our decision to exit non-strategic markets,
as well as our investment in capability and
infrastructure to improve the customer
experience and grow our corporate book, and
a lower than anticipated rate of growth in our
individual and small medium enterprise books.
While progress is being made, there will continue
to be some impact on performance in 2017.
In December, we acquired Care Plus.
Structure and executive team changes
In July, we reshaped our operating structure,
reducing from fi ve to four Market Units.
We also made a number of changes to the
Bupa Executive Team. With my appointment as
Group CEO, Joy Linton became Chief Financial
Officer and joined the Bupa Board. Richard
Bowden is now CEO of Australia and New
Zealand, with David Hynam succeeding him
as CEO of the UK. Wayne Close was appointed
Acting CEO of International Markets. The role of
Chief Risk Officer became part of the Executive
Team, refl ecting our increased focus on
risk and compliance, with David Fletcher
appointed to the role. Gabriela Pueyo became
Chief Strategy O cer.
Outlook
Looking ahead, we expect conditions to remain
challenging in our key markets with changing
political environments, including the UK preparing
to exit the European Union. Demand for quality,
value-for-money healthcare will remain strong
for years to come, however governments and
consumers face funding pressures and medical
costs are outpacing inflation. In addition, there
are new customer standards of personalisation,
ease and choice as well as high expectations of
quality, safety, privacy and transparency.
The Bupa Executive Team and I would like to
thank our 86,000 people. Their dedication and
commitment is key to delivering our purpose
of helping people live longer, healthier, happier
lives. By ensuring an excellent experience for
customers, patients and residents, we also
ensure Bupa can deliver strong and sustainable
performance, both now and in years to come.
Evelyn Bourke
Group Chief Executive Officer
“We are focused on improving and extending our services
for customers. To equip Bupa for the next phase of growth,
we have refreshed our strategy, putting customers front
and centre in the context of today’s digital age.”
Evelyn Bourke
Group Chief Executive’s review
04 Bupa Annual Report 2016
Our value creation model
How our business works
Delivering for
Customers
As a company without shareholders, our customers are our primary stakeholder
with profi ts reinvested for their benefi t, now and in the future
Employees
We employ 86,000 people principally
in the UK, Australia, Spain, Hong Kong,
Poland, New Zealand, Chile, Brazil,
Thailand, China, Saudi Arabia, India,
and the US
Partners
We work with a range of partners,
including other health providers,
associates and distributors
Society
We deliver quality health and care services
and contribute to local economies,
including through employment. We play
our part in the community and manage our
social and environmental responsibilities
Our business model
Customers are at the heart of everything we do. We fund and provide health and care services to
fulfi l our purpose of helping people live l g , al i , happi li . As a company without shareholders,
our profi ts are reinvested back into our business for the benefi t of current and future customers.
Underpinned by
Our services
Brand health
Our focus on customers
drives us to deliver
high-quality customer
experiences and health
outcomes, earning
brand trust
Hospitals
Purpose and status
Our status, as a company
limited by guarantee with
no shareholders, means we
are focused on delivering
our purpose for customers
Financial
strength
Our robust capital base,
profi tability and cash
generation refl ect our strong
fi nancial management
disciplines. A variety of
funding sources ensures
our long-term sustainability
and appropriate rates
of return to lenders
Advice
Aged care
Regulation
and governance
We operate in regulated
markets and aim to ensure
best practice in governance
where appropriate with strong
internal controls and risk
management. Our executive
team is overseen by the Board,
which is held to account by our
Association Members
Dental
Primary
care clinics
We fund
Helping customers fund health
and care through domestic and
international health insurance,
as well as other funding models
We provide
Providing health and care
services through primary care
clinics, hospitals, dental centres,
and aged care services
Customers
International
health insurance
Access to premium
insurance products
and healthcare
services worldwide
Domestic health
insurance
Funding quality healthcare
for customers where
they live
Other funding
Pay-as-you-go,
subscriptions, and dental
and travel insurance
05Bupa Annual Report 2016
Strategic report Governance Financial statements
Our strategic framework
Our refreshed strategic framework is driving the next phase of our growth in today’s digital age.
It has three core elements – Customers, People and Performance – underpinned by three operating
principles, with Bupa’s purpose and values guiding everything we do.
Market context
The digital age is bringing new standards of customer choice,
personalisation, ease and availability, with the emphasis on customer
centricity, transparency and accountability higher than ever.
Demand for quality, value-for-money healthcare continues to rise.
Ageing populations, growth in chronic disease, continual advances in
medical science, and rising consumer expectations mean demand is
very strong and will remain so for years to come. Broader economic
trends, exacerbated by medical costs rising ahead of spending, mean
funding healthcare and associated services is increasingly challenging
for both governments and consumers. Healthcare is signifi cant within
the wider political and regulatory agenda.
Win locally,
enabled globally
Responsive to local conditions and customer
needs, while sharing knowledge globally
Invest in strength
and depth
Strengthening our existing businesses,
selective expansion into new markets
Ever-focused on quality,
e ciency, safety and compliance
Upholding the highest standards,
continuou s focus on e ciency
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Customers
We want to be loved as a
true customer champion in
health and care
People
We want our people to
love working at Bupa, and
be empowered to serve
our customers
Performance
We need to generate strong
and sustainable performance
to invest in meeting the needs
of current and future
customers
06 Bupa Annual Report 2016
Measuring our progress
We track our performance using both fi nancial and non-fi nancial metrics aligned to our refreshed strategic framework.
As well as revenue and underlying profi t, we measure net cash fl ow and our solvency coverage ratio. We also measure
customer numbers for insurance, provision and aged care, and regularly check how our people feel about working at Bupa.
We remain committed to managing our environmental responsibilities and playing our part in communities.
Our performance
How we are performing
Customers
16.5m
Insurance customers
+6%
10.6m
Provision customers
+14%
33,100
Aged care residents
+2%
Employee Net
Promoter Score
(eNPS)
+21
(July 2016)
Extremely
likely
Would you recommend Bupa as a place to work?
Not at all
likely
Net Promoter Score
=
%
%
10 9 8 7 6 5 4 3 2 1 0
+30
(October 2016)
+4% CER
+12% AER
Revenue
£11.0bn
Underlying profi t
£700.7m
+10% CER
+2% CER
1
+20% AER
1 Under IFRIC 12, which applies to service concession contracts such as Spanish PPPs, we use the average operating margin for the life of
the contract (based on historic performance plus projections) as a means for recognising results. Once there is a change in performance
compared to expectations, the operating margin is reassessed and an adjustment made to the current year results to bring the contract
performance to date in line with the revised margin. In 2015, this negative non-cash adjustment of £52m included an amount relating to
the current year of £8.8m together with a retrospective adjustment for the years preceding 2015 of £43.2m. To compare the result on a
‘like for like’ basis with 2016, we have excluded £48.6m (being £43.2m retranslated at 2016 exchange rates) from underlying profi t in 2015.
Net cash generated
from operating
activities
£891.0m
+13% AER
Solvency II capital
coverage ratio
204%
2 The Solvency Coverage Ratio was updated to 178% from the 180%
estimate disclosed in the 2015 Annual Report and Accounts.
Trend (AER)
2015
2016
£11.0bn
£9.8bn
Trend (AER)
2015
2016
£700.7m
£582.5m
Trend (AER)
2015
2016
£891.0m
£788.1m
Trend (AER)
2015
2016
204%
178%
2
07Bupa Annual Report 2016
Strategic report Governance Financial statements
Performance commentary
Our purpose – helping people live lg, ali, happi li – is at the core
of our approach to corporate responsibility and sustainability.
We aim to make a positive impact by:
1. Funding and providing quality health and care services:
As a health and care business without shareholders, we are focused on serving our
customers. We champion quality, medically-evidenced treatment and care. We seek to
deliver value for money, provide exceptional care, and help customers navigate the complex
world of healthcare.
2. Conducting our business ethically:
With a strong purpose across the organisation, we also have seven clear Bupa values and the
Bupa Code which are designed to help our people make the right choices. More broadly, we
aim to ensure a culture which emphasises serving the interests of customers while operating
robust internal controls, including complying with our enterprise policies and all regulations.
We have performance management, risk management, audit, governance, and ‘Speak Up’
processes in place.
3. Being a place where people love to work:
Our people are vital to our success. We promote a positive working environment and a
diverse and inclusive culture that engages and empowers people with the right tools, training,
information, recognition and reward. We want everyone to be happier and healthier because
they work at Bupa and invest in this through our ‘Smile’ programme. Our Bupa values and the
Bupa Code set clear expectations to protect our customers, our colleagues, our partners and
Bupa, now and in the future.
4. Engaging with our communities:
Beyond our health and care services for customers, we engage people more widely in their
health and wellbeing. We also connect with stakeholders to make a positive contribution on
public health matters. We work with numerous community groups and sporting organisations
and have dedicated Health Foundations in Australia, the UK and Spain to channel our
investment in research and initiatives to improve public health (as noted below).
5. Making a positive impact on the environment:
Climate change is a health concern, and we play an active part in promoting positive
environmental practices. In 2016, we reduced our absolute global carbon emissions by a further
1% to 149.7ktCO
2
e
1
(representing an almost 25% reduction against our 2009 baseline) through
energy eciency and renewables projects across our business, and the purchase of electricity
from certified renewable sources. During the year, we broadened our global environmental
investment programme and continued our focus on promoting the use of renewable energy.
In 2016, we achieved many of our goals in corporate responsibility and sustainability.
Our highlights include:
– Our Health Foundation in Australia invested AUD$3.1 million including projects to harness
data to improve patient journeys and clinical outcomes, and raising awareness of the critical
‘First 1,000 Days’ period of child development from conception to age two. Through the
Australia Reconciliation Action Plan we are also advocating for better delivery and health
outcomes for Aboriginal and Torres Strait Islander people.
– Our UK Foundation awarded nearly £1 million to initiatives focused on mid-life mental health
and caring for carers. Through our strategic partnership with Age UK, we supported the
health and wellbeing of older people. We also supported employee fundraising for a range
of health and social care charities in the UK thanks to our match-funding programme.
– Our Sanitas Foundation invested €750,000 to support social initiatives in Spain. Its flagship
project promoted the inclusion of children with disabilities through sport and set a new
Guinness World Record for inclusive spinning in one of Madrid’s most famous public squares.
Sanitas also ran the ‘Madrid Healthy Cities’ initiative with a group of companies and the
Spanish Heart Foundation, highlighting the power of workplaces to improve the health of
employees and the wider environment. Employees from participant companies took part in
walking activities, clocking more than 600,000km and raising funds to build healthy walking
routes in the city.
Corporate responsibility and sustainability
From 2016, we are categorising our customers in line with our
business model, grouping the numbers by insurance, provision
and aged care. Insurance customers reflect closing members
at the end of the year and do not include Rashtriya Swasthya
Bima Yojana (RSBY) customers. Provision customers comprise
people we have cared for in our health and dental clinics and
hospitals during the year. This figure also includes the Bupa
Home Healthcare customers we cared for until the sale of the
business in July. Aged care residents reflect the number of
residents in our care homes and retirement villages at the
end of the year. All numbers are inclusive of customers in
our associate and joint venture businesses.
In 2016, we replaced our annual employee survey with a
contemporary global People Listening System called ‘People
Pulse’. This includes measurement of an employee Net
Promoter Score (eNPS) – a widely recognised system to
measure employee recommendation of Bupa as a place to
work. Our October Pulse recorded an eNPS of +30, up nine
points from the first wave of results in July.
For more information, please visit bupa.com
1 Figure represents Bupa’s Total Carbon footprint, including Scope 1 emissions 65.4 kt CO
2
e, Scope2 emissions
65.9kt CO
2
e and Scope3 18.4kt CO
2
e.
Revenue increased by 4%, with solid growth across our three
largest Market Units – Australia and New Zealand, the UK
(when adjusted for the disposal of Bupa Home Healthcare in
July 2016) and Europe and Latin America despite challenging
operating environments and political uncertainty.
We achieved good profit growth in our three largest Market
Units – Australia and New Zealand, the UK, and Europe and
Latin America – and while performance within International
Markets was impacted by a significant decline in profit in Bupa
Global, the overall Group delivered growth, with underlying
profit up 10%, albeit up 2% when excluding the impact of the
IFRIC 12 adjustment, made in 2015.
Net cash generated from operating activities remains strong,
increasing to £891.0m (2015: £788.1m). This reflects the
impact of the foreign exchange fluctuations aecting profit
before tax and growth in earnings following the robust trading
performance from our three largest Market Units – Australia
and New Zealand, the UK and Europe and Latin America.
Solvency II capital coverage was 204% at year end following
a £400m subordinated bond issue in December 2016,
which occurred prior to completion of the Oasis Dental Care
purchase. The 2016 Solvency II capital coverage ratio is
an estimated value.
08 Bupa Annual Report 2016
Operating environment
– In the third quarter of 2016, Australia’s
economic growth declined for the fi rst time
in fi ve years, by 0.5%.
– The Australian Government is considering
reforms of the health insurance sector, and
a ordability remains a challenge not only for
Bupa and our customers, but for the broader
healthcare industry. There was very low
growth across the sector during the year.
– We are working with a variety of
stakeholders, including governments,
hospitals, doctors and our networks to
tackle rising overall healthcare costs.
– Changes to the Australian Aged Care
Funding Instrument will reduce aged care
sector funding, particularly for residents
with complex care needs. These changes
are expected to adversely impact revenue
and the sustainability of the whole aged
care sector and we continue to urge the
government to consider alternative
funding arrangements.
– In New Zealand, our care services business
has benefi ted from higher property values
during the year but was challenged by
care home occupancy rates and reduced
government funding. A pending fair wage
case for care homes could increase costs
in the sector.
Performance
In 2016, we performed well with 7% growth
in revenue and 9% growth in underlying
profi t despite low-growth macroeconomic
conditions and regulatory uncertainty.
We focused on transforming our business
and digitising manual processes to vastly
improve experiences for our customers.
Against the backdrop of slower overall growth
in the market, our health insurance business
grew to become Australia’s largest health
insurer for the fi rst time. We achieved a 3%
growth in customer numbers at year end,
which is the result of our focus on providing
enhanced customer service and better value.
We believe customer a ordability will continue
to be an issue for the sector in 2017. As a result,
we are focused on having a strong say in the
national health debate, advocating government
policy reform that will deliver a more a ordable
and e cient health system for all Australians.
We grew our health services business, with
our 237 Bupa dental practices making Bupa
Australia’s largest dental provider. We also
opened three new Bupa Optical stores in
Australia, taking the total to 37, with some
o ering audiology services for the fi rst time.
Bupa Aged Care Australia remains the
country’s leading private aged care provider,
caring for nearly 7,000 residents across
an expanding network of 71 homes.
Our Australian aged care business is
driven by a person-fi rst model of care
and a consistent management system.
During the year, our aged care business in
New Zealand grew, with four new care
homes opening at Wattle Downs, Parkstone,
St Andrews and Hugh Green. We also opened
a retirement village o ering at St. Andrews.
We are the leading provider of dementia care
in New Zealand and our focus is on ensuring
people with dementia are valued, can
contribute to and participate in society, and
importantly that they can feel safe doing so.
We are taking a leading role in dementia
awareness and care, partnering with
governments and industry.
We are committed to enhancing the
experience of our customers and people
through better and more e cient use of
technology. We are building new tools and
capabilities so our customers have meaningful
and personalised interactions with us,
whether in store, on the phone or online.
Australia &
New Zealand
Australia & New Zealand performed
well in 2016, achieving strong growth
in challenging local conditions.
Richard Bowden
CEO, Australia & New Zealand
Revenue
£4,360.6m
Underlying profi t
£344.4m
Customers
4m Insurance
1.9m Provision
10,800 Aged care
Our Market Unit strategy in action
+7%
2015:
£4,078.3m
+9%
2015:
£314.7m
CER
09Bupa Annual Report 2016
Strategic report Governance Financial statements
Operating environment
– The UK Government has further increased
the Insurance Premium Tax, which challenges
the a ordability of health insurance for our
customers. Together with industry partners,
we are championing the role of independent
healthcare and campaigning to make it
more a ordable for customers.
– The UK aged care sector remains under
pressure with increased costs including
the impact of the National Living Wage.
We are maintaining a disciplined approach
to fee negotiations with Local Authorities
in order to recover the true cost of caring
for publicly-funded residents.
– In 2016, we saw an uplift in contribution
from funded nursing care payments
towards the cost of providing registered
nursing care.
Performance
In the UK, good performances were delivered
across our businesses despite ongoing challenges
in the market. Revenue was down 3% due to
the disposal of Bupa Home Healthcare (BHH).
If BHH revenue is removed from 2015 and
2016 performance UK revenue was up 5%.
Our health insurance business has performed
well, with profi t driven by improved corporate
and consumer loss ratios. We are committed
to our digital transformation and innovating
to give our customers access to the best
care, with initiatives such as our pioneering
breast and bowel cancer self-referral service
providing our customers faster access to
diagnosis without the need for a GP referral.
In 2016, we also launched an expanded cataract
network tackling shortfalls in ophthalmology,
improving our customers’ experience. Our
intermediary partners are also seeing the
benefi ts of Bupa Connect, our user-friendly
online portal, which allows them to manage
their clients more e ectively.
Over the year we put considerable focus on
managing risk and compliance across all areas
of our business. We also made progress in
reshaping our portfolio. In July, we exited the
home healthcare market with the disposal
of BHH. In November, we announced our
agreement to purchase Oasis Dental Care
1
,
the UK’s leading private dental provider, from
European private equity group Bridgepoint.
This purchase forms part of our growth
strategy, making Bupa a major dental provider
in the UK’s £7.1bn dental market, with over two
million customers and around 420 clinics.
Following a review of our care services
business, we have identifi ed a number of
homes which are now held for sale to enable
us to focus our e orts and investment.
We remain committed to the growing aged
care sector. We refurbished 20 homes,
began building four new homes and acquired
two homes from Primetower Care. We are
expanding our portfolio of six Richmond
Care Villages with two new villages under
construction in Worcestershire and South
Derbyshire. Our care services occupancy
is 86%.
In our health clinics business, revenue growth
has been driven by health assessments,
dental, primary care and greater capacity
in our musculoskeletal services.
We are upgrading and improving our facilities
at Bupa Cromwell Hospital, where our £2.1m
investment in redeveloping our wards has taken
customer satisfaction scores for accommodation
from 71% to 91% post-completion.
David Hynam
CEO, UK
Revenue
£2,785.9m
Underlying profi t
£194.9m
Customers
2.4m Insurance
1.2m Provision
17,400 Aged care
-3%
2015:
£2,857.8m
+7%
2015:
£182.6m
United
Kingdom
In the UK, all our businesses delivered
good performances, despite ongoing
challenges in the market.
1 Bupa completed the purchase of Oasis Dental Care on
9 February 2017, subject to UK Competition and Markets
Authority (CMA) approval, with an enterprise value
of £835m.
10 Bupa Annual Report 2016
Our Market Unit strategy in action continued
Europe &
Latin America
Operating environment
– In Spain, after a year of uncertainty
following the fi rst general election in
December 2015, the new government
was formed in November 2016.
– The Polish market continues to show
positive signs of growth, in spite of
uncertainty around the impact of the
current government’s agenda.
– Despite a challenging political scenario, our
Public-Private Partnerships are meeting their
profi t targets while providing high quality
medical service in their respective areas.
– Legal uncertainties in Chile, which are
linked to the premium increase process,
are a ecting the performance of the
whole Isapre industry.
Performance
In Europe and Latin America, we delivered
strong growth in revenue of 10% with
underlying profi t up 63%. When excluding
the impact of the adjustment relating to our
Spanish Public-Private Partnerships in 2015,
underlying profi t was up 10%. Our business
units delivered good performance, with
growth in our dental and health funding
businesses and a year-on-year increase in
new customers numbers.
In Spain, we achieved revenue growth across
a number of business units, with a good
increase in our Sanitas Seguros private
medical insurance business as a result of
successful partnerships with SantaLucia
and Banco Bilbao Vizcaya Argentaria.
We are committed to digitising the entire
customer journey through a new version of
our Sanitas app, so customers can purchase
products on our website, fi nd a doctor and
make an appointment, undertake video
consultations with our doctors and access
their medical histories. Products such as Blua,
our health insurance o ering, are enhancing
the customer experience through direct
video consultations.
In Sanitas Mayores, our aged care business,
occupancy is 96%. We opened our 14
th
home
in Madrid and acquired a home in Valencia,
and are now operating 40 homes and three
day-care centres with a total capacity of nearly
5,000 residents.
In Sanitas Dental, we launched emergency
video consultations, o ering services outside
standard business hours, available nationwide.
We opened fi ve new dental centres and
acquired nine dental franchises.
In Sanitas Hospitales and New Services,
we have successfully created an integrated
care network in Barcelona connecting our
Sanitas CIMA Hospital with a network of
multi-specialty medical centres.
In Poland, LUX MED has achieved very
strong growth in revenue, primarily due to
good performance in our ambulatory and
inpatient businesses. Ambulatory revenues
were driven by demand for our core
subscription product, supported by a
strong fee-for-service revenue stream.
During the year, we increased our ownership
of Bupa Chile from 73% to 100%. Bupa Chile
has achieved year-on-year revenue growth,
with good performance in our hospital and
outpatient services and a performance
improvement in Isapre despite di cult
market conditions. Our claims programmes
and operating cost controls have driven
profi tability. In September, we strengthened
our dental business opening four centres
and o ering additional services at outpatient
care facilities, as well as dental insurance.
Construction of Clínica Bupa Santiago
hospital is well advanced and expected
to be operational from late 2017. We
are also expanding our Clínica Bupa
Antofagasta hospital.
Iñaki Ereño
CEO, Europe and Latin America
Revenue
£2,474.7m
Underlying profi t
£165.6m
Customers
2.9m Insurance
6.7m Provision
4,900 Aged care
Europe and Latin America delivered good
growth in revenue and underlying profi t and
made digital advances across the business.
+10%
2015:
£2,251.8m
+63%
2015:
£101.8m
CER
11Bupa Annual Report 2016
Strategic report Governance Financial statements
International
Markets
In International Markets, while revenue grew,
underlying profi t declined driven by a profi t
decline in Bupa Global.
Operating environment
– We operate in diverse markets across
the world where healthcare regulation
and the economic environment are
constantly evolving.
– Challenging market conditions in Saudi
Arabia, including a slowing economy,
have a ected profi t margins.
– The Indian health insurance sector is
attracting new entrants leading to a
competitive market.
– High claims in the fi rst half of 2016 due to
infl uenza led to a commercially challenging
year for Bupa Thailand.
Performance
In International Markets, while revenue
grew 1%, underlying profi t declined 52%,
predominantly due to a large profi t decline
in Bupa Global. As noted in our Half Year
statement in August, this was driven by the
ongoing impact of our 2013 decision to exit
non-strategic markets, which has led to
high lapses in the period, our investment in
capability and infrastructure to improve the
customer experience and grow our corporate
book, and a lower than anticipated rate of
growth in our individual and small medium
enterprise (SME) books. While progress is
being made, there will continue to be some
impact on performance in 2017.
In Hong Kong, we grew our market share
in private medical insurance through good
growth in revenue and customers, supported
by our bancassurance partnership with Hang
Seng Bank. Our Quality HealthCare clinics
delivered steady growth in patient visits, with
fi ve new facilities, including health centres and
clinics, opening in residential districts in Hong
Kong and new business secured with large
regional and multinational companies.
We announced our plans to open two
medical centres in Guangzhou, China in
2017. In Thailand, high claims in the fi rst half
of 2016 due to infl uenza led to a di cult
year, but customer numbers have remained
steady with revenue growth in the individual
and SME markets.
Our Bupa Arabia associate business continued
to deliver strong customer and revenue growth
despite less favourable economic conditions,
relaunching its health and wellness support
service, Tebtom, and introducing a point-of-
care service inside hospitals.
In India, we increased our shareholding of
Max Bupa from 26% to 49% in June 2016
following a change in the law allowing
greater foreign ownership. This business
has delivered strong year-on-year growth
in both customers and revenue.
In December, we announced the expansion
of our Bupa Global Latin American business
through the acquisition of Care Plus, a
market-leading health insurer in Brazil,
which serves more than 400 companies
with around 100,000 customers.
Wayne Close
Acting CEO, International Markets
Revenue
£1,427.8m
1
Underlying profi t
£65.9m
Customers
7. 2m Insurance
700,000 Provision
+1%
2015:
£1,418.9m
-52%
2015:
£138.1m
CER
1 While revenues from our associates and joint ventures are
excluded from our reported fi gures, customer numbers
and the appropriate share of profi t from these businesses
are included in our reported numbers.
12 Bupa Annual Report 2016
In 2016 we have maintained our strong fi nancial
position in challenging market conditions
through our focus on sustainable profi tability,
supported by our robust capital base.
Following the result of the referendum on the
UK’s membership in the European Union (EU),
sterling weakened considerably against our
major operational currencies (refer to currency
table) which has a positive impact across all
reported measures. Net cash generated from
operating activities refl ects these favourable
foreign exchange movements which, together
with our strong fi nancial discipline, result in an
increase in cash fl ows from operating activities
of 13% to £891m (2015: £788.1m).
The continued revenue and profi t growth
across our businesses underpins our cash
generation. In 2016 we delivered revenue
growth of 4% to £11bn (2015: £10.6bn) at
constant exchange rates (CER), with our
underlying profi t before tax increasing by 10%
to £700.7m (2015: £638.1m). The result is up
2% at CER in 2016 when excluding the £48.6m
impact of the IFRIC 12 adjustment
1
relating to
our Spanish PPPs in 2015. Underlying profi t
increased in all our Market Units in 2016, with
the exception of International Markets.
Our statutory profi t before taxation of £522.9m
(2015: £374.3m) is up 40% at actual exchange
rates (AER). This refl ects the good trading
performance in our Market Units in 2016, while
our 2015 result was negatively impacted by the
impairment of goodwill and a write down in the
value of property and equipment in UK Care
Services. The increase in 2016 is after a loss of
£112.3m on the redemption of the secured loan
notes as previously reported.
We continued to invest in our core markets.
In 2016 we acquired the remaining minority
interest shareholding in Bupa Chile, increased
our holding in Max Bupa to 49% and, in
December, we increased our footprint in Latin
America through the acquisition of Care Plus in
Brazil. Over the year we have made progress
in reshaping our portfolio in the UK. We sold
Bupa Home Healthcare in July and completed
the purchase of Oasis Dental Care in February
2017, subject to UK CMA clearance, having
announced our intention to do so in November
2016. We also undertook a review of our UK
care services business and as a result have
identifi ed a number of homes for sale as at
31December 2016.
Our capital base remains strong with an
estimated Solvency II surplus of £2.1bn
2
(2015:
£1.3bn), representing a coverage ratio of 204%
3
.
Our coverage ratio decreased to an estimated
165%
3
following the completion of the Oasis
Dental Care purchase in February 2017,
comfortably within our capital risk appetite.
This capital strength helped to support the
Moody’s upgrade of our Bupa Finance plc
senior debt rating from Baa2 to Baa1 in
September. The upgrade by Moody’s has
reduced our cost of borrowing under the
£800m committed bank facility and is
expected to underpin lower costs in future
debt issuances.
Our leverage ratio is down to 22.6% (2015:
27.7%) driven by strong repatriations and
foreign exchange movements. Following
the purchase of Oasis Dental Care in
February 2017, our leverage is approximately
7 percentage points higher than at the year end.
Financial Review
Joy Linton
Chief Financial O cer
“We have delivered strong cash generation, improved our
credit rating and restructured our debt. These actions
refl ect the strong fi nancial management disciplines we
have embedded across Bupa.”
Currency
2016 2015
%
Change
AUD average rate 1.8234 2.0370 -10%
AUD closing rate 1.7106 2.0210 -15%
EUR average rate 1.2234 1.3782 -11%
EUR closing rate 1.1703 1.3560 -14%
USD average rate 1.3547 1.5288 -11%
USD closing rate 1.2345 1.4734 -16%
Revenue
£11.0bn
Statutory profi t before tax
£522.9m
Solvency II coverage ratio
3
204%
+4% CER
2015: £10.6bn
+12% AER
2015: £9.8bn
+40% AER
2015: £374.3m
+26p.p.
2015: 178%
+10% CER
2015: £638.1m
+2% CER
4
+20% AER
2015: £582.5m
+62% AER
2015: £1.3bn
Underlying profi t
£700.7m
Net cash generated from
operating activities
£891.0m
Solvency II capital surplus
2
£2.1bn
+13% AER
2015: £788.1m
1 Refer to page 6 for further detail.
2 The 2016 Solvency II capital surplus is an estimate. The
2015 Solvency II capital surplus was updated to £1.3bn
from the £1.4bn estimate disclosed in the 2015 Annual
Report and Accounts.
3 The 2016 Solvency II coverage ratio is an estimate. The
2015 Solvency II coverage ratio was updated to 178% from
the 180% estimate disclosed in the 2015 Annual Report
and Accounts. The Solvency II number disclosed post
Oasis Dental Care completion is a pro-forma fi gure as if
the acquisition occurred at the balance sheet date.
4 Underlying profi t is up 2% at CER and up 12% at AER
when excluding the impact of the IFRIC 12 adjustment
relating to our Spanish Public-Private Partnerships (PPPs)
in 2015. Refer to page 6 for further detail.
13Bupa Annual Report 2016
Strategic report Governance Financial statements
Insurance Premium Tax. Care Services also
benefi tted from a number of factors including
an uplift in contribution from government
funded nursing care payments to support
the cost of providing registered nursing care.
These were partially o set by increased
sta costs following the introduction of
the National Living Wage in April.
The strong growth in Europe and Latin
America is primarily driven by growth in
Bupa Chile, including the Isapre, hospitals and
outpatient businesses, as well as increasing
our shareholding to 100% (2015: 73.7%). In
Spain we saw growth across most businesses.
In International Markets, our underlying profi t
declined 52%, primarily driven by Bupa Global.
This refl ects the continued impact of our
2013 decision to exit non-strategic markets
which has led to high lapses in the year, our
investment in capability and infrastructure
to improve the customer experience and
grow our corporate book, and a lower than
anticipated rate of growth in our individual
and small medium enterprise books.
Our underlying profi t result has also benefi tted
from lower fi nancial expense resulting from
the early redemption of the secured notes
(refer to the Funding section for further detail),
as well as lower debt costs following the
repayment of the £350m senior bond
which matured in July 2016.
Statutory profi t
In 2016 we generated 70% of our revenues
outside of the UK (2015: 66%). This
geographically diverse portfolio has driven
the 40% (AER) increase year-on-year in
statutory profi t before taxation due to the
signifi cant weakening of sterling against our
major operational currencies, together with
a lower number of negative non-underlying
items in 2016 compared to 2015, as presented
in the table above.
Most notably and as reported within our Half
Year results, in 2016 there was a net loss of
£112.3m on the redemption of the secured loan
notes (2015: £nil). The redemption reduced
the complexity and cost of maintaining this
expensive and complex piece of legacy debt
funding. It also reduced the ongoing interest
cost of our debt.
The gains on return seeking assets were
£22.9m (2015: £7m), driven by our corporate
bond and emerging market debt exposure. In
2017, we will continue to actively manage the
portfolio, consistent with our investment risk
appetite and in line with our views of
prospective asset class returns.
Following the reclassifi cation of a number of
UK care homes as assets held for sale, £10.7m
was recognised as the expected costs of sale
within net property revaluation losses.
To provide further year-on-year context, in
2015 there was a write down in the carrying
amount of goodwill and property and
equipment within our UK care services
business, resulting in a charge of £181.9m
to the income statement.
“Having no shareholders means
that our profi ts are continuously
reinvested into the business to
fund and provide more and better
healthcare, fulfi lling our purpose.”
Taxation
Our taxation expense of £136.1m (2015:
£96.0m) represents an e ective tax rate of
26.0%. The e ective rate is higher than the
UK statutory rate of 20% mainly due to
profi ts arising in higher tax territories.
We operate in a number of markets with
di erent tax rates ranging from 16.5% to
35.0% and the weighted average tax rate is
26.0%.
Non-underlying profi t items (AER)
2016
£m
2015
£m
Amortisation and impairments of intangible assets and impairments of goodwill arising
on business combinations (70.7) (160.6)
Net gains/(losses) on disposal of businesses and transaction costs relating to
business combinations 6.5 (3.8)
Net property revaluation losses (23.8) (61.7)
Realised and unrealised foreign exchange gains/(losses) 19.4 (11.7)
Other Market Unit and central non-underlying items (19.8) 22.6
Early termination of secured notes (112.3) –
Gains on return seeking assets, net of hedging 22.9
7.0
Total non-underlying profi t items (177.8) (208.2)
Underlying profi t
In order to compare trading performance in
a consistent manner year-on-year, a number
of non-trading items are removed from our
statutory profi t before taxation to arrive at
underlying profi t. Underlying profi t excludes
a number of components of the statutory
profi t before taxation, including items relating
to business combinations and disposals,
fl uctuations in foreign exchange rates,
property revaluations and gains or losses on
return seeking assets, along with other one-o
items as shown in the table. Refer to Note 2.0
for a detailed explanation of underlying profi t
and non-underlying items.
We achieved good underlying profi t growth
in our three largest Market Units – Australia
and New Zealand, the UK, and Europe and
Latin America. While performance within
our International Markets Market Unit was
impacted by a signifi cant decline in profi t in
Bupa Global, the overall Group delivered
growth with underlying profi t up 10%.
The 2015 result included a £48.6m IFRIC 12
adjustment in relation to our PPPs, excluding
this impact the 2016 result is up 2%.
Underlying profit by Market Unit (AER)
2016 2015
1. Australia and New Zealand 45% 41%
2.
United Kingdom 25% 27%
3.
Europe and Latin America 21% (restated) 13%
4.
International Markets 9% (restated) 19%
1
2
3
4
In our Australia and New Zealand Market
Unit, despite challenging trading conditions,
we achieved 9% underlying profi t growth.
The increase is due to a strong performance
in our health insurance business, and is
supported by increased occupancy in our
care homes and retirement villages.
In the UK, revenue was down 3% due to the
disposal of Bupa Home Healthcare in July.
Despite the revenue shortfall, the UK achieved
good underlying profi t growth due to our
health insurance business performing well
notwithstanding the further increase in
14 Bupa Annual Report 2016
Financial review
Continued
Cash fl ows
Net cash generated from operating activities
remains strong, increasing to £891.0m
(2015: £788.1m). This refl ects the growth in
earnings, strong infl ows from refundable
accommodation deposits and occupational
rights agreements following the opening
of new care home and retirement village
facilities in Australia and New Zealand, and
the favourable impact of foreign exchange.
Cash used in investing activities decreased by
£385.3m compared to 2015 primarily due to a
change in mix in our investment portfolio from
bonds into cash to support the repayment
of debt and the funding of business growth
and acquisitions. Capital expenditure of
£502.7m (2015: £386.4m) was invested in our
businesses, including the continued expansion
and refurbishment of our care homes. We
acquired a further 26.3% share holding in
Bupa Chile for £93.1m thereby achieving 100%
ownership. We increased our share holding
in Max Bupa in India from 26% to 49%, for
£21.9m, following the change in law allowing
greater foreign ownership. In December 2016
we also acquired 100% of Care Plus.
This was partly o set by £128.5m cash
received on sale of the zero coupon bond
that provided security for repayment of
the £235m secured loan notes and the net
cash proceeds from the sale of Bupa Home
Healthcare of £20.4m.
Cash outfl ows from fi nancing activities
increased by £458.0m compared to 2015.
The variance to the prior year is due to the
repayment of the aforementioned secured
loan notes (£381.6m) as well as the repayment
of senior unsecured bonds (£350m).
Partially o setting this were proceeds from
the £400m subordinated bond issued in
December 2016. As part of our e ective
capital management we settled hedging
instruments at a cost of £77.7m to o set
the impact of the weakening sterling.
Overall cash and cash equivalents increased
18% to £1,412.7m. These funds, in addition
to our fi nancial investments and longer
term deposits, continue to be managed
conservatively and in line with a clearly
articulated risk appetite. We actively manage
our counterparty exposures as part of our
ongoing risk management, and cash is only
invested with counterparties rated A/A2
or higher, unless approved by the relevant
Investment Committee.
Funding
Bupa Finance plc senior debt rating
Fitch
A-
(Stable outlook)
Moody’s
Baa1
(Stable outlook)
We manage our funding prudently to secure a
sustainable platform for our continued growth.
A key element of our funding policy is to
target an A-/A3 senior debt rating for Bupa
Finance plc, the main issuer of Bupa debt.
Our Bupa Finance plc senior debt rating was
upgraded by Moody’s from Baa2 to Baa1 in
September 2016. This follows the change to
positive outlook by Moody’s in September
2015, where they noted our low product risk,
improved fi nancial results and strong track
record in generating capital. The Fitch rating
was unchanged during the year at A- (stable).
The upgrade by Moody’s has reduced our
cost of borrowing under the £800m
committed bank facility and is expected to
underpin lower costs in future debt issuances.
Our continued focus on cash generation and
appropriate repatriation from Market Units
enabled us to fund growth in the business
and end the year undrawn on the £800m
committed bank facility.
We focus on managing our leverage in line
with our rating target. Leverage reduced
during the year, driven by lower borrowings
alongside the increase in equity from profi ts
and foreign exchange movements. At year
end, leverage stood at 22.6% (2015: 27.7%).
Following the completion of Oasis Dental Care
in February 2017, leverage is approximately
7 percentage points higher than at the year
end. Coverage of fi nancial covenants remains
considerably within levels required in Bupa’s
bank facilities.
“Our credit rating upgrade
in 2016 further supports our
fi nancial strength in pursuit
of long-term sustainability.”
On 1 April 2016, we took the opportunity to
redeem early both tranches of the £235m
secured loan notes, which were due to mature
in 2029 and 2031 with coupons of 6.3% and
7.5% respectively. The redemption reduced
the complexity and cost of maintaining the
debt. It also reduced the ongoing interest cost
of our debt. A zero coupon bond which was
in place to support the ultimate repayment
of one of the tranches of debt was
simultaneously unwound and helped to
fund the redemption. This resulted in a net
loss of £112.3m, which comprises the early
redemption of the notes (£151.6m) and profi t
on early termination of the zero coupon bond
(£39.3m). In July 2016, we repaid £350m of
7.5% senior unsecured bonds issued by Bupa
Finance plc in July 2009.
An additional committed bank facility of
£250m was agreed in June 2016 which was
due to mature in December 2017.
On 8 December 2016, Bupa Finance plc
issued a £400m 10 year tier 2 subordinated
bond with a coupon of 5%. Following the
bond issuance, a prepayment notice was
issued cancelling the commitment under
the £250m facility.
On 17 January 2017, Bupa Finance plc entered
into a £650m acquisition fi nancing facility to
part fund the purchase of Oasis Dental Care.
The facility has a 12 month term, with an option
to extend for a further six months.
Cash and Investments by Credit Rating (%)
1
2
3
4
5
2016 2015
1. AAA 3% 9%
2. AA
39% 41%
3. A 44% 41%
4. BBB
6% 4%
5. <BBB-/NR
8% 5%
15Bupa Annual Report 2016
Strategic report Governance Financial statements
Capital structure
2016
£bn
1
2015
£bn
Unrestricted Tier 1 2.9 2.2
Restricted Tier 1 0.4 0.4
Tier 2 0.9 0.5
Own Funds 4.2 3.1
Our capital comprises equity, exclusive of any
non-controlling interests, together with eligible
subordinated debt.
We have £330m of callable subordinated
perpetual guaranteed bonds, a £500m dated
hybrid bond which matures on 25 April 2023
and a £400m dated hybrid bond which matures
on 8 December 2026. These bond issues are
accounted for as liabilities in the IFRS fi nancial
statements, but are treated as solvency capital
for regulatory and management purposes.
Solvency position
We maintain regulatory capital coverage in
line with our capital management objective
as set out in Note 5.3.
At 31 December 2016, our eligible Own Funds,
determined in accordance with the Solvency II
valuation rules, were £4.2bn
1
(2015: £3.1bn),
which was in excess of our estimated SCR
of £2.1bn
1
(2015: £1.8bn). This represented a
solvency coverage ratio of 204%
2
(2015: 178%).
The completion of the purchase of Oasis
Dental Care in February 2017 reduced our
coverage ratio to an estimated 165%
2
,
comfortably within our capital risk appetite.
The key items of the reconciliation above:
– Goodwill and intangibles on the IFRS
balance sheet are not recognised as
Own Funds under Solvency ll.
– Subordinated debt is treated as Own
Funds under Solvency ll but as a liability
under IFRS.
– Pension surplus in excess of the pension
risk contribution to the SCR of £361m is
not included in Own Funds.
Own Funds SCR
£4.2bn
£2.1bn
Capital
surplus
£2.1bn
Solvency II capital position
Reconciliation of IFRS equity to Solvency II Own Funds
IFRS equity
attributable
to Bupa
Goodwill
and intangibles
Valuation
dierences
Pension
surplus
adjustment
Subordinated
debt
Solvency II
Own Funds
£6.6bn
£4.2bn
£3.4bn
£0.1bn £0.4bn
£1.3bn
“We continue to maintain
a strong solvency position,
which is comfortably within
our risk appetite.”
Solvency capital requirement
Analysis of the Solvency
Capital Requirement
2016 % of
diversifi ed
SCR
1
2015 % of
diversifi ed
SCR
1
Insurance risk 19% 19%
Market risk 60% 61%
Spread 2% 3%
Equity 2% 1%
Property 34% 31%
Currency 16% 13%
Pension Scheme 6% 13%
Counterparty risk 4% 3%
Operational risk 11% 11%
Participations (Associates) 6% 6%
100% 100%
SCR is calculated in accordance with the
Standard Formula specifi ed in the Solvency II
legislation. We have obtained approval from
the Prudential Regulation Authority (PRA)
to amend the formula with an Undertaking
Specifi c Parameter (USP) which refl ects our
own loss experience.
Replacing the standard parameter for
insurance premium risk with our own refl ects
the lower risk that our size, experience and
geographic diversifi cation brings.
The single largest risk component of our SCR
is property risk which relates to our care home
portfolio in the UK, Australia, New Zealand
and Spain. The majority of these care homes
are not in regulated entities and therefore our
policyholders are largely immunised for the
volatility of the property value.
Risk sensitivities
3
The following analysis shows the relative sensitivity
of our estimated solvency coverage ratio as
at 31 December 2016 to changes in market
conditions and underwriting performance.
Each sensitivity is an independent stress of
a single risk and does not take into account
management actions. The selected scenarios
do not represent our expectations for future
market and business conditions.
150 175 200100 125 225
Risk sensitivities
204%
204%
204%
204%
193%
201%
203%
196%
201%
Solvency Coverage Ratio
Interest rate +/- 100bps
Credit spreads + 100bps
assuming no credit transaction
Equity markets – 20%
Property values – 10%
GBP appreciates by 10%
Pension risk + 10%
USP + 0.2%
Loss ratio worsening by 2%
Outlook
In 2016 we have successfully navigated
challenging market conditions to achieve solid
trading performance, improved cash flows and
reduced leverage. As we look to the future, we will
continue to focus on growing and developing
our businesses, as well as driving operational
e ciencies while sustaining a strong capital
position and managing our funding to ensure
a sustainable platform to support future growth.
In 2017 we look forward to welcoming the Oasis
Dental Care team into the Bupa family, which
will make us a major provider of dental care
services in the UK and signifi cantly increase
our high street presence for customers.
1 The 2016 Solvency II capital position and SCR are an
estimate. The 2015 Solvency II capital surplus was
updated to £1.3bn from the £1.4bn estimate disclosed in
the 2015 Annual Report and Accounts.
3 The pension scheme surplus in excess of the pension
risk contribution to the SCR is su cient to cover the
sensitivity analysis stress such that the Group solvency
capital surplus is unchanged.
2 The 2016 Solvency II coverage ratio is an estimate. The
2015 Solvency II coverage ratio was updated to 178% from
the 180% estimate disclosed in the 2015 Annual Report
and Accounts. The Solvency II number disclosed post
Oasis Dental Care completion is a pro-forma fi gure as
if the acquisition occurred at the balance sheet date.
16 Bupa Annual Report 2016
In accordance with provision C2.2 of the 2014
UK Corporate Governance code the directors
have assessed the prospects of the Company
and the Group. They have evaluated Bupa’s
ability to continue in operation and meet its
liabilities as they fall due over a period of
three years.
The three-year assessment period was chosen
to align with the internal strategic planning
process. This planning period is consistent
with the nature of our business and is
considered an appropriate period for strategic
planning. The planning process considers all
key financial and capital metrics over the
period. The plan is also stressed for risks facing
individual business units, as well as for global
macro risks impacting Bupa as a whole.
Since 1 January 2016 the Group has been
subject to regulation and supervision under
Solvency II, which has promoted an increased
focus on risk management. The Bupa own risk
solvency assessment (ORSA) considers the
appropriate level of capital that is required to
meet overall solvency needs over the planning
period, given the current risk profile and the
strategy as articulated in the Bupa business
plan and risk appetite statement. It considers
all risks to Bupa as a whole. This assessment
concluded that Bupa’s strategy and business
plan provide reassurance that Bupa has
sucient capital and liquidity to continue to
meet regulatory capital requirements and
Bupa’s capital risk appetite over this period.
As part of the assessment of the viability of
Bupa, the directors have considered the
financial performance, capital management,
cash flow, solvency and future outlook. Bupa
is well capitalised and is expected to remain so
over the plan period. The insurance businesses
are cash generating and therefore expected
to be able to settle liabilities as they fall due.
Bupa has no shareholders and therefore has
no requirement to pay dividends. Instead
Bupa can invest in growing organically and
through acquisition.
The directors considered each of the principal
risks and uncertainties set out in the Risks
section from page 17 which include those
that would threaten its business model,
future performance, solvency or liquidity.
They are satisfied that Bupa has appropriate
risk management and governance procedures
in place to manage and mitigate these over
the plan period. Bupa’s governance structure
and the robust, regular reviews through
the Internal Control Risk Management
Assessment (ICRMA) process give comfort
in this regard.
Based on the results of this analysis and the
regular risk and capital reporting processes,
the directors have a reasonable expectation
that Bupa will be able to continue in operation
and meet its liabilities as they fall due
throughout the three year planning period
up to 31 December 2019.
The going concern assessment within the
Basis of Preparation in the financial statements
section includes information regarding the
directors’ detailed assessment of the Group’s
going concern status based on its current
position and forecast results. As part of this
assessment details are provided on Bupa’s
revolving credit facility and the Group’s
short-term liquidity position.
Longer term viability statement
17Bupa Annual Report 2016
Strategic report Governance Financial statements
Risks
Delivering our purpose sustainably
Overview
The risk profile of Bupa diers between
funding and provision activities. Bupa’s
geographic reach also exposes our Market
Units (MUs) to a wide range of political, legal
and economic contexts. We manage the risks
to Bupa as a whole by understanding the risk
drivers for our individual businesses and our
balance sheet and by assessing how they
interact. By understanding the risks we face,
we seek opportunities to benefit from risk
diversification, to identify emerging risks
and to understand and manage any risk
concentrations.
Risk Governance
We adopt a “three lines of defence” approach
to the governance of risk management which
is set out in our Risk Management Framework
as described below.
The first line of defence encompasses
management and sta in our MUs,
Business Units and the Centre. MU CEOs
are responsible for the identification and
management of their risks. In each MU,
executive risk committees, chaired by the MU
CEO, scrutinise their risk profiles and generate
mitigating actions where necessary covering
both the funding and provision businesses.
This process culminates in the Bupa Group
CEO chairing an enterprise-wide committee,
the Bupa Enterprise Risk Committee (BERC),
which brings the whole picture together.
For some key categories of risk there are
specific risk forums, such as the Clinical
Governance and Quality Steering Committee.
Each of the large insurance entities also has
a Board Risk Committee composed primarily
of independent Non-Executive Directors
(NEDs) to oversee the operation of the risk
management framework. Subsidiary boards
receive reports from local management and
local risk directors.
The second line of defence is comprised of
risk and compliance and clinical governance
functions both at the Centre and within MUs.
Bupa has a global Risk Function led by
the Chief Risk Ocer. Its role is to advise,
challenge and oversee the first line risk
management activities and to collate reports
for management and the Board on their
independent views on risk issues.
The Bupa Board Risk Committee (BRC)
receives the minutes from the subsidiary
board committees and the BERC, and reports
from the Chief Risk Ocer and other Bupa
executives as appropriate, covering both the
funding and provision businesses. The BRC is
accountable for the oversight of risk by the
Board and recommends risk appetite to the
Board for approval.
The third line of defence is Internal Audit.
Bupa has a global Internal Audit Function led
by the Chief Internal Auditor at the Centre.
Internal Audit is responsible for providing
assurance over the eectiveness and
adequacy of governance and risk and
controls, including the activities undertaken
by the first and second lines in accordance
with the Global Internal Audit Plan, which is
approved by the Board Audit Committee.
Risk framework
We manage risks according to a Board
approved Risk Management Framework
covering funding and provision businesses.
This sets out the principles underpinning a
robust and continuous risk management
system for the first line. This ensures:
– Current and emerging risks to the business
are identified and the potential
consequences of them are understood;
– We have clear and established risk appetites
within which we operate. These are
discussed further below;
– Appropriate and eective steps are taken
to mitigate and manage identified risks;
– Risk management information is utilised
to make risk based decisions across
the business;
– There is clear ownership of, and
accountability for, risk;
– There is a culture in which:
– Appropriate risk behaviours are
encouraged and rewarded;
– Inappropriate behaviours are
challenged and sanctioned;
– Risk events are communicated
as quickly as good news without
fear of blame.
We have well-established, regular reporting
mechanisms in place which ensure that
relevant top risks for our businesses are
appropriately identified and escalated.
These processes also ensure that strategies
to manage and mitigate the risks to
acceptable levels are identified and executed.
“Understanding our risks is the responsibility of everyone at
Bupa and allows us to make the best decisions for our customers,
our people and Bupa. Through an appropriately embedded
framework for taking and accepting suitable risks, Bupa is
able to deliver its purpose sustainably into the future."
David Fletcher
Chief Risk Ocer
18 Bupa Annual Report 2016
Risks
Continued
Our Enterprise policies define the way we do
business and cover funding and provision.
The policies cover all key areas of risk and
are implemented in our MUs which monitor
compliance against the requirements. These
policies all have designated ownership at both
the enterprise and MU levels with defined
roles and responsibilities. These policies are
reviewed on an annual basis.
The processes we use to identify, measure,
manage, monitor and report risks, include a
programme of stress and scenario testing. We
also undertake specific detailed reviews on
particular risks where considered necessary.
We test the eectiveness of our
implementation of the Risk Management
Framework through our Internal Control and
Risk Management Assessment (ICRMA).
This aims to assess how well internal control
and risk management practices and policy
compliance are embedded across Bupa.
This is a self-assessment conducted by the
first line of defence, which is subject to review
and challenge by the second and third lines.
This assessment has been conducted on a half
yearly basis and the results are presented to
the Audit Committee and the Risk Committee.
Risk appetite
Our Board risk appetite expresses the degree
of risk we are prepared to accept as we work
to deliver on our strategy. Our core risk
appetite statements focus on:
– management of our financial strength;
– the treatment of customers and employees;
– the sustainability of our business; and
– operational risk.
Our risk appetite statements are a key
consideration in our business planning process
and a central reference point for key decisions.
These statements are not intended to
automatically prevent activity outside of
Bupa’s risk appetite, but rather to help identify
any such instances in a timely manner so
that the Board can consider an appropriate
response.
The statements apply to all MUs. MU
Enterprise Risk Committees ensure risk limits,
consistent with Bupa’s Risk Appetite statements,
are in place to manage the amount of risk
taken within businesses and at the MU level.
There is regular reporting against our risk
appetite statement limits at an MU and Group
level to the Enterprise Risk Committees and to
the Board Risk Committees.
The risk appetite statements are reviewed
on an annual basis, with the Board Risk
Committee recommending any changes to
the statements to the Board for approval.
What we did in 2016
During 2016, we continued to strengthen
our risk management approach and capability
in response to Bupa’s growth and the increasing
expectations of our regulators around the
world. The Solvency II Directive came into
force from 1 January 2016 and is now business
as usual, with the ORSA process and report
considered to be a key part of our Risk
Management Framework. Insurance,
healthcare and care services are highly
sensitive and regulated sectors and we are
increasing our focus on management of risk
and compliance to ensure we continue to
uphold the high standards our customers
and regulators expect.
We have continued to embed all aspects of our
risk management framework, including:
– refreshing our Enterprise policies to ensure
the scope of the policies and the requirements
within the policies remain adequate;
– strengthening our crisis management
and business continuity capability;
– reviewing how risk management factors
into our reward system;
– conducting a detailed review of how
eectively we are mitigating operational
risks through insurance;
– enhancing our ongoing regular risk
reporting particularly in relation to
risk appetite;
– introducing the Bupa Code, which aims
to support all sta at Bupa to make the
correct choices to protect our customers,
our colleagues, our partners and Bupa;
– assessing the resilience of Bupa’s business
model, including contagion risk of unrelated
events in dierent parts of the group; and
– undertaking a stress and scenario testing
programme to strengthen our understanding
of severe scenario risks and how they may
interact with business plan.
We are focused on ensuring that our risk
management framework is fully embedded
across the Group. This includes ensuring that
processes and controls are designed and
operating eectively and well documented
in all MUs in line with our Enterprise Policies.
We continue to look to ensure the training
of our people is appropriate and adequate.
We are also deepening our understanding of
particular areas of risk most notably in regards
to the governance of all aspects of information
risk and cyber security risk (see case study
below); financial crime risk, pension risk and
aspects of conduct risk.
Managing cybersecurity risk
Our cybersecurity programme, which
commenced in 2015, has continued
throughout 2016. The programme has
increased a range of capabilities, including
cybersecurity controls, incident response
and crisis management, people capabilities
and post-incident customer care. This is a
Group wide programme and is enhancing
our capabilities across all our MUs. This
includes ensuring our IT systems that
monitor and detect external threats are
appropriate and implementing a robust
and consistent internal control framework.
This has been supported by the formation
of a new Directorate of Information
Strategy and Governance in the first line
to lead this programme. Working with the
Risk function, the Directorate has realigned
our risk categorisation to give our executive
and board risk committees clearer visibility
of cybersecurity risk on a quarterly basis.
Fundamental cybersecurity controls have
also formed a key focus of our Internal
Audit plans.
Risk profile
Bupa accepts risks as part of its business
operation. Some risks are avoidable (e.g. certain
financial risks) and others are part and parcel
of Bupa’s business model (e.g. operational
risks). We consider that we have an eective
risk management system and appropriate
internal controls in place to mitigate our risks.
Bupa maintains significant economic capital
as a mitigant against certain inherent risks.
These reflect the nature of our operations
and the level of risk associated with them.
19Bupa Annual Report 2016
Strategic report Governance Financial statements
These risks are set out in the table below in order of magnitude of SCR.
– By maintaining a geographic spread of
businesses across the globe, Bupa is
able to diversify exposure to individual
property markets.
– Care home valuations are based
on underlying profitability of the
individual homes.
– The relatively short-tailed nature of
Bupa’s products allows Bupa to respond
to market changes quickly.
– Bupa has extensive control mechanisms in
place to mitigate against the risk of higher
than expected claims costs.
– Health insurance is a well diversified
business and the geographical diversity of
Bupa provides further mitigation against
insurance risk.
– Bupa’s bond portfolio is small in relation
to its other financial assets and of
investment grade.
– Counterparty exposure is managed by
dealing with highly rated counterparties
with exposure limits as per Group Treasury
Policy. In addition, Bupa does not permit
securitised lending of its assets.
– Maintenance of robust internal control
processes and governance frameworks, the
approval of risk policies, and the assessment
of compliance helps mitigate this risk.
– All MUs have a Medical Director responsible
for ensuring clinical quality and governance
within the business. They are accountable
to the Chief Medical Ocer (CMO) for
clinical governance.
– Currency translation risk is partially
mitigated through a hedging programme.
– Asset liability matching in local currencies
helps ensure that sucient funds are held
in the local currency therefore limiting
currency risk exposure.
Property risk
Risk of devaluations in property markets
leading to a material devaluation of Bupa’s
property portfolio such as head oces,
hospitals and care homes.
Insurance risk
Risks relating to Bupa’s insurance
businesses. Risk of inadequate pricing
and/or underwriting of insurance policies,
and of claims experience being materially
adversely dierent to expectations.
– Bupa generally owns rather than rents
property, which keeps lease commitments
down but leaves Bupa exposed to falls
in property values.
– If Bupa expands its care provision businesses
and, if properties are owned rather than leased,
its property risk exposure would increase.
– Bupa’s health insurance is short-tailed with
lower outstanding claims as a percentage
of revenue than most general insurers.
– Insurance risk exposure will grow with
planned growth in premium income of
the funding businesses.
Risk Comment and outlook Mitigating actions
Currency risk
Risk arising from changes in the level,
or volatility, of currency exchange rates
impacting on cash flows and assets
held in currencies other than sterling,
and on the financial statements.
– As the net assets of businesses outside
the UK grow there will be a corresponding
increase in currency risk in relation to
translation into sterling.
– There is transactional risk relating to
policies where premiums and claims
are in dierent currencies
Credit Spread and
Counterparty Default Risks
Risk of a loss in value of bond assets
and/or that a counterparty fails to meet
its obligations in the face of dicult
economic conditions. This also includes
the risk of a loss in value of the bond
assets held within the Pension Schemes.
– Bupa’s funding businesses have modest
holdings of corporate and other bonds.
These are exposed to the risk of widening
spreads and defaults.
– There is banking counterparty default
risk in respect of deposits.
Operational Risk (including
Conduct Risk and Clinical Risk)
Risk of loss arising from inadequate or failed
internal processes, or from personnel,
systems or external events. This includes
Conduct and Clinical Risk.
– We are committed to managing operational
risk eectively. This includes continued close
attention to management of regulatory risk
and proactive engagement with regulators.
– As Bupa expands its care provision businesses,
there will be an increase in inherent exposure
to clinical risk. This is being actively managed
through continued refinement of our approach
to clinical risk governance.
20 Bu pa Annual Report 2016
There are other risks that cannot be eectively mitigated through capital. These are significant risks to Bupa. The MU Risk Committees regularly
review the residual risks arising and the mitigating actions in place to reduce the levels of residual risk and the key themes and any areas of specific
concern are provided to the Board and Enterprise Risk Committees. This provides management with a view of the areas of priorities to focus
resources. The table below reflects the themes of the most significant risks currently facing Bupa from the latest review.
Risks
Continued
– MU ownership is an important component
of how change is managed and each MU has
defined plans in place covering the change
programmes underway.
– We are focusing on ensuring we have the
right levels and amount of experience and
succession plans to manage our businesses
and deliver on change management,
supported by a simple more automated
operating model and enhanced ways of
delivering training.
– MU specific programmes of work are
in place to continue to address this risk.
– This is being supported by the
implementation of the Information Risk
Operating Model.
– Aected MUs have projects to implement
the new European regulations, with a
central oversight and assurance programme
in place.
– All MUs have defined key activities to ensure
we can continue to appropriately monitor,
lobby and consider strategic implications
on our businesses of any future changes in
policy or regulation.
– This risk has been identified and reported
as significant by all MUs and the Centre.
A detailed programme of activities is
underway across Bupa to ensure this risk
is appropriately mitigated.
Change risks – transformations
and transactions
The risk that change programmes and portfolios
of transformation are not adequately planned or
managed, fail to deliver expected benefits, or do
not deliver in appropriate timescales resulting in
adverse impacts.
People
The risk that we do not have the appropriate
levels of capacity and capability of people to
deliver our strategic objectives.
– This risk could lead to excessive management
stretch, inadequate capability within the
organisation, failure to identify and manage
key risks.
– Failure to deliver on aspects of the existing
transformation programmes which are of
strategic importance to Bupa could have
significant impacts.
– As a complex business with a multinational
footprint it is critical to the delivery of our
strategy that our people have the appropriate
knowledge, skills and experience to identify
and manage risk and to deliver on objectives.
Risk Comment and outlook Mitigating actions
Cyber resilience
The risk that our inability to identify and respond
to a successful information breach through an
Advanced Persistent Threat (APTs) results in
adverse impacts.
– Healthcare providers are increasingly being
targeted by APTs.
Information governance
The risk that a failure in our policies or controls
over the management and security of
personal data and other information results
in adverse impacts.
Changes in government and
regulatory policy
The risk that political, government, regulatory,
economic or market changes adversely
impact on the delivery of Bupa’s strategy.
Also includes the risk that changes are either
not reacted to quickly enough or are responded
to inappropriately.
– We continue to review and enhance our
controls over the management and security
of information.
– For EU-based MUs there is also an additional
risk arising from the implementation of a new
European regulation on data in 2018.
– Our funding and provision businesses operate
in the context of government and regulatory
policy ranging from minimum wage
requirements to prudential requirements
and include clinical care requirements for
our provision businesses.
21Bupa Annual Report 2016
Strategic report Governance Financial statements
There are also other risks where capital is not an appropriate mitigant and even though they are not highlighted in the table above they are always
a priority issue for management. These are set out in more detail in the table below.
– This is mitigated by the Treasury Function
actively managing borrowings, where the
amount and timing of outflows are known,
and maintaining a portion of the Bank
Facility undrawn.
– We have refreshed our strategy, and
remain focused on delivering value for
money and great service and care to
our customers.
– Our purpose – helping people live longer,
healthier, happier lives – and our values
shape how we act and deliver for our
customers and our people.
– Through the identification and assessment
of emerging risks we are able to react to
issues in a timely and appropriate manner.
– We continue to review our strategy and
processes to ensure that they are flexible
enough to take into account changing
external conditions.
– While there will be commercial, operational
and legal impacts from the UK’s eventual exit
from the EU, it is too early to conclude how
the UK exit will aect the Group’s businesses,
customers and employees.
– While the UK Government has set out
its intention to leave the ‘Single Market’,
uncertainties remain relating to limitations
about the movement of people and workers,
regulation of financial services (passporting)
and the wider impact on the UK economy.
Liquidity risk
The risk of insucient financial resources to
enable Bupa to meet its obligations as they
fall due or to take advantage of potential
opportunities, or being able to secure such
resources only at excessive cost, resulting in
adverse impacts.
Strategic risks
The risk of the inability to design or implement
appropriate business plans and strategies,
make decisions, allocate resources, or adapt
to changes in the business environment.
– Liquidity risk is addressed not by capital
but by holding liquid assets and through
appropriate controls.
– With policyholder liabilities predominantly
backed by liquid assets, Bupa’s liquidity risk
exposure primarily relates to the funding risk
associated with borrowings.
– The world is changing rapidly. The political
and economic backdrop is uncertain,
with powerful global social trends. Populations
are ageing, public health solutions are
ever-evolving, governments are facing
funding issues in healthcare and aged care,
and competition is intense – both from
traditional and non-traditional players.
Risk Comment and outlook Mitigating actions
Risk Comment and outlook Mitigating actions
External conditions
There are a number of evolving economic and
geo-political conditions in the markets Bupa
operates in that could impact our business model.
UK exit of the EU
The result of the UK Referendum to leave the EU
has introduced uncertainty to our business.
– These include structural market changes (e.g.
political change, medical inflation, minimum
wage increases) and economic volatility.
– The immediate impact on Bupa’s financial
position following the EU referendum in June
has been limited.
– Liquidity remains strong, our investment
portfolio is largely cash-based and low risk
and our statutory profits and cashflows would
be higher if sterling continues to stay weak.
– The UK Government intends to notify the
intention to leave the EU by the end of March
2017 which will start the formal process.
22 Bupa Annual Report 2016
Governance report
Chairman’s introduction to governance
Good corporate governance must be
at the centre of any well-run company.
Our status as a company limited by
guarantee, without shareholders, enables
Bupa to make our customers our focus.
Our profi ts are reinvested to provide more
and better healthcare for current and future
customers, taking a longer term view.
In this governance report we explain the
Board’s role in promoting a fair, accountable,
responsible and transparent approach to
corporate governance.
Board composition and
succession planning
Stuart Fletcher stepped down as CEO on
4April 2016 after four years, having brought
the customer and our people to the fore, as
well as extending Bupa’s global footprint.
The Board extends their thanks to Stuart
for his service. The Board appointed Evelyn
Bourke as Acting Group CEO, confi rming her
appointment as Group CEO on 25 July 2016.
Evelyn was previously Bupa’s CFO for nearly
four years. The Nomination & Governance
Committee’s Report on pages 40-41 outlines
the recruitment process undertaken.
Joy Linton, was appointed as Acting CFO
on 1 May 2016, becoming CFO on 25 July.
She brings 30 years’ experience in fi nancial
and strategic roles in Australia and the UK.
Full biographical details for Evelyn and
Joy are included on page 25. These internal
appointments were identifi ed in Bupa’s
succession plans, which are considered
by the Board on a regular basis.
Simon Blair and Janet Voûte joined the
Board as Non-Executive Directors (NEDs)
on 12January 2016 further strengthening
the skills and international experience of our
Board. Rita Clifton retired from the Board at
the conclusion of the AGM on 11 May 2016.
The Board would like to thank Rita for her
six years of service as a NED, including
her contribution as a member of the
Remuneration and Nomination &
Governance Committees.
The Board will continue to regularly review
and assess our succession plans to ensure
an orderly refreshment of the Board as NEDs
come to the end of their tenure. It will also
continue to focus on strengthening the
executive pipeline within the business.
Diversity statement
We are pleased to report, that at the
year end, 40% of our Board was female.
We have already surpassed Lord Davies’
recommendation that by 2020, boards of
FTSE 350 companies should aim for 33%
female representation. Gender is, however,
only one measure of diversity and Bupa
believes diversity should be considered more
broadly including a wide range of relevant
skills and experience. Our Board diversity
policy can be found on bupa.com and
is covered in more detail on page 29 of
this report.
“We aim to operate to the same
governance standards as required
of UK FTSE 100 companies,
where appropriate. The Board
closely monitors developments
in corporate governance and
assesses how these can be
applied to Bupa.”
Lord Leitch
Chairman
See page 34
See page 38 See page 40 See page 42
Bupa Board
Audit
Committee
Risk
Committee
Nomination
& Governance
Committee
Remuneration
Committee
Board and Committee structure
The Board delegates certain matters to the Audit, Risk, Nomination & Governance and
Remuneration Committees. The activities of the Board and its Committees are detailed
later in this governance report.
23Bupa Annual Report 2016
Strategic report Governance Financial statements
Remuneration
Bupa aligns its remuneration policy with
performance and strategy by incentivising our
Executive Directors and senior management
to focus on the long term and to fulfi l our
purpose for current and future customers.
The Directors’ Remuneration Report on
pages 42-52 gives further detail on the
design of the Remuneration Policy and
how it was implemented during 2016.
Board evaluation
Independent Audit Limited conducted our
third, externally-facilitated, Board and
Committee evaluation in the autumn of 2016
and the key fi ndings are set out in more
detail in the E ectiveness Report on page 31
and within each of the Committee reports.
The Board discussed the results at its meeting
in December 2016. There is a plan to address
the key development areas identifi ed in the
evaluation process which will be monitored
by the Nomination & Governance Committee
during 2017. This evaluation confi rmed that
the Board and its Committees continue to
be e ective.
Committee structure change
As detailed in the 2015 Annual Report, it
was agreed that the aims and objectives of
the Medical Advisory Panel would be more
e ectively achieved through a di erent
approach. This included the appointment
of Sir John Tooke to the Risk Committee,
the expansion of the independent oversight
of the Executive Global Clinical Governance
and Quality Steering Committee and the
establishment of a new Medical Advisory
Council to advise on health horizon scanning
and to support Bupa on key medical risks and
opportunities relevant to delivering Bupa’s
purpose. Details of the Risk Committee’s
oversight of Clinical Risk are covered on
pages 38-39.
Association Members
Board oversight, which in listed companies
is normally provided by shareholders, is
exercised in Bupa by a body of around 100
distinguished Association Members (AMs).
Serving for an initial term of up to 10 years,
AMs are drawn mainly from business, public
life, the medical professions, the charitable
sector and academia. AMs are independent
and do not have any claim on the assets of
Bupa. They do not receive a fee for their
service or a share of profi ts or dividends.
At the end of 2016, there were 115 AMs.
They are kept informed of Bupa’s strategy
and performance through regular AM Briefings
and at the AGM. The Group CEO, Chairman
and Senior Independent Director (SID)
are also available to answer questions on
an individual basis. AMs views are heard
and communicated to the Board and to
relevant teams throughout the business.
More information on how Bupa engages
with our AMs is on page 33.
Statement of compliance
As part of our commitment to excellence,
we aim to operate to the same governance
standards as required of UK FTSE 100
companies, where appropriate. We have
applied the main principles and complied with
all of the relevant provisions, for a company
without shareholders, of the UK Corporate
Governance Code (the Code) throughout
2016. Information on our external audit
tendering plans can be found in the Audit
Committee report on pages 34-37.
The Corporate Governance Report on
pages 22-41, together with the Remuneration
Report on pages 42-52, describe how we
have applied the main principles of the Code
during the year.
Our governance arrangements continue
to be reviewed in line with developments
in best practice. This includes considering
consultations and guidance issued from
the FRC in the UK as well as governance
bodies globally.
Lord Leitch
Chairman
Read more
Board evaluation page 31
Engagement page 33
24 Bupa Annual Report 2016
Governance report
Board of Directors
456
987
32 1
10 11
25Bupa Annual Report 2016
Strategic report Governance Financial statements
1. Lord Leitch, Chairman
Non-Executive Chairman
N Re
Joined the Board in May 2005; appointed
Chairman in November 2006. Lord Leitch has
a deep and broad knowledge of insurance and
fi nancial services gained over fi ve decades as a
senior executive in a number of major international
businesses. Lord Leitch is currently Chairman
of Intrinsic Financial Services, Chairman of FNZ
(Group), Non-Executive Director of Old Mutual
Wealth, and member of the House of Lords.
Previously Deputy Chairman of Lloyds Banking
Group plc, Chairman of Scottish Widows plc,
Senior Independent Director at United Business
Media plc, Chairman and Chief Executive Zurich
Financial Services UK, Ireland, South Africa and
Asia Pacifi c, and Chairman of the Association of
British Insurers.
2. Evelyn Bourke, Group Chief Executive
O cer
Executive Director
Appointed as Group CEO on 25 July 2016.
Previously served as Acting Group CEO from
4 April 2016 and CFO from September 2012.
Evelyn has a strong track record and extensive
experience in fi nancial services, risk and capital
management, and mergers and acquisitions.
A qualifi ed actuary, she also holds an MBA from
London Business School and was previously
a Non-Executive Director of the IFG Group in
Ireland. Evelyn joined from Friends Life where she
was Chief Executive O cer of its Heritage division.
Previously at Friends Provident, she was the
Executive Director responsible for strategy, capital
and risk and, before that, Chief Financial O cer.
3. Joy Linton, Chief Financial O cer
Executive Director
Appointed CFO on 25 July 2016, and previously
served as Acting CFO from 1 May 2016. Joy brings
30 years’ experience in fi nancial and strategic
roles in Australia and the UK. She joined Bupa
in March 2011 as Finance Director of Bupa’s
Australian Health Insurance business, later
becoming Finance and Commercial Director of
Bupa Australia and New Zealand. Joy became
Bupa’s Chief People O cer on an interim basis
in 2015, prior to becoming General Manager,
Health Services for Bupa UK. Previously, she was
CFO of National Foods, one of Australia’s largest
food and beverage companies. She was also a
Non-Executive Director of Bega Cheese Ltd,
an ASX-200 listed company, serving as Chair
of their Audit and Risk Committee.
4. Lawrence Churchill, CBE
Senior Independent Director
Ri A N Re
Joined the Board in July 2009 and became the
SID on 14 May 2015. Lawrence brings considerable
expertise from operating in large, complex
organisations and has extensive knowledge of
fi nancial services, risk management, general
management and public policy. Lawrence is Chairman
of the Board of the Financial Services Compensation
Scheme, Chairman of the Independent Governance
Committee of Prudential Assurance Company
and a Trustee of Prudential Corporate Trustee
Limited. He is also Chairman of the Pensions Policy
Institute and Trustee of Age UK. Previously Chairman
of the NEST Corporation and the Pension Protection
Fund, a member of the Board for Actuarial
Standards, Chief Executive of Zurich Financial
Services UK, Executive Chairman of UNUM,
CEO of NatWest Life and Investments, and a
Director of the Association of British Insurers.
5. Simon Blair
Independent Non-Executive Director
A Ri
Joined the Board in January 2016. Simon brings
international experience, particularly gained
in Australia and New Zealand, and a strong
understanding of the insurance and healthcare
sectors. He is a Non-Executive Director of the
Bank of Hangzhao, Sovereign Assurance, ASB
Bank and BoCommLife. Simon was Group
Executive International Financial Services for
the Commonwealth Bank of Australia. He was
previously Chief Operating O cer at Australian
health insurer, Medibank, Lead Health Specialist
for the World Bank, and CEO of Inner & Eastern
Healthcare Network, then Australia’s largest
public hospital group.
6. Roger Davis
Independent Non-Executive Director
A Re
Joined the Board in July 2015. Roger has extensive
business experience and an international mindset
acquired during a wide-ranging career in fi nancial
services. He is Chairman of Gem Diamonds, Sainsbury’s
Bank, Global RadioData Communications (GRC)
and Future for Heroes. Roger is also a Non-Executive
Director of Experian. He has extensive experience
in the UK and Asia with previous positions including
Managing Director of India for Jardine Fleming,
Chief Executive O cer of BZW Asia Pacifi c, and
Chairman and Chief Executive of Barclays Capital
Asia Pacifi c. He left Barclays as Executive Director
and Head of the UK Bank in 2005.
7. Martin Houston
Independent Non-Executive Director
Re N
Joined the Board in January 2014. Martin brings
extensive international business experience to
the Board. He is Chairman of TPH International
and Vice Chairman of Tellurian Investments.
He is also a Non-Executive Director of CC Energy
Development and Vice Chairman of Hakluyt North
America. Previously Martin was Chief Operating
O cer and Executive Director of BG Group plc
where he spent 32 years. He is a Fellow of the
Geological Society of London, is on the advisory
board of the Royal Opera House of London, is
a member of the advisory board of the Global
Energy Policy unit at Columbia University’s
School of International and Public A airs in
New York and is a former Non-Executive
Director of Severn Trent plc.
8. Clare Thompson
Independent Non-Executive Director
A Ri N
Joined the Board in May 2015. Clare brings a
wealth of experience, particularly in the areas of
finance and insurance. She is also a Non-Executive
Director of Direct Line Group and Retail Charity
Bonds plc, a Non-Executive member of the
Partnership Board of Miller Insurance Services
LLP and a Trustee and Treasurer of the Disasters
Emergency Committee. Clare was a Partner at
PricewaterhouseCoopers (PwC) from 1988 until 2011.
While she was at PwC, she held several senior
and high profi le roles, particularly within the
insurance sector. Clare is a Fellow of the Institute
of Chartered Accountants in England and Wales.
9. Professor Sir John Tooke
Independent Non-Executive Director
Ri N
Joined the Board in July 2009. Sir John brings his
medical expertise, gained over 40 years, to advise
the Board on clinical governance and advances in
healthcare practices and treatments. A consultant
physician, he is immediate past President of the
Academy of Medical Sciences. Sir John chairs
the Centre for the Advancement of Sustainable
Medical Innovation, joint between UCL and
Oxford University, and is Executive Chairman
of Academic Health Solutions Ltd. He is also a
Member of the Independent Review Board for
Google DeepMindHealth.
10. Janet Voûte
Independent Non-Executive Director
Ri Re
Joined the Board in January 2016. Janet brings
an international perspective and experience
gained in corporate strategy, the health and care
sector and consumer facing businesses. She is
Chairman of the Creating Shared Value Council
at Nestlé SA and serves as an Ambassador of
the International Integrated Reporting Initiative.
Previously she served as Global Head of Public
A airs at Nestlé SA and was a member of the
board of Bamboo Finance SA. She also served
as Partnership Advisor at the World Health
Organization in the area of non-communicable
diseases and mental health and as CEO of the
World Heart Federation. Janet was formerly
Vice President and Managing Partner at Bain &
Company Switzerland.
11. Julian Sanders
Company Secretary
Appointed as Company Secretary in July 2014.
Julian was formerly Deputy Company Secretary,
having joined Bupa in 1988. Prior to joining Bupa
he was a Supervisor in the Business Services
Group at Coopers & Lybrand (now PwC).
Committee Chairman
Audit
Risk
Nomination & Governance
Remuneration
A
Ri
N
Re
Full details of each director are available on
bupa.com/corporate/about-us
Committee key
26 Bupa Annual Report 2016
Governance report
Bupa Executive Team
13
87 9
10 11 12
32 1
456
27Bupa Annual Report 2016
Strategic report Governance Financial statements
The Bupa Executive Team (BET) is comprised
of the Group CEO, who chairs the meetings,
the CFO, the CEOs of the four Market Units
and all Global Function Directors.
The BET meets regularly throughout the
year to focus on Bupa’s global strategic
agenda, which supports each BET member
as they manage performance and risk in their
individual roles. In particular, the BET spends
time together on:
– Bupa’s refreshed strategic framework.
– Calibrating performance and generating
improved opportunities.
– Aligning on priorities, including business
development and M&A.
– High-level resource and capital allocation.
– Organisation culture and talent
management.
– Key global strategic initiatives such
as driving innovation and leadership
development.
1. Evelyn Bourke
Group Chief Executive O cer
See page 25 for biographical details.
2. Joy Linton
Chief Financial O cer
See page 25 for biographical details.
3. Richard Bowden
CEO, Australia and NewZealand (ANZ)
Richard joined Bupa in 2002 as the Managing
Director of Bupa Australia and has over 30 years’
experience in the health sector. He was MD of
Bupa UK from 2012 to 2016 and was previously
the MD of AXA Australia Health, Chairman and
President of Private Healthcare Australia and a
Commissioner on the Australian Commission of
Safety and Quality in Healthcare.
4. David Hynam
CEO, United Kingdom (UK)
David was appointed as MD of Bupa UK
in October 2016. He joined Bupa as
Transformation Director in the UK and as
leader of health and dental clinics before
becoming General Manager of Bupa’s UK
Care Services business in 2015. He was
previously Chief Operating O cer and
UK CEO of Friends Life.
5. Iñaki Ereño
CEO, Europe and Latin America
Domestic (ELA)
Iñaki was appointed as MD of ELA in November
2016, with responsibility for Sanitas in Spain,
LUX MED in Poland and Bupa Chile. Iñaki was
previously the MD of Bupa’s Spain and Latin
America Market Unit. He has held senior
positions at Acerinox, the Telefonica Group
and Carrefour as well as founding an online
start-up. Iñaki has a degree in Law and holds
an MBA from IESE Business School.
6. Wayne Close
Acting CEO International Markets (IM)
Wayne was appointed as Acting MD of IM in
November 2016. He brings more than 20 years’
experience, having joined Bupa in 1992 with roles
including leading, Bupa International (the precursor
to Bupa Global), MD of Bupa Global North America,
setting up and leading Bupa Saudi Arabia, and
holding a number of CFO roles across Bupa
including the former International Development
Markets (IDM) MU.
7. Paul Zollinger-Read
Chief Medical O cer
Paul became Chief Medical O cer of Bupa in
July 2012. He has led a distinguished medical
career within the UK’s National Health Service,
both as a GP and as CEO of a number of Primary
Care Trusts. He has previously been the Medical
and Primary Care Advisor at the King’s Fund.
Paul leads the Bupa-powered CMO Network.
8. Alex Cole
Chief Brand & Corporate A airs O cer
Alex joined Bupa in July 2014 and was appointed
as Chief Brand & Corporate A airs O cer in May
2016. She has over 20 years’ experience across
communications and public a airs and was the
Director of Corporate A airs at J Sainsbury plc
and Cadbury plc.
9. Garry Fingland
Chief Information O cer
Garry joined Bupa as its Chief Information O cer
in 2014. He has extensive experience in global
IT transformation, having held a number of senior
IT leadership roles at both Serco and Diageo.
He is a Chartered Accountant and holds an
MBA from Strathclyde Business School.
10. Elisa Nardi
Chief People O cer
Elisa was appointed as Bupa’s Chief People
O cer in early 2015. Prior to joining Bupa she
was the Chief People & Services O cer at Virgin
Media and the Group Human Resources Director
at Marconi Plc. She has also worked in Human
Resources at Lloyds TSB, PepsiCo, HJ Heinz and
Ford Motor Company. Elisa was a Board Trustee
of Regent’s University London between 2010
to 2016.
11. Penny Dudley
Chief Legal O cer
Penny was appointed as Chief Legal O cer in
April 2016, having joined Bupa in 2010. Penny
has extensive international legal experience in
regulated fi nancial services, originally qualifying
as a solicitor in Australia, and subsequently
relocating to the UK where she has held in-house
legal roles at Invesco, and Macquarie.
12. David Fletcher
Chief Risk O cer
David commenced in the new role of Chief Risk
O cer in January 2017. He has been with Bupa
since 2014 in senior roles including Chief Internal
Auditor and MD of IDM. He has had extensive
international fi nancial services experience, having
held various senior positions in Nigeria, China,
Hong Kong, Singapore, Bangladesh, Indonesia,
and in London with Standard Chartered
and Citibank.
13. Gabriela Pueyo
Chief Strategy O cer
Gabriela joined Bupa in 2003 and began in her
role as Chief Strategy O cer in January 2017.
She has held a number of senior roles in the
Sanitas business, including Strategy Director,
CFO and General Manager of Sanitas Dental.
Gabriela started her career as a strategy
consultant at McKinsey and Company. She has
an MBA from Harvard University and a degree
in Economics and International Relations from
Stanford University.
28 Bupa Annual Report 2016
Governance report
Leadership
Bupa’s Governance Framework
and the Role of the Board
The Board is responsible for the long-term
success of the Company. Bupa’s governance
structure is designed to enable the Board to
lead Bupa within a framework of prudent and
e ective controls which enables risk to be
assessed and managed. In 2016, the Board
held 11 full meetings and scheduled four
additional meetings to discuss specifi c matters
such as the appointment of our Group CEO
and major acquisitions requiring approval. The
Board devotes its time to overseeing Bupa’s
strategy, the approval of business plans and
signifi cant capital expenditure, acquisitions
and disposals, as well as monitoring business
performance. Minutes of all Board and
Committee meetings are prepared and refl ect
the substance of the discussion as well as the
decisions made. The Board delegates certain
matters to the Audit, Risk, Nomination &
Governance and Remuneration Committees.
The activities of the Board and its Committees
are detailed later in this governance report.
Bupa has a schedule of matters reserved for
the Board’s approval, which was updated in
2016, and all other items are delegated to the
Group CEO. The matters reserved for the
Board can be found on bupa.com. The levels
of authority delegated to management are
regularly reviewed and updated when
appropriate. The roles of the Board, the
Chairman, the Group CEO, the Senior
Independent Director (SID) and the Non-
Executive Directors (NEDs) are clearly
defi ned and set out in detail on bupa.com.
All Board and Committee members are
provided with su cient resources to
undertake their duties, including access to
both internal and external specialist advice at
Bupa’s expense. The Directors individually and
collectively act in accordance with their duties
under the Companies Act 2006. Bupa has a
directors’ and o cers’ insurance policy in
place as well as a deed of indemnifi cation.
The roles of the Chairman and the
Group CEO
The roles of the Chairman and the Group CEO
are clearly separated.
The Chairman is responsible for the leadership
of the Board and is pivotal in the creation of
the conditions necessary for overall Board and
individual director e ectiveness, both in and
outside the boardroom. It is also the Chairman’s
role to ensure e ective communication with
the Association Members (AMs) and to chair
General Meetings.
The Group CEO is responsible for the
day-to-day leadership and management of
the business, in line with the strategy, risk
appetite and long-term and annual objectives
approved by the Board. The Group CEO
may make decisions in all matters a ecting
the operations, performance and strategy
of Bupa’s businesses, with the exception of
those matters reserved for the Board or
specifi cally delegated by the Board to its
Committees, executive committees or
subsidiary company boards. The Group
CEO leads the Bupa Executive Team (BET)
in driving the performance of the business
and setting the overall strategic agenda.
For more information about members of
the BET, please see pages 26-27.
The role of the Senior Independent
Director
Lawrence Churchill, one of the NEDs, is the
SID. His role is to provide a sounding board for
the Chairman, to serve as an intermediary for
the other Directors where necessary and to
provide an additional point of contact for AMs.
Simon Blair commented that:
“As part of an excellent induction programme
I have been able to see fi rst-hand Bupa
dental and health clinics, hospitals, insurance
processing and call centres across four di erent
countries and have been most impressed with
the consistently high quality of our employees
and the facilities, and the primacy accorded
to customer service and care. Employee
motivation and pride stands out across all
geographies and all lines of business.”
Non-Executive Director Inductions 2016
Following any appointment to the Board,
a personalised induction programme is drawn
up, which includes Bupa-led knowledge
building, site visits to Bupa’s businesses and
discussions on strategy and development
plans for the business.
As new members of the Board appointed
during 2016, Simon Blair and Janet Voûte both
commenced extensive induction programmes
during the year, including meetings with the
heads of various businesses across Bupa.
Site visits were arranged to the Cromwell
Hospital, health and dental clinics and
call centres, in the UK in the fi rst instance,
in order to enable the new Directors to
experience fi rst-hand the way Bupa cares
for its customers. Both Janet and Simon
participated in the Board visits in Chile and
Australia during the year which included
visits to customer centres in both countries.
For more information see the Board in Action
section on page 30.
Janet also attended one of the AM briefi ng
sessions in October 2016 at which attendees
are encouraged to question the Group CEO,
CFO and Chairman in relation to strategy and
performance. In addition to gaining further
knowledge about Bupa, the briefi ng session
presented an opportunity for Janet to
engage with other AMs to learn more
about issues of interest to them at an early
stage in her directorship.
Janet Voûte commented that:
“A comprehensive induction programme is an
essential part of new Non-Executive Director
onboarding. Bupa is a health insurance and
health and care company which takes time to
fully understand. Attendance at the briefi ng
session provided another opportunity for me
to observe and participate in the challenge
provided by Bupa’s Association Members.”
29Bupa Annual Report 2016
Strategic report Governance Financial statements
Board diversity policy
Bupa’s policy of ensuring that there is
broad experience and diversity on the
Board was adopted by the Board in 2012.
Diversity in Bupa embraces knowledge
and understanding of relevant diverse
geographies, peoples and their backgrounds,
including race, disability, gender, sexual
orientation, religion, belief and age, as well
as culture, personality and work-style.
In particular, Bupa’s Board is focused
upon increasing Board diversity without
compromising on the calibre of Directors.
Appointments to the Board are based on
merit as well as complementing and
expanding the skills, knowledge and
experience of the Board as a whole. Within
this context the Board aspires to have an
appropriate proportion of Directors who
have direct experience of some of Bupa’s key
markets. In 2016 Simon Blair, Joy Linton and
Janet Voûte were appointed to the Board,
each with international healthcare experience.
Our Board diversity policy can be found on
bupa.com.
Succession plans
Succession plans are continually reviewed and
a phased replacement of NEDs coming to the
end of their tenure agreed. This approach is
designed to ensure continuity on the Board,
as well as maintaining an appropriate balance
of skills and experience on the Board and its
Committees and ensuring we have a strong
executive pipeline within the business.
Board composition and tenure
Bupa’s Board consists primarily of NEDs
(eight including the Chairman), who
substantially outnumber the Executive
Directors (two). The independence of NEDs
from management and any other business or
relationship which could materially interfere
with their independence, is considered and
confi rmed on an annual basis. All Directors
o er themselves for annual re-election by
the AMs, save for those retiring at the AGM.
The Chairman
Lord Leitch, Bupa’s Chairman, who was
independent on appointment, holds a small
number of other appointments, none of which
are considered to impede his role at Bupa.
Details of his other appointments are set out
in his biography on page 25.
Confl icts of interest
The Company Secretary performed the
annual review of all Directors’ actual or
potential confl icts of interest and all potential
confl icts were recorded and authorised.
Should a confl ict arise, the relevant director
would agree to abstain from discussions on
any matter where they may be confl icted.
Many of Bupa’s NEDs hold appointments at
other organisations, as set out in their profi les
on page 25. Each NED confi rmed that they
are able to devote su cient time to perform
their role e ectively.
Board training and development
During the year, Board and Committee
members attended Bupa-led specifi c training
and development sessions. These took the
form of presentations on specifi c markets
from leading academics and economists
to more detailed training on forthcoming
regulatory developments. During 2016 the
training included the implications of the new
Senior Insurance Managers Regime, an
Anti-Bribery and Corruption Update and
some familiarisation sessions on the new
Solvency II regulatory reporting requirements.
NEDs also undertook training independently
throughout the year to ensure that they
maintained their skills and knowledge required
for the role. The Committee members also
receive training as necessary on specifi c
technical topics. For example, in 2016, the
Audit Committee received awareness training
on the implications of the new Base Erosion
Profi t Shifting taxation framework for Bupa.
The Board Diversity Policy was
launched in 2012 with the intention
of ensuring that diversity remains
a central feature of the Board.
Board diversity
Board composition
Percentage of
male Directors
60%
Percentage of
female Directors
40%
Percentage of Executive Directors
The Executive Directors are the Group
CEO and CFO
20%
Percentage of Non-Executive Directors
The Non-Executive Directors include
the Chairman and SID
80%
The role of the Non-Executive Directors
Lawrence Churchill, Simon Blair, Roger Davis,
Martin Houston, Clare Thompson, Sir John
Tooke and Janet Voûte are collectively
expected to constructively challenge and help
develop strategy, to participate actively in the
decision-making process of the Board, and to
scrutinise the performance of management in
meeting agreed goals and objectives.
A copy of the standard Non-Executive
Director (NED) Terms of Appointment, which
set out their expected time commitment, is
available on bupa.com, at Bupa’s registered
o ce and is available for inspection before
and during the AGM. NEDs have the same
general legal responsibilities to the Company
as any other director.
Sector experience
Financial services 7
Clinical and Healthcare Systems 6
Brand and Marketing 6
International Business 6
Strategy and Development 8
Length of tenure (years)
1 – 3 6
4 – 6 1
7+ 3
1-3 years Joy Linton, Simon Blair, Roger Davis, Martin Houston,
Clare Thompson, Janet Voûte (2015: 5)
4-6 years Evelyn Bourke, (2015: 3)
7+ years Lord Leitch, Lawrence Churchill,
Prof Sir John Tooke (2015: 1)
30 Bupa Annual Report 2016
Governance report
Board in action
The Board undertook two overseas visits
during the year, the fi rst to Chile in April and
the second to Australia in October. These
visits enable our Directors to deepen their
knowledge of Bupa’s global operations and
meet with local executives, both of which
help to facilitate better decision making.
Santiago, Chile site visit
In Chile the Board visited the Integramédica
Manquehue clinic where they saw the
various departments in action. The Board then
went on to Bupa Santiago Hospital which is
currently under construction. This provided
an opportunity to see the new facilities being
built and hear about the approach to fi rst class
healthcare provision. One to one meetings
with executives were held, some of which
were tailored to the Directors’ expertise and
Committee positions, for example, Finance
and Audit, Risk and Compliance, Medical,
and Brand and Marketing. During the visit
the Board also received presentations on the
local economy and business environment,
facilitated by Banchile Citi.
Melbourne, Australia site visit
In Australia, Board members visited Bupa
Health Insurance and Bupa Optical stores,
a Bupa Dental clinic and the Bupa Medical
Visa Services centre. These site visits enabled
Board members to see the customer
experience fi rsthand and to speak to Bupa’s
people directly, as well as see the Bupa
o ering in that market. The Chairmen of
the Audit and Risk Committees of Bupa
and Bupa Australia attended one to one
meetings on the fi rst day followed by a joint
Bupa and Bupa Australia Board discussion.
Once again some of the meetings with
executives were tailored to the Directors’
role and expertise including Corporate
A airs and the Political Landscape,
Clinical and Remuneration & People.
“Site visits help the Board appreciate
the context-specifi c nature of health
and care problems and the challenges
faced by management.”
Sir John Tooke
Non-Executive Director
1. Evelyn Bourke visiting a Bupa Optical store in
Melbourne during the Board’s visit to Australia
in October 2016.
2. L-R: Lawrence Churchill and Sir John Tooke visiting
the Transformation Hub in Melbourne (Bupa’s modern,
fit-for-purpose, face-to-face collaboration capability).
3. The Board visiting the construction site of the
Bupa Santiago Hospital, during their visit to Chile
in April 2016. Top row L-R: Andrés Varas – Bupa
Chile General Manager, Iñaki Ereño – CEO Europe
& Latin America (ELA), Julian Sanders, Lawrence
Churchill, Janet Voûte, Rita Clifton, Simon Blair
and José Francisco Tomás – ELA Medical Director.
Bottom row L-R: Sir John Tooke, Joy Linton,
Evelyn Bourke and Clare Thompson.
4. L-R: Martin Houston, Julian Sanders and Clare
Thompson visiting a Bupa Health Insurance retail
store in Melbourne.
1 2
43
31Bupa Annual Report 2016
Strategic report Governance Financial statements
E ectiveness
Board performance
and evaluation
In 2016, the Board and individual Directors
underwent the third externally facilitated
Board evaluation process. This was
conducted by Independent Audit Limited.
The two previous reviews were conducted
by Boardroom Review.
Independent Audit Limited has no connection
with Bupa, other than having provided the
online questionnaire tool used for the internally
conducted reviews in 2014 and 2015. In 2016,
the Board evaluation process took the form of
one-to-one interviews, attendance at the
November Board meeting and culminated in
a group discussion at the December meeting.
The evaluation concluded that Bupa’s Board
continued to operate e ectively in an open
and honest manner, providing support and
challenge to executive management.
The Board considered the performance of
the Chairman during 2016 and concluded that
he continued to provide strong leadership of
the Board.
2017 goalsBoard performance evaluation action plan 2016 (from the 2015 Board evaluation)
Categories Categories
Board action plan for 2016 Board action plan for 2017
Achievements against action plan during 2016
Strategic
focus
Continue to balance the
number of strategic and
operational agenda items.
Explore risk appetite in
relation to long-term strategy.
Board submissions to be
amended slightly to balance
the amount of operational and
strategic issues discussed.
There has been a shift in the Board’s
Agenda during 2016 to ensure more space
is made available for consideration of
strategic issues, including the adoption of a
new strategic framework and the ongoing
detailed analysis of operations against
strategy and risk appetite.
Clarity on
medium/
long term
strategy
Keep Bupa’s long term
ambitions and strategy
under review.
Customers,
competition
and external
developments
Further discuss the activities
of Bupa’s competitors and
external perspectives on
Bupa’s markets. Monitor
and oversee further
implementation of the Net
Promoter System (NPS)
across Bupa.
The Board considered updates from the
Market Units in respect of their competitors
and also received external perspectives on
Bupa’s markets during their visits to Chile
in April and Australia in October. NPS has
continued to be rolled out and embedded
across Bupa throughout 2016.
Focus
on Non-
Executive
Director
succession
planning
Continually review the Board
skill set required to lead a
global organisation and
ensure orderly succession
plans are in place.
Board
impact
Set aside time to ensure
there is real clarity about the
expectations of the value that
the Board can bring to Bupa,
once the four new NEDs have
been in the role for six months.
The Board’s focus in 2016 shifted to
ensuring that the right individuals were
appointed as the Group CEO and CFO
respectively. The four most recently
appointed NEDs have brought an
enhanced international lens through which
to examine the Board’s global activities.
Board
impact
Ensure the Board agenda
continues to have space
for adequate discussion
of emerging risks and
opportunities.
Priorities arising from the 2016 evaluation are set
out below and once again the Nomination &
Governance Committee will monitor performance
against these priorities during the year. We will
report on progress in the 2017 Annual Report.
The results from the 2016 action plan (arising from the 2015 internal evaluation) and
achievements against the goals set are outlined in the table below.
32 Bupa Annual Report 2016
Board attendance
The following table sets out the attendance of the Company’s Directors at scheduled Board and Committee meetings during 2016:
Number of meetings held
Board
meetings
11
Audit
Committee
7
Nomination &
Governance
Committee
5
Remuneration
Committee
7
Risk
Committee
5
Chairman
Lord Leitch
11/11 – 5/5 7/7 –
Executive Directors
Evelyn Bourke
11/11–2/4––
Stuart Fletcher
1
2/2 – 1/1 – –
Joy Linton
2
8/8––––
Non-executive Directors
Lawrence Churchill
11/11 7/7 5/5 7/7 5/5
Rita Clifton
3
4/4 – 2/2 3/3 –
Simon Blair
4
10/11 3/4 – – 3/3
Roger Davis
5
10/11 5/7 – 3/4 1/2
Martin Houston
6
10/11 2/3 2/3 7/7 1/2
Clare Thompson
7
11/11 7/7 3/3 – 5/5
Sir John Tooke
8
10/11–3/3–5/5
Janet Voûte
9
11/11 – – 4/4 3/3
1 Stuart Fletcher stepped down from the Board and the Nomination & Governance Committee (N&G) on 4 April.
2 Joy Linton joined the Board on 1 May 2016.
3 Rita Clifton stepped down from the Board and the N&G on 11 May.
4 Simon Blair joined the Board on 12 January and the Audit and Risk Committees on 11 May. He was unable to attend the December Board due to a confl icting board meeting.
5 Roger Davis stepped down from the Risk Committee on 11 May. He was unable to attend the April meeting due to a confl icting board meeting.
6 Martin Houston joined the N&G and resigned from the Audit & Risk Committees on 11 May 2016. He was unable to attend the February Board due to an annual commitment.
7 Clare Thompson joined the N&G on 11 May 2016.
8 Sir John Tooke joined the N&G on 11 May 2016. He was unable to attend the August Board due to a confl icting commitment.
9 Janet Voûte joined the Board and the Risk Committee on 11 May 2016.
2016 Board meetings
The Board held 11 scheduled meetings during the year (both in the UK and overseas) and the following table shows key items discussed at those
meetings. The Board also attended an annual strategy o site session in June 2016.
July
August
September
October
(meeting held
in Australia)
November
December
February
March
April
(meeting held
in Chile)
May
June
– 2015 Outturn & Impact on
2016-18 Plan
– IDM Strategy Update
– Capital & Funding Capacity
2016-2018
– Group CEO Recruitment
–CFO Appointment
– Additional Changes to BET
–Board Strategy O site
– Bupa Global Corporate
Business Strategy
– US Strategic Partnership
–PRA Presentation
– Approval of 2015 Annual
Report & Accounts
– Digital & Social Media
Progress
– Strategic Direction
– Half Year Results
– Group CEO Transition
– Talent Breakfast
Conversations
–ANZ Customer
Transformation Funding
– SLA MU Business Update
–Cyber Risk
– UK MU Update
– Bupa Insurance Programme
– Group CEO Recruitment
– 2016 ORSA & Policy
– Brand & Customer
Experience
–ANZ MU Update
– Global Brand Strategy
–Solvency II
–IDM Organisation Structure
& Strategy Refresh
– UK MU Clinical Quality
– M&A Pipeline & Capacity
to Transact
– Oasis Dental Care Purchase
– Bupa’s Financial Framework
– Talent & Succession
Review
– Approval of 2017–2019 Plan
–Enterprise Policies
– Assets to be Made Available
for Sale
–Insurance Risk Appetite
– Speak Up
– IS&T Transformation
– External Board Evaluation
– IM MU Business Update
Examples of key strategic items covered at Board meetings included:
Governance report
E ectiveness continued
33Bupa Annual Report 2016
Strategic report Governance Financial statements
Engagement
Association Members
Bupa maintains a register of around 100
Association Members (AMs) (115 as at
31 December 2016) who perform a key
governance role ordinarily undertaken by
shareholders. AMs generally serve for an initial
term of ten years which can be extended
for further terms of fi ve years. AMs have no
equity interest and, consequently, no right
to dividends. AMs are eminent individuals in
their own fi eld, coming from a diverse range
of sectors, including health and social care,
business, regulatory, academia, as well as
charities and the public sector. Their expertise
enables them to provide challenge to the
Board on matters of performance and
strategy, and furthermore, to draw upon
their skills, knowledge and experience to
help inform future strategy and development.
Fundamentally, their role is to hold the Board
to account in delivering on our purpose of
helping people live longer, healthier, happier
lives. AMs are selected via a number of
criteria including having recent and relevant
experience in their specifi c fi eld; being
independent of Bupa; being able to make a
contribution; and having experience in the key
overseas markets in which Bupa operates.
Bupa’s AMs have a number of opportunities
to engage with the entire Board, including at
the AGM which is well attended. Details of the
calendar of events are set out in the table to
the right. A summary of the questions asked
at many of the events is circulated to all AMs,
the Board and the Bupa Executive Team
which ensures that the views of AMs are well
communicated and understood within the
business. These more formal sessions are
combined with regular correspondence on
key changes and developments within Bupa,
such as major acquisitions. The Group CEO,
Chairman, Senior Independent Director and
Company Secretary are available to the
AMs throughout the year. To ensure that
the AMs are kept fully informed, they also
have access to a secure website containing
useful information and updates, as well as
daily media briefi ngs and a calendar of
forthcoming events.
Bondholders
Bupa also has a number of debt securities
in issue by its subsidiary company Bupa
Finance plc and is therefore required to
operate in accordance with the UK Listing
Rules, Disclosure and Transparency Rules and
the Market Abuse Regulations in respect of
its announcements of fi nancial results and
operations. Briefi ng calls are scheduled for
bondholders and other interested parties to
discuss the Half Year and Full Year results.
This provides an opportunity for them to
question management on the fi nancial
performance and strategy of Bupa.
Other stakeholders
Across our markets, we engage regularly with
policymakers and regulators, health and care
professionals, consumer groups, NGOs and
other key stakeholders. This engagement
enables us to contribute to the health policy
debate and to build an understanding of
issues relevant to our customers and to
healthcare generally. We also partner with a
number of other commercial organisations,
to address and positively impact specifi c
health issues as part of our commitment to
help more people access better healthcare.
Our business model on pages 4-5 explains
how we deliver for our Customers.
Calendar of Association Members engagement events in 2016
March Financial
Results
Briefi ng Call
Briefi ng call with the Group CEO and CFO following the
announcement of fi nancial results allowed the AMs to understand
and challenge fi nancial and operational performance.
May Annual
General
Meeting
The AGM is preceded by a seminar update in respect of one of
Bupa’s business areas. In 2016, the Seminar was “Leading Digital
Transformation of the Healthcare Industry”. 48% of AMs attended
the 2016 AGM (2015: 50%). The number of attendees increased in
2016, by 11 AMs, but comprised a smaller percentage of the total
number due to the increase in the number of AMs following the
extensive 2015 appointment exercise.
At the AGM, Bupa proposes a resolution on each substantially
separate issue, including a resolution on the Annual Report and
Accounts and the Remuneration Report and Policy. Voting at
the AGM is conducted on a show of hands. The questions raised
by AMs at the 2016 meeting covered a broad range of areas
such as Bupa’s strategy, Brexit, Top Risks, Customer Satisfaction,
Appointment of the new Group CEO, the National Living Wage,
Competition and Digital Opportunities.
July New AMs’
Induction
Session
This was an opportunity for newly appointed AMs to gain a further
understanding of Bupa, our strategy, their role in our governance
and how they can assist Bupa to achieve its purpose. 59% of the
newly appointed AMs attended the induction session in 2016.
August Half Year
Results
Briefi ng Call
As for the Financial Results Briefi ng Call (above).
October &
November
AMs’ Briefi ng
Sessions
This was another opportunity for engagement with
representatives of the Board on matters of strategy and
performance. These sessions encourage rigorous challenge and
questioning by the AMs. Four briefi ng sessions were held with a
total of 45 AMs in attendance during 2016. A short presentation
on Bupa’s strategy and development was followed by an in-depth
Q&A at each session.
Throughout
the year
Updates Regular email updates provided to the AMs throughout the year
as they arise on business and executive changes.
34 Bupa Annual Report 2016
Governance report
Audit Committee report
“During 2016, the Committee
oversaw the Finance Development
Programme focusing on
accelerated Solvency II
reporting and preparing for the
new Solvency and Financial
Condition Report and Regular
Supervisory Report.”
Clare Thompson
Committee Chair
Role of the Committee
The principal role of the Committee is to
monitor the integrity of Bupa’s fi nancial
statements, the e ectiveness of the systems
of internal controls and to monitor the
e ectiveness, performance, objectivity and
independence of the internal and external
auditors. The Committee also reviews
regulatory reporting.
A full description of the Committee’s role is set
out in its Terms of Reference on bupa.com.
Committee governance
All members of the Committee are Non-
Executive Directors (NEDs) and this applied
throughout the year. Martin Houston stepped
down and Simon Blair joined the Committee
on 11 May 2016.
The Group CEO, CFO, Corporate Controller,
Chief Internal Auditor, Chief Risk Officer and
external auditors are routinely invited to attend
meetings. The Committee at least annually holds
separate discussions with the external auditor,
the Chief Internal Auditor and Chief Actuary
without management present. In compliance
with the UK Corporate Governance Code
(the Code), at least one of the members of
the Committee has recent and relevant
fi nancial experience. The Committee as a
whole has a wide range and depth of fi nancial
and commercial experience, a signifi cant
amount of which is in fi nancial services.
The biographies of members can be found
on page 25.
2016 activities
As set out in last year’s report, the
Committee’s focus for 2016 was to assess
the implementation of the EU Audit Reform
regulations and the approach to and timing
of placing the external audit out to tender;
the further development of the Internal Control
and Risk Management Assessment system
to ensure its continued e ectiveness; and
developing the assurance process in respect
of IT systems development and digital media.
The Committee also undertook core activities
such as reviewing fi nancial reporting, approving
external audit plans and reviewing fi nancial
control and reporting policies.
During 2016, the Committee also:
– Oversaw matters relating to the issue of the
£400m 5.00% Fixed Rate Subordinated
Notes due 2026 by Bupa’s subsidiary Bupa
Finance plc.
– Reviewed the policy on the engagement of
the external auditor to provide non-audit
services and received a quarterly update
on engagements with KPMG and other
“Big Four” fi rms.
– Oversaw the new Finance Development
Programme to deliver the additional
processes, systems and data capabilities to
ensure continued compliance with Solvency
II Pillar 3 reporting requirements and in
addition to bring together other fi nancial
strategic change activities.
– Reviewed Solvency II Pillar 3 reporting and
plans for narrative reporting in 2017.
– Received updates on the approach taken to
implement actions recommended by internal
audit, including meetings with management
where appropriate.
– Held deep dives to discuss the control
environment relating to topics such as
cybersecurity, IT controls maturity and
third party provider management.
– Received an update on the status of the
whistleblowing programme (Speak Up)
and reviewed and recommended the
related policy to the Board.
– Attended awareness training on the new
Base Erosion Profi t Shifting legislation
coming into e ect in 2017.
– Further improved the Auditor E ectiveness
review process.
Key items covered included:
At most meetings the Committee receives reports from Internal Audit, Finance and KPMG and in
addition discussed the following:
9 February
– Key Accounting Issues & Areas of Judgement/Outstanding Claims Provision Update/
Fraud Risk Management/E ectiveness of Audit Committee
29 February
– Review of Systems of Internal Control & Risk Management (ICRMA)/Annual Report &
Accounts 2015/Audit & Non-Audit Services Policy Review/Long Term Viability
Statement
April
– Solvency II Reporting/ICRMA Process
June
– KPMG Engagement Letter/KPMG Fee Proposal/Solvency II Reporting/EU Audit
Reform – External Audit Tender
July
– Review of ICRMA/Key Accounting Issues & Areas of Judgement/Draft Half
Year Report
September
– Financial Reporting Issues/External Audit Lead Partner Change/Speak Up Update
December
– 2017 Global Internal Audit Plan/Insurance Reserving/Draft SFCR and RSR
2016 Reports
Committee members
Clare Thompson Chair
Simon Blair
Lawrence Churchill
Roger Davis
35Bupa Annual Report 2016
Strategic report Governance Financial statements
The signifi cant issues and areas of judgement discussed in respect of the 2016 reporting period
and how they were addressed are detailed below:
Key issue Committee response
Goodwill and intangible asset
valuations:
Signifi cant levels of goodwill and
intangibles are held in respect of prior
acquisitions. Impairment reviews are
inherently complex and require a high
level of judgement to be applied due to
the uncertainty involved in forecasting
future cash fl ows, the appropriateness
of discount rates used and future
growth rates of the respective business.
The Committee critically reviewed and discussed management reports
outlining the basis of the assumptions used for our most sensitive Cash
Generating Units (CGUs) and considered these in light of business
performance. The Committee also received information on goodwill
testing from KPMG. Particular focus was given to Quality HealthCare
(QHC) where the cash fl ows are dependent in part upon the opening
of new clinics along with general growth prospects. The Committee
received reports from management regarding an external valuation
of QHC as a key factor in supporting the carrying value of goodwill.
The Committee is satisfi ed that the assumptions applied were
reasonable and the carrying value of goodwill is appropriate.
Claims provisioning:
Calculation of the outstanding claims
provision is based on assumptions
including claims development, margin of
prudence, claims costs infl ation, medical
trends and seasonality, which require a
high level of judgement and actuarial
expertise.
The Committee received reports from management detailing claims
reserving methodologies and reviewed and approved the approach to
claims reserving. In particular, the Committee reviewed and approved
the assessment of margins of prudence, with a focus into areas where
there were changes in methodology or practice. In making these
judgements, the Committee also considered reports from the external
auditor and is satisfi ed that the assumptions applied in calculating the
claims provision are appropriate.
Property valuations:
Bupa has a signifi cant portfolio of care
home and hospital properties which are
revalued to fair value on a periodic basis,
with external valuations undertaken
at least triennially. The underlying
assumptions involved in the valuations,
including earnings, profi tability,
occupancy levels and future trends are
subject to a high level of judgement.
The Committee considered the results from external valuations
and discussed these with management in light of current trading
performance of the businesses in which the properties are used and
the external environment. The Committee considered and challenged
Directors’ valuations where no external valuation had been carried out
and received information from management about material changes
in valuation and any potential write downs. The Committee also
reviewed reporting from the external auditors addressing the valuations
to assess their reasonableness and considered the appropriateness of
disclosures made. A number of properties are classifi ed as held for sale
at 31 December 2016. The Committee is satisfi ed that property values
and disclosures for all properties, including those held for sale, are in
compliance with fi nancial reporting requirements and are appropriate.
Pension assets and liabilities:
Bupa’s principal defi ned benefi t scheme
in the UK is The Bupa Pension Scheme.
Signifi cant judgement is exercised in
determining the actuarial assumptions
used in valuing the pension asset/liability.
The Committee considered the appropriateness of the assumptions
used in the valuation of the related pension assets and liabilities
performed by the independent scheme actuary. The Committee
challenged and reviewed internal management reports to determine
their conclusions; supported by detailed triennial valuations with annual
interim reviews produced by the independent scheme actuary and is
satisfi ed that the assumptions used in the valuation are appropriate.
The Committee received information from KPMG benchmarking the
assumptions used in the valuation of pensions liabilities. The Committee
concluded that the pension assumptions were appropriate.
Acquisitions and disposals:
During 2016 Bupa completed the
acquisition of Care Plus, a Brazilian health
insurer. The purchase of Oasis Dental
Care, subject to regulatory approval in
2017, was also announced.
The Committee considered the proposed accounting for Care Plus and
management’s approach to reporting the acquisition balance sheet
given the transaction’s close proximity to year end. The Committee
challenged management and concluded that the approach was
appropriate. Proposed disclosures for the purchase of Oasis Dental Care
were also presented to and challenged by the Committee including the
proforma impact on solvency capital.
In addition to the above, the Committee has considered any one-o transactions, such as the
early redemption of the securitised loan notes, the disposal of Bupa Home Healthcare and the
acquisition of increased stakes in Bupa Chile and Max Bupa in the year and is satisfi ed that these
have been appropriately recognised and disclosed in the fi nancial statements.
Financial reporting
The Committee reviewed the appropriateness
of the Half Year and Annual fi nancial
statements, which it carried out with both
management and the external auditors
and included:
– Whether the Annual Report was fair,
balanced and understandable.
– Compliance with disclosure requirements.
– The material areas in which signifi cant
judgements had been applied.
In assessing whether the Annual Report
was fair, balanced and understandable,
the Committee evaluated whether:
Fair and Balanced
– The narrative reporting in the strategic
report is consistent with the fi nancial
statements, providing challenge and
feedback throughout the production
of the Annual Report and Accounts.
– The key judgements referred to in the
narrative reporting and the signifi cant
issues reported within this Audit
Committee Report are consistent
with the fi nancial statements.
– Statutory and adjusted measures, such as
underlying profi t have been given equal
prominence and are clearly explained.
– Key Performance Indicators refl ect
those that are used to measure business
performance and management are able
to explain their relevance in assessing
the results.
Understandable
– Clear, simple explanations are given of
the business model, Bupa’s strategy and
accounting policies.
– Key messages are clearly highlighted
with consistent wording throughout the
Annual Report.
– The layout and presentation are clear with
appropriate language used throughout.
The Committee has also reviewed the
going concern assumptions and underlying
principles in the Longer Term Viability
Statement. Overall, the Committee is satisfi ed
that the assumptions and principles on
which these are based are appropriate and
reasonable. They also made an assessment
as to whether the requirements of the risk
management and internal control section of
the Code have been satisfi ed.
36 Bupa Annual Report 2016
Governance report
Audit Committee report continued
External auditors
E ectiveness
The Committee assessed the scope, fee,
objectivity and e ectiveness of the external
audit process during the year. Prior to making
a recommendation on the reappointment
of KPMG, the Committee reviewed the
e ectiveness of their performance against
criteria which it agreed, in liaison with
executive management, at the outset of each
year’s audit. During 2016, the Committee
further developed the assessment of the
e ectiveness of the audit.
The Committee assessed KPMG’s
e ectiveness during Committee meetings
held in the year. The Committee also
considered the results from:
– the annual auditor satisfaction survey sent
to senior management across the Group;
and
– a survey sent to the Committee
members along with the Group CEO,
CFO, Chief Internal Auditor and the
Corporate Controller.
The Committee considered a number of areas
such as the overall quality of service, timeliness
of the resolution of issues, the quality of the
audit resource and whether the audit plan
was followed. The Committee is satisfi ed
that KPMG continues to provide an e ective
audit service.
The Committee requested and reviewed
the external audit plan, ahead of it being
approved to have the opportunity to
challenge resources in meeting the plan.
Mandatory rotation of external auditors
KPMG has been Bupa’s auditor since 1985
and during this time, Bupa has not put the
audit out to tender. Daniel Cazeaux was part
of Bupa’s 2010 audit team and appointed as
Bupa’s lead audit partner after the conclusion
of the 2013 audit. In accordance with the
Financial Reporting Council Ethical Standard
he will rotate o Bupa’s account after the
completion of the fi nancial year ended
31December 2016 audit. The Audit Committee
Chair participated in the process to appoint
a new lead audit partner Phil Smart along
with Bupa’s Group CEO, CFO and Corporate
Controller. Phil participated in an induction
process during the latter part of 2016 which
included presentations to and attendance at
Committee meetings.
Under the new EU Audit Regulation
transitional arrangements, Bupa will be
required to rotate audit fi rm at the next
appointment after 17 June 2020. In 2016,
the Committee assessed tendering options
and decided not to place the external audit
out to tender in 2016. After consideration of
the requirements, the Committee decided to
progress with the rotation of the audit fi rm for
the audit of fi nancial year ending 31 December
2019 at the earliest, but no later than for
fi nancial year ending 31 December 2021. The
Committee agreed it is likely to be disruptive
to rotate the external audit fi rm earlier than for
fi nancial year ending 31 December 2019 when
signifi cant focus is being placed on delivering
accelerated Solvency II reporting. In the
meantime, the Committee will continue to
review the e ectiveness of KPMG closely.
Auditor independence and non-audit
services
To ensure that KPMG’s objectivity and
independence is safeguarded, the Committee
has a formal policy addressing Bupa’s
relationship with the external auditors, which
includes fi nancial approval limits for non-audit
services and restrictions on the nature of
work that can be performed. As outlined in
Bupa’s Audit and Non-Audit Services Policy,
the Audit Committee Chair or the Audit
Committee must approve all non-audit related
engagements of £200k and above. In 2016,
this policy was updated and approved by the
Committee to address the requirements as set
out in the EU Audit regulation. The Committee
reviews non-audit services provided by KPMG
and other audit fi rms, on a quarterly basis,
to assess any potential independence issues.
As part of the evaluation of the external
auditors, the Directors confi rmed that they
were satisfi ed that the external auditors had
maintained their independence.
The non-audit fees paid to KPMG were
£1.4m representing a non-audit to audit fee
ratio of 0.2:1. Of the non-audit fees paid,
£0.6m was in relation to Solvency II assurance
activities and £0.3m was for tax services.
Tax services contracted with KPMG were
terminated during 2016 to comply with EU
audit regulation. The audit and non-audit
services are shown in Note 2.3 to the
fi nancial statements.
The Committee was satisfi ed that KPMG
continued to be independent. In addition,
KPMG also annually reports on whether
and why it deems itself to be independent.
Internal control and risk management
assurance
As noted in the Risks section on pages 17-21,
Bupa has an ongoing process for the
identifi cation and management of its principal
risks and conducts the Internal Control and
Risk Management Assessment (ICRMA) to
review the e ectiveness of internal controls
and how well risk management and policy
compliance is embedded in Bupa. This is a
fi rst line of defence self-assessment, subject
to review and challenge by the second and
third lines of defence, the results of which are
reviewed by the Committee. The Committee
considered the results of the ICRMA at both
the half and full year. The Risk Committee will
assume this responsibility from January 2017.
During these reviews, the Committee did
not identify any weaknesses which were
determined to be signifi cant to the
preparation of the fi nancial statements.
The Committee noted that there were no
signifi cant changes to the control environment
noted in the current year, signifi cant to the
preparation of the fi nancial statements.
The Committee also noted the steps that
had already been, and were planned to be,
taken by management, to address those areas
identifi ed, and the plans to further enhance
the internal control systems and strengthen
risk management.
The approach to the ICRMA continues
to be subject to regular review and
enhancement by management to ensure
its continued e ectiveness.
Internal audit
Internal Audit provides the Committee
with assurance over the e ectiveness of
governance, risk and internal controls.
It reviews the e ectiveness of controls by
undertaking an agreed schedule of internal
audits each year. Internal audit operates within
a three lines of defence model (see page17).
As the third line of defence, it supports Bupa
in accomplishing its purpose by helping the
Board to protect the assets, reputation and
sustainability of the organisation, and ensure
risks to the customer and the Bupa business
are appropriately managed. It reports its
fi ndings to the Committee and assists both
the Board and management to improve the
e ectiveness of governance, risk management
and internal controls.
37Bupa Annual Report 2016
Strategic report Governance Financial statements
In order to maintain the function’s
independence and objectivity, the primary
reporting line for the Chief Internal Auditor
is to the Chair of the Committee. Bupa’s
internal auditors have no direct operational
responsibility or authority over any of the
activities audited. Where specifi c skills are
not available in-house, the Chief Internal
Auditor and the Chair of the Committee
have the ability to procure the services of
expert external advisers. During the year, we
appointed PwC as Internal Audit’s fi rst global
co-sourcing provider. Bupa commenced
onboarding in December, ensuring we were
well placed to bring additional expertise and
insights to the fore in delivering the 2017 Plan.
The assurance provided by Internal Audit was
a crucial part of the Committee’s consideration
of Bupa’s overall control environment during
the year. In 2016, 106 audits were completed in
line with the Internal Audit Plan approved by
the Committee. There was a particular focus
on conduct risk and customer experience,
change management activities, critical
business processes and data and digitalisation.
The Committee received regular updates on
internal audit activity as well as management’s
progress in addressing audit fi ndings.
The Committee reviewed and approved the
2016 Plan and budget in December 2015.
The annual Plan is developed within the
context of a three year strategic internal
audit plan, using a risk based methodology
including input from senior management
and the Board. In June, the Committee
approved a half year refresh of the 2016 Plan
based on a refreshed risk assessment in line
with the Global Internal Audit methodology.
The Committee also conducted an annual
review of the Internal Audit Charter and
recommended it to the Board for approval
in December 2016.
The function acts in accordance with
the Global Institute of Internal Auditors’
International standards. In addition to the
external assessment on the e ectiveness
of the function (due to be conducted again
in 2018), Internal Audit maintains a quality
assurance and improvement programme
that includes an evaluation of the
function’s adherence to these standards.
The programme outcomes were reported
to the Committee which concluded that
the quality, experience and expertise of the
function continue to be appropriate for the
Bupa business. Across our global Internal
Audit function we have a diverse skill-set
with the majority of the team holding
accounting or internal auditing qualifi cations,
as well as having gained experience in
insurance, health provision, transformation
or technology assurance.
Strengthening linkages with subsidiary
audit committees
Progress was made in strengthening linkages
with major subsidiaries. The Committee
Chairman held meetings with the Chair of
Bupa Chile’s audit committee and the Chief
Financial O cers and Head of Internal Audit
of our Chilean and Spanish businesses during
the Board’s visit to Chile. During the Board’s
visit to Melbourne, the Committee Chairman
held meetings with the Chair of the Australian
board audit committee and Finance and
Internal Audit managers of our Australian
business. The Committee Chair also holds
one-to-one calls with the Chairs of the audit
committees of Bupa’s major subsidiaries
throughout the year.
Whistleblowing
The Committee received regular updates on
the adequacy and security of the Company’s
enhanced whistleblowing process, known
as “Speak Up” which was launched in 2016.
A programme of communications to all Bupa’s
people has commenced and the issues raised
through this process will be brought to the
Committee for discussion on an ongoing basis.
Committee e ectiveness review
Overall, the Committee considered that
it was e ective during 2016 and noted
the need to continue strengthening of
management’s reporting to the Committee.
Plans for 2017
In 2017, the Committee plans to:
– Continue to monitor the ongoing
programme of improvements in the
control environment and receive regular
reports from the Internal Audit function.
– Oversee the automation and e ciency
improvements in accelerated Solvency II
Pillar 3 reporting.
– Oversee the purchase price accounting
for major acquisitions such as those
recently announced for Care Plus and
Oasis Dental Care.
– Work closely with Bupa’s new KPMG Lead
Audit Partner, Phil Smart and receive a
refreshed audit plan.
– Oversee the analysis and implementation
of new accounting standards, particularly
the impact of the new insurance contracts
standard when it is fi nalised.
38 Bupa Annual Report 2016
Governance report
Risk Committee report
“During the year the Committee
emphasised the embedding
of the Risk Management
Framework across the Group,
supported the strengthening
of information security
capabilities, identifi ed longer
term emerging risks and
continued to strengthen
relationships with the board
risk committees of our
major subsidiaries.”
Lawrence Churchill
Committee Chair
Key items covered included:
February
– Country Concentration Risk/Governance of Information/Stress and Scenario Testing/
Property Risk Concentration/Clinical Quality and Risk Quarterly Report/Clinical Risk
Framework/Risk Committee Evaluation
April
– Emerging Risks/Governance of Information/Draft ORSA Report & Policy/Brexit
Impact Assessment/Stress & Scenario Testing/Worldwide Scenario Proposal/Chief
Medical O cer’s Report
July
– Review of Insurance Programme/Group Actuarial Function Report – Year End 2015/
Group Risk Appetite Statement Review/Chief Medical O cer’s Report/UK Care
Homes - Continuous Improvement Programme
October
– Crisis Management and Business Continuity Review/Remuneration – Risk
Considerations/Group Risk Appetite Statements/ICRMA/Chief Medical O cer’s
Report
November
– 2017 Insurance Compliance Plan/Information Risk Update/Insurance Risk Appetite/
Health & Safety Update
Role of the Committee
The principal role of the Committee is
to assist the Board in its leadership
and oversight of risk across Bupa.
This includes:
– Understanding and, where appropriate,
optimisation of current and future
risk exposures.
– Reviewing and recommending overall
risk appetite and tolerance to the Board.
– Reviewing the consistency of corporate
strategy and risk appetite.
– Reviewing the risk management
framework including Enterprise Policies,
process and controls.
– Receiving and considering reports on all
categories of risk.
– Promoting a risk awareness culture
throughout Bupa.
A full description of the Committee’s role is set
out in its Terms of Reference on bupa.com.
In making this report, the Committee does not
wish to duplicate the detailed description of
Bupa’s Risks which are set out on pages 17-21
and form part of the strategic report.
Committee governance
The Chief Risk O cer continues to have
unrestricted access to all members of the
Committee.
Sir John Tooke was appointed to the
Committee on 1 January 2016 to further
strengthen the clinical membership.
Simon Blair and Janet Voûte both joined
the Committee on 11 May 2016. Roger Davis
and Martin Houston stepped down on
11 May 2016. Members of the Committee are
all Non-Executive Directors (NEDs) and this
applied throughout the year; the Group CEO,
CFO, Chief Risk O cer, Chief Medical O cer
and Chief Internal Auditor are routinely invited
to attend all meetings. Representatives from
the external auditors, KPMG, are also invited
to attend all meetings. The biographies
of members can be found on page 25.
David Fletcher became Chief Risk O cer
on 1January 2017. The Committee expresses
its thanks and appreciation to Gerry Kelly for
his excellent support over the last three years,
as Chief Risk O cer.
Risks see pages 17-21
Committee members
Lawrence Churchill Chairman
Simon Blair
Clare Thompson
Sir John Tooke
Janet Voûte
39Bupa Annual Report 2016
Strategic report Governance Financial statements
2016 activities
As set out in last year’s report, the
Committee’s focus for 2016 was to oversee
the embedding of Solvency II procedures,
monitor enhancements to risk policies
and embedding in the fi rst line, monitor a
strengthening of our Information Security
systems, dynamically monitor changing
patterns of risk exposure and integrate the
oversight of Clinical Governance.
Solvency II
Solvency II is a major focus and force for
good in strengthening risk management.
The Risk Management Framework, System
of Governance and the Senior Insurance
Managers Regime have been implemented.
Embedding risk policies
The Committee encouraged management to
continue to strengthen the fi rst line of defence
with a view to embed the appropriate culture
across the business. The Bupa Enterprise
Risk Committee plays a leading role as the
most senior fi rst line executive committee.
During the year, we have seen improvements
in the self assessments provided by the
fi rst line via the Internal Control and Risk
Management Assessment. In the most recent
review, the Committee noted high standards
of performance in Australia and Spain and
continued evolution required in the UK and
developing markets.
Strengthening our Information
Security Systems
We have signifi cantly strengthened Bupa’s
information security capabilities, including
the ability to detect and respond to hostile
cyber attacks. We recognise however that
it is impossible to claim complete immunity
from these threats and this remains a key
area of focus for the business.
Dynamically monitor changing patterns
of risk exposure
The Committee receives management’s
assessment of the top risk profi le each quarter.
During 2016, the Committee held its fi rst
examination of longer term emerging risks in
a half day session which included participation
from the Chairs of our Australian and Spanish
board risk committees. A number of the
ideas and questions raised have been carried
through to our Board strategy sessions.
Integrating oversight of clinical governance
The Committee’s capability was enhanced by
the membership of Sir John Tooke, who had
previously chaired the Medical Advisory Panel
and now chairs the new Medical Advisory
Council, and by attendance of the Chief
Medical O cer, who has been responsible
for the development of an enhanced Clinical
reporting system. The Chief Medical O cer
presents a quarterly assessment of clinical
risks across Bupa operations. Both Sir John
Tooke and the Chief Medical O cer ensure
that the opportunities and risks arising
from medical innovation are brought to
the Committee’s attention.
Strengthening linkages with subsidiary risk
committees
Progress was made in strengthening
linkages with major subsidiaries. Bupa’s suite
of 31 Enterprise Policies has been adopted
by the Boards of our major subsidiaries
and deployment throughout the business
continued. The Committee Chairman held
meetings with the Chief Risk O cer (CRO) for
Spain and Latin America domestic business
during the Board’s visit to Chile, and with
the Risk Chair and CRO of our Australian
business during the Board’s visit to Melbourne.
In addition, as reported above, the Chairs of
the Australian and Spanish subsidiary board
risk committees attended the Committee’s
meeting on emerging risks. The Chair of
Bupa UK’s insurance company also attended
a Group Risk Committee meeting.
During 2016, the Committee also considered
the following:
New market entry risk assessments
Throughout the year, the Committee
considered the risks associated with Bupa’s
expansion plans and those associated
with each proposed major acquisition.
These reviews included the consideration
of whether new market opportunities
were within risk appetite and the impact
on Bupa’s solvency position arising from
growth through acquisition.
Risk and remuneration oversight
During the year, the Committee provided a
formal report as part of the Remuneration
Committee’s assessment of the Company’s
performance throughout the calendar year in
relation to risk management and performance.
This process continues to be developed and
as a result, more emphasis on Return on
Capital will be included in future assessments.
The Chairman of the Committee also
serves as a member of the Remuneration
Committee to ensure close liaison between
the two Committees.
Committee e ectiveness review
Overall, the Committee considered that it was
e ective during 2016 and noted the need to
continue to focus on areas such as developing
an explicit linkage between Risk Appetite
and Strategy.
Plans for 2017
In 2017, in addition to monitoring Bupa’s Risk
Profi le, the Committee plans to:
– Further develop its role alongside the risk
committees of our major subsidiaries.
– Ensure an even closer connection between
risk appetite and Bupa’s strategy.
– Focus on the embedding of current
Enterprise Policies.
– Continue to articulate emerging risks
challenging Bupa’s strategy.
40 Bupa Annual Report 2016
Governance report
Nomination & Governance
Committee report
Role of the Committee
The Committee leads the process for Board
appointments and makes recommendations
to the Board, as well as reviewing the balance
of skills, experience, knowledge, structure and
composition of the Board and its Committees.
The Committee keeps Bupa’s governance
structures under review and makes
appropriate recommendations to ensure that,
where appropriate, Bupa’s arrangements are
consistent with best practice governance
standards. The Committee also identifi es and
selects suitable Association Member (AM)
candidates.
A full description of the Committee’s role is set
out in its Terms of Reference on bupa.com.
Committee governance
Members’ biographies can be found on page
25. Martin Houston, Clare Thompson and Sir
John Tooke were appointed to the Committee
on 11 May 2016. Evelyn Bourke joined the
Committee on 25 July 2016. Stuart Fletcher
stepped down from the Committee on 4 April
2016. Rita Clifton stepped down on 11 May
2016 following her retirement from the Board.
The Chief People O cer and CFO are invited
to attend meetings where considered
appropriate.
2016 activities
During 2016, the Committee considered the
following:
Board succession
The Committee focused on Board recruitment
during 2016. Evelyn Bourke was appointed as
Acting Group CEO when Stuart Fletcher
stepped down in April. The Committee agreed
the key attributes required of Stuart’s
successor and considered both internal and
external candidates against these criteria.
Lawrence Churchill in his capacity as the
Senior Independent Director and I, together
with Elisa Nardi the Chief People O cer,
prepared a detailed role specifi cation and the
JCA Group was retained to provide external
search consultancy services. JCA also
provided consultancy services for other
executive roles within Bupa. At the conclusion
of this process, the Committee unanimously
agreed to recommend to the Board that
Evelyn be appointed as Bupa’s Group CEO.
Upon appointment, Evelyn formally
recommended to the Board that Joy, who had
been Acting CFO, be appointed to the role in a
permanent capacity. The Committee
discussed Joy’s performance as Acting CFO
and concluded that it was supportive of Joy’s
appointment as the CFO.
Lord Leitch
Committee Chair
Key items covered included:
February
– Bupa’s Annual Report & Accounts 2015: Corporate Governance Report/Board
Succession & Board Committee Membership/Subsidiary Non-Executive Director
Appointment/Association Members Update/Board & Committee Evaluation Process
2016/Board Development & Training Update/Non-Executive Director Expenses
May
– Group CEO Recruitment Process
July
– Group CEO Recruitment Update/Appointment of CFO/Subsidiary Non-Executive
Director Appointment
September
– Succession Planning/Association Members Update/Board Evaluation/Committee
Terms of Reference
December
– AM Update, Compliance with UK Corporate Governance Code/Corporate
Governance Issues Update
“In 2016, the Committee oversaw
the appointment of a new Group
Chief Executive O cer to drive
Bupa forward and enhance our
strategy and performance.
We also oversaw the appointment
of a new Chief Financial O cer
and two new Non-Executive
Directors to the Board.”
Committee members
Lord Leitch Chairman
Evelyn Bourke
Lawrence Churchill
Martin Houston
Clare Thompson
Sir John Tooke
41Bupa Annual Report 2016
Strategic report Governance Financial statements
Simon Blair and Janet Voûte were both
appointed as NEDs on 12 January 2016.
The recruitment process undertaken with
Ridgeway Partners LLP was reported on
in the 2015 Annual Report.
Our approach to Board diversity is explained
on page 29.
UK Corporate Governance Code
The Committee continued to monitor
Bupa’s compliance with the UK Corporate
Governance Code (the Code) with an update
in December 2016.
Governance issues
The Committee receives regular updates
on emerging governance issues which are
subsequently shared with the wider Board.
For example, during the year the Committee
discussed the Government’s green paper on
Corporate Governance Reform, in addition to
other governance developments.
Association Members
The Committee agreed at its meeting in
September 2016 that there was no need to
identify any further AMs because there were
115 AMs at the year end with only fi ve AMs
scheduled to retire during 2017. There would
therefore continue to be in excess of 100 AMs,
our target number, at the end of 2017.
Committee e ectiveness review
Overall, the Committee considered that it was
e ective during 2016 and noted the continued
need to focus on succession planning.
Plans for 2017
In 2017, the Committee plans to focus on
Board succession planning, including
identifying the key skills, knowledge and
experience that the Board requires for the
future and the possible recruitment of a
new NED. The Committee will also keep
under review the need to undertake a
further recruitment exercise for AMs.
42 Bupa Annual Report 2016
Remuneration report
Part 1: Committee Chairman’s letter
On behalf of the Board, the Remuneration
Committee is pleased to present the
Directors’ Remuneration Report for 2016.
Role of the Committee
We seek to ensure that we are not only
rewarding people for delivering great
customer outcomes and long-term
sustainable performance against our agreed
strategies and plans, but also putting in place
reward structures that attract and motivate
the very best people and ensure our people
love working at Bupa. I am convinced that
we are delivering and at times exceeding
our goals, though we cannot and will not
rest here. There is still much to achieve.
2016 activities
It has been a busy year for the Committee and
for the fi rst time we held a half-day strategy
meeting and agreed to increase our number
of meetings for 2017 to deal with increasing
regulatory requirements.
I would like to highlight four key areas where
we have focused our time and made tangible
and positive progress.
1. Directors’ Remuneration Policy
Bupa’s current Directors’ Remuneration
Policy was approved at the 2014 Annual
General Meeting (AGM). In line with reporting
requirements applying to listed companies,
which require those companies to submit
the Directors’ Remuneration Policy to
shareholders for approval every three years,
the Committee undertook a detailed review
of the existing policy and propose a number
of changes which are incorporated into the
revised policy and will be presented for
approval at the 2017 AGM.
From 2017, one of the key changes is the
balanced scorecard for measuring
performance for both the Management
Bonus Scheme (MBS) and the Long Term
Incentive Plan (LTIP). The objective for this
change is to ensure we use measures based
on reinforcing the sustainable long-term
fi nancial strength of Bupa enabling us to
deliver on our purpose; helping people to
live longer, happier, healthier lives.
For the short-term MBS scorecard, Profi t,
Revenue, Risk Adjusted Profi t, Cost E ciency
and Customer have been set as the measures.
For the LTIP scorecard, we will use Profi t After
Tax, Return on Capital Employed and
Customer measures. For both the MBS
and the LTIP, in addition to the scorecards,
the Committee will be applying an overall
adjustment based on risk management
across Bupa.
The Committee has worked closely with its
advisers and management in developing these
plans and the Remuneration Policy, which
refl ect a shared agenda in how Bupa rewards
future performance, with customers and risk
management at the heart of what we do.
2. Solvency II compliance
Much of our 2016 agenda was focused on
making sure we both understood and then
implemented changes to our policies to
ensure compliance with our evolving approach
to the Solvency II remuneration requirements.
Further, we put in place arrangements to deal
with individuals covered by the regulations,
e.g. Solvency II identifi ed sta .
3. Introduction of remuneration
committees for subsidiary boards
We are making excellent progress with the
establishment of remuneration committees in
our Australia and New Zealand (ANZ) Market
Unit, as well as our UK regulated entity Bupa
Insurance Limited (BINS). The Hon. Nicola
Roxon will chair the ANZ remuneration
committee and the chairman of the new
BINS Remuneration Committee will be
nominated by the BINS board shortly.
Terms of Reference will ensure that the
responsibilities of these committees and
how they interact with this Committee,
are clear. They will also take account of
any specifi c local regulatory requirements.
4. Executive appointments
The year was dominated by key personnel
changes at Executive Director and Bupa
Executive Team (BET) levels. As well as the
appointments of the new Group CEO and
CFO, there were six new BET appointments.
The Committee agreed the terms for both
incoming and outgoing executives and
retirements contemplated at year end. In all
cases, we carefully reviewed all elements
of remuneration and used benchmarking
prepared by Mercer, remuneration advisors
to the Committee and management, to
calibrate our proposals.
Martin Houston
Committee Chairman
“This year the Committee
reviewed the Directors’
Remuneration Policy, compliance
with Solvency II remuneration
requirements, governance
arrangements for subsidiary
board remuneration committees
and remuneration packages for
all new BET appointments.”
In the Remuneration report:
Part 1: Committee Chairman’s letter
Part 2: Policy
Part 3: Implementation (audited)
43Bupa Annual Report 2016
Strategic report Governance Financial statements
Performance and Pay in 2016
Salary
The Committee has decided in light of salary
increases awarded in 2016 upon appointment
to Group CEO and CFO, that no further salary
increases should be awarded for 2017.
Management Bonus Scheme
As you will have seen, our business performed
solidly in challenging market conditions.
We achieved good profi t growth in our
three largest Market Units – Australia and
New Zealand, the UK, and Europe and
Latin America – while performance within
International Markets was impacted by a
signifi cant decline in profi t within Bupa Global.
The Management Bonus Scheme (MBS) for
2016 refl ects Bupa’s performance not only
against profi t and revenue targets, but also
non-fi nancial measures including risk, people
and customer.
To recognise signifi cant achievements in
a year that saw changes to our strategy,
the leadership team, the organisational
structure and to organisational processes,
the Committee approved adjustments to
the vesting level of the MBS to mitigate the
e ect of the disposal of BHH and the fact
that the transaction costs relating to the
purchase of Oasis Dental Care fell in 2016.
The Committee also discussed the
e ectiveness of the management of risk.
It received input from the Risk and Audit
Committees of the main Board as well as
of the main subsidiary Boards. While the
Committee noted that progress had been
made during the year, the Committee
decided to apply a reduction to the
vesting percentage.
The Committee approved bonuses of 83.7%
and 87.6% of target bonus opportunity for
the Group CEO and CFO respectively,
this payout also includes an individual
performance modifi er which takes into
account strong individual performance during
the year. A partial mandatory deferral of the
MBS was introduced in 2014 and therefore
a proportion of these bonuses has been
deferred for three years and is subject to
malus and clawback provisions over this
period. More details are provided on page 45.
Long Term Incentive Plan
The 2014-16 LTIP vesting is based on
performance against Profi t After Tax (PAT)
and Revenue, and quality and sustainability
targets. In reviewing the vesting of this LTIP,
the Committee exercised its discretion to
exclude the impact of the redemption of
secured loan notes, which was deemed to
be a strategic decision taken to optimise the
Group’s borrowings for the future and the
2016 one-o charge was not a refl ection of
performance in the 2014-2016 period. As with
the MBS, while the Committee noted that
progress had been made during the year on
risk management, the Committee decided to
apply a reduction to the vesting percentage.
As stated in last year’s Directors Remuneration
Report, the Committee calculated vesting of
LTIP using an equal balance of actual and
constant exchange rates to ensure the LTIP
outcome refl ects both actual results and
controllable performance.
Based on this and Bupa’s performance against
targets calculated as per plan rules, the
2014-16 LTIP vested at 87.65% of target.
Plans for 2017
In 2017, the Committee plans to:
– Further develop our approach to
remuneration to refl ect updated
Solvency II guidance;
– Continue with the development of
subsidiary board remuneration committees;
– Review new approaches to compensation
and best practice; and
– Build on measuring customer and risk
and their infl uence on the outcome of
incentive awards.
We are committed to being open and
transparent with our Association Members.
In addition to the familiar advisory vote on
the Remuneration Report, we will this year
have advisory votes on Bupa’s Remuneration
Policy and the proposed LTIP.
I am available to our Association Members
on any aspect of Bupa Remuneration.
Martin Houston
Committee Chairman
1 March 2017
For more information please see page 48.
Single figure remuneration 2016 (£000)
Evelyn Bourke
Joy Linton
Stuart Fletcher
Base Salary Pension Other Benefits
309 93 215 680
18
376
69 91 180 102
729 195 480 416
17
Total
£000
818
1,315
1,837
Management Bonus Scheme LTIP
44 Bupa Annual Report 2016
Remuneration report
Part 2: Policy
Remuneration policy table – Executive Directors
Purpose and link to strategy
Core element of remuneration
set to attract and retain
Executive Directors, refl ecting
their role and contribution.
To drive behaviour and to
promote focus on the business
priorities for the year.
To motivate and incentivise
delivery of performance over
the annual operating plan.
To motivate and incentivise
delivery of sustained
performance over the long
term aligned to Bupa’s
strategic objectives.
To provide an income after
retirement, health security
and family protection benefi ts.
To attract and retain Executive
Directors by providing health
and wellbeing benefi ts and
providing security for families.
Operation
Salary levels are reviewed
annually with any changes
becoming e ective in April.
Factors taken into account
include:
– Level of skill, experience
and scope of responsibilities
of the individual;
–Overall business
performance,
scarcity of talent, economic
climate and market
conditions;
– Increases across Bupa,
and;
– External market data.
Bonus levels and the
appropriateness of measures
and weightings are reviewed
annually to ensure they continue
to support the business strategy.
Performance over the
fi nancial year is measured
against stretching fi nancial
and non-fi nancial performance
targets set at the start of the
fi nancial year.
Typically 50% of any bonus
awarded will be deferred for a
period of up to three years, with
the remaining 50% paid in cash.
To account for any loss of value
over time, a modest uplift will be
applied to the deferred amount.
As Bupa cannot provide
incentives based on equity
participation, it provides an
LTIP in the form of a deferred
cash incentive that is broadly
refl ective of equity-based plans
in comparable companies.
Awards are usually made on
an annual basis and relate to
performance over a three-year
period.
Vesting of awards is based
on the extent to which
performance targets, set and
assessed by the Committee,
are achieved.
Any payments will be made
at the end of the performance
period and a portion may be
deferred for up to two years.
For the current Executive
Directors and new
appointments, the Company
operates a defi ned contribution
pension scheme, called
The Bupa Retirement Savings
Plan. Executive Directors
have the option to take any
employer contribution as a cash
allowance or a combination
of pension contribution and
cash allowance.
Executive Directors are entitled
to a number of taxable benefi ts
which may include private
health cover for themselves and
their family, an annual health
assessment for themselves
and their partner, life insurance,
income protection insurance,
car allowance and 30 days’
annual holiday. The Group CEO
is entitled to the use of a car and
driver instead of a car allowance.
The benefi ts o ered may
need to be changed from time
to time to refl ect changing
circumstances.
Maximum opportunity
Salary increases are normally
in line with those of the Bupa
employee population.
Larger increases may be given
in certain circumstances
including where a new recruit
has been appointed on lower
than market rate salary with the
expectation of phased increases
to bring it up to market level.
The Committee does not
consider it appropriate to set
a maximum salary level.
The maximum bonus
opportunity will not exceed
200% of base salary.
The maximum award will not
exceed 275% of base salary.
Executive Directors who are
eligible to be members of The
Bupa Retirement Savings Plan
receive employer contributions
of up to 30% of base salary.
There is no specifi c maximum
benefi t spend.
Performance metrics
None MBS payments are based on
the achievement of challenging
fi nancial and non-fi nancial
objectives.
No less than 75% of the annual
bonus will be subject to the
achievement of fi nancial
measures which will be aligned
to the strategic priorities of
the business.
Vesting of awards is based
on performance against a
combination of fi nanc
i
al and
non-fi nancial measures.
Threshold performance results
in a payment of 15% of the
maximum.
No less than 75% of the LTIP will
be based on fi nancial measures
with the remainder based on
measures linked to key strategic
priorities of the business.
None None
Base Salary Pension Benefi tsManagement Bonus Scheme Long Term Incentive Plan
Context
The aim of Bupa’s remuneration policy is to promote the long-term success of the Company and motivate management to deliver strong and
sustainable business performance aligned with Bupa’s purpose: helping people live longer, healthier, happier lives. The policy is intended to
deliver a competitive level and mix of remuneration compared with companies of a similar scale and complexity to Bupa.
45Bupa Annual Report 2016
Strategic report Governance Financial statements
Malus and clawback
Malus and clawback provisions may be
operated at the discretion of the Committee
in respect of awards granted under the MBS
and LTIP. Malus (under which awards may
be reduced, cancelled or made subject to
additional conditions) may be applied prior
to the payment of the award. Clawback
(requiring a repayment of cash which has
been delivered) may be operated for up to
three years following payment of the non-
deferred element of the MBS and fi ve years
from grant for the LTIP.
Circumstances in which the operation of
these provisions may be considered include:
– Misstatement of results;
– An error in assessing any relevant
performance metric or in the information
or assumptions on which the MBS or LTIP
is determined;
– Serious reputational damage to Bupa or
a relevant business unit;
– A scenario in which signifi cant risk has
been taken which is outside of Bupa’s or
a relevant business unit’s risk appetite;
– Gross misconduct or material breach of
employment contract; and
– Any other circumstance which the
Remuneration Committee in its discretion
considers to be similar in nature or e ect
to the above.
Performance measures and target
setting
Measures and targets for the MBS are aligned
to delivery of Bupa’s annual operating plan
and may include personal objectives that
change from year-to-year.
Measures and targets for the LTIP are set by
the Remuneration Committee taking into
account a number of internal and external
reference points which include historic Bupa
performance, internal forward-looking plans
and broader market trends. Targets are set
for vesting at threshold, ‘on-target’ and
out-performance levels.
Illustrations of the application of the remuneration policy
Bupa aims to provide a balance of fi xed and variable compensation that provides stability while also incentivising superior business performance.
At target, over 50% of Executive Directors’ remuneration is based on individual and company performance.
The graph illustrates the possible variation for di erent levels of performance.
1 On target fi gures have been calculated on the basis that Bupa achieves target fi nancial and non-fi nancial performance and individual multiplier is set at 100%.
2 Maximum fi gures have been calculated on the basis that Bupa achieves maximum fi nancial and non-fi nancial performance and individual multiplier is set at 200%.
Remuneration at various levels of performance (£000)
Evelyn Bourke Group CEO
Maximum
2
On target
1
Fixed pay
Joy Linton CFO
Maximum
2
On target
1
Fixed pay
Base Salary Pension Benefits
800
800
800
240
240 800 1,100
240 1,600 2,200
2,961
1,061
4,861
21
Management Bonus Scheme LTIP
Base Salary Pension Benefits
550
550
550
165
165 413 688
165 825 1,375
1,832
731
2,931
16
Management Bonus Scheme LTIP
Total
£000
46 Bupa Annual Report 2016
Remuneration report
Part 2: Policy continued
Remuneration Committee discretion
The Remuneration Committee has ultimate
discretion over all incentive plans relating to
the Executive Directors and other individuals
within its remit. This includes, but is not
limited to:
– determining the size of the award/payment;
– determining whether minimum levels of
performance have been met or underlying
performance is satisfactory before
determining vesting of any awards;
– determining whether the management of
risk has been acceptable, or whether any
downward adjustments are required;
– choosing or adjusting performance
measures within the Remuneration Policy
and the plan rules;
– determining whether individuals are good
leavers for incentive plan purposes, based
on plan rules;
– making one-o adjustments in exceptional
circumstances.
Approach to remuneration policy on
recruitment of an Executive Director
Our approach to remuneration on recruitment
is to pay no more than is necessary and
appropriate to attract the right talent to the role.
The remuneration policy table on page 44
sets out the various components which
would be considered for inclusion in the
remuneration package for the appointment
of an Executive Director. Typically a new
appointment will have (or be transitioned
onto) the same framework that applies to
other Executive Directors as set out in the
policy table. Salary would refl ect the skills
and experience of the individual, and may be
set at a level to allow future salary progression
to refl ect performance in the role.
It would be expected that the structure and
quantum of the variable pay elements would
refl ect those set out in the policy table.
The Committee reserves the right to make
any remuneration payments or payments for
loss of o ce where the terms of the payment
were agreed (i) before the remuneration
policy came into e ect or (ii) at a time when
the relevant individual was not a Director
of the company and, in the opinion of
the Committee, the payment was not in
consideration for the individual becoming
a Director of the company.
To facilitate recruitment, the Committee may
make compensatory payments and/or awards
for any remuneration arrangements subject
to forfeit on leaving a previous employer.
We will seek to replicate, as far as practicable,
the potential value and time horizon of
such remuneration, as well as performance
conditions that may apply. In some
circumstances, it might also be necessary
to set up additional or alternative
arrangements including but not limited to:
– Relocation-related expenses; and
– International assignment allowances
and expenses.
In the case of internal promotions, any
commitments made before appointment
may continue to be honoured unless an
alternative approach, more closely aligned
to the prevailing policy, is agreed by the
Remuneration Committee.
Any special joining arrangements may include
malus and/or clawback, for example, tied to
leaving within a certain period.
Di erences in remuneration policy
for Executive Directors compared with
other employees
The Remuneration Policy for the Executive
Directors is designed to be broadly similar to
the policy applicable to Bupa employees to
ensure that they are all aligned to delivering
sustainable business performance. Although
the size of the opportunity varies, the
underlying principles of the salary review
cycle, MBS and LTIP remain the same for
the senior employee population.
Junior employees are not eligible for LTIP
awards, although most have an MBS
opportunity. In some cases, additional
fl exibility has been introduced for the
Executive Directors and senior employees
(e.g. to provide choice to receive cash in
lieu of pension contributions) to allow for
personal circumstances.
A small number of senior managers across
Bupa participate in the LTIP, based on the
same framework as the Executive Directors,
with award levels calculated as a percentage
of salary which is scaled down based on
their level of seniority and accountability.
Vesting of the awards is dependent upon
performance against specifi c fi nancial and
non-fi nancial measures over a three-year
performance period.
47Bupa Annual Report 2016
Strategic report Governance Financial statements
Policy on payments for loss of o ce
The table to the right summarises the key
elements of our policy on payment for
loss of o ce, which will comply with the
relevant plan rules and will consider local
employment legislation.
Any payments made due to loss of o ce
may include malus or clawback provisions
as described under malus and clawback
on page 45.
Service contracts for Executive
Directors
Executive Directors have a 12-month rolling
employment contract. The notice requirements
are 12 months from both the Company and
the individual, which may be payable in lieu.
The contracts also include specifi c post-
termination restrictions. Executive Directors
are usually permitted, subject to approval, to
have one external Non-Executive Director
role and to accept and retain the fee for this
appointment. This is on the condition that any
external appointment does not give rise to a
confl ict of interest.
Remuneration policy table – Non-Executive Directors
Service contracts for
Non-Executive Directors
Terms of engagement for the Non-Executive
Directors of Bupa set out the fees and
benefi ts to which they are entitled as well
as the expectation of the time commitment
required to e ectively perform their role.
Copies of the standard terms of engagement
are available on bupa.com.
The table to the right describes the pay
policy as it applies to the Chairman and
Non-Executive Directors.
Provision Policy
Notice period and
compensation
for loss of o ce in
service contracts
– 12 months’ notice from the Company to the Executive Director.
– Up to 12 months’ base salary (in line with the notice period). Notice period payments
will either be made as normal (if the Executive Director continues to work during the
notice period or is on garden leave) or at the termination date for any unexpired notice
period.
Treatment of MBS
on loss of o ce
under plan rules
– The Committee may make a MBS payment for the year of cessation depending on
the reason for leaving. Typically, the Committee will take into consideration the
period served during the year and the individual’s performance up to cessation.
Any such payment is at the discretion of the Committee.
– Any MBS will be paid at the normal time following the end of the performance
year.
Treatment of
LTIP on loss
of o ce under
plan rules
– An Executive Director’s award will vest in accordance with the terms of the plan
and satisfaction of performance conditions measured at the normal completion of
the performance period if the reason for leaving is redundancy, pre-agreed
retirement, early retirement on the grounds of ill health, death or any other special
circumstance agreed by the Committee. In these cases, fi nal awards will be
pro-rated based on completed months of service, in 36ths for the actual period of
active employment during the plan performance period. The period of active
employment excludes any period of garden leave or other such period when the
Executive Director was legally employed but not required to actively carry out
their duties. For any other reason, they will not be eligible for an LTIP payment.
– Any LTIP payment will be paid at the normal time e.g. in April following the end of
the performance period, or two years later for any deferral.
Pension
and benefi ts
– Generally pension and benefi t provisions will continue to apply until the
termination date.
Element
Purpose and
link to strategy Operation
Fees
To attract and provide
stability, refl ecting the
complexity of the
role and time commitment
required
The Chairman receives an all inclusive fee.
NEDs receive a fi xed basic fee. Additional fees are paid for chairing and
membership of Board Committees and/or additional work in relation to
subsidiaries, and for the Senior Independent Director role.
Fees are reviewed annually by the Board with any changes implemented
in July. Key factors taken into account include:
–Overall business performance;
– Scope and responsibility of the role;
– Appropriate market data; and
– NEDs are not eligible for any form of variable pay.
Benefi ts
To provide health and
wellbeing benefi ts aligned
with Bupa’s purpose
During their time in o ce, NEDs are entitled to private health cover
for themselves and their family and an annual health assessment for
themselves and their partner. The Chairman is also entitled to the use
of a car and driver. These benefi ts are taxable. Travel and subsistence
expenses for attending Bupa meetings are reimbursed as well as the
additional tax and NIC, where these are treated as taxable income.
48 Bupa Annual Report 2016
Remuneration report
Part 3: Implementation (audited)
The Implementation Report sets out details
of Executive Directors’ and Non-Executive
Directors’ pay and shows how the Executive
Directors’ and Non-Executive Directors’
remuneration policy has been implemented
in 2016 and how it will be applied for 2017.
As well as disclosing remuneration fi gures for
the Executive Directors, it includes details on
the degree to which performance targets have
been achieved and the resulting level of MBS
payout and vesting of LTIP.
Set out below is a table showing a single total
fi gure of remuneration for each Executive
Director in 2016. Comparable fi gures for 2015
are also included in this table.
Detail of performance against metrics
for MBS
For 2016, the Group CEO’s target bonus
opportunity was 100% of salary with a
maximum of 150% of salary. The CFO’s
target bonus opportunity was 75% of
salary with a maximum of 112.5% of salary.
The performance measures used to
determine the 2016 annual bonus for our
Executive Directors were as follows:
– Group profi t (50% of award) – similar to
underlying profi t before taxation, with the
most signifi cant di erences being the
inclusion of restructuring and transaction
costs on acquisitions and disposals;
– Group revenue (25% of award) – includes
Bupa’s proportionate share of revenue from
associates and joint ventures, which is not
included within reported revenue; and
– Non-fi nancial metrics (25% of award).
The Committee assessed the profi t and
revenue elements against the targets set at
the start of the year and are comfortable
that the amounts earned refl ect Bupa’s
underlying fi nancial performance.
The fi nancial targets for the MBS and actual
performance of the Company are shown in
the table below.
Our business performed solidly in challenging
market conditions. We achieved good profit
growth in our three largest Market Units –
Australia and New Zealand, the UK, and
Europe and Latin America – while
performance within International Markets
was impacted by a signifi cant decline in
profi t within Bupa Global.
The MBS for 2016 refl ects Bupa’s performance
not only against profi t and revenue targets,
but also non-fi nancial measures including risk,
people and customer.
Executive Directors: Single total fi gure of remuneration
Director Year
Salary
£000
Benefi ts
£000
MBS
1
£000
LTIP
1
£000
Pension
£000
Total
£000
Evelyn Bourke
2
2016 729 17 480 416 195
1,837
2015 523 16 382 215 157
1,293
Joy Linton
3
2016 376 91 180 102 69
818
2015 –––––
–
Stuart Fletcher
4
2016 309 18 215 680 93 1,315
2015 730 48 681 403 219 2,081
Notes
1 MBS refers to bonus payments earned during that year, and LTIP refers to payouts from the performance period which ended in that year.
2 Evelyn Bourke’s salary was £548,500 from 1 April 2016 and increased to £800,000 upon appointment to Group CEO. She received an allowance for the period she was Acting Group CEO
and received cash in lieu of pension contributions. She was a Non-Executive Director of IFG and received a fee of £40,192 in respect of her position, which is not disclosed in the table above.
3 Joy Linton was an international assignee prior to her appointment as CFO. Her salary was AUD 613,380 and she received additional allowances and benefi ts relating to this. She also received
an allowance for the period she was Acting CFO. Joy’s salary was increased to £550,000 from 1 August 2016 upon appointment to CFO. The Annual Bonus and LTIP fi gures for the period
prior to appointment to CFO are based on AUD and have been converted into GBP in the table above using the 2016 Bupa business Plan exchange rate of 1 GBP : 2.24 AUD which is an
internal rate fi xed at the start of the Plan year to report incentives across Bupa.
4 Stuart Fletcher is a former executive director having left Bupa on 31 May 2016. His salary was £753,375 from 1 April 2016 and he received £991,787 as pay in lieu of notice. He received cash
in lieu of pension contributions.
2016 MBS payout
Threshold
Performance
Level
£m
On Target
Performance
Level
£m
Stretch
Performance
Level
£m
Actual
Performance
Level
£m
Evelyn Bourke
5
Joy Linton
6
Stuart Fletcher
7
Max
bonus
% of
salary
Actual
payout
% of
salary
Max
bonus
% of
salary
Actual
payout
% of
salary
Max
bonus
% of
salary
Actual
payout
% of
salary
Group profi t 569.5 632.8 696.1 600.9 64.1% 27.9% 53.9% 30.3% 75.0% 22.8%
Group revenue 9,831.9 10,924.3 12,016.7 10,376.2 32.0% 14.0% 26.9% 15.2% 37.5% 11.4%
Non fi nancial metrics ––––32.0%14.0%26.9%15.2%37.5%11.4%
Total 128.1% 55.8% 107.8% 60.6% 150.0% 45.7%
5 The actual payout fi gures for Evelyn Bourke include an adjustment to the whole bonus for personal performance. Evelyn’s individual multiplier for 2016 was 110%. The fi gure shown for
Max Bonus (as % of salary) is pro-rated to refl ect time in roles and salary earned in the year.
6 The actual payout fi gures for Joy Linton include an adjustment to the whole bonus for personal performance. Joy’s individual multiplier for 2016 was 115%. The fi gure shown for Max Bonus
(as % of salary) is pro-rated to refl ect time in role and salary earned as an Executive Director in the year.
7 The actual payout fi gures for Stuart Fletcher include an adjustment to the whole bonus for personal performance. Stuart’s individual multiplier for 2016 was 90% and the actual payout was
reduced pro-rata based on his time served in 2016.
49Bupa Annual Report 2016
Strategic report Governance Financial statements
To recognise signifi cant achievements in a year
that saw changes to our strategy, the leadership
team, the organisational structure and to
organisational processes, the Committee
approved adjustments to the vesting level of
the MBS to mitigate the e ect of the disposal
of BHH and the fact that the transaction costs
of Oasis Dental Care fell in 2016.
The Committee also discussed the
e ectiveness of the management of risk.
It received input from the Risk and Audit
Committees of the main Board as well as
of the main subsidiary Boards. While the
Committee noted that progress had been
made during the year, the Committee
decided to apply a small reduction to the
vesting percentage.
The Committee approved bonuses of 83.7%
and 87.6% of target bonus opportunity for
the Group CEO and CFO respectively,
this payout also includes an individual
performance modifi er which takes into
account strong individual performance during
the year. A partial mandatory deferral of the
MBS was introduced in 2014 and therefore
a proportion of these bonuses has been
deferred for three years and is subject to
malus and clawback provisions over this
period. More details are provided on page45.
2014-2016 LTIP vesting
The 2014-16 LTIP vesting is based on
performance against Profi t After Tax (PAT)
and Revenue, and quality and sustainability
targets. In reviewing the vesting of this LTIP,
the Committee exercised its discretion to
exclude the impact of the redemption of
secured loan notes, which was deemed to
be a strategic decision taken to optimise the
Group’s borrowings for the future and the
2016 one-o charge was not a refl ection of
performance in the 2014-2016 period. As with
the MBS, while the Committee noted that
progress had been made during the year on
risk management, the Committee decided to
apply a reduction to the vesting percentage.
As stated in last year’s Director’s
Remuneration Report, the Committee
calculated vesting of LTIP using an equal
balance of actual and constant exchange rates
to ensure the LTIP outcome refl ects both
actual results and controllable performance.
Based on this and Bupa’s performance against
targets calculated as per plan rules, the
2014-16 LTIP vested at 87.65% of target.
Interests awarded during 2016
During the year, LTIP awards for the 2016-2018
Plan were made to the Executive Directors.
The Plan covers the three-year performance
period to 31 December 2018. Subject to the
achievement of performance conditions, up to
50% of the award may be paid in April 2019
with any excess being deferred for a further
two years.
Within the LTIP scorecard, profi t after tax is
weighted at 75% and revenue is weighted
at 15%. For any level of payout to occur for
achievement of revenue performance, a
performance gateway applies in that the
profi t after tax threshold must be achieved.
The remaining 10% weighting for the LTIP is
based on the improvement in the customer
and brand dashboard. The targets for the
fi nancial measures are set annually within
each of the plan years. The 2016 metrics
are set out in the tables below.
Financial targets 2016-2018 LTIP (90% weighting)
2016 targets
Profi t after tax
Weighted 75%
Revenue
Weighted 15%
Below threshold performance 0% vesting < 4% p.a. < 3% p.a.
Threshold performance 15% vesting 4% p.a. 3% p.a.
On-target performance 50% vesting 7% p.a. 5% p.a.
Out-performance 100% vesting 10% p.a. 8% p.a.
Notes
Growth is measured as annual growth rate.
Straight-line vesting occurs between the discrete levels of achievement.
Customer targets 2016-2018 LTIP (10% weighting)
0% vesting Outcomes and improvements are signifi cantly below expectations
30% – 70% vesting Outcomes and improvements are broadly in line with expectations
70% – 100% vesting Outcomes and improvements are signifi cantly above expectations
The table below shows the detail of the awards made to the Executive Directors in the year.
Long Term Incentive Plan
Scheme Type
2016-2018 Long-Term Incentive Plan
Evelyn Bourke Joy Linton Stuart Fletcher
1
Basis of award
200% of
base salary
120% of
base salary
275% of
base salary
Face value of award (100% of award) £1,070,000 £321,429 £2,021,250
Amount that would vest at on-target performance
(50% of award) £535,000 £160,714 £1,010,625
Amount that would vest at threshold performance
(15% of award) £160,500 £48,214 £303,188
Date performance period ends 31 December 2018
Payment due date April 2019, and April 2021 (for deferred amount)
1 Stuart Fletcher will have pro rata vesting applied to any payout based on his employment ending 31 May 2016.
50 Bupa Annual Report 2016
Remuneration report
Part 3: Implementation (audited) continued
Historical payout table
The table to the right shows levels of payout
to the Group CEO against the maximum
incentive opportunity for the last fi ve years.
Percentage change in remuneration of the Group CEO
The table to the right shows the change in
salary, benefi ts and short-term incentives
(annual bonus) for the Group CEO in 2016
compared to 2015 alongside a corresponding
average fi gure for the Bupa employee
comparator group. The UK salaried
population
5
has been chosen by the
Committee as the most appropriate
comparison, as the Group CEO is located
in the UK.
Relative importance of spend on pay
The table to the right shows the relative
importance of spend on pay. Given that Bupa
does not have shareholders and therefore
does not pay dividends, cash fl ow used in
investing activities has been shown as an
alternative measure.
Payments for loss of o ce
The following was approved by Bupa’s
Remuneration Committee in accordance with
Bupa’s Remuneration Policy and Stuart Fletcher’s
contract of employment.
Mr Fletcher remained an employee until 31 May
2016 to provide support to the Acting Group
CEO, Evelyn Bourke, who took over Mr
Fletcher’s responsibilities. He continued to
receive his current salary and benefi ts until
that date.
He received a payment of £991,687. This was
in lieu of 12 months’ salary (£753,375), car
allowance (£12,300) and pension allowance
(£226,012). Mr Fletcher’s healthcare and life
cover will continue until 31 May 2017, and the
company contributed £40,000 plus VAT in
respect of outplacement support for him, and
£10,000 plus VAT in respect of legal fees
incurred by him in connection with his departure.
Bupa will treat Mr Fletcher as eligible for MBS
under the 2016 bonus scheme pro rata for the
period of his employment to 31 May 2016, subject
to the rules of the scheme. Any such payment
(subject to any deferral) would be paid in
March or April 2017. He will also receive good
leaver treatment under Bupa’s Long Term
Incentive Plans (LTIPs) of which he is a member,
with pro rata vesting based on his employment
ending on 31 May 2016. All MBS and LTIP awards
will be subject to the rules of the plans
(including, for example, malus and clawback
and the satisfaction of any applicable
performance conditions).
Year Group CEO
Single fi gure
of total remuneration
(£’000)
Management Bonus
Scheme
payout against
maximum
opportunity %
Long-term incentive
vesting rates
against maximum
opportunity %
2016 Evelyn Bourke
1
1,837 56% 67%
2016 Stuart Fletcher
2
1,315 46% 67%
2015 Stuart Fletcher 2,081 62% 30%
2014 Stuart Fletcher 2,812 82% 71%
2013 Stuart Fletcher 1,703 71% **N/A
3
2012
4
Stuart Fletcher 1,670 100% **N/A
3
2012
4
Ray King 1,797 67% 83%
1 Evelyn Bourke was appointed Group Chief Executive O cer on 21 July 2016.
2 Stuart Fletcher left Bupa on 31 May 2016 and annual bonus payment refl ects a pro-rated payment.
3 Stuart Fletcher did not receive payouts from these plans. However, the payment to other eligible participants was 83%
in 2012 and 84% in 2013.
4 Stuart Fletcher joined Bupa on 1 March 2012 and Ray King retired on 30 June 2012.
Group CEO Employees
Salary 0.5% 2.49%
Benefi ts (excluding pension) -58.37% no material change
Short Term Incentives -18.93% 6.84%
5 The UK salaried population refers to the UK-based permanent employees whose records are held on the HR database.
2016
(£m)
2015
(£m)
Di erence
2016-2015
(£m)
Remuneration paid to all employees 1,905.2 1,653.7 251.5
Cash fl ow used in investing activities 310.0 695.3 -385.3
51Bupa Annual Report 2016
Strategic report Governance Financial statements
Chairman and Non-Executive Director Fees
The table on the right shows the structure of
the Chairman and Non-Executive Director
fees with e ect from 1 July 2016.
Statement of Implementation of Remuneration Policy in 2017
In the current fi nancial year (2017) Bupa intends to implement the remuneration policy as described on pages 44-45.
The remuneration of the Group CEO and CFO will be as follows:
Salary
(e ective from 1 April)
Management
Bonus Scheme
Long-term
Incentive Plan
Evelyn Bourke
Group CEO
£800,000
(0% increase)
Target opportunity –
100% salary
Maximum opportunity –
200% salary
Fair (on-target) value – 137.5% salary
(£1,100,000)
Maximum award – 275% salary
(£2,200,000)
Joy Linton
CFO
£550,000
(0% increase)
Target opportunity –
75% salary
Maximum opportunity –
150% salary
Fair (on-target) value – 125% salary
(£687,500)
Maximum award – 250% salary
(£1,375,000)
For 2017 onwards the MBS and LTIP have been redesigned, in line with the remuneration policy, to support the Bupa strategy more e ectively.
The targets and the weighting of these were carefully considered to ensure that the right balance of fi nancial and non-fi nancial measures in the
short-term and long-term.
Strategic Pillar Measure
MBS scorecard LTIP scorecard
Strong and sustainable performance
Profi t Management Profi t – 50% Profi t after tax – 60%
Revenue 10% –
Return Risk Adjusted Profi t – 10% ROCE – 20%
Cost Cost e ciency – 10% –
Loved as a true customer champion in health and care
Customer 20% 20%
In addition to these measures, both schemes are subject to an overall adjustment based on Risk Management across Bupa. The Committee has the
discretion to adjust any payment down to nil if required. The MBS also has an individual multiplier based on personal performance during the year
against agreed objectives.
As stated in the policy, the underlying principles for reward remain the same for the senior employee population. As a result, both the Management
Bonus Scheme and Long Term Incentive Plan are cascaded down through Bupa. The MBS is cascaded even further than the senior employee
population and the only change is the level of opportunity.
2016 Fee
Chairman Fee
£400,000
Non-Executive Director basic fee
£65,000
Senior Independent Director fee
£17,000
Committee chairmanship
Audit Committee
£25,000
Remuneration Committee
£25,000
Risk Committee
£25,000
Committee membership
Audit Committee
£8,000
Remuneration Committee
£8,000
Risk Committee
£8,000
Nomination & Governance Committee
£4,500
52 Bupa Annual Report 2016
Remuneration report
Part 3: Implementation (audited) continued
Committee governance
Martin Houston has chaired the Committee
since 11 June 2014.
In addition to the Company Secretary, regular
attendees at the Remuneration Committee
meetings who have provided comment and
advice were the Group CEO, the CFO, the Chief
People O cer and the Reward Director.
The Committee reviews the quality and
independence of their advisors on a regular
basis. The Committee re-appointed their
advisor, Mercer, from September 2016.
Mercer is the independent advisor to the
Remuneration Committee. The Committee is
of the view that Mercer provides independent
remuneration advice to the Committee and
does not have any connections with Bupa
that may impair its independence. Mercer is
a member of the Remuneration Consultants’
Group and voluntarily operates under their
code of conduct when providing advice on
executive remuneration in the UK. Mercer’s
fees for services to the Committee in 2016 were
£194,000 on a time and materials basis. Support
to the Committee during the year has included
reviewing incentives and performance conditions,
advice on remuneration under Solvency II,
advice on market and best practice guidance,
remuneration benchmarking, drafting
remuneration disclosures, and attending
Committee meetings.
The Terms of Reference for the Committee
were reviewed in February 2017 and adopted
by the Board in March 2017. A copy of the
Committee’s Terms of Reference is available
on bupa.com.
Plans for 2017
During 2017, the Committee intends to:
– Further develop our approach to
remuneration to refl ect updated
Solvency II guidance;
– Continue with the development of
subsidiary board remuneration committees;
– Review new approaches to compensation
and best practice; and
– Build on measuring customer and risk
and their infl uence on the outcome of
incentive awards.
Voting at the Annual General Meeting
The Association Members will be invited to
vote at the Annual General Meeting on 10 May
2017 on the Remuneration Policy, Long-term
Incentive Plan and Implementation Report.
Payments to former directors
No payments, other than those disclosed
under “Payments for loss of o ce”, were
made to former directors in 2016.
Committee e ectiveness review
Overall the Committee considered that it was
e ective during 2016 and noted the need to
ensure that the relationships between the Risk
and Audit Committees and the Committee
continue to be well managed, particularly
when considering executive remuneration.
Committee members
Martin Houston Chairman
Lawrence Churchill
Roger Davis
Lord Leitch
Janet Voûte
Key items covered included:
12 February
24 February
– Annual Reward Review - Group CEO, CFO and BET
– LTIP Payout Level for 2013-2015 and 2016 Incentive Targets
July
– 2017 Incentive Design, 2016 Management Bonus Scheme and 2016-18 LTIP
Rules/Subsidiary NED Fees and Solvency II
September
– 2017 Incentive Design/Re-appointment of Committee Advisors/Solvency II
December
– 2017 Incentive Design/Regulatory Update/Committee Terms of Reference
Review/Group CEO, CFO and Bupa Executive Team Comparator Groups
Non-Executive Directors: single total fi gure of remuneration
Fees
£000
Benefi ts
1
£000
Total
£000
2016 2015 2016 2015 2016 2015
Lord Leitch (Chairman) 365 345 42 40 407 385
Lawrence Churchill 148 150 14 16 162 166
Simon Blair
2
71 – 2 – 73 –
Rita Clifton
3
34 70 4 6 38 76
Roger Davis 77 31 2 1 79 32
Martin Houston 92 87 34 56 126 143
Clare Thompson 159 86 1 0 160 86
Prof Sir John Tooke 100 84 2 2 102 86
Janet Voûte
4
72 – 28 – 100 –
Total 1,118 853 129 121 1,247 974
1 Travel and subsistence expenses for attending meetings at Bupa House are treated as taxable income, all Non-Executive Director expenses in relation to this are grossed up to meet the costs
of the additional tax and NIC. The benefi ts fi gures refl ect this approach.
2 Simon Blair was appointed as a Non-Executive Director on 12 January 2016.
3 Rita Clifton ceased to be a Non-Executive Director on 11 May 2016.
4 Janet Voûte was appointed as a Non-Executive Director on 12 January 2016.
53Bupa Annual Report 2016
Strategic report Governance Financial statements
The Directors of The British United
Provident Association Limited
(‘Bupa’) present their reports and
the financial statements for the
year ended 31 December 2016.
The Strategic Report and the audited Financial
Statements are presented on pages 1-21, and
from page 55, respectively. The Governance
Report on pages 22-52, including the
Remuneration Report on pages 42-52 all
form part of this report.
The Directors have chosen, in accordance
with section 414C(11) of the Companies Act
2006, to set out in the Strategic Report on
pages 1-21 the following information which
would otherwise be required by Schedule 7
of the Large and Medium-Sized Companies
and Groups (Accounts and Reports)
Regulations 2008 to be disclosed in the
Directors’ Report: Disclosures concerning
Greenhouse Gas Emissions.
Financial results
The results of the Group for 2016 are reported
on pages 55-118. The profit for the financial
year of £386.8m (2015: profit £278.3m) has
been transferred to equity.
Acquisitions and disposals
Details of the acquisitions and disposals made
during the year are shown in Note 4.0.
Board of Directors
The Board is responsible for the good
standing of the Company, the management
of its assets, including the management of risk
and the strategy for its future development.
There are 11 scheduled Board meetings each
year and other meetings are convened
as needed.
Biographical details of the Non-Executive
Chairman, two Executive Directors and seven
Non-Executive Directors who held oce at
the end of the year, are set out on pages
24-25. Simon Blair and Janet Voûte were
appointed as Non-Executive Directors on
12 January 2016. Joy Linton was appointed as
an Executive Director at the AGM on 14 May
2016. Stuart Fletcher and Rita Clifton stepped
down from the Board on 4 April 2016 and
11 May 2016 respectively.
As at the date of this report, indemnities are in
force under which the Company has agreed
to indemnify the Directors and certain senior
managers, to the extent permitted by law
and the Company’s articles of association,
in respect of all losses arising out of, or in
connection with, the execution of their powers,
duties and responsibilities, as Directors of the
Company or any of its subsidiaries.
Going concern
The Directors confirm that they are satisfied
that the Company and the Group has
adequate resources to continue in operation
for the foreseeable future. Accordingly, they
continue to adopt a going concern basis in
preparing the financial statements.
Political contributions
No political donations were made, nor any
political expenditure incurred.
Employment policies
Bupa considers clear communication with
employees about employment issues to
be key. Information is given to employees
about employment matters and about the
financial and economic factors aecting the
Company’s performance through a wide
range of channels to ensure accessibility by all.
The new Bupa People Manager Expectations,
clearly sets out management expectations,
including the need to listen to our employees
needs and issues. People Pulse provides the
opportunity for all our employees to raise
their views anonymously. A new approach
to managing performance has simplified
performance expectations. Every eort is
made to inform, consult and encourage
the full involvement of sta on matters
concerning them as employees and
aecting the Company’s performance.
Schemes exist to incentivise, recognise
and reward performance.
Bupa is committed to being an inclusive
workplace for all its people where we
recognise diversity by providing equal
opportunities to all. The employment
of disabled persons is included in this
commitment and is reflected in our
membership of Business Disability
International. The recruitment, training,
career development and promotion of
disabled persons is based on the aptitudes
and abilities of the individual. Should
employees become disabled during
employment, every eort would be made to
continue their employment and, if necessary,
appropriate training would be provided.
Disclosure of information to auditors
The Directors who held oce at the date of
approval of this Directors’ Report confirm
that, so far as they are each aware, there is
no relevant audit information of which the
Company’s auditors are unaware; and each
Director has taken all the steps which they
ought to have taken as a Director to make
themselves aware of any relevant audit
information, and to establish that the
Company’s auditors are aware of that
information.
Auditors
A resolution to reappoint KPMG LLP as
auditors will be put to the forthcoming
Annual General Meeting of the Company.
Health and safety
During 2016 we have implemented lost-time
injury reporting across Bupa. There were
837 employee lost-time injuries in 2016.
This equates to 1.45 lost-time injuries per
100 full-time equivalents. As this is our first
report against lost-time injury, benchmarking
against previous years is not possible.
Going forward we will benchmark against
the previous year’s performance. We have
launched a programme across our care
homes called the 90 day challenges. This
programme aims to help us more fully
understand the causes of injury to our
people and implement changes to improve
safety in areas such as moving and handling
and slips, trips and falls. Early indications
are that this programme is having a positive
impact on keeping our people safe and well.
Modern Slavery Act 2015
In 2017 we will make our first statement
under the Modern Slavery Act, explaining
the steps we have taken to address the risk
of modern slavery and human tracking
in Bupa’s business and supply chains.
This will be available on bupa.com.
By order of the Board.
Julian Sanders
Company Secretary
1 March 2017
Company number: 432511
Report of the Board of Directors
54 Bupa Annual Report 2016
Governance report
Statement of Directors’ responsibilities
In respect of the annual report and the
financial statements
The Directors are responsible for preparing
the Annual Report and the Group and Parent
Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to
prepare Group and Parent Company financial
statements for each financial year. Under that
law they have elected to prepare the Group
and the Parent Company financial statements
in accordance with IFRS as adopted by the EU
and applicable law.
Under company law the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of aairs of the Group and Parent
Company and of their profit or loss for that
period. In preparing each of the Group and
Parent Company financial statements, the
Directors are required to:
– Select suitable accounting policies and then
apply them consistently;
– Make judgements and estimates that are
reasonable and prudent;
– State whether they have been prepared in
accordance with IFRS as adopted by the
EU; and
– Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
and the Parent Company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are
sucient to show and explain the Parent
Company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Parent Company and to enable
them to ensure that its financial statements
comply with the Companies Act 2006.
They have a general responsibility for taking
such steps as are reasonably open to
them to safeguard the assets of the Group
and to prevent and detect fraud and
other irregularities.
The Directors consider that the Annual Report
and financial statements taken as a whole
is fair, balanced and understandable and
provides the information necessary for
Association Members to assess the Group’s
position and performance, business model
and strategy.
The Directors have decided to prepare,
voluntarily, a Directors’ Remuneration Report
in accordance with Schedule 8 to The Large
and Medium-Sized Companies and Groups
(Accounts and Reports) Regulations 2008
made under the Companies Act 2006,
as if those requirements were to apply to
the Company.
The Directors have also decided to prepare,
voluntarily, a Corporate Governance
Statement as if the Company was required
to comply with the UK Listing Rules,
Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority
in relation to those matters.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may dier from
legislation in other jurisdictions.
55Bupa Annual Report 2016
Strategic report Governance Financial statements
Accounting policies that are relevant to the financial statements as
a whole are described in Section 1 ‘Basis of preparation’. Thereafter,
the notes to the financial statements have been presented in five
key sections: ‘Results for the year’, ‘Operating assets and liabilities’,
‘Group Investments’, ‘Risk management and Capital management’,
and ‘Other notes’.
For The British United Provident Association Limited on a standalone
basis (the ‘Company’) primary statements and associated notes are
set out in Section 7.
Each section sets out the relevant accounting policies applied in
producing the notes, along with disclosures of any key judgements
and estimates used.
Independent auditor’s report 56
Primary statements 59
Section 1 – Basis of preparation 64
Section 2 – Results for the year
Operating segments 66
Revenues 69
Insurance claims 70
Other operating expenses 71
Other income and charges 72
Financial income and expense 73
Taxation expense 74
Section 3 – Operating assets and liabilities
Working capital 75
Intangible assets 78
Property, plant and equipment 82
Investment properties 86
Provisions and other liabilities under
insurance contracts issued 87
Provisions for liabilities and charges 89
Post-employment benefits 90
Deferred taxation assets and liabilities 94
Section 4 – Group investments
Business combinations and disposals 96
Assets and liabilities held for sale 99
Equity accounted investments 99
Section 5 – Risk management and
capital management
Financial investments 101
Borrowings 104
Derivatives 106
Capital management 107
Risk management 108
Insurance risk 108
Market risk 110
Credit risk 114
Liquidity risk 115
Section 6 – Other notes
Related party transactions 117
Commitments and contingencies 118
Section 7 – Company primary statements
and associated notes
Primary statements 119
Intangible assets 122
Property, plant and equipment 123
Investment properties 123
Post-employment benefits 124
Provisions for liabilities and charges 126
Working capital 126
Risk management 127
Deferred taxation assets and liabilities 127
Related party transactions 128
Commitments and contingencies 129
Investment in subsidiaries 130
Section 8 – Non-controlling interests 137
Section 9 – Five year financial summary 139
International Financial Reporting Standards
relevant to Bupa 140
Financial Statements
56 Bupa Annual Report 2016
Independent auditor’s report to the members of
The British United Provident Association Limited only
Opinions and conclusions arising from our audit
1) Our opinion on the financial statements is unmodified
We have audited the financial statements of The British United
Provident Association Limited for the year ended 31 December 2016
set out on pages 59-138. In our opinion:
– the financial statements give a true and fair view of the state of the
Group’s and of the Parent company’s aairs as at 31 December 2016
and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS as adopted by the EU);
– the Parent company financial statements have been properly
prepared in accordance with IFRS as adopted by the EU and as
applied in accordance with the provisions of the Companies Act
2006; and
– the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
2) Overview
Materiality: Group financial
statements as a whole
£28 million (2015: £31 million)
4.3% (2015: 5.6%) of normalised Group profit
before tax
Coverage 91% (2015: 95%) of Group profit before tax
Risks of material misstatement
vs 2015
Recurring risks
Goodwill and intangibles impairment
Valuation of properties
Valuation of general insurance contracts
3) Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the
risks of material misstatement, in decreasing order of audit significance,
that had the greatest eect on our audit were as follows (unchanged
from 2015):
Carrying value of goodwill in Bupa Care Services UK and New Zealand,
Bupa Chile and Quality HealthCare businesses £429.3m (2015:
£361.7m). Carrying value of intangible assets £959.5m (2015: £884.3m).
Refer to page 35 (Audit Committee Report) and Note 3.1.
– The risk – As described in Note 3.1, impairment is assessed based on
discounted cash flow projections. For the Bupa Care Services UK
and New Zealand cash generating units, cash flow forecasts require
a high level of judgement in respect of fee rate and cost of care.
In the Bupa Chile and Quality HealthCare cash generating units,
key assumptions are revenue growth and gross margin, particularly
in respect of assets such as clinics and hospitals which are under
development, the discount rate and terminal growth rate. These
two businesses were acquired more recently and there is a low level
of headroom in the impairment calculations. For intangible assets
subject to impairment tests, cash flow forecasts are sensitive to
expected benefits to be derived from the assets, and the period
over which they will be earned. For intangible assets subject to
amortisation there is a high level of judgement when determining
whether indicators of impairment exist.
– Our response – For assets subject to impairment tests our
procedures included challenging the cash flow forecasts and the
underlying assumptions, based on our understanding of the relevant
business and the sector and economic environment in which it
operates. We compared forecasts to business plans and also
previous forecasts to actual results to assess the performance of
the business and the accuracy of forecasting. We challenged the
forecast periods utilised in the models and performed sensitivity
testing using dierent forecast periods. We compared the Group’s
assumptions to externally derived data as well as our own sector
knowledge in relation to key inputs such as the projected cash flows
for these cash generating units, terminal growth rates, cost inflation
and discount rates and applied sensitivities in evaluating the Group’s
assessments. Where external valuation specialists were used, we
considered the external valuation report and assessed the valuer as
an independent expert. Our own valuation specialists assisted us in
evaluating the assumptions and methodologies used by the Group,
in particular those relating to terminal growth rates and discount
rates, and in evaluating these assumptions with reference to
valuations of similar businesses. For intangible assets subject to
amortisation, we considered indicators of impairment, focusing in
particular on the extent to which assets are still being utilised and the
levels of customer attrition and operating margin compared to the
assumptions applied when the assets were acquired. We assessed
whether the Group’s disclosures over the goodwill impairment
review, including the disclosures regarding the sensitivity of the
outcome of the impairment reviews to changes in key assumptions
were appropriate.
Valuation of properties £2,766.5m (2015: £2,541.6m).
Refer to page 35 (Audit Committee Report) and Notes 3.2 and 3.3
– The risk - The Group revalues its freehold, leasehold and investment
properties, including care homes, hospitals and oces primarily in
the UK, Spain, Australia and New Zealand, to fair value on a periodic
basis with external valuations being performed on at least a triennial
basis and retirement villages in New Zealand being subject to an
external valuation annually. A full external valuation of freehold,
leasehold and investment properties in the UK and Chile was
performed by chartered surveyors during 2016. Directors’ valuations
were performed for other properties where there is an indication that
the carrying value diered significantly from fair value. The principal
assumptions underpinning these valuations including operating cash
flows, future profitability and competitor activity require the exercise
of a high level of judgement.
– Our response – For businesses where the properties are subject to
a directors’ valuation, our procedures included critically assessing
the assumptions applied by reference to external benchmarks and
forecasts, along with any reports from external chartered surveyors.
For properties that were valued externally, primarily in the UK,
New Zealand and Chile we critically assessed any external valuers’
reports considering the qualifications of the external valuers and
the assumptions applied by the external valuers. For properties
classified as held for sale, we also challenged any adjustments that
have been made to the valuations provided by the external valuers.
For properties such as hospitals and care homes, we also challenge
the valuation models, by comparing past cash flow projections to
57Bupa Annual Report 2016
Strategic report Governance Financial statements
actual performance. We used our own valuation specialists to assist
us in challenging the key assumptions relating to operating cash
flows, occupancy rates, future profitability, discount rates, market
multiples and competitor activity used in the valuations. Where
appropriate, we assessed the Group’s disclosures regarding the
valuation basis applied, revaluation gains and any impairment losses.
Valuation of general insurance contracts – provisions for claims within
provisions under insurance contracts issued £889.6m (2015: £657.1m).
Refer to page 35 (Audit Committee Report) and Note 3.4.1.
– The risk – The Group’s operations include a number of general
insurance entities writing health insurance policies primarily in the
UK, Spain, Australia, USA and Chile. The process of recognising the
provision for claims arising from general insurance contracts is an
inherently complex area, requiring judgement and actuarial expertise.
This complexity arises from calculating the actuarial best estimate
and the margin over best estimate using historical data which is
sensitive to external inputs, such as claims cost inflation and medical
trends, as well as the actuarial methodology that is applied and the
assumptions on current and future experience.
– Our response – Our procedures included inspecting the claims
reserving reports for each insurance business and evaluating and
testing the key controls over the provisioning process, including
controls over the completeness and accuracy of the data that
supports key calculations, such as the data in respect of current and
historical claims. This data provides us with evidence over trends
in claims and their costs which drive the assumptions for claims,
in current and preceding financial years, which have not yet been
paid at the date of the financial statements. These assumptions
include historical claims experience, claims cost inflation and medical
trends as well as the level of margin that is applied. We used our
own actuarial specialists to assist us in evaluating and challenging
the assumptions on current and future experience used by the Group
in each territory, as set out in the claims reserving reports, comparing
them to expectations based on the Group’s historical experience,
current trends and our own industry knowledge in each territory.
For some elements of the business, we calculated our own estimate
of the provision using the company’s data set for comparison
against the provision calculated by the company, and considered
the impact of any significant dierences. We applied sensitivities to
the assumptions in assessing the appropriateness and adequacy
of the provisions recognised by the Group. We used our industry
knowledge to benchmark the Group’s reserving methodologies
and claims experience. We assessed whether the Group’s disclosures
in relation to the assumptions in respect of provisions for claims in
respect of general insurance business were appropriate.
4) Our application of materiality and an overview of the scope
of our audit
Materiality – amount basis £28m (2015: £31m)
4.3% of Group profit before tax normalised to
exclude loss on early redemption of secured loan
notes of £635.2m (2015: 5.6% of Group profit
before tax normalised to exclude the impairment
of goodwill in Bupa Care Services UK and the
write down of UK care home valuations)
Component materiality £21m (2015: £23m)
Threshold for reporting
uncorrected and corrected
dierences to the
Audit Committee
£1.4m (2015: £1.5m) plus other identified
misstatements if warranted on qualitative
grounds
Of the Group’s over 50 (2015: over 50) reporting components, we
subjected eight (2015: eight) to audits for Group reporting purposes.
These components were located in UK, Spain, Poland, USA, Australia,
New Zealand and Chile. We also subjected three components (2015:
three) to specified risk-focused audit procedures over goodwill and
intangible assets (one component (2015: one component)), property
(one component (2015: one component)) and tax (one component
(2015: one component)). These three components were not individually
financially significant enough to require an audit for Group reporting
purposes, but did present specific individual risks that needed to
be addressed.
The components within the scope of our work accounted for the
following percentages of the Group’s results:
Number of
components
Group
revenue
(%)
Group profit
before tax
(%)
Group total
assets
(%)
Audits for Group
reporting purposes
2016 8 89% 91% 93%
2015 8 87% 93% 87%
Specified risk-focused
audit procedures
2016 3 2% 2% 5%
2015 3 2% 2% 3%
Total (2016) 11 91% 93% 98%
Total (2015) 11 89% 95% 90%
These audits were all performed by component auditors. For the
remaining components, we performed analysis at an aggregated group
level to re-examine our assessment that there were no significant risks
of material misstatement within these. The segment disclosures in
Note 2.0 set out the individual significance of specific countries.
The Group audit team instructed component auditors as to the
significant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The Group audit team
approved the component materiality of £21m (2015: £23m), having
regard to the mix of size and risk profile of the Group across the
components. The Group team performed procedures on the items
excluded from normalised Group profit before tax.
58 Bupa Annual Report 2016
Independent auditor’s report to the members of
The British United Provident Association Limited only continued
The Group audit team visited four (2015: five) component locations
in UK, Spain, Australia and Hong Kong (2015: UK, Spain, Australia,
Hong Kong and USA), to assess the audit risk and strategy. Telephone
conference meetings were also held with these component auditors
and others that were not physically visited. At these visits and meetings,
the findings reported to the Group audit team were discussed in more
detail, and any further work required by the Group audit team was then
performed by the component auditor.
5) Our opinion on other matters prescribed by the Companies Act
2006 and under the terms of our engagement is unmodified
In addition to our audit of the financial statements, the directors have
engaged us to audit the information in the Directors’ Remuneration
Report that is described as having been audited, which the directors
have decided to prepare as if the company were required to comply
with the requirements of Schedule 8 to The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008
(SI 2008 No. 410) made under the Companies Act 2006.
In our opinion:
– the part of the Directors’ Remuneration Report which we were
engaged to audit has been properly prepared in accordance
with Schedule 8 to The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 made under
the Companies Act 2006, as if those requirements were to apply
to the company; and
– the information given in the Strategic Report and the Directors’
Report for the financial year is consistent with the financial
statements.
Based solely on the work required to be undertaken in the course of the
audit of the financial statements and from reading the Strategic Report
and the Directors’ Report:
– we have not identified material misstatements in those reports; and
– in our opinion, those reports have been prepared in accordance with
the Companies Act 2006.
6) We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
– the directors’ statement of longer-term viability on page 16,
concerning the principal risks, their management, and, based on that,
the directors’ assessment and expectations of the group’s continuing
in operation over the three years to 31 December 2019; or
– the disclosures in Note 1.4 of the financial statements concerning the
use of the going concern basis of accounting.
7) We have nothing to report in respect of matters on which we are
required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
– we have identified material inconsistencies between the knowledge
we acquired during our audit and the directors’ statement that they
consider that the annual report and financial statements taken as a
whole are fair, balanced and understandable and provide the
information necessary for members to assess the Group’s position
and performance, business model and strategy; or
– the Audit Committee Report on pages 34-37 does not appropriately
address matters communicated by us to the audit committee.
Under the Companies Act 2006 and under the terms of our
engagement we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the Parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
– the Parent company financial statements and the part of the
Directors’ Remuneration Report which we were engaged to audit
are not in agreement with the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not
made; or
– we have not received all the information and explanations we require
for our audit.
In addition to our audit of the financial statements, the directors have
engaged us to review their Corporate Governance Statement as if
the company were required to comply with the Listing Rules and the
Disclosure Rules and Transparency Rules of the Financial Conduct
Authority in relation to those matters. Under the terms of our
engagement we are required to review:
– the directors’ statements, set out on pages 16 and 53, in relation to
going concern and longer-term viability; and
– the part of the Corporate Governance Statement on pages 22-23
relating to the company’s compliance with the eleven provisions of
the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set
out on page 54, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair
view. A description of the scope of an audit of financial statements is
provided on the Financial Reporting Council’s website at www.frc.org.
uk/auditscopeukprivate. This report is made solely to the company’s
members as a body and is subject to important explanations and
disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014b, which are incorporated
into this report as if set out in full and should be read to provide an
understanding of the purpose of this report, the work we have
undertaken and the basis of our opinions.
Daniel Cazeaux (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
1 March 2017
59Bupa Annual Report 2016
Strategic report Governance Financial statements
Note
2016
£m
2015
£m
Revenues
Gross insurance premiums 2.1 8,044.3 7,059.0
Premiums ceded to reinsurers 2.1 (53.9) (48.6)
Net insurance premiums earned 7,990.4 7,010.4
Revenues from insurance service contracts 2.1 18.7 42.6
Care, health and other revenues 2.1 3,038.8 2,775.4
Total revenues 11,047.9 9,828.4
Claims and expenses
Insurance claims incurred 2.2 (6,332.9) (5,505.8)
Reinsurers’ share of claims incurred 2.2 42.9 37.1
Net insurance claims incurred (6,290.0) (5,468.7)
Share of post-taxation results of equity accounted investments 4.2 30.3 22.4
Other operating expenses 2.3 (4,197. 3) (3,803.8)
Impairment of goodwill 3.1 – (114.1)
Other income and charges 2.4 (38.9) (4 0.6)
Total claims and expenses (10,495.9) (9,404.8)
Profit before financial income and expense 552.0 423.6
Financial income and expense
Financial income 2.5 212.1 68.7
Financial expense 2.5 (241.2) (118.0)
Net financial expense (29.1) (49.3)
Profit before taxation expense 522.9 374.3
Taxation expense 2.6 (136.1) (96.0)
Profit for the financial year 386.8 278.3
Attributable to:
Bupa 381.6 278.3
Non-controlling interests 5.2 –
Profit for the financial year 386.8 278.3
Consolidated Income Statement
for the year ended 31 December 2016
Notes 2-6 form part of these financial statements.
60 Bupa Annual Report 2016
Note
2016
£m
2015
£m
Profit for the financial year 386.8 278.3
Other comprehensive income/(expense)
Items that will not be reclassified to the Income Statement
Remeasurement (losses)/gains on pension schemes 3.6 (14.6) 16.9
Unrealised gains/(losses) on revaluation of property 3.2 63.5 (84.6)
Taxation credit on income and expenses recognised directly in other comprehensive income 2.6 13.3 19.4
Items that may be reclassified subsequently to the Income Statement
Foreign exchange translation dierences on goodwill 3.1 335.5 (96.0)
Other foreign exchange translation dierences 453.6 (89.3)
Net (loss)/gain on hedge of net investment in overseas subsidiary companies (86.7) 8.5
Change in fair value of underlying derivative of cash flow hedge 5.4.2 2.0 1.2
Reclassification of foreign exchange translation dierences to profit or loss on disposal of subsidiary 4.0 2.0 (4.1)
Taxation expense on income and expenses recognised directly in other comprehensive income 2.6 (0.2) (0.4)
Unrealised losses on available-for-sale assets (0.2) –
Total other comprehensive income/(expense) 768.2 (228.4)
Comprehensive income for the year 1,155.0 49.9
Attributable to:
Bupa 1,136.0 55.4
Non-controlling interests 19.0 (5.5)
Comprehensive income for the year 1,155.0 49.9
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
Notes 2-6 form part of these financial statements.
61Bupa Annual Report 2016
Strategic report Governance Financial statements
Consolidated Statement of Financial Position
as at 31 December 2016
Note
2016
£m
2015
£m
Non-current assets
Intangible assets 3.1 3,391.4 2,862.0
Property, plant and equipment 3.2 2,851.6 2,838.7
Investment property 3.3 391.3 270.9
Equity accounted investments 4.2 302.9 238.0
Financial investments 5.0 1,061.9 831.9
Derivative assets 5.2 50.9 51.3
Assets arising from insurance business 3.0.2 2.2 0.2
Deferred taxation assets 3.7 7.1 2.5
Trade and other receivables 3.0.1 112.5 96.9
Restricted assets 3.0.4 55.8 45.1
Post-employment benefit net assets 3.6 481.3 413.4
8,708.9 7,650.9
Current assets
Financial investments 5.0 1,110.7 1,356.4
Derivative assets 5.2 9.4 6.0
Inventories 3.0.5 92.2 82.9
Assets arising from insurance business 3.0.2 1,164.7 980.5
Assets held for sale 4.1 505.3 –
Trade and other receivables 3.0.1 501.6 539.0
Restricted assets 3.0.4 4.2 10.8
Cash and cash equivalents 3.0.3 1,412.7 1,194.1
4,800.8 4,169.7
Total assets 13,509.7 11,820.6
Non-current liabilities
Subordinated liabilities 5.1 (1,302.0) (909.5)
Other interest bearing liabilities 5.1 (522.8) (726.8)
Derivative liabilities 5.2 (10.4) (10.3)
Provisions under insurance contracts issued 3.4.1 (33.9) (27.6)
Post-employment benefit net liabilities 3.6 (85.1) (59.5)
Provisions for liabilities and charges 3.5 (42.0) (27.5)
Deferred taxation liabilities 3.7 (229.5) (224.1)
Other payables 3.0.6 (24.3) (19.9)
(2,250.0) (2,005.2)
Current liabilities
Subordinated liabilities 5.1 (14.7) (9.9)
Other interest bearing liabilities 5.1 (82.1) (427. 9)
Derivative liabilities 5.2 (11.6) (22.1)
Provisions under insurance contracts issued 3.4.1 (2,594.8) (2, 227.5)
Other liabilities under insurance contracts issued 3.4.2 (143.0) (72.1)
Liabilities directly associated with assets held for sale 4.1 (45.5) –
Provisions for liabilities and charges 3.5 (64.7) (69.1)
Current taxation liabilities (54.9) (43 .6)
Trade and other payables 3.0.6 (1,673.4) (1,519.6)
(4,684.7) (4 , 391.8)
Total liabilities (6,934.7) (6, 397.0)
Net assets 6,575.0 5,423.6
Equity
Property revaluation reserve 706.1 632.3
Income and expenditure reserve and other reserves 5,228.2 4,797. 9
Cash flow hedge reserve 14.7 20.8
Foreign exchange translation reserve 595.3 (96.9)
Equity attributable to Bupa 6,544.3 5,354.1
Equity attributable to non-controlling interests 30.7 69.5
Total equity 6,575.0 5,423.6
Approved by the Board of Directors and signed on its behalf on 1 March 2017 by
Lord Leitch Joy Linton
Chairman Chief Financial Ocer
Notes 2-6 form part of these financial statements.
62 Bupa Annual Report 2016
Note
2016
£m
2015
£m
Operating activities
Profit before taxation expense 522.9 374.3
Adjustments for:
Net financial expense 2.5 29.1 49.3
Depreciation, amortisation and impairment 345.7 454.7
Deferred consideration on disposal of Bupa Ireland Limited 2.4 – (25.5)
Other non-cash items 28.4 13.0
Changes in working capital and provisions:
Increase in provisions and other liabilities under insurance contracts issued 123.7 99.4
Increase in assets under insurance business (50.0) (64.9)
Change in net pension asset/liability (56.2) (51.7)
Increase in trade and other receivables, and other assets (26.6) (37.4)
Increase in trade and other payables, and other liabilities 119.8 82.3
Cash generated from operations 1,036.8 893.5
Income taxation paid (142.0) (102.7)
Increase in cash held in restricted assets 3.0.4 (3.8) (2.7)
Net cash generated from operating activities 891.0 788.1
Cash flow from investing activities
Acquisition of subsidiary companies, net of cash acquired 4.0 (127. 5) (156.3)
Increase in equity accounted investments (31.8) (7.5)
Acquisition of non-controlling interests in subsidiary company 4.0 (95.1) –
Disposal of subsidiary companies, net of cash disposed of 21.9 –
Deferred consideration on disposal of Bupa Ireland Limited 2.4 – 25.5
Purchase of intangible assets 3.1 (103.1) (88.8)
Purchase of property, plant and equipment (361.9) (262.6)
Proceeds from sale of property, plant and equipment 19.1 9.2
Purchase of investment property 3.3 (37.7) (35.0)
Disposal of investment property 3.3 0.6 0.4
Net (purchase of)/proceeds from financial investments, excluding deposits with credit institutions (142.7) 108.8
Net withdrawal from/(investment into) deposits with credit institutions 509.9 (334.8)
Interest received 38.3 45.8
Net cash used in investing activities (310.0) (695.3)
Cash flow from financing activities
Proceeds from issue of interest bearing liabilities and drawdowns on other borrowings 556.0 102.0
Repayment of interest bearing liabilities and other borrowings (903.8) (90.4)
Interest paid (101.3) (112.3)
(Payments for)/receipts from hedging instruments (77.7) 33.4
Dividends paid to non-controlling interests (2.1) (3.6)
Net cash used in financing activities (528.9) (70.9)
Net increase in cash and cash equivalents 52.1 21.9
Cash and cash equivalents at beginning of year 1,194.1 1,187.6
Eect of exchange rate changes 166.5 (15.4)
Cash and cash equivalents at end of year 3.0.3 1,412.7 1,194.1
Consolidated Statement of Cash Flows
for the year ended 31 December 2016
Notes 2-6 form part of these financial statements.
63Bupa Annual Report 2016
Strategic report Governance Financial statements
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Note
Property
revaluation
reserve
£m
Income and
expenditure
reserve and
other
reserves
£m
Cash flow
hedge
reserve
£m
Foreign
exchange
translation
reserve
£m
Total
attributable
to Bupa
£m
Non-
controlling
interests
£m
Total
equity
£m
2016
At beginning of year 632.3 4,797.9 20.8 (96.9) 5,354.1 69.5 5,423.6
Retained profit for the financial year – 381.6 – – 381.6 5.2 386.8
Other comprehensive income/(expense)
Unrealised profit on revaluation of property 3.2 63.5 – – – 63.5 – 63.5
Realised revaluation profit on disposal of property (6.6) 6.6 – – – – –
Remeasurement loss on pension schemes 3.6 – (14.6) – – (14.6) – (14.6)
Unrealised loss on available-for-sale assets – (0.2) – – (0.2) – (0.2)
Foreign exchange translation dierences on goodwill 3.1 – – – 335.5 335.5 – 335.5
Other foreign exchange translation dierences 21.9 0.3 (7. 9) 425.3 439.6 14.0 453.6
Net loss on hedge of net investment in overseas subsidiary
companies – – – (86.7) (86.7) – (86.7)
Change in fair value of underlying derivative of cash flow hedge 5.4.2 – – 2.0 – 2.0 – 2.0
Foreign exchange reserve on disposal of subsidiary – – – 2.2 2.2 (0.2) 2.0
Taxation (expense)/credit on income and expense recognised
directly in other comprehensive income 2.6 (5.0) 2.4 (0.2) 15.9 13.1 – 13.1
Other comprehensive income/(expense) for the year,
net of taxation 73.8 (5.5) (6.1) 692.2 754.4 13.8 768.2
Total comprehensive income/(expense) for the year 73.8 376.1 (6.1) 692.2 1,136.0 19.0 1,155.0
Acquisition of subsidiary companies attributable to non-
controlling interest 4.0 – 54.2 – – 54.2 (55.7) (1.5)
Dividends paid to non-controlling interests – – – – – (2.1) (2.1)
At end of year 706.1 5,228.2 14.7 595.3 6,544.3 30.7 6,575.0
2015
At beginning of year 707.9 4,590.7 20.0 71.4 5,390.0 78.4 5,468.4
Retained profit for the financial year – 278.3 – – 278.3 – 278.3
Other comprehensive income/(expense)
Unrealised loss on revaluation of property 3.2 (84.6) – – – (84.6) – (84.6)
Realised revaluation profit on disposal of property (0.2) 0.2 – – – – –
Remeasurement gain on pension schemes 3.6 – 16.9 – – 16.9 – 16.9
Foreign exchange translation dierences on goodwill 3.1 – – – (96.0) (96.0) – (96.0)
Other foreign exchange translation dierences (6.8) 0.1 – (7 7.1) (83.8) (5.5) (89.3)
Net gain on hedge of net investment in overseas subsidiary
companies – – – 8.5 8.5 – 8.5
Change in fair value of underlying derivative of cash flow hedge 5.4.2 – – 1.2 – 1.2 – 1.2
Foreign exchange reserve on disposal of subsidiary – (0.4) – (3.7) (4.1) – (4.1)
Taxation credit/(expense) on income and expense recognised
directly in other comprehensive income 2.6 16.0 3.4 (0.4) – 19.0 – 19.0
Other comprehensive income/(expense) for the year,
net of taxation (75.6) 20.2 0.8 (168.3) (222.9) (5.5) (228.4)
Total comprehensive income/(expense) for the year (75.6) 298.5 0.8 (168.3) 55.4 (5.5) 49.9
Liability for future acquisition of minority interest 3.0.6 – (91.1) – – (91.1) – (91.1)
Dividends paid to non-controlling interests – (0.2) – – (0.2) (3.4) (3.6)
At end of year 632.3 4 ,797.9 20.8 (96.9) 5,354.1 69.5 5,423.6
Notes 2-6 form part of these financial statements.
64 Bupa Annual Report 2016
1.1 Basis of preparation
The British United Provident Association Limited (‘Bupa’ or the
‘Company’), the ultimate Parent entity of the Group, is a company
incorporated in England and Wales. The Company is limited by
guarantee.
Both the Company financial statements and the Group’s consolidated
financial statements have been prepared under International Financial
Reporting Standards (IFRS) as adopted by the EU. The appropriate
provisions of the Companies Act 2006 applicable to companies
reporting under IFRS have also been complied with. A summary of
IFRS that are relevant for the Group is included on page 140.
The financial statements were approved by the Board of Directors on
1 March 2017. The directors have reviewed and approved the Group’s
accounting policies which have been applied consistently to all the
years presented, unless otherwise stated. For the purposes of
consolidation, the accounting policies of subsidiary companies
have been aligned with those of the Parent company.
The financial statements are prepared on a going concern basis and
under the historical cost convention, modified by the revaluation of
property, investment property, financial investments at fair value
through profit or loss, available-for-sale financial assets and derivative
instruments.
1.2 Basis of consolidation
The consolidated financial statements for the year ended 31 December
2016 comprise those of the Company and its subsidiary companies
(together referred to as the ‘Group’), and the share of results of equity
accounted investments.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences to the
date that control ceases. Non-controlling interests in the net assets of
subsidiaries are identified separately from the Group’s equity. Non-
controlling interests consist of the amount of those interests at the date
of the original acquisition and the non-controlling shareholder’s share of
changes in equity since this date. Intra-Group related party transactions
and outstanding balances are eliminated in the preparation of the
consolidated financial statements of the Group.
The consolidated financial statements are presented in sterling, which
is the Group’s presentational currency. The functional currency is
identified at statutory entity level. These vary across the Group and
include sterling, Australian dollar, euro and US dollar. Each Group
entity then translates its results and financial position into the Group’s
presentational currency, sterling, for presentation in the Group
consolidated financial statements. The immediate impact on Bupa’s
financial position following the UK’s decision to leave the EU in June
2016 has seen a strengthening across all our key financial metrics due
to the weakening of sterling.
1.3 Accounting estimates and judgements
The preparation of financial statements requires the use of certain
accounting estimates and assumptions that aect 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 consolidated financial
statements, are set out below and in more detail in the related notes:
Area Judgement Note
Claims provisioning Expected claims payments and expense required to settle existing insurance contract obligations. Calculation of the
outstanding claims provision is based on assumptions including claims development, margin of prudence, claims costs
inflation, medical trends and seasonality.
3.4.1
Property valuations Bupa has a significant portfolio of care home, hospital and oce properties and fluctuations in the value of this
portfolio can have a significant impact on the Statement of Financial Position, Income Statement and solvency
position of the Group.
3.2, 3.3
Goodwill and intangible
assets
Recognised on business combinations with the latter valued at the date of acquisition at fair value. Goodwill and
intangible assets with indefinite lives are tested for impairment on an annual basis; other intangible assets are tested if
a trigger of impairment is identified. The judgemental areas within this process include the inputs within the discount
rate and the forecast cash flows.
3.1
Pension assets and liabilities The principal defined benefit scheme in the UK is the Bupa Pension Scheme. The judgemental area relates to the
assumptions used in the valuation of the related pension liabilities performed by the independent scheme actuary.
3.6.2
Other judgements:
– Taxation (Note 2.6)
– Provisions (Note 3.5)
– Business combinations and disposals (Note 4.0)
– Assets and liabilities held for sale (Note 4.1)
– Financial investments (Note 5.0)
Notes to the Financial Statements
for the year ended 31 December 2016
1.0
Basis of preparation
Basis of preparation in brief
This section describes the Group’s significant accounting policies and
accounting estimates and judgements that relate to the financial
statements and notes as a whole. Where accounting policies relate to
a specific note, the applicable accounting policies and estimates are
contained within the note.
Note
65Bupa Annual Report 2016
Strategic report Governance Financial statements
1.4 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 recently
announced acquisitions.
Details of the Group’s business activities, together with the factors likely
to aect its future development, performance and position are set out
in the Strategic Report on pages 1-21. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Review on pages 12-15.
The Group’s £800.0m bank facility was unutilised at 31 December 2016,
with the exception of £6.4m of outstanding letters of credit required for
general business purposes. The Group has extended this facility from
2017 to 2021 with the option of extending this further to 2022.
An additional committed bank facility of £250.0m was agreed
during June 2016. This facility was cancelled following the issuance
of the £400.0m unguaranteed subordinated bond issued on
8 December 2016.
Refer to the Longer-Term Viability Statement in the Strategic Report
which considers the Group’s ability to continue in operation and meet
its liabilities as they fall due, over a period of three years. In making this
assumption, management have considered the discussions with the
relationship banks including the review of external ratings, forecasts
that consider reasonably possible changes in trading performance, the
solvency capital position and the Group’s financial and operational risk
framework. It has been concluded that Bupa is a going concern and
accordingly the financial statements have been produced on a going
concern basis.
1.5 New financial reporting requirements
All newly eective financial reporting standards applicable to the
Group for the first time for the year ended 31 December 2016 have
been reviewed and it has been concluded that they have no material
impact on the financial statements of the Group. These include:
(a) IAS 1 Disclosure initiative
The amendments to IAS 1 Presentation of Financial Statements are
designed to further encourage companies to apply professional
judgement in determining which information to disclose in their
financial statements.
(b) Amendments to The Companies Partnerships and Groups
(Accounts and Reports) Regulations 2015
The amendment under section 410 of the UK Companies Act for
companies to include all subsidiaries, associated undertakings and
significant holdings in undertakings other than subsidiary undertakings
has been extended to declare the registered address, shareholding and
class of shares. Bupa has included a full listing of all entities meeting
this criteria, shareholding and class of shares grouped by the registered
country of the entities in the Annual Report and Accounts.
1.6 Forthcoming financial reporting requirements
The following financial reporting standards have been issued but are
not eective for the year ended 31 December 2016 and have not been
early adopted by the Group.
(a) Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts
IFRS 9 modifies the classification and measurement of financial assets,
the recognition of impairment and hedge accounting. Under IFRS 9,
all financial assets will be measured at either amortised cost or fair
value, with the basis of classification depending on the business
model and the contractual cash flow characteristics of the financial
assets. In September 2016, the IASB issued Amendments to IFRS 4,
‘Insurance Contracts’ regarding the implementation of IFRS 9, ‘Financial
Instruments’, introducing two approaches: an overlay approach (giving
companies that issue insurance contracts the option to recognise in
Other Comprehensive Income, rather than the Income Statement,
any volatility that could arise when IFRS 9 is applied before the new
insurance contracts standard is issued); or, a deferral approach (giving
companies whose activities are predominantly connected with
insurance an optional temporary exemption from applying IFRS 9
until 2021). The mandatory eective date for applying IFRS 9 is for
annual periods beginning on or after 1 January 2018. The standard
was adopted into EU law on 22 November 2016. The impact of IFRS 9
on the financial statements is currently being evaluated by the Group,
but cannot be fully assessed until the insurance contracts standard is
finalised. The amendments to IFRS 4 are pending EU endorsement.
(b) IFRS 15 Revenue Recognition
IFRS 15 establishes principles that an entity can apply to report
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from a contract with a customer.
It replaces IAS 11: Construction Contracts, IAS 18: Revenue, IFRIC 13:
Customer Loyalty Programmes, IFRIC 15: Agreements for the
Construction of Real Estate and IFRIC 18: Transfers of Assets from
Customers. The standard will come into eect for annual periods
beginning on or after 1 January 2018. The Group has reviewed the
eect of this change and does not expect a significant impact to the
financial statements.
(c) IFRS 16 Leases
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 mandatory
eective date for applying IFRS 16 is for annual periods beginning on or
after 1 January 2019. The impact of IFRS 16 on the financial statements
is currently being evaluated by the Group. See Note 6.1 Commitments
and contingencies for operating lease disclosures under the current
accounting standards.
Notes to the Financial Statements continued
for the year ended 31 December 2016
66 Bupa Annual Report 2016
(d) IAS 7 Disclosure initiative
The IASB requires the following changes in assets/liabilities arising
from financing activities to be disclosed: (i) changes from financing
cash flows; (ii) changes arising from obtaining or losing control of
subsidiaries or other businesses; (iii) the eect of changes in foreign
exchange rates; (iv) changes in fair values; and (v) other changes.
The Group expects that this would take the format of a reconciliation
between the opening and closing balances for liabilities arising from
financing activities. Comparative information will not be required.
The amendments to IAS 7 will be eective from 1 January 2017,
pending EU endorsement.
(e) IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
The amendments to IAS 12 will be eective from 1 January 2017,
pending EU endorsement. The impact of this is currently being
evaluated by the Group.
The Group has reviewed the eect of all other amendments to IFRS
and interpretations eective for accounting periods beginning on or
after 1 January 2017 and do not expect them to have a significant
impact on the financial statements.
1.7 Events occurring after the reporting period
On 9 February 2017, Bupa completed the purchase of 100% of the
issued share capital of Oasis Dental Care, with an enterprise value of
£835.0m, following regulatory referral from the European Commission
to the UK Competition and Markets Authority (CMA).
Reorganisation during the year led to four Market Units being reported
from the previous five; the newly formed Market Units being Europe
and Latin America (resulting from the transfer of LUX MED into the
previous Spain and Latin America Market Unit) and International
Markets (resulting from the merger of International Development
Markets and Bupa Global). Comparatives have been restated to reflect
this change. The new structure enhances collaboration and synergies
across the business.
Reportable segments Services and products
Australia and New Zealand Health insurance, health assessments, health coaching and international health cover
Dental provision in Australia and New Zealand, optical care within Australia
Nursing, residential and respite care in Australia and New Zealand
Retirement villages and telecare services within New Zealand
UK Health insurance, dental services, health assessments and related products
Nursing, residential, care villages and respite care
Management and operation of a private hospital providing medical and ancillary services to patients
Home healthcare products and services
1
Europe and Latin America Health insurance and related products sold in Spain
Management and operation of hospitals, clinics and dental centres in Spain providing medical and ancillary services to patients
Provision of nursing, residential and respite care in Spain
Medical subscription, health insurance, diagnostics and operation of clinics and hospitals in Poland
Health insurance and operation of outpatient clinics and hospitals in Chile
International Markets International health insurance to individuals, small businesses and corporate customers in over 190 countries
Domestic health insurance and related products within Hong Kong, Thailand, China, Saudi Arabia and India
Diagnostics, primary healthcare and day care clinics in Hong Kong
1
Bupa Home Healthcare was sold to Celesio on 1 July 2016.
2.0
Operating segments
Operating segments in brief
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.
Note
67Bupa Annual Report 2016
Strategic report Governance Financial statements
The operating results of each Market Unit, which form the operating
segments on which the information in this section has been prepared,
are regularly reviewed by the Group Chief Executive Ocer (the
Group’s chief operating decision maker) to assess performance and
make decisions about the allocation of resources.
The segmental underlying profit includes items directly attributable
to a segment as well as those that can be allocated on a reasonable
basis. Central expenses and net interest margin comprise income
and expenses generated at the Centre, which cannot be specifically
allocated to the operating segments.
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, excluding items relating to business combinations and
disposals, fluctuations in foreign exchange, property revaluations and
investment return on return-seeking assets, along with other one-o
items. Adjustments made exclude items derived from the application
of Group accounting policies which are not directly related to the
underlying trading performance of the business.
The adjustments made to reported profit before tax are to exclude
the following:
– Amortisation and impairment of intangible assets and goodwill
arising on business combinations – impairment reviews are
performed at least annually. Although driven by trading
performance, goodwill impairments are considered to be one-o
and not reflective of the ongoing trading performance of the
business. Amortisation and impairment of internally generated
intangible assets and purchased computer software is included
within underlying profit.
– Net gains/losses on disposal of businesses and transaction costs on
business combinations – gains/losses on disposal of businesses are
not considered part of the continuing business and are one-o in
nature; transaction costs incurred for acquisitions or disposals are
not related to the ongoing trading performance of the business.
– Net property revaluation gains/losses – short-term fluctuations
which would distort underlying trading performance. 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 non-underlying items – include impairment of
investment in associate, Market Unit restructuring costs (which are
one-o and outside the normal operations of the business) and net
gains/losses on disposal of fixed assets (not part of the continuing
business or trading activity).
– Early termination of secured loans – relates to the one-o impact of
UK care homes securitisation redemption.
– Gains on return seeking assets, net of hedging – fluctuations on
investments are not considered to be directly related to underlying
trading performance.
– Central non-underlying items – items which management believe are
not representative of the underlying results of the business and which
would distort underlying results.
Notes to the Financial Statements continued
for the year ended 31 December 2016
68 Bupa Annual Report 2016
The total underlying profit of the reportable segments is reconciled below to profit before taxation expense in the Consolidated Income Statement.
Australia and
New Zealand UK
Europe and
Latin America
International
Markets Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
(restated)
£m
2016
£m
2015
(restated)
£m
2016
£m
2015
£m
(i) Revenues
Total revenues for reportable segments 4,360.6 3,648.4 2,786.1 2,858.1 2,474.7 2,027.4 1,427.9 1,296.2 11,049.3 9,830.1
Inter segment income – – (0.2) (0.3) – – (0.1) (0.5) (0.3) (0.8)
External revenues for reportable segments 4,360.6 3,648.4 2,785.9 2,857.8 2,474.7 2,027.4 1 ,427. 8 1,295.7 11,049.0 9,829.3
Net reclassifications to other expenses or
financial income and expense (1.1) (0.9)
Consolidated total revenues 11,047.9 9,828.4
(ii) Segment result
Underlying profit for reportable segments
1
344.4 279.5 194.9 182.6 165.6 90.0 65.9 127.1 770.8 679.2
Central expenses and net interest margin (70.1) (96.7)
Consolidated underlying profit before taxation 700.7 582.5
Non-underlying items:
Amortisation and impairments of intangible assets
and goodwill arising on business combinations (14.4) (13.0) (14.7) (118.7) (28.3) (14.8) (13.3) (14.1) (70.7) (160.6)
Net (losses)/gains on disposal of businesses and
transaction costs on business combinations
2
(0.3) (0.6) 9.7 (1.6) (0.1) (1.7) (2.8) 0.1 6.5 (3.8)
Net property revaluation gains/(losses)
3
17.8 2.3 (35.3) (67.7 ) (6.3) 3.7 – – (23.8) (61.7)
Realised and unrealised foreign exchange (losses)/gains (0.3) 0.2 (0.3) (0.1) (2.5) (2.0) 22.5 (9.8) 19.4 (11.7)
Other Market Unit non-underlying items
4
(1.0) (1.1) (12.7) (0.4) (0.7) 1.4 (0.9) (2.3) (15.3) (2.4)
Early termination of secured loans (112.3) –
Gains on return-seeking assets, net of hedging 22.9 7.0
Central non-underlying items
5
(4.5) 25.0
Total non-underlying items (177.8) (208.2)
Consolidated profit before taxation expense 522.9 374. 3
1 Underlying profit for reportable segments includes share of post-taxation results of equity accounted investments. International Markets includes Bupa Arabia, Max Bupa and Highway to
Health. For further information please refer to Note 4.2.
2 Includes £12.3m profit on disposal of Bupa Home Healthcare in 2016 (see Note 2.4).
3 2016 includes £11.2m write down on reclassification as held for sale in the UK (see Note 2.4). 2015 includes a property and equipment write down in UK Care Services of £67.8m, of which
£8.7m is equipment (see Note 3.2).
4
Includes £11.0m UK Market Unit restructuring costs and £4.2m net losses on disposal of fixed assets in 2016; includes £1.1m Market Unit restructuring costs, £0.7m impairment of investment in
associate and £0.6m net losses on disposal of fixed assets in 2015.
5 Includes £25.5m receipt of deferred consideration in relation to the sale of Bupa Ireland Limited in 2015 (see Note 2.4).
Australia and
New Zealand UK
Europe and
Latin America
International
Markets Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
(restated)
£m
2016
£m
2015
(restated)
£m
2016
£m
2015
£m
(iii) Other information
Amortisation and depreciation costs for
reportable segments 61.9 52.5 93.9 106.9 64.6 70.9 36.6 33.2 257.0 263.5
Non-cash (expense)/income for reportable segments (209.9) (166.4) (30.7) (35.8) 64.8 (7 7. 5) (7. 8) 12.3 (183.6) (267.4)
Unallocated non-cash income/(expense) 15.9 (31.2)
Total non-cash expenses (167.7) (298.6)
Australasia UK Spain Rest of the World Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
(restated)
£m
2016
£m
2015
(restated)
£m
2016
£m
2015
£m
(iv) Geographic information
Consolidated total revenues 4,360.6 3,648.4 3,344.1 3,378.8 1,414.6 1,168.2 1,928.6 1,633.0 11,047.9 9,828.4
Consolidated non-current assets
1
3,418.1 2,720.0 1,980.3 1,600.1 522.9 444.5 1,646.5 1,593.2 7,567.8 6, 357.8
1 Consolidated non-current assets excludes financial investments, restricted assets, assets arising from insurance business, deferred taxation assets and post-employment benefit net assets.
69Bupa Annual Report 2016
Strategic report Governance Financial statements
Revenue stream Recognition policy
Insurance premiums Gross insurance premiums
Gross insurance premiums represent the premiums earned relating to risk exposure for the reported financial year. They comprise gross
premiums written, adjusted for the change in the provision for unearned premiums for premiums written relating to periods of risk in
subsequent financial years.
Premiums are shown gross of commissions payable and net of insurance premium taxes that may apply in certain jurisdictions.
Premiums ceded to reinsurers
Premiums ceded to reinsurers represent reinsurance premiums payable for contracts entered into that relate to risk mitigation for the
reported financial year. These comprise written premiums ceded to reinsurers, adjusted for the reinsurers’ share of the movement in the
gross provision for unearned premiums.
Premiums, losses and other amounts relating to reinsurance treaties are recognised over the period from inception of a treaty to expiration
of the related business.
Insurance service contracts Contracts entered into by the Group’s general insurance entities that do not result in the transfer of significant insurance risk to the Group
are accounted for as insurance service contracts. These contracts mainly relate to the administration of claims funds on behalf of corporate
customers. Revenues from service contracts are recognised as the services are provided.
Some of these contracts contain financial liabilities representing deposits repayable to the customer. These are measured at amortised cost.
The claims fund deposit held on behalf of customers is reported within other payables, accruals and deferred income as appropriate.
Care, health, dental and other The Group generates income from fees receivable from the operation of its care homes, hospitals, dental centres and other healthcare and
wellbeing centres. Revenues from insurance service contracts are recognised as the services are provided, with the exception of an element
of revenue for performance based service contracts which is recognised as deferred income. The accounting policy for deferred income for
performance based service contracts is explained in Note 3.0.6.
Service concession receivables
The Group also operates two public hospitals in Spain under separate service concession arrangements granted by the local governments
(the grantors). Revenue is recognised from the construction of infrastructure and for operation of the hospitals. Construction revenues are
recognised in line with the stage of completion of the work performed. Operational revenues are recognised in the period in which the
services are provided, in line with the service concession arrangements. The accounting policy for the service concession receivables is
explained in Note 3.0.1.
Total Revenues
2016
£m
2015
£m
Gross premiums written 8,058.1 7,139.3
Change in gross provision for unearned premiums (13.8) (80.3)
Gross insurance premiums 8,044.3 7,059.0
Gross premiums written ceded to reinsurers (59.3) (50.3)
Reinsurers’ share of change in gross provisions for unearned premiums 5.4 1.7
Premiums ceded to reinsurers (53.9) (48.6)
Net insurance premiums earned 7,990.4 7,010.4
Revenues from insurance service contracts 18.7 42.6
Care, health and other revenues 3,038.8 2,775.4
Total revenues 11,047.9 9,828.4
2.1
Revenues
Revenues in brief
The Group generates revenues from its underwriting activities
(insurance premiums), trading activities through the provision of
insurance management services (insurance service contracts) and
the provision of healthcare services (care, health, dental and other).
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
70 B upa Annual Report 2016
Insurance claims
Insurance claims incurred comprise insurance claims paid during the
year together with related handling costs, the movement in the gross
provision for claims in the period and the Risk Equalisation Trust Fund
levy for Australian health insurance businesses. See Note 3.4 for details
of the claims provision.
In Australia, the Risk Equalisation Trust Fund charges a levy to all
registered private health insurers and then allocates a proportion
of the cost of eligible claims between all fund participants.
Reinsurers’ share of claims incurred
Reinsurers’ share of claims incurred represents recoveries from
reinsurers on claims paid, adjusted for the reinsurers’ share of the
change in the gross provision for claims.
See ‘Assets arising from insurance business’ within Note 3.0.2 for
the related balance sheet item and detail of impairments.
Net insurance claims incurred
2016
£m
2015
£m
Insurance claims paid 6,335.4 5,593.8
Change in gross provisions for claims 62.6 (0.5)
6,398.0 5,593.3
Risk Equalisation Trust Fund levy (net of recoveries) (65.1) (87. 5)
Insurance claims incurred 6,332.9 5,505.8
Recoveries from reinsurers on claims paid (45.3) (36.1)
Reinsurers’ share of change in gross provisions for claims 2.4 (1.0)
Reinsurers’ share of claims incurred (42 .9) (37.1)
Net insurance claims incurred 6,290.0 5,468.7
2.2
Insurance Claims
Insurance claims in brief
Insurance claims relate to the Group’s insurance underwriting
activities. Insurance claims incurred are amounts payable
under insurance contracts arising from the occurrence of
an insured event.
Note
71Bupa Annual Report 2016
Strategic report Governance Financial statements
Other operating expenses
Note
2016
£m
2015
£m
Sta costs 2.3.1 1,962.1 1,712.0
Acquisition costs 2.3.2 258.2 226.0
Medical supplies and fees 794.9 878.6
Property costs 181.8 165.9
Operating lease rentals 148.1 126.5
Marketing costs 124.3 110.2
Catering and housekeeping costs 75.2 68.1
Consultancy fees 53.5 47.3
Net loss on foreign exchange transactions 58.6 15.0
Amortisation of intangible assets 3.1 120.2 116.0
Impairment of intangible assets 3.1 35.0 –
Depreciation expense 3.2 161.7 147.5
Other operating expenses (including auditors’ remuneration) 2.3.3 223.7 190.7
Total other operating expenses 4 ,197.3 3,803.8
2.3.1 Sta cost and employee numbers
Sta costs
The below table represents the total employee benefit expenses
incurred by the Group during the period.
2016
£m
2015
£m
Wages and salaries 1,910.7 1,653.7
Social security costs 128.3 114.3
Contributions to defined contribution schemes 32.7 29.6
Other pension amounts (2.7) 5.6
Total sta costs 2,069.0 1,803.2
Sta costs relating to claims handling reported in claims (106.9) (91.2)
Sta costs in operating expenses 1,962.1 1,712.0
Directors’ Remuneration Report is described on pages 42-52 of
this report.
Employee numbers
The average number of full-time equivalent employees, including
Executive Directors, employed by the Group during the year was:
Average employee numbers 2016
2015
(restated)
Australia and New Zealand 13,287 12,006
UK 26,960 27,333
Europe and Latin America 22,503 21,033
International Markets 3,588 3,361
Centre 331 285
Total employee numbers 66,669 64,018
The total employee headcount as at 31 December 2016 was 86,423
(2015: 83,635).
Reorganised Market Unit structure is detailed in Note 2.0.
2.3
Other operating expenses
Other operating expenses in brief
Other operating expenses include sta costs, overheads,
depreciation, amortisation of intangible assets, and gains or losses
on foreign exchange transactions incurred as a consequence of
operating our businesses. Costs in relation to handling claims are
included within insurance claims.
Operating expenses exclude insurance claims, finance costs
and taxation.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
72 Bupa Annual Report 2016
Other income and charges
Note
2016
£m
2015
£m
Net gain on disposal of business
1
4.0.b 10.7 25.4
Movement in investment in associates provision – (0.7)
(Deficit)/surplus on revaluation of property 3.2 (30.9) 3.6
Write down of property
2
3.2 ,4.1 (14.5) (68.2)
Net loss on disposal of property, plant and equipment
3
(4.2) (0.7)
Total other income and charges (38.9) (4 0.6)
1 2016 includes £12.3m profit on disposal of Bupa Home Healthcare, which was sold to Celesio on 1 July 2016 and £1.6m loss on liquidation of Bupa Middle East Holdings. 2015 includes deferred
consideration on 2007 disposal of Bupa Ireland Limited of £25.5m.
2 Includes £11.2m write down on reclassification as held for sale.
3
Includes loss on disposal of two oce buildings which were sold in the year.
2.3.2 Acquisition costs
2016
£m
2015
£m
Commission for direct insurance 253.8 214.4
Other acquisition costs paid 14.2 14.6
Changes in deferred acquisition costs (9.8) (3.0)
Total acquisition costs 258.2 226.0
The movement in deferred acquisition cost is detailed in Note 3.0.2.
2.3.3 Auditors’ remuneration
2016
£m
2015
£m
Fees payable to the Company’s auditor for the audit
of the Company’s annual accounts 0.8 0.8
Fees payable to the Company’s auditor and its
associates for:
– the audit of the Company’s subsidiaries pursuant
to legislation 4.8 3.9
– audit-related assurance services 0.8 0.7
Total audit fees payable to the Company’s auditors,
KPMG LLP and its associates 6.4 5.4
Fees payable to other auditors:
Audit of overseas subsidiary companies 0.5 0.2
Total audit fees 6.9 5.6
Fees payable to the Company’s auditor and its associates
for other services:
Tax compliance services 0.2 0.3
Tax advisory services 0.1 0.1
Corporate finance services – 1.0
All other non-audit services 1.1 1.5
Total non-audit fees 1.4 2.9
Total auditors’ remuneration 8.3 8.5
In addition, fees in respect of the audit of The Bupa Pension Scheme
were £56,000 (2015: £49,000).
2.4
Other income and charges
Other income and charges in brief
Other income and charges comprise income or expenses that are
related to the investing and divesting activities of the Group.
Note
73Bupa Annual Report 2016
Strategic report Governance Financial statements
Financial income
Interest income, except in relation to assets classified at fair value
through profit or loss, is recognised in the Income Statement as it
accrues, using the eective interest method. Any mark to market
movements are split between realised or unrealised.
Changes in the value of financial assets designated as at fair value
through profit or loss are recognised within financial income as an
unrealised gain or loss while the asset is held. Upon realisation of these
assets, the change in fair value since the last valuation is recognised
within financial income as a realised gain or loss.
Note
2016
£m
2015
£m
Interest income:
Loans and receivables 41.2 40.8
Investments designated as available
for sale 1.3 –
Investments held to maturity 2.8 2.6
Investments designated at fair value
through profit or loss 3.3 1.7
Net realised gains on financial investments
designated at fair value through profit
or loss 5.4 13.6
Realised gain on early termination of
long term investment 39.3 –
Net increase/(decrease) in fair value:
Investments designated at fair value
through profit or loss 19.7 (4.4)
Investment property 3.3 21.2 11.6
Net foreign exchange translation gains 77.9 2.8
Total financial income 212.1 68.7
Included within ‘net realised gains on financial investments designated
at fair value through profit or loss’ and ‘investments designated at fair
value through profit or loss’ is a net gain, after hedging, on the Group’s
return seeking asset portfolio of £22.9m (2015: net gain of £7.0m).
No financial investments designated at fair value through profit or
loss are held for trading. A gain of £39.3m was recognised on the early
termination of the financial investment which provided security against
the repayment of the secured loans issued by UK Care No.1 Limited.
2016 net foreign exchange gain includes a £63.5m gain on the
retranslation of US dollar and sterling investments held in Bupa Egypt
as a result of a devaluation of the Egyptian pound in November 2016.
Financial expense
Interest payable on borrowings is calculated using the eective
interest method.
2016
£m
2015
£m
Interest expense on financial liabilities at amortised cost 86.3 114.3
Finance charges in respect of finance leases 0.8 1.2
Loss on early repayment of debt 151.6 –
Other financial expenses 2.5 2.5
Total financial expense 241.2 118.0
A loss of £151.6m was recognised following the early redemption of the
secured loans issued by UK Care No.1 Limited in April 2016. This has
been partially oset by a £39.3m gain (in financial income) on the early
termination of the financial investment which provided security against
the A1 notes.
2.5
Financial income and expense
Financial income and expense in brief
Financial income and expense are earned/(incurred) from the
Group’s financial assets and liabilities, and non-financial assets such as
investment property.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
74 Bupa Annual Report 2016
The taxation expense on the profit for the year comprises current
and deferred taxation. Income taxation is recognised in the Income
Statement except to the extent that it relates to items recognised
directly in Other Comprehensive Income, in which case it is recognised
directly in the Statement of Comprehensive Income.
(i) Recognised in the Income Statement
2016
£m
2015
£m
Current taxation expense
UK taxation on income for the year 33.8 20.8
Adjustments in respect of prior periods (3.2) (18.8)
30.6 2.0
Double taxation relief (2.9) (2.5)
Foreign taxation on income for the year 136.4 109.0
Adjustments in respect of prior years 0.2 (8.8)
136.6 100.2
Total current taxation 164.3 99.7
Deferred taxation income
Origination and reversal of temporary dierences (33.6) (11.1)
Adjustments in respect of prior periods 2.7 –
Changes in taxation rates 2.7 7.4
Total deferred taxation (28.2) (3.7)
Taxation expense 136.1 96.0
Current taxation is the expected taxation payable on the taxable profit
for the year, using taxation rates enacted or substantively enacted at
the balance sheet date, and any adjustments to taxation payable in
respect of previous years.
The Group is subject to taxation audits in the territories in which it
operates and considers each issue on its merits when deciding whether
to hold a provision against the potential taxation liability that may arise.
However the amount that is ultimately paid could dier from the
amount initially recorded and this dierence is recognised in the
period in which such a determination is made.
(ii) Reconciliation of eective taxation rate
2016
£m
2015
£m
Profit before taxation expense 522.9 374. 3
Taxation at the domestic UK corporation tax rate of
20.00% (2015: 20.25%) 104.6 75.8
Eect of:
Dierent taxation rates in foreign jurisdictions 28.1 25.8
Non-deductible expenses 0.9 17.0
Current income taxation adjustments in respect of
prior periods (3.0) (27. 6)
Deferred taxation adjustments in respect of prior periods 2.7 –
Changes in taxation rate 2.7 7.4
Movement on deferred taxation asset not recognised 0.1 (2.3)
Group relief not paid for – (0.1)
Taxation expense at the eective rate of 26.0%
(2015: 25.6%) 136.1 96.0
(iii) Current and deferred taxation recognised directly in
Other Comprehensive Income
2016
Taxation
benefit/
(expense)
£m
2015
Taxation
benefit/
(expense)
£m
Current taxation credit in respect of:
Other foreign exchange translation dierences 15.9 –
Deferred taxation (charge)/credit in respect of:
Unrealised (loss)/profit on revaluation of property (10.3) 16.0
Remeasurement gain on pension schemes 7.7 3.4
Change in fair value of underlying derivative of
cash flow hedge (0.2) (0.4)
Taxation credit on income and expenses recognised
directly in Other Comprehensive Income 13.1 19.0
2.6
Taxation expense
Taxation expense in brief
Taxation expense on the profit for the year comprises current and
deferred taxation and considers foreign tax, double tax relief and
absorbs adjustments in respect of prior periods.
Note
75Bupa Annual Report 2016
Strategic report Governance Financial statements
3.0.1 Trade and other receivables
Current trade and other receivables are carried at amortised cost less
impairment losses. Non-current trade and other receivables are carried
at present value based on discounted cash flows, with the exception of
prepayments carried at cost.
2016
£m
2015
£m
Non-current
Service concession receivables (a) 89.9 7 7.7
Other receivables 6.5 6.8
Prepayments 10.6 8.1
Investment receivables and accrued
investment income 5.5 4.3
Total non-current other receivables 112.5 96.9
Current
Trade receivables – net of impairment losses (b) 183.6 256.2
Service concession receivables (a) 123.4 107.4
Other receivables 94.8 86.4
Prepayments 49.0 62.2
Accrued income 50.5 26.4
Investment receivables and accrued
investment income 0.3 0.4
Total current trade and other receivables 501.6 539.0
Total trade and other receivables 614.1 635.9
The above balance is stated net of provisions for impairment losses.
Information regarding the ageing of trade and other receivables is
shown in Note 5.4.3.
The fair value of non-current investment receivables and accrued
investment income is £5.2m (2015: £4.0m). The carrying value of the
other non-current receivable balances are a reasonable approximation
of the fair value.
(a) Service concession receivables
The Group has recognised two service concession receivables in
respect of the public-private partnership arrangement with the
Valencian and Madrid Governments (the grantors). Under the
arrangement with the Valencian Government, the Sanitas business was
contracted to build and operate the Manises hospital for the grantor for
15 years. Under the current arrangement with the Madrid Government,
the Sanitas business was contracted to operate the Torrejón hospital for
the grantor for 30 years.
A financial asset has been recognised for each arrangement to the
extent that the Group has an unconditional contractual right to receive
cash from, or at the direction of, the grantors for the services provided
per capita head of the population covered. The service concession
receivables are carried at amortised cost less impairment losses, and
relates to construction revenues which are recognised in line with the
stage of completion of the work performed and are included in place
of the related asset, as at the end of the contract the ownership of
the hospitals reverts to the grantors. The receivable also relates to
operational revenues, which are recognised in the period in which the
services are provided, in line with the service concession arrangements.
Under IFRIC 12, revenue is recognised based on the average operating
margin for the life of the contract. The operating margin is based on
historic performance plus projections and this margin is reassessed
based on changes in expected performance, with an adjustment made
to the current year results to bring the contract performance to date in
line with the revised margin.
In 2015 the financial asset was impaired by £52.0m due to the impact
on our business case projections of customers from within our
catchment area seeking treatment at other facilities, accentuated
by the introduction of the Free Choice Act in Valencia in 2015.
(b) Impairment of financial assets
Financial assets comprise trade and other receivables and financial
investments. Refer to Note 5.0 for financial investments.
If they are not already held at fair value, financial assets are assessed
at each reporting date to determine whether there is any objective
evidence that they are impaired. A financial asset is considered
impaired if objective evidence indicates that one or more events that
have occurred since the initial recognition of the asset have had a
negative impact on the estimated future cash flows of that asset.
An impairment loss in respect of a financial investment measured at
amortised cost is calculated as the dierence between its carrying
amount and the present value of the estimated future cash flows
discounted at the eective interest rate at the date the investment
was made.
Significant financial assets are tested for impairment on an individual
basis. The remaining financial assets are assessed collectively in groups
that share similar credit risk characteristics.
All impairment losses are recognised in the Income Statement.
Impairment losses on trade receivables amounting to £5.4m
(2015: £4.7m) have been charged to other operating expenses.
3.0
Working capital
Working capital in brief
Working capital represents the assets and liabilities the Group
generates through its trading activity. The Group therefore defines
working capital as trade and other receivables, assets and liabilities
arising from insurance business, inventory, cash and trade and
other payables.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
76 B upa Annual Report 2016
3.0.2 Assets arising from insurance business
Financial assets arising from insurance business, excluding reinsurers’
share of insurance provisions, are held at amortised cost. Valuation of
reinsurers’ share of insurance provisions is discussed in Note 3.4.
2016
£m
2015
£m
Non-current
Deferred acquisition costs (a) 2.2 0.2
Total non-current assets arising from
insurance business 2.2 0.2
Current
Insurance debtors (b) 952.8 799.8
Reinsurers’ share of insurance provisions (c) 19.3 4.8
Deferred acquisition costs (a) 103.5 87. 8
Medicare rebate (d) 72.9 67.3
Risk Equalisation Trust Fund recoveries 16.2 20.8
Total current assets arising from
insurance business 1,164.7 980.5
Total assets arising from
insurance business 1,166.9 980.7
The above balance is stated net of provision for impairment losses.
Information regarding the ageing of insurance debtors, Medicare rebate
and Risk Equalisation Trust Fund recoveries is shown in Note 5.4.3.
(a) Deferred acquisition costs
Acquisition costs represent commissions payable and other expenses
related to the acquisition of insurance contract revenues written
during the financial year. Acquisition costs that have been paid that
relate to subsequent periods are deferred and recognised in the
Income Statement in the relevant period on a straight line basis.
The movement in deferred acquisition costs is as follows:
2016
£m
2015
£m
At the beginning of the year 88.0 84.6
Acquisition costs deferred 341.8 288.0
Acquisition costs released to Income Statement (332.0) (285.0)
Foreign exchange 7.9 0.4
At end of year 105.7 88.0
(b) Insurance debtors
Impairment releases in respect of insurance debtors amounting
to £5.6m (2015: release of £2.2m) have been recognised in other
operating expenses in the Income Statement, detailed in Note 2.3.
(c) Reinsurers’ share of insurance provisions
The recoverables due from reinsurers are shown within assets arising
from insurance business and are assessed for impairment at each
balance sheet date.
Reinsurers’ share of insurance provisions are further analysed in
Note 3.4.
(d) Medicare rebate
In Australia, the government provides a rebate to health insurers
in respect of the premiums paid for private health insurance.
Rebates due from the government but not received at the balance
sheet date are recognised in assets arising from insurance business.
3.0.3 Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and
other short-term highly liquid investments (including money market
funds) with original maturities of three months or less which are subject
to an insignificant risk of change in value.
Bank overdrafts of £nil (2015: £nil) that are repayable on demand and
form an integral part of the Group’s Capital Management Policy (see
Note 5.3) are included as a component of cash and cash equivalents
for the purpose of the statement of cash flows.
2016
£m
2015
£m
Cash at bank and in hand 998.7 684.2
Short-term deposits 414.0 509.9
Cash and cash equivalents 1,412.7 1,194.1
3.0.4 Restricted assets
Restricted assets are amounts held in respect of specific obligations
and potential liabilities and may be used only to discharge those
obligations and potential liabilities if and when they crystallise.
2016
£m
2015
£m
Non-current restricted assets 55.8 45.1
Current restricted assets 4.2 10.8
Total restricted assets 60.0 55.9
The restricted assets balance of £60.0m (2015: £55.9m) is split
between non-current and current. The non-current restricted assets
balance of £55.8m (2015: £45.1m) consists of cash deposits held to
secure a charge over the non-registered pension arrangement
maturing after 2022 (see Note 6.0). Included in current restricted assets
is £3.2m (2015: £2.1m) in respect of claims funds held on behalf of
corporate customers and £0.3m acquired restricted assets in relation
to Care Plus.
77Bupa Annual Report 2016
Strategic report Governance Financial statements
3.0.5 Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is determined using the first-in first-out method, or methods
that approximate this and includes costs incurred in acquiring the
inventories and in bringing them to their current location and condition.
Inventories relating to drugs, prostheses, consumables and housing
stock were £92.2m (2015: £82.9m).
Inventory write downs of £1.3m (2015: £0.1m) were made during the
year. The Group consumed £384.4m (2015: £496.8m) of inventories,
which are recognised within other operating expenses in the Income
Statement.
3.0.6 Trade and other payables
Trade and other payables (excluding deferred income) are carried at
amortised cost.
2016
£m
2015
£m
Non-current
Accruals 9.0 8.5
Other payables 14.1 10.3
Deferred income (a) 1.2 1.1
Total non-current other payables 24.3 19.9
Current
Accruals 462.1 416.3
Accommodation bond liabilities (b) 558.5 369.6
Trade payables 134.6 261.8
Other payables (c) 414.7 354.0
Deferred income (a) 70.7 75.3
Social security and other taxes 32.8 42.6
Total current trade and other payables 1,673.4 1,519.6
Total trade and other payables 1,697.7 1,539.5
The fair value of other payables and accruals are £424.1m (2015:
£363.5m) and £495.2m (2015: £424.6m) respectively. The carrying
value of the other trade and other payables is a reasonable
approximation of the fair value. Information regarding the ageing of
trade payables, other payables, accommodation bond liabilities and
accruals is shown in Note 5.4.4.
(a) Deferred income
In respect of the Group’s revenue and deferred revenue for
performance based health service contracts, estimates are made by
the Group based on the most recent performance evaluation data
available at the year end and these estimates are utilised if they are
determined to be reliable. Reliable estimates can only be made on an
individual contract basis once the results of an initial performance
evaluation are available, and revenue is deferred until the first reliable
evaluation is available.
Where the results of the final performance assessment dier from the
estimation or if an updated reliable estimate is available, the dierence
is recognised in the period in which such determination is made. Where
reliable estimates are not available, the Group recognises revenue only
to the extent of the contract costs recognised that the Group believes
are recoverable.
(b) Accommodation bond liabilities
Accommodation bonds are non-interest bearing deposits paid by
some residents of care homes held in Bupa Aged Care Australia as
payment for a place in the care home facility. These deposits are
repayable when the resident leaves the facility. The bonds are
recorded as the proceeds received, net of retention and any other
amounts deducted at the election of the bondholder.
(c) Other payables
Included within 2015 other payables is £91.1m in relation to the
mandatory oer to market for the remaining 26.3% of Bupa Chile
shares which were external to Bupa. This transaction completed in
February 2016.
Notes to the Financial Statements continued
for the year ended 31 December 2016
78 Bupa Annual Report 2016
Goodwill
Goodwill represents the excess of the cost of a business combination
over the fair value of the Group’s share of identifiable assets, liabilities
and contingent liabilities of the acquired subsidiary company at the
date of business combination. The carrying value of goodwill may be
adjusted up to 12 months from the date of acquisition, as the allocation
of the purchase price to identifiable intangible assets is finalised within
that period. Goodwill arising on business combinations is capitalised
and presented as part of intangible assets in the Consolidated
Statement of Financial Position.
Goodwill is stated at cost less accumulated impairment losses.
Impairment reviews are performed annually or more frequently if there
is an indication that the carrying value may be impaired. Impairment
reviews are performed at the level of the relevant cash generating unit
(CGU). A CGU is the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from
other assets or groups of assets. Where the fair value of net assets
acquired is greater than the consideration paid, the excess is recognised
immediately in the Income Statement.
Other intangible assets
Intangible assets, other than goodwill, that are acquired as part of
a business combination are capitalised at fair value.
Intangible assets acquired separately are stated at cost less
accumulated amortisation and impairment.
Amortisation is charged to the Income Statement on a straight line
basis as follows:
– Computer software 2-7 years
– Brand and trademarks 10 years-indefinite
– Technology and databases 10 years
– Distribution networks 10-11 years
– Customer relationships 4-15 years
– Present value of acquired in-force business 20 years
– Customer contracts 4-6 years
– Licences to operate care homes term of licence
– Leases term of lease
Intangible assets that are subject to amortisation are reviewed for
impairment if circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognised in the Income
Statement to reduce the carrying amount to the recoverable amount.
Bed licences held by the Group have been attributed an indefinite
useful life due to the fact that these licences, which are issued by the
Australian Government, have no expiry date. Intangible assets with an
indefinite useful life, or not yet available for use, are subject to annual
impairment reviews.
3.1
Intangible assets
Intangible assets in brief
Intangible assets, including goodwill, are the non-physical assets used
by the Group to generate revenues.
Note
79Bupa Annual Report 2016
Strategic report Governance Financial statements
Intangible assets
Goodwill
£m
Computer
software
£m
Brands/
Trademarks
£m
Customer
relationships
£m
Other
£m
Total
£m
2016
Cost
At beginning of year 2,352.0 654.2 295.9 463.4 266.6 4,032.1
Assets arising on business combinations 118.8 0.4 – (2.8) – 116.4
Additions – 92.2 – 0.8 10.1 103.1
Disposals of subsidiary companies (58.5) (2.9) (3.1) (22.9) (1.1) (88.5)
Disposals – (3.5) – – – (3.5)
Other – 6.6 – – 3.8 10.4
Foreign exchange 360.5 38.8 60.6 74.8 35.3 570.0
At end of year 2,772.8 785.8 353.4 513.3 314.7 4,740.0
Amortisation and impairment loss
At beginning of year 374.3 438.4 75.8 179.4 102.2 1,170.1
Amortisation for year – 70.3 7.1 34.2 8.6 120.2
Impairment loss – 14.3 10.5 – 10.2 35.0
Disposals of subsidiary companies (58.4) (2.0) (3.1) (22.9) (1.1) (87.5)
Disposals – (2.2) – – – (2.2)
Other – 6.6 – – 3.8 10.4
Foreign exchange 25.0 25.0 12.9 27.6 12.1 102.6
At end of year 340.9 550.4 103.2 218.3 135.8 1,348.6
Net book value at end of year 2,431.9 235.4 250.2 295.0 178.9 3,391.4
Net book value at beginning of year 1,977.7 215.8 220.1 284.0 164.4 2,862.0
2015
Cost
At beginning of year 2,416.5 592.9 313.3 472.3 268.5 4,063.5
Assets arising on business combinations 59.7 0.2 – 2.0 – 61.9
Additions – 82.1 – 0.8 5.9 88.8
Disposals of subsidiary companies (24.7) – – – – (24.7)
Disposals – (12.1) – – – (12.1)
Other – (2.2) – – – (2.2)
Foreign exchange (99.5) (6.7) ( 17.4) (11.7) (7.8) (143.1)
At end of year 2,352.0 654.2 295.9 463.4 266.6 4,032.1
Amortisation and impairment loss
At beginning of year 288.4 382.5 72.0 153.5 95.0 991.4
Amortisation for year – 69.8 6.5 30.4 9.3 116.0
Impairment loss 114.1 – – – – 114.1
Disposals of subsidiary companies (24.7) – – – – (24.7)
Disposals – (11.7) – – – (11.7)
Other – 0.3 – – – 0.3
Foreign exchange (3.5) (2.5) (2.7) (4. 5) (2.1) (15.3)
At end of year 374.3 438.4 75.8 179.4 102.2 1,170.1
Net book value at end of year 1, 977.7 215.8 220.1 284.0 164.4 2,862.0
Net book value at beginning of year 2,128.1 210.4 241.3 318.8 173.5 3,072.1
Notes to the Financial Statements continued
for the year ended 31 December 2016
80 Bupa Annual Report 2016
Intangible assets of £3,391.4m (2015: £2,862.0m) includes £724.1m
(2015: £668.5m) which is attributable to other intangible assets arising
on business combinations (included within customer relationships,
brand/trademarks and other) as follows:
2016
£m
2015
£m
Customer relationships 295.0 284.0
Bed licences (within Bupa Aged Care Australia) 123.1 102.7
Brand and trademarks 250.2 220.1
Licences to operate care homes 22.7 34.6
Customer contracts 3.4 6.8
Leases 9.3 10.7
Distribution networks 19.3 8.5
Present valuation of acquired in-force business 1.1 1.1
Total 724.1 668.5
Impairment testing of goodwill
Intangible assets with indefinite useful lives are tested at least annually
for impairment by comparing the net carrying value with the
recoverable amount, using value in use (VIU) calculations for all cash
generating units (CGUs) with the exception of Quality HealthCare
goodwill which is determined on a fair value less costs of disposal
(FVLCD) basis which has been externally valued.
In arriving at the value in use for each cash generating unit (CGU), key
assumptions have been made regarding future projected cash flows,
discount rates and terminal growth rates. The main assumptions upon
which the cash flow projections are based include premiums and claims
costs for our Health Insurance businesses, fee rate, cost of care and
occupancy for our care services businesses and revenue growth and
gross margins for hospitals and clinics. These valuation techniques are
classified within level three of the IFRS 13 fair value hierarchy.
Aside from those mentioned below, cash flow projections have been
based on management operating profit projections for a three year
period which have been approved by the Board. Cash flow projections
for Bupa Care Services UK and Bupa Chile are based on five years.
LUX MED and Bupa Care Services New Zealand are based on longer
periods of seven and ten years respectively as the business model of
these CGUs requires investment beyond a three year period to reach
a steady state of operation.
As part of the FVLCD valuation of Quality HealthCare, the external
valuer produced a valuation of the business using a range of cash flow
projections, looking ahead over periods up to twelve years, as well as
using other market inputs.
Taxation has been applied to the pre-taxation management operating
profits based on the statutory taxation rates in the country of operation.
Future post-taxation cash flows have been discounted at post-taxation
discount rates. Discount rates used for the value in use calculations for
each of the Group’s CGUs are based on considerations of the specific
risks associated with the business plans of each CGU, as well as external
factors. These include the market assessment of the time value of
money and the risks inherent in the relevant country where the cash
flows are generated.
Cash flow projections beyond the forecast periods have been
extrapolated by applying a terminal growth rate between 2.0% and
3.5% (2015: 2.5% and 3.7%) for all CGUs. The terminal growth rates
represent an estimate of the long-term growth rate for each of the
CGUs, taking into account the future and past growth rates and
external sources of data.
The values assigned to the key assumptions are based on past
experience of the CGUs and assessment of future trends in the
relevant industry.
The following table summarises the pre-taxation discount rates used for
impairment testing for the main CGUs:
2016
%
2015
%
Bupa Australia Health Insurance 9.3 9.6
Bupa Aged Care Australia 8.7 9.0
Bupa Health Services Australia 11.0 11.5
Bupa Care Services New Zealand 8.8 8.8
Bupa Care Services UK 7.9 8.2
Bupa Cromwell Hospital 10.0 9.6
Dental UK 7.7 n/a
Bupa Chile 12.6 12.8
Sanitas Seguros 10.1 11.3
LUX MED 10.3 10.5
Quality HealthCare 10.5 10.4
Bupa Global 10.3 11.0
All CGUs are valued at the higher of VIU and FVLCD.
81Bupa Annual Report 2016
Strategic report Governance Financial statements
The recoverable amount of all CGUs is determined to be higher than
their respective carrying amounts, resulting in no impairment to
goodwill. In 2015, a partial impairment of the goodwill relating to Bupa
Care Services UK (£114.1m) was recorded, along with impairment of
property (£171.0m) and equipment (£8.7m) following the introduction
of the National Living Wage from April 2016, and challenging trading
conditions.
The following table summarises goodwill by CGU as at 31 December:
2016
£m
2015
£m
Australia and New Zealand
Bupa Australia Health Insurance 928.8 785.7
Bupa Aged Care Australia 283.3 239.8
Bupa Health Services Australia 311.3 252.5
Bupa Care Services New Zealand 38.2 31.5
UK
Bupa Care Services UK 87.4 84.0
UK Dental (restated)
1
38.0 21.3
Bupa Cromwell Hospital 16.2 16.2
Other (restated)
1
2.5 2.5
Europe and Latin America
Bupa Chile 179.9 142.4
LUX MED 223.2 196.0
Sanitas Seguros 38.6 29.0
Other 10.1 5.2
International Markets
Quality HealthCare 123.8 103.8
Bupa Global 67. 8 67. 8
Care Plus 82.8 n/a
Total 2,431.9 1 , 977.7
1 Goodwill attributable to the UK Dental CGU in 2015 has been presented separately from
Other UK.
Sensitivity to changes in key assumptions
A sensitivity analysis has been performed on the key assumptions used
to determine the value in use for each CGU as at 31 December 2016.
Other than as disclosed below, management believes that no
reasonably probable change in any of the key assumptions would
cause the carrying value of any goodwill or intangible asset with an
indefinite useful life to exceed its recoverable amount.
It is possible that a change in key assumptions could cause the
impairment of goodwill for Bupa Care Services New Zealand, Bupa
Care Services UK, Bupa Chile, Bupa Health Services, LUX MED and
Quality HealthCare. The table below shows the decrease required in
the terminal growth rate or increase required in discount rate for the
recoverable amount of the CGU to equal the carrying amount.
Headroom
£m
Terminal
growth
rate
%
Decrease in
terminal
growth
rate
%
Increase in
discount
rate
%
Bupa Care Services New Zealand 4.7 2.8 0.1 0.1
Bupa Care Services UK 63.8 2.5 0.4 0.4
Bupa Chile 10.4 3.2 0.1 0.1
Bupa Health Services 102.4 3.0 2.1 1.9
LUX MED 53.3 3.5 0.8 0.6
Quality HealthCare 22.5 3.5 0.5 0.3
Impairment of other intangible assets
At 31 December 2016, the recoverable amounts of other intangible
assets with indefinite useful lives were tested in respect of their carrying
amounts, resulting in an impairment of £15.0m. £10.5m was recognised
in relation to impairment of brands arising on business combinations in
Bupa Chile and £4.5m in relation to impairment of computer software
projects not yet completed in Bupa Global. In the prior year there were
no impairments of intangible assets with indefinite lives.
Intangible assets that are subject to amortisation were reviewed,
resulting in an impairment of £20.0m. £10.2m was recognised in
relation to the impairment of UK care home licences arising on business
combinations, £4.2m for IT software in Bupa Care Services UK and
£5.6m for IT software in Bupa Global. In the prior year there was an
impairment of £0.7m to intangible assets.
Notes to the Financial Statements continued
for the year ended 31 December 2016
82 Bupa Annual Report 2016
Equipment
Equipment (including leasehold improvements) is stated at historical
cost less subsequent depreciation and impairment losses.
Depreciation
Freehold land and assets under construction, included within
freehold or leasehold properties as appropriate, are not depreciated.
Depreciation on other items of property, plant and equipment is
calculated using the straight line method to allocate cost or revalued
amount less residual value over estimated useful lives, as follows:
– Freehold buildings 50 years
– Leasehold buildings shorter of useful life
or lease term
– Equipment shorter of useful life
(leasehold improvements) or lease term
– Equipment 3-10 years
Impairment
Impairment reviews are undertaken where there are indications that the
carrying value of an asset may not be recoverable. An impairment loss
on assets carried at cost is recognised in other income and charges to
reduce the carrying value to the recoverable amount. An impairment
loss on assets carried at the revalued amount is recognised in the
revaluation reserve, except where an asset is revalued below historical
cost, in which case the loss on historical cost is recognised in the
Income Statement within other income and charges.
Leased assets
Leases are classified as finance leases when the terms of the lease
substantially transfer all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
On initial recognition, the leased asset is measured at the amount equal
to the lower of its fair value and the present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset.
Finance lease liabilities, net of finance charges in respect of future
periods, are included within other interest bearing liabilities (see Note
5.1). The interest element of the obligation is allocated over the lease
term to reflect a constant rate of interest on the outstanding obligation.
Leasehold land, where no option to obtain title exists, is treated as an
operating lease. Assets classified as being under operating leases are
not capitalised and therefore not recognised within the balance sheet
(Note 6.1). Payments made under operating leases are recognised as
prepayments within trade and other receivables within Note 3.0.1 and
are recognised in the Income Statement on a straight line basis over
the term of the lease within other operating expenses (Note 2.3).
The amount included in property, plant and equipment in respect
of equipment held under finance leases is £0.3m (2015: £0.1m).
3.2
Property, plant and equipment
Property, plant and equipment in brief
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 and hospital properties
and equipment, and oce buildings.
Note
83Bupa Annual Report 2016
Strategic report Governance Financial statements
Property, plant and equipment
Note
Freehold
property
£m
Leasehold
property
£m
Leasehold
Improvements
£m
Equipment
£m
Total
£m
2016
Cost or valuation
At beginning of year 2,188.0 111.1 103.1 1,006.6 3,408.8
Additions through business combinations 20.5 – 0.5 3.6 24.6
Additions 200.6 1.0 20.4 130.4 352.4
Transfer to assets held for sale 4.1 (367. 8) (8.6) – (184.4) (560.8)
Disposals (29.4) – (12.7) (18.5) (60.6)
Disposals of subsidiaries – (7.2) – (5.8) (13.0)
Revaluations 5.4 9.5 – – 14.9
Other 10.4 (17.4) 46.1 (38.0) 1.1
Foreign exchange 233.7 2.0 21.4 105.5 362.6
At end of year 2,261.4 90.4 178.8 999.4 3,530.0
Depreciation and impairment loss
At beginning of year 65.4 23.8 42.3 438.6 570.1
Depreciation charge for year 34.2 5.7 13.0 108.8 161.7
Transfer to assets held for sale 4.1 – – – (70.5) (70.5)
Disposals (14.8) – (11.5) (12.0) (38.3)
Disposals of subsidiaries – (6.4) – (3.7) (10.1)
Revaluations (12.9) 1.9 – – (11.0)
Other 1.2 (2.0) (2.2) 1.7 (1.3)
Foreign exchange 10.0 0.1 7.6 60.1 77.8
At end of year 83.1 23.1 49.2 523.0 678.4
Net book value at end of year 2,178.3 67.3 129.6 476.4 2,851.6
Net book value at beginning of year 2,122.6 87.3 60.8 568.0 2,838.7
2015
Cost or valuation
At beginning of year 2,250.9 149.8 52.2 986.3 3,439.2
Additions through business combinations 27.8 – – 19.1 46.9
Additions 129.3 1.2 11.1 132.1 273.7
Disposals (10.3) (1.8) (3.7) (71.5) (87. 3)
Revaluations (162.1) (14.1) – – (176.2)
Other 17.3 (23.1) 45.5 (35.8) 3.9
Foreign exchange (64.9) (0.9) (2.0) (23.6) (91.4)
At end of year 2,188.0 111.1 103.1 1,006.6 3,408.8
Depreciation and impairment loss
At beginning of year 58.4 34.9 15.4 414.9 523.6
Depreciation charge for year 33.5 3.9 9.5 100.6 147.5
Disposals (3.5) (1.7) (2.9) (69.7) (77. 8)
Revaluations (33.8) (4.4) – – (38.2)
Impairments 11.2 – – 8.9 20.1
Other (1.6) (8.7) 8.7 1.3 (0.3)
Foreign exchange 1.2 (0.2) 11.6 (17.4) (4.8)
At end of year 65.4 23.8 42.3 438.6 570.1
Net book value at end of year 2,122.6 87. 3 60.8 568.0 2,838.7
Net book value at beginning of year 2,192.5 114.9 36.8 571.4 2,915.6
Notes to the Financial Statements continued
for the year ended 31 December 2016
84 Bupa Annual Report 2016
Freehold and leasehold properties
Freehold and leasehold properties comprise care homes, care villages,
clinics, hospitals and oces and are initially measured at cost and
subsequently at revalued amount less accumulated depreciation and
impairment losses. These properties are subject to periodic valuations
performed by external independent valuers. At each revaluation date,
accumulated depreciation (and impairment) is eliminated against
the gross carrying value of the asset. Borrowing costs relating to the
acquisition or construction of qualifying assets are capitalised as part
of the cost of that asset.
Revaluation of properties
Valuations are performed with sucient regularity to ensure that
the carrying value does not dier significantly from fair value at the
balance sheet date. The revaluation of certain UK properties and
Polish properties carried out in 2016 was performed independently
by Knight Frank Chartered Surveyors and in Chile by Tinsa and Phi
Partners. Revaluations were eective as of 30 November in the year in
which they were undertaken. Directors’ valuations were performed in
the year where it was identified that carrying value diered significantly
from fair value.
Care homes and hospitals are valued with regard to their trading
potential based on discounted cash flow techniques, the principal
assumptions are: quantifying a fair, maintainable level of trade and
profitability; levels of competition; and assumed ability to renew
existing licences, consents, certificates or permits.
At each revaluation date, accumulated depreciation is eliminated
against the gross carrying amount of the asset.
The significant assumptions used in the calculation of the fair values of the material level three freehold and leasehold properties in the Group are:
Freehold and Leasehold Property Australia New Zealand UK Spain Chile LUX MED
Average occupancy rate 93.9% 92.1% 86.5% 96.3% 69.1% N/A
Average capitalisation rate 15.1% 14.7% 13.5% 9.1% 8.2% 10.0%
Level Two
UK
All UK properties apart from those held by Bupa Care Services UK are
classified as level two with fair values being determined by an external
valuer based on market values of similar properties which have been
carried out in November 2016.
Europe and Latin America
Regional oces and clinics in Spain and Poland are valued by external
valuers based on market value and these are classified as level two.
Bupa Chile oces, medical centres and clinics are valued based on
replacement cost and market comparables which are observable
inputs and therefore these properties are classified as level two.
Level Three
UK, Australia and New Zealand, Europe and Latin America
All care homes in the Group and hospitals in Spain, Chile and Poland
are classified as level three. Their valuations are determined based
on a capitalisation of earnings approach. A multiple is applied to each
facility’s earnings to project the financial performance of the facility to
determine its value in use. The multiple applied for each facility is set
based on qualitative and quantitative indicators of the facility’s current
and future performance and assumes normal prudent management
of the facility. Unobservable inputs for these properties include the
average capitalisation rate which is the average rate of return on a
property based on the income that the property is expected to
generate. It considers trends in earnings and land values. For all
properties except those in Poland, the average occupancy is also
an unobservable input.
85Bupa Annual Report 2016
Strategic report Governance Financial statements
Sensitivity analysis
The sensitivity analysis below considers the impact on the year end
valuation of level three properties, and is based on a change in
assumption while holding all other assumptions constant. In practice,
this is unlikely to occur and changes in assumptions may be correlated.
Australia
0.5% absolute
increase
0.5% absolute
decrease
Average occupancy rate £2.0m increase £2.0m decrease
Average capitalisation rate £15.0m decrease £16.0m increase
New Zealand
0.5% absolute
increase
0.5% absolute
decrease
Average occupancy rate £1.3m increase £1.3m decrease
Average capitalisation rate £7.3m decrease £7.9m increase
UK
0.5% absolute
increase
0.5% absolute
decrease
Average occupancy rate £10.3m increase £10.3m decrease
Average capitalisation rate £29.2m decrease £32.0m increase
Spain
0.5% absolute
increase
0.5% absolute
decrease
Average occupancy rate £0.1m increase £0.2m decrease
Average capitalisation rate £14.1m decrease £16.0m increase
Chile
0.5% absolute
increase
0.5% absolute
decrease
Average occupancy rate £0.8m increase £0.8m decrease
Average capitalisation rate £0.6m decrease £0.7m increase
LUX MED
0.5% absolute
increase
0.5% absolute
decrease
Average capitalisation rate £0.3m decrease £0.1m increase
The table below sets out the reconciliation of the opening and closing
balances for property classified as level three fair value measurement
as at 31 December 2016.
Freehold
Property
£m
Leasehold
Property and
Improvement
£m
At 1 January 2016 1,999.5 113.5
Reclassification of property levels 33.9 (7.8)
Additions 186.1 5.0
Transfer to assets held for sale (367. 8) (8.6)
Disposals (6.7) (0.2)
Revaluation and write down through the Income
Statement (15.7) (0.9)
Revaluation and write down through Other
Comprehensive Income 58.5 27.7
Depreciation (33.3) (5.5)
Other (7. 6) (1.8)
Foreign exchange 218.6 10.8
At 31 December 2016 2,065.5 132.2
The table below shows the date at which properties were last subject
to external valuation.
Freehold
Property
£m
Leasehold
Property and
Improvement
£m
Valuation – December 2016 1,037. 2 42.2
Valuation – December 2015 176.3 38.6
Valuation – December 2014 11.8 3.0
Valuation – December 2013 774.1 0.2
Assets held at cost
1
262.0 185.2
Cost or valuation 2,261.4 269.2
1
Primarily relates to assets under construction and initial fair value of additions.
Gains and losses on revaluation are recognised in the property
revaluation reserve, except where an asset is revalued below historical
cost, in which case the deficit is recognised in the Income Statement.
Where a revaluation reverses the losses taken to the Income Statement
in prior years, the credit is recognised in the Income Statement.
A £68.4m revaluation gain (2015: £36.5m) and £4.9m write
down loss (2015: £121.1m) have been recognised in the property
revaluation reserve.
In the current year, a revaluation deficit of £30.9m (2015 surplus: £3.6m)
and write down of £14.5m (2015: £68.2m) were charged to the Income
Statement (see Note 2.4).
Recognised in the carrying amount of freehold property is £158.4m
(2015: £113.0m) in relation to freehold property in the course of
construction.
Historical cost of the Group’s revalued assets
2016
£m
2015
£m
Historical cost of revalued assets 2,153.8 2,081.3
Accumulated depreciation based on historical cost (176.9) (296.6)
Historical cost net book value 1,976.9 1,784.7
Depreciation charge for the year on historical cost 43.1 41.6
The historical cost of all property, plant and equipment is £3,194.1m
(2015: £3,087.2m).
Notes to the Financial Statements continued
for the year ended 31 December 2016
86 Bupa Annual Report 2016
Investment properties are measured at fair value, determined
individually, on a basis appropriate to the purpose for which the
property is intended and with regard to recent market transactions
for similar properties in the same location.
In an active market, the portfolio is valued annually by an independent
valuer, holding a recognised and relevant professional qualification,
and with recent experience in the location and category of investment
property being valued.
In New Zealand, the retirement village market is fragmented as each
village is unique due to building configuration and location. Growth in
new developments is also restricted due to a lack of suitable sites and
transactions are not frequent given the relatively high value of each
village. As a result, no active market exists for the retirement villages
from which values can be derived. These properties are valued using
discounted cash flow projections based on reliable estimates of future
cash flows.
Any gain or loss arising from a change in the fair value is recognised
in the Income Statement within financial income and expense.
(i) Investment properties
2016
£m
2015
£m
At 1 January 2016 270.9 242.0
Additions 37.7 35.0
Disposals (0.6) (0.4)
Increase in fair value 21.2 11.6
Reclassifications to Property, Plant and Equipment – (1.0)
Foreign exchange 62.1 (16.3)
At 31 December 2016 391.3 270.9
The historical cost of investment properties is £210.5m (2015: £173.9m).
In the current year, a revaluation surplus of £21.2m (2015: £11.6m) was
credited to the Income Statement.
Of the £391.3m (2015: £270.9m) of investment properties in the balance
sheet as at 31 December 2016, £6.5m (2015: £6.2m) was either valued
based on active market prices by external valuers, Knight Frank,
Chartered Surveyors or Chilean valuers Tinsa or Phi Partners. These
properties are categorised as level two within the fair value hierarchy.
The remaining carrying value of investment properties of £384.8m
(2015: £264.7m), primarily consisting of the Group’s portfolio of
retirement villages in New Zealand, was valued by management using
internally prepared discounted cash flow projections, supported by the
terms of any existing lease and other contracts, and when possible, by
external evidence such as current market rents for similar properties
in the same location and condition. Discount rates are used to reflect
current market assessments of the uncertainty in the amount or timing
of the cash flows. The discounted cash flow projections are reviewed
by an independent valuer, Deloitte. These properties are categorised
as level three within the fair value hierarchy.
Significant assumptions used in the valuation include:
Australia and New Zealand
Discount rate 9.0%
Capital growth rate 2.6%
Provision for capital replacement 0.4%
Vacancy period 3 months
Turnover in apartments and villas 4–7 years
The following table sets out the reconciliation of the opening and
closing balances for investment properties classified as level three
fair value measurements as at 31 December 2016:
Total
£m
At 1 January 2016 264.7
Additions 37.7
Unrealised gains recognised in financial income 21.0
Foreign exchange 61.4
At 31 December 2016 384.8
The sensitivity analysis below considers the impact on the year end
valuation of level three investment properties, and is based on a change
in assumption while holding all other assumptions constant. In practice,
this is unlikely to occur and changes in assumptions may be correlated.
Australia and New Zealand
0.5% absolute
increase
0.5% absolute
decrease
Discount rate £8.8m decrease £10.0m increase
Capital growth rate £24.4m increase £21.1m decrease
3.3
Investment properties
Investment properties in brief
Investment properties are physical assets that are not occupied by
the Group and are leased to third parties to generate rental income.
Most investment properties held by the Group relate to a portfolio of
retirement villages in New Zealand.
Note
87Bupa Annual Report 2016
Strategic report Governance Financial statements
(ii) Leases as lessor
Investment properties include commercial properties which are leased
to third parties. The leases contain an initial non-cancellable period of
between one and three years. Subsequent renewals are negotiated
with the lessee.
The Group leases out its investment properties under operating leases.
The future lease receipts under non-cancellable leases are as follows:
2016
£m
2015
£m
Less than one year 0.2 0.2
Between one and five years 1.0 1.0
More than five years 0.5 0.8
Total 1.7 2.0
During the year ended 31 December 2016, the Group’s retirement
village portfolio generated £13.4m (2015: £9.8m) of income which
was recognised as revenue in the Income Statement. Total direct
operating expenses of these retirement villages amounted to £8.5m
(2015: £6.6m). £0.3m (2015: £0.3m) was recognised as rental income
in the Income Statement for other investment properties held by the
Group. Direct operating expenses of these properties amounted to
£nil (2015: £0.1m).
3.4.1 Provisions under insurance contracts issued
Unearned premiums
The unearned premium provision represents premiums written that
relate to periods of risk in future accounting periods. It is calculated on a
straight line basis, which is not materially dierent from a calculation
based on the pattern of incidence of risk.
Provision for claims
The gross provision for claims represents the estimated liability arising
from claims episodes in current and preceding financial years which
have not yet given rise to claims paid. The provision includes an
allowance for claims management and handling expenses.
The gross provision for claims is estimated based on current
information, and the ultimate liability may vary as a result of subsequent
information and events.
Adjustments to the amount of claims provision for prior years are
included in the Income Statement in the financial year in which the
change is made. In setting the provisions for claims outstanding, a best
estimate is determined on an undiscounted basis and then a margin
of prudence is added such that there is confidence that future claims
will be met from the provisions. The level of prudence set is either one
required by regulation or one that provides an appropriate degree
of confidence.
3.4
Provisions and other liabilities under
insurance contracts issued
Provisions and other liabilities under insurance contracts
issued in brief
The provisions and other liabilities under insurance contracts issued
arise from the Group’s underwriting activities.
The provisions mainly relate to unearned premiums, which are
deferred revenues that relate to future periods; and claims, where
an estimate is made of the expense required to settle existing
insurance contract obligations. The other liabilities primarily
consist of obligations to repay deposits and commissions payable.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
88 Bupa Annual Report 2016
Provision is made for unexpired risks when unearned premiums, net of associated acquisition costs, are insucient to meet expected claims
and administrative expenses. The expected claims are calculated having regard only to contracts commencing prior to the balance sheet date.
The methods used and estimates made for claims provisions are reviewed regularly.
2016 2015
Gross
£m
Reinsurance
£m
Net
£m
Gross
£m
Reinsurance
£m
Net
£m
General insurance business
Provisions for unearned premiums (a) 1,705.2 (11.6) 1,693.6 1,570.4 (3.0) 1,567.4
Provisions for claims (b) 889.6 (6.6) 883.0 657.1 (0.9) 656.2
Long-term business
Provisions for life insurance benefits 33.9 (1.1) 32.8 27.6 (0.9) 26.7
Total insurance provisions 2,628.7 (19.3) 2,609.4 2,255.1 (4. 8) 2,250.3
Non-current 33.9 – 33.9 27.6 – 27.6
Current 2,594.8 (19.3) 2,575.5 2, 227.5 (4 . 8) 2,222.7
Total insurance provisions 2,628.7 (19.3) 2,609.4 2,255.1 (4. 8) 2,250.3
(a) Analysis of movements in provisions for unearned premiums
At beginning of year 1,570.4 (3.0) 1,567.4 1,499.4 (9.3) 1,490.1
Premiums deferred 8,058.1 (57.3) 8,000.8 7,136.4 (48 .6) 7,087.8
Deferred premiums released to income (8,044.5) 51.9 (7,992 .6) (7,051.8) 47.0 (7,004. 8)
Transfers (0.2) (4.2) (4.4) (7.6) 7.6 –
Foreign exchange 121.4 1.0 122.4 (6.0) 0.3 (5.7)
At end of year 1,705.2 (11.6) 1,693.6 1,570.4 (3.0) 1,567.4
(b) Analysis of movements in provisions for claims
At beginning of year 657.1 (0.9) 656.2 683.1 (5.7) 677.4
Additions through business combinations 17.3 – 17. 3 – – –
Cash paid to settle claims (6,269.4) 44.9 (6,224.5) (5,505.1) 35.4 (5,469.7)
Decrease for prior years’ claims (3.5) – (3.5) (4 . 8) (0.2) (5.0)
Increase for current year claims 6,399.9 (42.4) 6,357.5 5,596.2 (36.2) 5,560.0
Risk Equalisation Trust Fund levy (65.2) – (65.2) (87.5) – (87.5)
Transfers 42.4 (8.0) 34.4 (5.8) 5.8 –
Foreign exchange 111.0 (0.2) 110.8 (19.0) – (19.0)
At end of year 889.6 (6.6) 883.0 657.1 (0.9) 656.2
Assumptions for general insurance business
The process of recognising liabilities arising from general insurance
entails the estimation of future payments to settle incurred claims and
associated claims handling expenses, as well as assessing whether
additional provisions for unexpired risk are required. The principal
assumptions in the estimation of the liability relate to the expected
frequency, severity and settlement patterns of insurance claims, which
are expected to be consistent with recently observed experience
and trends. The aim of claims reserving is to select assumptions and
reserving methods that will produce the best estimate of the future
cash outflows for the subject claims; it is an uncertain process which
also requires judgements to be made. The resulting provisions for
outstanding claims incorporate a margin for adverse deviation, over
and above the best estimate liability, the quantum of which reflects
the level of this uncertainty.
Claims development patterns are analysed in each of the Group’s
insurance entities; where distinct sub-portfolios with dierent
claims cost and development characteristics exist, further analysis
is undertaken to derive assumptions for reserving that are appropriate
and can be applied to relatively homogeneous groups of policies.
Such sub-portfolios may be defined by product line, risk profile,
geography or market sector. Various established reserving methods
for general insurance are considered, typically basic chain ladder,
Bornhuetter-Ferguson and pure risk cost methods. Additional
consideration is given to the treatment of large claims, claim
seasonality, claims inflation and currency eects, for which
appropriate adjustments to assumptions and methods are made.
While there is some diversity in the development profile of health
insurance claims across the Group, such claims are generally highly
predictable in both frequency and average amount, and claims are
settled quickly following the medical event for which benefit is claimed.
Medical expenses claims are typically, substantially fully-settled
within just a few months. Claims management practices such as
pre-authorisation of the claim with the insurer, electronic claims
settlement and eective network provider arrangements can
reduce the development period to four to six months.
89Bupa Annual Report 2016
Strategic report Governance Financial statements
Insurance provisions are inevitably estimates. Actual experience of
claims costs and/or administrative expenses may well vary from that
anticipated in the reserving estimates.
The following table shows the sensitivities to such variation:
Increase in
claims
Increase in
expenses
2016
Change in variable % 5.0 10.0
Reduction in profit net of reinsurance
before taxation £m 67.1 19.3
2015
Change in variable % 5.0 10.0
Reduction in profit net of reinsurance
before taxation £m 61.1 15.4
These variances would reduce the amount of profit that would
otherwise emerge in subsequent periods. Since premium provisions
include profit margins and claims provisions include prudence margins,
variance from expectations can be absorbed by these margins.
Bupa’s long-term insurance business does not form a core part of
its operations.
Liability adequacy tests
Liability adequacy tests are performed for Bupa’s insurance portfolios.
For short duration contracts, a premium deficiency is recognised if the
sum of expected costs of future claims and claim adjustment expenses,
capitalised deferred acquisition costs, and maintenance expenses
exceeds the corresponding unearned premiums while considering
anticipated investment income. Such a deficiency would be
immediately recognised in the Income Statement.
3.4.2 Other liabilities under insurance contracts issued
Other liabilities under insurance contracts issued consist of payables to
insurance creditors other than policyholders.
2016
£m
2015
£m
Reinsurers’ deposits 5.7 2.6
Reinsurance payables 26.7 18.9
Commissions payable 13.8 12.2
Other insurance payables 96.8 38.4
Total other liabilities under insurance contracts issued 143.0 72.1
These payments can result from a legal obligation or a constructive
obligation, where an expectation has been set by the Group.
A provision is made where an outflow of resources is probable
and where the payments can be reliably estimated. If the eect is
material, provisions are determined by discounting the estimated
future payments at a pre-taxation rate that reflects current market
assessments of the time value of money and, where appropriate,
the risks specific to the liability.
Although provisions are made where payments can be reliably
estimated, the amounts provided are based on a number of
assumptions which are inherently uncertain and therefore the amount
that is ultimately paid could dier from the amount recorded.
Long service
and annual
leave
£m
Provisions for
contingent
consideration
£m
Customer
remediation
and legal
provisions
£m
Insurance
provisions
£m
Unoccupied
property
£m
Regulatory
provisions
£m
Other
£m
Total
£m
At beginning of year 47.3 22.8 2.3 9.6 2.8 3.7 8.1 96.6
Acquisitions through business combinations 0.1 8.9 0.6 – – – – 9.6
Charge for year 43.3 1.1 4.4 7.5 0.6 0.7 3.2 60.8
Released in year (0.6) (4.7) (1.4) – (1.6) (1.0) (0.2) (9.5)
Utilised in year – cash (38.1) (13.8) (0.5) (6.9) – (3.3) (0.6) (63.2)
Disposal of subsidiary companies – – – – – – (0.3) (0.3)
Foreign exchange 9.1 2.8 0.5 – – – 0.3 12.7
At end of year 61.1 17.1 5.9 10.2 1.8 0.1 10.5 106.7
Non-current 17.0 11.0 – 7.6 1.8 – 4.6 42.0
Current 44.1 6.1 5.9 2.6 – 0.1 5.9 64.7
Total provisions for liabilities and charges 61.1 17.1 5.9 10.2 1.8 0.1 10.5 106.7
3.5
Provisions for liabilities
and charges
Provisions for liabilities and charges in brief
A provision is recognised when the Group is expected to make future
payments as a result of a past event.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
90 B upa Annual Report 2016
Long service and annual leave
The long service leave provision relates to territories where employees
are legally entitled to substantial paid leave after completing a certain
length of qualifying service. Uncertainty around both the amount and
timing of future outflows arises as a result of variations in employee
retention rates, which may vary based on historical experience. The
annual leave provision relates to territories where the annual entitlement
of leave is not required to be taken within a predetermined time nor
does it expire. Therefore uncertainty exists around the timing of future
outflows as well as around the amount of future outflows due to
wage inflation.
Provisions for contingent consideration
Contingent consideration is a financial liability largely related to
earn-out payable on acquisitions of dental practices in Australia and
the UK. The deferred consideration arising from the purchase of Dental
Corporation Ltd (Australia) on 31 May 2013 was fully paid during the
year with the remaining balance in Australia relating to payments to
practice principals. In the UK, the deferred consideration relates to
the acquisition of dental centres. This balance is reviewed at each
reporting period and any fair value adjustments are recorded in the
Income Statement.
Customer remediation and legal provisions
Customer remediation provisions relate to the costs of compensating
customers for losses or damages associated with a failure to comply
with regulations or to treat customers fairly. Legal provisions relate to
potential and ongoing legal claims and represent the discounted fair
value of total estimated liabilities. Due to the nature of these provisions,
the timing and potential cost is uncertain.
Insurance provisions
The insurance provision is in respect of the Group’s self insurance
and covers the excess that arises on claims made in relation to losses
arising from damage to property, business interruption and medical,
employee or public liability. Any outflows relating to this provision are
dependent on the frequency and value of claims submitted as well as
the excess amount specified within individual policies with insurers.
The fund is actuarially assessed twice a year to ensure that the provision
is adequate.
Unoccupied property
In prior years, the Group entered into non-cancellable leases for
property which it no longer occupies. The Group has provided for lease
obligations, net of sub-lease receivables. The lease obligations are
payable monthly, quarterly or annually, within a range of one to 13 years,
the average being five years. The future net outflows are uncertain and
are aected by the Group’s ability to sub-let unoccupied property.
Regulatory provisions
Regulatory provisions relate to levies payable to customer protection
bodies by the Group’s various regulated entities. Such levies are
generally determined on a ‘capped percentage of revenues’ basis.
Payments are normally made annually, although the frequency
may be increased or decreased at the discretion of the customer
protection bodies.
Other
Other provisions include amounts relating to payments under
legislation and restructuring costs.
Defined contribution pension schemes
The defined contribution pension schemes provide employees with
a retirement fund accumulated through investment of contributions
made by Bupa and the employees. Members of the scheme use
their funds to secure benefits at retirement. Benefits are not known
in advance and the investment and longevity risks are assumed
solely by the members of the scheme. Contributions payable by
the relevant sponsoring employers are defined in the scheme rules
or plan specifications and these contributions are recognised as
an expense in the Income Statement as incurred.
Defined benefit post-employment schemes
The defined benefit pension schemes provide benefits based on final
pensionable salary. The Group’s net obligation in respect of defined
benefit pension and the post-retirement medical scheme 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.
3.6
Post-employment benefits
Post-employment benefits in brief
The Group operates several funded defined benefit and defined
contribution pension schemes for the benefit of employees and
directors, in addition to an unfunded (non-registered) and a
post-retirement medical benefit scheme.
The main defined benefit scheme is The Bupa Pension Scheme
which has been closed to new entrants since 1 October 2002.
The principal defined contribution pension scheme is The Bupa
Retirement Savings Plan.
The National Employment Savings Trust (NEST) has been used to
meet the Group’s automatic enrolment duties for UK employees.
Note
91Bupa Annual Report 2016
Strategic report Governance Financial statements
The charge to the Income Statement for defined benefit schemes
represents the following: current service cost calculated on the
projected unit credit method, net interest cost, past service costs
and administrative expenses.
All remeasurements are recognised in full in the Statement of
Comprehensive Income in the period in which they occur.
(i) Amount recognised in the Consolidated Income
Statement
The amounts charged/(credited) to other operating expenses for the
year are:
2016
£m
2015
£m
Current service cost 9.1 10.2
Past service cost 0.7 –
Gains on curtailments – (0.4)
Net interest on defined benefit liability/asset (14.2) (10.7)
Administrative expenses 1.7 2.0
Total amount (credited)/charged to Consolidated
Income Statement (2.7) 1.1
The charge to operating expenses in respect of cash contributions to
defined contribution schemes is £32.7m (2015: £29.2m).
(ii) Amount recognised directly in Other Comprehensive
Income
The amounts charged/(credited) directly to Equity:
2016
£m
2015
£m
Actual return less expected return on assets (396.6) 44.5
Loss/(gain) arising from changes to financial assumptions 437.2 (45 .1)
Gain arising from changes to experience assumptions (25.7) (19.5)
(Gain)/loss arising from changes to demographic
assumptions (0.3) 3.2
Total remeasurement losses/(gains) charged/(credited)
directly to Equity 14.6 (16.9)
The cumulative amount of remeasurement losses recognised directly in
Equity is £25.1m (2015: £10.5m).
3.6.1 Group post-employment benefit schemes
Defined contribution pension schemes
The principal defined contribution pension scheme in the UK is the
Bupa Retirement Savings Plan. This scheme has been in eect since
1 October 2002 and is available to permanent employees of The British
United Provident Association Limited and Bupa Insurance Services
Limited to join on a voluntary basis. There are several other contract
based defined contribution arrangements available to employees
of other employers within the Group to join on a voluntary basis.
The Group automatically enrols any eligible non-pensioned
employees into the National Employment Savings Trust (NEST).
Defined benefit post-employment schemes
The principal defined benefit scheme in the UK is The Bupa Pension
Scheme. Contributions by employees and by Group companies
are paid into separate funds administered by a corporate trustee.
The scheme has been closed to new entrants since 1 October 2002,
but its existing members continue to accrue pension entitlements.
Contributions by Group companies to this scheme are made
in accordance with the recommendations of the independent
scheme actuary.
The independent scheme actuary for The Bupa Pension Scheme
performs detailed triennial valuations together with annual interim
reviews. Both triennial and interim valuations use the attained age
method, recognising the closure of the scheme to new entrants.
At the most recent triennial valuation, as at 1 July 2014 the scheme’s
independent actuary recommended payment of employer
contributions at the rate of 24.8%. In addition to these employer
contributions a payment equivalent to the employee contribution
of 7% of pensionable salaries is paid as part of the Group’s salary
sacrifice arrangement (known as PeopleChoice Pensions). There is a
corresponding reduction in members’ wages and salaries as a result.
The expected contributions payable in 2017, with regards to the
accumulation of future benefits, are £6.8m in respect of The Bupa
Pension Scheme and £6.2m in respect of PeopleChoice Pensions.
There are several other smaller defined benefit pension schemes
operated by UK and overseas subsidiaries. The defined benefit pension
schemes are assessed by independent scheme actuaries in accordance
with UK or local practice and under IAS 19 as at 31 December 2016
for the purposes of inclusion in the Group’s consolidated financial
statements. Complete disclosure of these other defined benefit pension
schemes is not practicable within this report but they are disclosed
within the financial statements of the relevant sponsoring employer
of each scheme.
Unfunded schemes
Unfunded defined benefit pension arrangements exist for certain
employees and former employees to provide benefits in addition to
the funded pension arrangements provided by the Group. There are
no separate funds or assets in the Statement of Financial Position to
support the unfunded schemes; however, provisions included in the
Statement of Financial Position in respect of these liabilities and assets
are ring fenced to support these liabilities.
The latest valuation of these arrangements was performed as at
31 December 2016 under IAS 19 by the Group’s independent actuary.
The charge to the Consolidated Income Statement in respect of these
arrangements and the assessment of the related pension liability as
at 31 December 2016 have been made in accordance with this latest
valuation, which used the same principal assumptions as adopted at
31 December 2016 under IAS 19 for The Bupa Pension Scheme.
Post-retirement medical benefit scheme
The Group also provides unfunded post-retirement medical benefits
for certain former employees. These benefits were granted under an
agreement which closed to new entrants in 1992. The latest valuation
of this scheme was carried out on 31 December 2016 by an actuary
employed by the Group using the same key assumptions as adopted
at 31 December 2016 under IAS 19 for The Bupa Pension Scheme.
Notes to the Financial Statements continued
for the year ended 31 December 2016
92 Bupa Annual Report 2016
(iii) Assets and liabilities of schemes
Note
Pension schemes
Post-retirement medical
benefit scheme Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
Present value of funded obligations (iv) (1,764.2) (1,356.3) – – (1,764.2) (1,356.3)
Fair value of scheme assets (v) 2,225.0 1,761.5 – – 2,225.0 1,761.5
Net assets of funded schemes 460.8 405.2 – – 460.8 405.2
Present value of unfunded obligations (iv) (54.0) (42. 8) (10.6) (8.5) (64.6) (51.3)
Net recognised assets/(liabilities) 406.8 362.4 (10.6) (8.5) 396.2 353.9
Represented on the Statement of Financial Position
Net liabilities (85.1) (59.5)
Net assets 481.3 413.4
Net recognised assets 396.2 353.9
(iv) Present value of funded schemes’ obligations
The movements in the present value of schemes’ obligations are:
Pension schemes
Post-retirement medical
benefit scheme Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
At beginning of year 1,399.1 1,431.8 8.5 11.4 1,407.6 1,443.2
Current service costs 9.1 10.2 – – 9.1 10.2
Past service costs 0.7 – – – 0.7 –
Interest on obligations 54.1 53.0 0.3 0.4 54.4 53.4
Contribution by employees 0.5 0.6 – – 0.5 0.6
Loss/(gain) arising from changes to financial assumptions 435.8 (45 .1) 1.4 – 437.2 (45 .1)
(Gain)/loss arising from changes to experience assumptions (26.8) (19.5) 1.1 – (25.7) (19.5)
(Gain)/loss arising from changes to demographic assumptions (0.3) 6.0 – (2.8) (0.3) 3.2
Benefits paid (56.6) (36.6) (0.7) (0.5) (57.3) (37.1)
Gains on curtailment – (0.4) – – – (0.4)
Foreign exchange 2.6 (0.9) – – 2.6 (0.9)
At end of year 1,818.2 1,399.1 10.6 8.5 1,828.8 1,407.6
(v) Fair value of funded schemes’ assets
The movements in the fair value of the funded schemes’ assets are:
2016
£m
2015
£m
At beginning of year 1,761.5 1,728.5
Interest income 68.6 64.2
Return on assets excluding interest income 396.6 (44. 5)
Contributions by employer 50.1 49.7
Contributions by employees 0.5 0.6
Administration expenses (1.7) (2.1)
Benefits paid (54.0) (33.9)
Foreign exchange 3.4 (1.0)
At end of year 2,225.0 1,761.5
93Bupa Annual Report 2016
Strategic report Governance Financial statements
The market values of the assets of the funded schemes’ are as follows:
2016
£m
2016
%
2015
£m
2015
%
Debt instruments 494.1 22 5 87.7 34
Gilts 801.6 36 524.6 30
Corporate bonds 767.8 35 462.3 26
Cash/other assets 77.5 4 89.0 5
Equities 51.7 2 65.8 4
Diversified growth funds 23.7 1 24.0 1
Government bonds 7.0 – 6.5 –
Property 1.6 – 1.6 –
Total market value of the assets of the funded schemes 2,225.0 1,761.5
All assets have a quoted market price.
3.6.2 Actuarial assumptions
The responsibility for setting the assumptions underlying the IAS 19
valuations rests with the directors, having first taken advice from an
independent actuary.
The key weighted average financial assumptions used when valuing the
obligations of the post-employment benefit schemes under IAS 19 for
the smaller schemes are as follows:
Section
Funded schemes Unfunded schemes
2016
%
2015
%
2016
%
2015
%
Inflation rate (a) 3.2 3.1 3.3 3.2
Rate of increase in salaries (a) 3.7 3.7 3.8 3.7
Rate of increase to pensions in payment (a) 3.1 3.0 3.2 3.1
Rate of increase to pensions in deferment (a) 2.3 2.2 2.2 2.2
Discount rate for scheme assets and obligations (a) 2.7 3.9 2.9 3.9
Medical cost trend rate (b) – – 4.0 4.0
(a) Actuarial assumptions underlying the valuation of obligations
The inflation assumption is set by reference to the dierence between
the yield on long-term fixed interest gilts and the real yield on index-
linked gilts, with a deduction of 0.2% to reflect an inflation risk premium.
The rate of increase of pensions in payment is the same as the inflation
rate, with the exception of benefits which receive fixed increases in
payment as defined under the respective scheme rules.
The rate of increase in salaries is equal to the long-term expected
annual average salary pay increase for the employees who are
members of the respective schemes. This assumption is set relative
to the inflation rate assumption.
The discount rate used to value scheme liabilities is the yield
at the balance sheet date on high quality corporate bonds of
appropriate term.
(b) Medical cost trend rate
The medical cost trend rate is the assumed additional escalation of
medical costs over and above the assumed inflation rate. It is assumed
that such an eect will continue during the remaining run-o of the
liability. Assumed medical cost trend rates have an impact on the
amounts recognised in the Consolidated Income Statement. A one
percentage point change in assumed medical cost trend rates would
result in the following increase and decrease in the post-retirement
medical benefit obligation.
1% point
increase
2016
£m
1% point
decrease
2016
£m
1% point
increase
2015
£m
1% point
decrease
2015
£m
Eect on post-retirement
medical benefit obligation 1.6 (1.3) 1.1 (0.9)
Eect on the aggregate of
current service cost and
interest cost 0.1 (0.1) 0.1 (0.1)
Notes to the Financial Statements continued
for the year ended 31 December 2016
94 Bupa Annual Report 2016
(c) Mortality assumptions
The trustees of The Bupa Pension Scheme have undertaken a
scheme specific mortality investigation as part of the 1 July 2014
triennial valuation.
The trustees shared the conclusion drawn from this analysis with the
directors, who have adopted assumptions in line with this analysis for
the purposes of IAS 19 valuation as at 31 December 2016.
The mortality tables adopted at 31 December 2016 are the S2PA
year of birth mortality tables using the CMI projection model, with
a long-term rate of improvement of 1.5% pa adjusted by -0.1 years
(male non-pensioners); -0.2 years (female non-pensioners); -0.3 years
(male pensioners) and -0.5 years (female pensioners). The average life
expectancies at age 60 based on these tables for a male currently
aged 60 (45) is 28.1 years (29.6 years) and for a female currently
aged 60 (45) is 30.2 years (31.8 years).
(d) Assumptions over duration of liabilities
The weighted average duration of the defined benefit obligation is
approximately 22 years.
(e) Sensitivity analysis of the principal assumptions used to measure
scheme liabilities
The sensitivity analysis provided below is based on a change in an
assumption while holding all other assumptions constant. In practice,
this is unlikely to occur and experience variations for some of the
assumptions may be correlated. When calculating the sensitivity of
the defined benefit obligation to significant actuarial assumptions
the same method (projected unit credit method) has been applied as
when calculating the pension liability recognised within the Statement
of Financial Position. The methods and types of assumption did
not change.
Assumption Change in assumption Indicative impact on Scheme liabilities
Discount rate Increase/decrease by 0.25% Decrease/increase by £90m
Rate of inflation Increase/decrease by 0.25% Increase/decrease by £81m
Rate of increase in salaries Increase/decrease by 0.25% Increase/decrease by £9m
Rate of mortality Increase by one year Increase by £50m
Deferred taxation is recognised in full using the balance sheet liability
method, providing for temporary dierences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes.
The following temporary dierences are not recognised: goodwill not
deductible for taxation purposes and the initial recognition of an asset
or liability in a transaction that is not a business combination and which,
at the time of the transaction, aects neither the accounting profit nor
taxable profit or loss.
The amount of deferred taxation recognised is based on the expected
manner of realisation or settlement of the carrying amount of assets
and liabilities, using taxation rates enacted or substantively enacted at
the balance sheet date.
Deferred taxation is recognised on temporary dierences arising on
investments in subsidiary companies, except where the timing of the
reversal of the temporary dierence is controlled by the Group and
it is probable that the temporary dierence will not reverse in the
foreseeable future.
A deferred taxation asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the
asset can be utilised.
Deferred taxation assets and liabilities are oset when they relate to
income taxes levied by the same taxation authority and when the
Group can settle its current taxation assets and liabilities on a net basis.
3.7
Deferred taxation assets
and liabilities
Deferred taxation assets and liabilities in brief
Deferred tax is an amount which recognises the dierences between
the carrying amounts of assets and liabilities for financial reporting
and the amounts used for taxation purposes.
An example is the variance between the carrying value of
equipment due to depreciation being charged for financial
reporting purposes and written down allowances being applied
for the relevant tax authorities.
Note
95Bupa Annual Report 2016
Strategic report Governance Financial statements
Recognised deferred taxation assets and liabilities
Deferred taxation assets and liabilities are attributable to the following:
Assets Liabilities Net
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
Accelerated capital allowances – – (99.6) (94.4) (99.6) (94.4)
Post-employment benefit liability – – (67.1) (64.5) (67.1) (64.5)
Revaluation of properties to fair value – – (39.7) (32.7) (39.7) (32.7)
Employee benefits (other than post-employment) 30.5 23.8 – – 30.5 23.8
Provisions 24.4 23.0 – – 24.4 23.0
Taxation value of losses carried forward 43.2 38.1 – – 43.2 38.1
Goodwill and intangible assets – – (109.2) (105.4) (109.2) (105.4)
Other 4.2 1.4 (9.1) (10.9) (4.9) (9.5)
Deferred taxation assets/(liabilities) 102.3 86.3 (324.7) (307.9) (222.4) (221.6)
Allowable netting of deferred tax assets and liabilities (95.2) (83.8) 95.2 83.8 – –
Net deferred taxation assets/(liabilities) 7.1 2.5 (229.5) (224.1) (222.4) (221.6)
Recognised deferred taxation assets
Deferred taxation assets relating to the carry forward of employee
benefits, other provisions, unused taxation losses and other deferred
taxation assets are recognised to the extent that it is probable that
future taxable profits will be available against which the deferred
taxation assets can be utilised.
Unrecognised deferred taxation assets
As at 31 December 2016, the Group had deductible temporary
dierences relating to intangible assets of £7.7m (2015: £6.7m),
trading losses of £72.0m (2015: £58.0m) and capital losses of £66.7m
(2015: £43.4m) for which no deferred taxation asset was recognised
due to uncertainty of utilisation of those temporary dierences.
Movement in net deferred taxation (liabilities)/assets
At beginning
of year
£m
Recognised
in Income
Statement
£m
Recognised
in Other
Comprehensive
Income
£m
Acquisitions
through
business
combinations
£m
Disposal of
subsidiary
undertakings
£m
Foreign
exchange
£m
At end
of year
£m
2016
Accelerated capital allowances (94.4) 13.2 – (0.1) (0.6) (17.7 ) (99.6)
Post-employment benefit (liability)/asset (64.5) (10.2) 7.7 – – (0.1) (67.1)
Revaluation of properties to fair value (32.7) 7.7 (10.3) – – (4.4) (39.7)
Employee benefits (other than post-employment) 23.8 2.9 – – (0.3) 4.1 30.5
Provisions 23.0 (0.6) – – – 2.0 24.4
Taxation value of losses carried forward 38.1 1.5 – – – 3.6 43.2
Goodwill and intangible assets (105.4) 12.1 – – – (15.9) (109.2)
Other (9.5) 1.6 (0.2) 0.9 0.1 2.2 (4.9)
Total (221.6) 28.2 (2.8) 0.8 (0.8) (26.2) (222.4)
2015
Accelerated capital allowances (109.0) 8.0 – (0.8) – 7.4 (94.4)
Post-employment benefit (liability)/asset (56.4) (11.6) 3.4 – – 0.1 (64.5)
Revaluation of properties to fair value (58.9) 9.1 16.0 – – 1.1 (32.7)
Employee benefits (other than post-employment) 25.9 (0.8) – – – (1.3) 23.8
Provisions 18.0 5.0 – – – – 23.0
Taxation value of losses carried forward 35.8 3.3 – – – (1.0) 38.1
Goodwill and intangible assets (122.2) 13.1 – – – 3.7 (105.4)
Other 15.7 (22.4) (0.4) 0.1 – (2.5) (9.5)
Total (251.1) 3.7 19.0 (0.7) – 7.5 (221.6)
Notes to the Financial Statements continued
for the year ended 31 December 2016
96 B upa Annual Report 2016
(a) Acquisitions
Business combinations are accounted for using the acquisition method.
Identifiable assets and liabilities acquired and contingent liabilities
assumed in a business combination are measured initially at their fair
values at the acquisition date, irrespective of the extent of any non-
controlling interest.
The identification and valuation of intangible assets arising on business
combinations is subject to a degree of judgement. We engage
independent third parties, including Deloitte, EY and Knight Frank,
to assist with the identification and valuation process. This is performed
in accordance with the Group’s policies.
The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable assets acquired is recorded as goodwill.
Acquisition accounting must be completed within 12 months of the
transaction date.
Costs related to the acquisition are expensed as incurred.
A number of acquisitions were made during the year ended
31December 2016, the most significant being Care Plus:
Date of acquisition
Percentage
of holdings
Australia and New Zealand
Dental Centres – various Various
UK
UK Care No.1 Limited
1
18 February 2016 100.0%
The Links and The Lindsay care homes 5 October 2016 100.0%
Dental Centres - various Various
Europe and Latin America
Bupa Chile
2
8 January and 26 February 2016 26.3%
Dental Centres – various Various
Torrejón
3
22 April 2016 10.0%
Elegimosalud S.L. 21 December 2016 100.0%
Sport Medica S.A.
4
29 February 2016 17.6%
Euro Dental 29 February 2016
International Markets
Care Plus 22 December 2016 100.0%
1 UK Care No.1 Limited was previously fully consolidated as 100% non-controlling interest
2 Increased shareholding of 73.7% to full ownership in two stages; 26% on 8 January 2016
and the remaining 0.3% on 26 February 2016
3 Increased shareholding from 50% to 60%
4 Increased shareholding of 82% to 99.63%
4.0
Business combinations
and disposals
Business combinations and disposals in brief
A business combination refers to the acquisition of a controlling
interest in a business, which is further defined as an integrated set
of activities and assets that is capable of being conducted and
managed for the purpose of providing economic benefits to the
owners. A disposal refers to the sale of a subsidiary.
Note
97Bupa Annual Report 2016
Strategic report Governance Financial statements
2016 Business combinations
Care Plus (provisional) Other
Carrying
value at
acquisition
£m
Fair value
adjustments
£m
Fair value
£m
Carrying
value at
acquisition
£m
Fair value
adjustments
£m
Fair value
£m
Intangible assets 0.3 – 0.3 0.1 (2.8) (2.7)
Property, plant and equipment 2.5 – 2.5 23.2 (2.9) 20.3
Inventories – – – 0.1 – 0.1
Financial investments 41.0 – 41.0 – – –
Trade and other receivables 3.0 – 3.0 (2.2) – (2.2)
Assets arising from insurance business 1.3 (0.8) 0.5 – – –
Restricted assets 0.3 – 0.3 – – –
Cash and cash equivalents 1.0 – 1.0 1.8 – 1.8
Deferred tax liabilities – 0.8 0.8 (0.5) 0.5 –
Trade and other payables (12.3) (2.6) (14.9) (15.2) 2.4 (12.8)
Insurance liabilities (17.3) – ( 17.3) – –
Provisions for liabilities and charges (0.6) – (0.6) (0.2) – (0.2)
19.2 (2.6) 16.6 7.1 (2.8) 4.3
Net assets acquired 16.6 4.3
Goodwill 74.4 44.4
Acquisition of non-controlling interests in subsidiary company – 2.0
Consideration 91.0 50.7
Consideration satisfied by:
Cash 91.0 41.3
Deferred consideration – 9.4
Total consideration paid 91.0 50.7
Purchase consideration settled in cash 91.0 41.3
Additional 26.3% acquisition of Bupa Chile – 93.1
Cash acquired on acquisition (1.0) (1.8)
Net cash outflow on acquisition 90.0 132.6
Note that fair value adjustments relating to current year acquisitions are provisional and will be finalised during 2017.
2016 acquisitions
On 22 December 2016, the Group acquired 100% of Care Plus, a
premium health insurer in Brazil, for £91.0m (BRL 431.0m). The business
provides dental insurance as well as health insurance and has small
occupational health, travel insurance and clinics businesses.
Care Plus serves more than 400 Brazilian companies with around
100,000 members, providing a range of health insurance products.
Bupa’s international insurance business specialises in products and
services for customers looking for international coverage with
access to the healthcare they need anytime, anywhere in the world.
The acquisition will therefore enable customers in Brazil to access an
expanded range of products with access to healthcare professionals
and providers in Brazil and around the world. This development sees
Bupa extend its operations in Latin America in line with its strategy of
selective geographic expansion.
The acquisition balance sheet for Care Plus is provisional, subject to a
purchase price allocation exercise, which will be finalised during 2017.
If the transaction had occurred on 1 January 2016, Care Plus would have
contributed £149.9m (BRL 709.9m) revenue and £6.8m (BRL 32.2m)
profit before taxation for the year ended 31 December 2016.
The Group acquired 100% ownership of Bupa Chile in 2016 for £93.1m
(CLP 95.1bn). The transaction occurred in two stages; on 8 January
2016 the Group secured a further 26% interest in Bupa Chile taking
its shareholding to 99.7%, with the remaining 0.3% shareholding
acquired on 26 February 2016. As a result of the transaction, the
Group recognised a decrease in non-controlling interest of £38.6m
and an equivalent increase in the income and expenditure reserve.
Notes to the Financial Statements continued
for the year ended 31 December 2016
98 Bupa Annual Report 2016
There has been continued expansion of the dental business across the
Group. In Australia, ten centres have been acquired in 2016 for a total
consideration of £12.7m (AU$23.2m) of which £1.6m is deferred, giving
rise to £12.2m of goodwill. Additional UK dental centres were acquired
in the period, for a total consideration of £19.0m, of which £4.9m is
deferred, resulting in goodwill of £16.7m. In Spain, the Group has
acquired six further dental centres for a consideration of £5.1m (€6.3m)
for which goodwill of £4.4m has been recognised. Finally, in Poland, the
Group acquired Euro Dental, a dental centre for a total consideration of
£1.2m (PLN 6.3m), for which £1.2m of goodwill has been recognised.
There has also been expansion of our aged care business, including
the acquisition of The Links and The Lindsay care homes in the UK
for a total consideration of £7.4m, resulting in £3.4m goodwill and the
acquisition of La Seu care home in Valencia for a total consideration
of £4.4m (€5.4m) for which goodwill of £3.9m has been recognised.
During the year, there have also been several changes in ownership
interests. On 18 February 2016, the Group acquired the shareholding
of UK Care No.1 Limited for £0.9m, recognising a reduction in non-
controlling interest during the year of £13.1m and an equivalent increase
in the income and expenditure reserve. On 29 February 2016 the Group
also acquired 17.63% interest in Sport Medica for £1.1m (PLN 6.0m),
which has been recorded within the income and expenditure reserve,
taking our ownership to 99.63% and on 22 April 2016, the Group
acquired an additional 10% interest in Torrejón, taking our ownership
to 60%.
On 21 December 2016, a web-based start-up company specialising in
sports medical services, Healthia.es was acquired in Spain for £0.3m
(€0.4m), for which goodwill of £0.4m has been recognised. Acquisition
accounting was also completed for the 2015 LUX MED acquisitions,
giving rise to an additional £2.2m goodwill.
Acquisition transaction costs expensed in the year ended 31 December
2016, within other operating expenses, total £4.2m (£1.2m Care Plus,
£3.0m Other).
2015 acquisitions
Fair value
£m
Purchase consideration settled in cash 97.4
Additional 17.3% acquisition of Bupa Chile 59.2
Cash acquired on acquisition (0.3)
Net cash outflow on acquisition 156.3
On 5 December 2015, the Group exercised its option to acquire an
additional 17.3% of the shares of Bupa Chile, for a total consideration
of £59.2m (CLP 62.8bn), bringing the total ownership to 73.7% at
31 December 2015.
The exercise of the option triggered a mandatory oer to market for
the remaining 26.3% shareholding, as required by local legislation in
Chile. As a result, a liability of £91.1m (CLP 95.1bn) was recognised
in other payables with the corresponding entry in the income and
expenditure reserve recorded at 31 December 2015.
During 2015 the Group continued to expand its dental businesses
in Australia, Spain and the UK. In Australia, a total of 18 clinics were
acquired in 2015 for a total consideration of £21.9m, of which £4.0m
was deferred, giving rise to £21.7m of goodwill. In addition, Bupa
acquired five UK dental centres in the year, for a total consideration
of £5.3m, net of cash acquired, resulting in goodwill of £6.0m. The
goodwill represents the premium paid to acquire established dental
practices including the value of dentists (assembled workforce) and
other intangibles that do not meet the recognition criteria of IAS 38.
In Spain, the Group acquired further dental clinics for a consideration
of £1.7m for which goodwill of £1.7m was realised.
Further investment of £37.1m was made in Poland during 2015 with
the acquisition of Medicor, a health clinics, diagnostics and pharmacy
business; TK Medyk, a diagnostic imaging company; Magodent,
an oncology provider and associated properties. In total, goodwill
amounting to £21.9m was recognised for these acquisitions. The
goodwill recognised primarily represents a premium paid to acquire a
leading oncology provider in Poland to enable delivery of coordinated
oncology care as well as further expansion of our geographical reach
across Poland.
On 2 December 2015, Bupa acquired 100% of Hadrian Healthcare
Limited, a care services business comprising five homes and two
development sites in the north of England for £34.7m, exclusive of
acquisition costs, with net assets (debt free) of £27.5m and resulting
in goodwill of £7.2m. The goodwill represents a portfolio premium
for acquiring a care home business.
(b) Disposals
At the date when the Group ceases to have control in an entity it
results in recognition of a gain or loss on sale of the interest and on
the revaluation of any retained non-controlling interest.
Any amounts relating to the entity that have previously been
recognised in the Statement of Comprehensive Income are reclassified
to the Income Statement. The net gain made on the sale of businesses
is included within other income and charges in the Consolidated
Income Statement.
2016 Disposals and liquidation
Cash proceeds of £27.7m were received on the sale of Bupa Home
Healthcare which completed on 1 July 2016, with a net gain on disposal
of £12.3m taking into account £8.8m net assets divested and £6.6m
transaction costs.
On 23 March 2016, Bupa Middle East Holdings W.L.L., a holding
company in Bahrain which was part of International Markets was
liquidated. A net loss of £1.6m was recognised and is included within
other income and charges in the Consolidated Income Statement.
2015 Disposals and liquidation
During 2015, £25.5m deferred consideration was received in relation
to the disposal of Bupa Ireland Limited in 2007 and is included within
other income and charges in the Consolidated Income Statement.
On 8 July 2015, Bupa Health Care Asia Pte Ltd, a holding company in
Singapore, which was part of the International Developments Markets
Market Unit (now International Markets) was liquidated. A net gain of
£0.3m was recognised and is included within other income and charges
in the Consolidated Income Statement.
99Bupa Annual Report 2016
Strategic report Governance Financial statements
Classification as held for sale
Assets held for sale are measured at the lower of their carrying amount
and fair value less costs to sell. Impairment losses on initial classification
as held for sale and subsequent gains or losses on remeasurement are
recognised in profit or loss.
On classification as held for sale, intangible assets and property, plant
and equipment are no longer amortised or depreciated.
Assets and liabilities classified as held for sale
2016
£m
2015
£m
Assets held for sale
Property, plant and equipment 479.0 –
Trade and other receivables 26.3
Total assets classified held for sale 505.3 –
Liabilities associated with assets held for sale
Trade and other payables (45.5)
Total liabilities classified as held for sale (45.5) –
Net assets classified as held for sale 459.8 –
An oce building in the UK is presented as held for sale at 31 December
2016 following the decision to sell the property.
As a result of a review of the UK care services business, a number of
homes are also held for sale at 31 December 2016, comprising the
assets and liabilities of Bupa Care Homes Limited (one of the Group
companies in which some UK care homes are held) and certain assets
and liabilities of other Group companies.
On classification as held for sale a write down of £11.2m has been
recognised in other income and charges in the Income Statement
with regards to expected costs to sell.
4.1
Assets and liabilities held for sale
Assets and liabilities held for sale in brief
Non-current assets, or disposal groups comprising assets and
liabilities are classified as held for sale if it is highly probable that they
will be recovered primarily through sale rather than continuing use
and a sale is considered to be highly probable.
Note
Associated companies and joint ventures are accounted for using the
equity method and are initially recognised at cost. The cost of the
investment includes transaction costs.
Associated companies include those entities in which the Group has
significant influence, but no right to direct the activities which
determine the variable returns it receives from the entity. Joint ventures
include those entities over the activities of which the Group has joint
control, established by contractual agreement and requiring unanimous
consent for strategic financial and operating decisions. The Group also
has the rights to the net assets.
When the Group’s share of losses exceeds its interest in an equity
accounted investment, the carrying amount of that interest (including
any long-term interests that, in substance, form part of the Group’s
net investment), is reduced to nil. In addition, the recognition of
further losses is discontinued except to the extent that the Group
has an obligation to make payments on behalf of the equity
accounted investment.
Associates and joint ventures
During 2016, no capital injections were made in our investment in
Bupa Arabia (2015: £3.9m).
4.2
Equity accounted investments
Equity accounted investments in brief
Equity accounted investments comprises associated companies and
joint ventures.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
100 Bupa Annual Report 2016
During 2016, capital injections of £23.8m (2015: £2.2m) were made in
Max Bupa Health Insurance Company Limited, £21.9m of which was to
increase the Group’s shareholding from 26% to 49%. This investment
has been reclassified from a joint venture to an associate as the Group
exercises significant influence. Max Bupa continues to be accounted for
using the equity method.
Distributions to shareholders are currently restricted by local regulatory
requirements which are re-assessed on a regular basis.
The consolidated financial statements include the Group’s share of
income and expenses, and Other Comprehensive Income, after
adjustments to align the accounting policies with those of the Group
where materially dierent, from the date that significant influence
or control commences until the date that significant influence or
control ceases.
The carrying amount of equity accounted investments is £302.9m
(2015: £238.0m). All equity investments are included on a
coterminous basis.
The Group’s principal equity accounted investments are:
Business
activity
Share of
issued capital
Principally
operates in
Country of
incorporation
Bupa Arabia for Cooperative Insurance Company Associate Insurance 26.25% Saudi Arabia Saudi Arabia
Highway to Health, Inc Associate Insurance 49.00% USA USA
Max Bupa Health Insurance Company Limited Associate Insurance 49.00% India India
(i) Summarised financial information for associates and joint
ventures
The tables below provide summarised financial information for
those associates and joint ventures that are material to the Group.
The information disclosed reflects the amounts presented in the
financial statements of the relevant associates and joint ventures, and
not the Group’s share of those amounts. They have been amended to
reflect adjustments made by the Group when using the equity method,
including fair value adjustments and modifications for dierences in
accounting policy.
Bupa Arabia Highway to Health Max Bupa
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
Cash and cash equivalents 48.8 144.5 85.5 51.2 3.5 2.5
Other current assets 1,038.0 888.6 57. 2 47.4 2.8 2.9
Current assets 1,086.8 1,033.1 142.7 98.6 6.3 5.4
Non-current assets 460.3 79.6 7.8 6.1 75.5 55.6
Current liabilities (1,109.2) (783.5) (87.6) (63.2) (21.3) (16.3)
Non-current liabilities – (27. 8) (0.2) (0.2) (31.2) (23.6)
Net assets 437.9 301.4 62.7 41.3 29.3 21.1
Reconciliation to carrying amounts
Opening net assets 301.4 179.9 41.3 31.5 21.1 16.8
Profit/(loss) for the period 124.1 112.5 10.1 5.8 (4.9) (7.3)
Other comprehensive expenses (21.1) (4.6) – – – –
Dividends paid (31.5) – – – – –
Other reserve movements 65.0 13.6 11.3 4.0 13.1 11.6
Closing net assets 437.9 301.4 62.7 41.3 29.3 21.1
% ownership 26.25% 26.25% 49.00% 49.00% 49.00% 26.00%
Reporting entity’s share 114.9 79.1 30.7 20.2 14.3 5.5
Fair value and local accounting dierences (20.2) (8.5) 133.1 138.4 18.4 0.4
Carrying amount 94.7 70.6 163.8 158.6 32.7 5.9
Reporting entity’s share of profit/(loss) 26.3 23.7 5.1 2.6 (0.1) (1.9)
(ii) Individually immaterial associates and joint ventures
In addition to the interests in associates disclosed above, the Group
also has interests in a number of individually immaterial associates that
are accounted for using the equity method. The aggregate carrying
amount of these associates is £11.7m (2015: £2.9m). The reporting
entity’s share of loss recognised during the year for these associates
was £1.0m (2015: £2.0m).
101Bupa Annual Report 2016
Strategic report Governance Financial statements
All financial investments are initially recognised at fair value, which
includes transaction costs for financial investments not classified at
fair value through the 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.
The Group has classified its financial investments into the following
categories: available-for-sale (AFS), at fair value through profit or loss,
held to maturity, and loans and receivables. Management determines
the classification at initial recognition.
The accounting policy for the impairment of financial investments is
detailed in Note 3.0.1.
The analysis of derivatives is disclosed in Note 5.2.
Financial investments
Financial investments are analysed as follows:
Carrying
value
2016
£m
Fair Value
2016
£m
Carrying
value
2015
£m
Fair Value
2015
£m
Non-Current
Available-for-sale
Corporate debt securities 192.2 192.2 – –
Government debt securities 17. 2 17.2 – –
Designated at fair value through profit or loss
Government debt securities 62.6 62.6 49.8 49.8
Corporate debt securities and secured loans 207.0 207.0 242.2 242.2
Pooled investment funds 212.9 212.9 110.9 110.9
Deposits with credit institutions – – 0.1 0.1
Held to maturity
Corporate debt securities and secured loans 128.9 135.7 98.7 99.2
Government debt securities 43.4 43.8 0.6 0.6
Loans and receivables
Deposits with credit institutions 197.1 201.6 241.0 246.0
Corporate debt securities and secured loans – – 88.2 130.0
Other loans 0.6 0.6 0.4 0.4
Total non-current financial investments 1,061.9 1,073.6 831.9 879.2
Current
Designated at fair value through profit or loss
Government debt securities 26.2 26.2 19.3 19.3
Corporate debt securities and secured loans 10.1 10.1 3.1 3.1
Pooled investment funds 39.8 39.8 35.0 35.0
Deposits with credit institutions 4.9 4.9 1.0 1.0
Held to maturity
Corporate debt securities and secured loans 158.2 158.4 103.0 103.2
Government debt securities 0.7 0.7 – –
Loans and receivables
Deposits with credit institutions 870.8 872.4 1,195.0 1,196.0
Total current financial investments 1,110.7 1,112.5 1,356.4 1, 357.6
Total financial investments 2,172.6 2,186.1 2,188.3 2,236.8
5.0
Financial investments
Financial investments in brief
The Group generates cash from its underwriting, trading and
financing activities and invests the surplus cash in financial
investments. These include government bonds, corporate bonds,
pooled investments funds and deposits with credit institutions.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
102 Bupa Annual Report 2016
Classification Criteria and treatment
Available-for-sale Available-for-sale assets are non-derivative financial assets designated on initial recognition as available for sale or any other
instruments that are not classified in the below categories. Available-for-sale assets are measured at fair value in the balance sheet.
Fair value changes on available-for-sale assets are recognised directly in equity, through the Statement of Changes in Equity,
except for interest and foreign exchange gains or losses which go through the Income Statement. The cumulative gain or loss
that was recognised in equity is recognised in the Income Statement when an available-for-sale financial asset is derecognised.
Fair value through profit or loss Financial investments designated at fair value through profit or loss consist of investments or instruments where management
make decisions based upon their fair value. The investments are carried at fair value, with gains and losses arising from changes
in this value recognised in the Income Statement in the period in which they arise.
Held to maturity Held to maturity investments are non-derivative financial assets which are quoted on an active market, with fixed or determinable
payments and fixed maturity that an entity has the positive intention and ability to hold to maturity. This is assessed at each
reporting date. Held to maturity investments are measured at amortised cost using the eective interest method, less any
impairment losses.
Any discount or premium on purchase is amortised over the life of the investment through the Income Statement.
Loans and receivables Loans and receivables are carried at amortised cost calculated using the eective interest method, less impairment losses.
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).
Fair values disclosed in the table have been calculated as follows:
– debt securities, pooled investment funds, deposits with credit
institutions, other loans – quoted price if available or discounted
expected future principal and interest cash flows; and
– listed securities – quoted price.
The fair values of quoted investments in active markets are based on
current bid prices. The fair values of unlisted securities and quoted
investments for which there is no active market, are established by
using valuation techniques 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 dierent
valuation inputs categorised into a three level hierarchy. The dierent
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); and
– Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
103Bupa Annual Report 2016
Strategic report Governance Financial statements
An analysis of financial investments by valuation method is as follows:
Non-current Current
Level 1
£m
Level 2
£m
Total
Non-current
£m
Level 1
£m
Level 2
£m
Total
Current
£m
2016
Available-for-sale
Corporate debt securities 192.2 – 192.2 – – –
Government debt securities 17.2 – 17. 2 – – –
Designated at fair value through profit or loss
Government debt securities 37. 6 25.0 62.6 26.2 – 26.2
Corporate debt securities and secured loans 30.6 176.4 207.0 10.1 – 10.1
Pooled investment funds 124.0 88.9 212.9 39.8 – 39.8
Deposits with credit institutions – – – 4.9 – 4.9
Held to maturity
Corporate debt securities and secured loans 135.7 – 135.7 158.4 – 158.4
Government debt securities 43.3 0.5 43.8 0.7 – 0.7
Loans and receivables
Deposits with credit institutions – 201.6 201.6 – 872.4 872.4
Corporate debt securities and secured loans – – – – – –
Other loans – 0.6 0.6 – – –
Total 580.6 493.0 1,073.6 240.1 872.4 1,112.5
2015
Designated at fair value through profit or loss
Government debt securities 22.7 27.1 49.8 19.3 – 19.3
Corporate debt securities and secured loans 42.6 199.6 242.2 3.1 – 3.1
Pooled investment funds 35.2 75.7 110.9 35.0 – 35.0
Deposits with credit institutions 0.1 – 0.1 – – –
Other loans – – – 1.0 – 1.0
Held to maturity
Corporate debt securities and secured loans 68.8 30.4 99.2 94.4 8.8 103.2
Government debt securities 0.5 0.1 0.6 – – –
Loans and receivables
Deposits with credit institutions – 246.0 246.0 – 1,196.0 1,196.0
Corporate debt securities and secured loans – 130.0 130.0 – – –
Other loans – 0.4 0.4 – – –
Total 169.9 709.3 879.2 152.8 1,204.8 1, 357.6
Currently the Group does not hold any level three financial investments.
There have been no significant transfers between the valuation methods.
The Group uses a market interest curve as at the balance sheet date to discount financial instruments, borrowings and derivatives, where the
fair value cannot otherwise be found from quoted market values. The range of interest rates used is as follows:
2016
%
2015
%
Sterling assets and liabilities 0.6-0.9 1.1-2.0
Australian dollar assets and liabilities 1.7-2.8 2.1-2.0
Euro assets and liabilities (0.8)-(0.5) (0.4)-(0.2)
US dollar assets and liabilities 0.9-3.2 0.6-2.3
Notes to the Financial Statements continued
for the year ended 31 December 2016
104 Bupa Annual Report 2016
Subordinated liabilities
Subordinated liabilities are stated at amortised cost using the eective
interest method. The carrying value is adjusted for the gain or loss
on hedged risk; changes in the fair value of derivatives that mitigate
interest rate risk resulting from the fixed interest rate of the bonds are
recognised in the Income Statement as an eective fair value hedge
of this exposure.
The interest expense on the bonds is recognised as a financial expense.
The Group holds callable subordinated perpetual guaranteed bonds
with a corresponding fair value hedge. The amortised cost of these
borrowings is adjusted for the fair value of the risk being hedged.
Other interest bearing liabilities
Other interest bearing liabilities consist of senior unsecured bonds,
secured loans, bank and other loans and finance lease liabilities.
These borrowings are recognised initially as proceeds receivable
less attributable transaction costs, net of any discount on issue.
Subsequent to initial recognition, they are stated at amortised cost,
with any dierence between cost and redemption value being
recognised in the Income Statement over the period of the borrowings
on an eective interest basis.
Note
2016 2015
Non-current
£m
Current
£m
Total
£m
Non-current
£m
Current
£m
Total
£m
Subordinated liabilities
Callable subordinated perpetual guaranteed bonds 330.0 5.9 335.9 330.0 5.9 335.9
Fair value adjustment in respect of hedged interest rate risk 50.9 – 50.9 51.3 – 51.3
Callable subordinated perpetual guaranteed bonds at fair value (a) 380.9 5.9 386.8 381.3 5.9 387. 2
Other subordinated debt (b) 921.1 8.8 929.9 528.2 4.0 532.2
Total subordinated liabilities 1,302.0 14.7 1,316.7 909.5 9.9 919.4
Other interest bearing liabilities
Senior unsecured bonds (c) 399.3 1.1 400.4 387.1 366.8 753.9
Secured loans (d) – – – 233.5 4.3 237.8
Bank loans (e) 117.1 75.6 192.7 97.0 50.2 147.2
Finance lease liabilities (f) 6.4 5.4 11.8 9.2 6.6 15.8
Total interest bearing liabilities 522.8 82.1 604.9 726.8 427.9 1,154.7
Total borrowings 1,824.8 96.8 1,921.6 1,636.3 437.8 2,074.1
(a) Callable subordinated perpetual guaranteed bonds
In December 2004, Bupa Finance plc issued £330.0m of callable
subordinated perpetual guaranteed bonds, which are guaranteed by
Bupa Insurance Limited. Interest is payable on the bonds at 6.125%
per annum. The bonds have no fixed maturity date but a call option is
exercisable by Bupa Finance plc to redeem the bonds on 16 September
2020. In the event of the winding up of Bupa Finance plc or Bupa
Insurance Limited the claims of the bondholders are subordinated to
the claims of other creditors of these companies.
The total hedged fair value of the callable subordinated perpetual
guaranteed bonds, net of accrued interest, is £386.8m (2015: £387.2m).
The valuation adjustment is the change in value arising from interest
rate risk which is matched by the fair value of swap contracts in place
to hedge this risk.
(b) Other subordinated debt
On 25 April 2013, Bupa Finance plc issued £500.0m of unguaranteed
subordinated bonds which mature on 25 April 2023. Interest is payable
on the bonds at 5.0% per annum. In the event of the winding up of
Bupa Finance plc the claims of the bondholders are subordinated to
the claims of other creditors of that company.
On 8 December 2016, Bupa Finance plc issued £400.0m of
unguaranteed subordinated bonds which mature on 8 December 2026.
Interest is payable on the bonds at 5.0% per annum. In the event of
winding up of Bupa Finance plc the claims of the bondholders are
subordinated to the claims of other creditors of that company.
Subordinated debt of £35.5m (€41.6m) issued by Torrejón Salud S.A.
matures on 31 December 2022. Interest accrues on the debt at
EURIBOR +6%. In the event of a winding up of Torrejón Salud S.A.,
the claims of the holder of the debt are subordinated to the claims
of the senior creditors of that company.
5.1
Borrowings
Borrowings in brief
The Group has various sources of funding including subordinated
bonds, senior unsecured bonds and loans.
Note
105Bupa Annual Report 2016
Strategic report Governance Financial statements
(c) Senior unsecured bonds
On 2 July 2009, Bupa Finance plc issued £350.0m of 7.5% senior
unsecured bonds. The bonds were repaid in July 2016.
On 17 June 2014, Bupa Finance plc issued £350.0m of senior unsecured
bonds, guaranteed by the Company, which mature on 17 June 2021.
Interest payable on the bonds is 3.375% per annum.
On 30 June 2012, Cruz Blanca Salud SA, now Bupa Chile issued UF
1.6m (Unidad de Fomento - an inflation linked currency commonly
used in Chile) (£38.0m) of inflation linked senior unsecured bonds
which mature on 30 June 2033.
(d) Secured loans
During the year the secured loans were repaid early (2015: £237.8m).
The secured loan balance related to secured loan notes issued by UK
Care No.1 Limited. These secured loans were redeemed on 1 April 2016.
A £175.0m Class A1 note was due to mature in 2029 and a £60.0m
Class A2 note was due to mature in 2031. The A1 and A2 loan notes
had fixed interests of 6.3% and 7.5% respectively. The loan notes were
secured by fixed and floating charges over the assets and undertakings
of UK Care No.1 Limited. The security included UK Care No.1 Limited’s
overriding lease interest, and the rental income receivable thereunder,
held in a number of the Group’s care homes.
(e) Bank loans and bank overdraft
Bank loans are £192.7m (2015: £147.2m), this includes a tri syndicated
loan held in Especializada y Primaria L’Horta-Manises S.A.U. of £26.8m
(2015: £24.8m) and a portfolio of loans held in Bupa Chile totalling
£146.8m (2015: £113.0m).
Bupa maintains a £800.0m revolving credit facility which was
renegotiated in August 2015 and maturesin July 2021 as a result of
an optional year extension triggered during 2016. There is a second
option to extend by a further one year. The facility was undrawn at
31 December 2016 with the exception of £6.4m of outstanding letters
of credit for general business purposes.
Drawings under the £800.0m facility are guaranteed by the Company
and other Group subsidiary companies. The overdraft facilities are
subject to cross guarantees within the Group. The bank loans and
overdrafts bear interest at commercial rates linked to LIBOR, or
EURIBOR, or at a commercial fixed rate.
An additional committed bank facility of £250.0m was agreed in June
2016. This facility was cancelled following the issuance of the £400.0m
unguaranteed subordinated bond issued on 8 December 2016.
In January 2017, Bupa Finance plc signed a £650.0m committed facility
with one of its lending banks to ensure sucient funding would be
made available to complete the acquisition of Oasis Dental Care in 2017.
(f) Obligations under finance leases
Future minimum payments under finance leases are as follows:
Future
minimum
lease
payments
2016
£m
Present value
of minimum
lease
payments
2016
£m
Future
minimum
lease
payments
2015
£m
Present value
of minimum
lease
payments
2015
£m
Payable within one year 5.9 5.4 7.3 6.6
Payable after one year but
within five years 6.0 5.4 9.2 8.4
Payable after five years 1.3 1.0 1.2 0.8
Total gross payments 13.2 17.7
Less: finance charges
included above (1.4) (1.9)
Total payments net of
finance charges 11.8 11.8 15.8 15.8
Fair value of financial liabilities
The fair value of a financial liability is defined as the amount for which
a financial liability could be exchanged in an arm’s-length transaction
between informed and willing parties. Fair values disclosed in the table
below have been calculated as follows:
– Subordinated liabilities – quoted price if available or discounted
expected future principal and interest cash flows;
– Senior unsecured bonds – quoted price; and
– Secured loans – quoted price.
The fair values of quoted liabilities in active markets are based on
current bid prices. The fair values of financial liabilities for which
there is no active market, are established using valuation techniques
corroborated by independent third parties. These may include
reference to the current fair value of other instruments that are
substantially the same and discounted cash flow analysis.
Financial liabilities are categorised into a three level hierarchy, a
description of the dierent levels is detailed in Note 5.0 along with
the market interest rates used to discount financial liabilities, where
the fair value cannot otherwise be found from quoted market values.
An analysis of borrowings by valuation method is as follows:
2016 2015
Level 1
£m
Level 2
£m
Total
£m
Level 1
£m
Level 2
£m
Total
£m
Subordinated liabilities 1,312.9 46.1 1,359.0 870.6 32.3 902.9
Senior unsecured bonds 377.2 59.3 436.5 719.4 38.7 758.1
Secured loan – – – 314.8 - 314.8
Bank loans – 192.7 192.7 - 147. 2 147.2
Finance lease liabilities – 11.8 11.8 – 15.8 15.8
Total 1,690.1 309.9 2,000.0 1,904.8 234.0 2,138.8
Currently the Group does not hold any level three financial liabilities.
Notes to the Financial Statements continued
for the year ended 31 December 2016
106 Bupa Annual Report 2016
Derivatives that have been purchased or issued as part of a hedge that
subsequently do not qualify for hedge accounting are accounted for at
fair value through profit or loss.
Derivative financial instruments are initially recognised and
subsequently measured at fair value.
Fair values are obtained from market observable pricing information
including interest rate yield curves. The value of foreign exchange
forward contracts is established using listed market prices.
Fair values have been calculated for each type of derivative as follows:
– The fair value of currency forward contracts, swaps and options is
determined using forward exchange rates derived from market
sourced data at the balance sheet date, with the resulting value
discounted back to present value;
– The fair value of interest rate swaps is determined as the present
value of the estimated future cash flows based on observable
yield curves.
All derivatives are disclosed as level two in the three level hierarchy.
2016
£m
2015
£m
Derivative assets
Non-current* 50.9 51.3
Current 9.4 6.0
Total derivative assets 60.3 57. 3
Derivative liabilities
Non-current (10.4) (10.3)
Current (11.6) (22.1)
Total derivative liabilities (22.0) (32.4)
* See fair value hedges in Note 5.4.2.2.
5.2
Derivatives
Derivatives in brief
A derivative is a financial instrument whose value is based on one
or more underlying assets. The Group uses derivative financial
instruments to hedge its exposure to foreign exchange and
interest rate risk. Derivatives are not held for speculative reasons.
Note
107Bupa Annual Report 2016
Strategic report Governance Financial statements
There have been no changes to the Group’s capital management
objectives during the year.
The Group’s capital resources are managed in line with the Group
Capital Management Policy. All regulated entities within the Group
maintain sucient capital resources to meet any minimum capital
requirement required by the local Regulators. In addition the Group and
regulated entities maintain a buer in excess of the regulatory minimum
requirements in line with their capital risk appetites. During the year, the
Group and its subsidiaries complied with all externally imposed capital
requirements to which they were subject.
The Group’s capital position is kept under constant review and is
reported monthly to the Board.
The Group has target ranges for solvency, leverage and interest cover
ratios with a view to maintaining an A-/A3 long-term senior credit rating
for Bupa Finance plc. The Bupa Group as a whole is not rated by any
rating agency. Individual debt issues and certain subsidiaries within the
Group have public ratings.
The Group’s capital comprises equity, exclusive of any non-controlling
interests, together with eligible subordinated debt. The Group has
£330.0m of callable subordinated perpetual guaranteed bonds, a
£500.0m dated hybrid bond which matures on 25 April 2023 and
a £400.0m dated hybrid bond which matures 8 December 2026.
These bond issues are accounted for as liabilities in the IFRS based
financial statements, but are treated as solvency capital for regulatory
and management purposes.
Since 1 January 2016, the Group has been subject to the requirements
of the Solvency II Directive and must hold sucient capital to cover
its Group Solvency Capital Requirement (SCR) which takes account
of all the risks in the Group, including those related to non-insurance
businesses. The Group SCR is calculated in accordance with the
Standard Formula specified in the Solvency II legislation. Bupa has
obtained approval from the Prudential Regulation Authority (PRA)
to substitute the insurance premium risk parameter in the Standard
Formula with an Undertaking Specific Parameter (USP) which reflects
Bupa’s own loss experience.
At least annually, the Group carries out an Economic Capital
Assessment (ECA) in which it makes its own quantification of how
much capital is required to support its risks. The ECA is used to
assess how well the Standard Formula SCR reflects the Group’s
actual risk profile.
The ECA forms part of the Own Risk and Solvency Assessment (ORSA)
which comprises all the activities by which the Group establishes the
level of capital required to meet its solvency needs over the planning
period given the Group’s strategy and risk appetite. The conclusions
from these activities are summarised in the ORSA Report which is
reviewed by the Risk Committee, approved by the Board and
submitted to the PRA annually.
At 31 December 2016, Bupa’s eligible Own Funds, determined in
accordance with the Solvency II valuation rules, were £4.2bn
1
(2015:
£3.1bn), which was in excess of the Group estimated SCR of £2.1bn
1
(2015: £1.8bn). This represented a solvency coverage ratio of 204%
1
(2015: 178%
2
). The Solvency II rules superseded those of the IGD.
1 The Solvency II Capital Position (Own Funds and Solvency Capital Requirement) and
related disclosures are estimated values and unaudited.
2 The Solvency Coverage Ratio was updated to 178% from the 180% estimate disclosed in
the 2015 Annual Report and Accounts.
5.3
Capital management
Capital management in brief
Bupa is a company limited by guarantee, has no shareholders and
is funded through retained earnings and borrowings. The Group’s
capital management objective is to maintain sucient capital to
protect the interests of its customers, investors, regulators and
trading partners while deploying capital eciently and managing
risk to enable Bupa to continue to deliver its purpose in a sustainable
manner. All profits are therefore reinvested to develop the Group’s
business for the benefit of current and future customers.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
108 Bupa Annual Report 2016
Bupa operates a ‘Three Lines of Defence’ model.
1. Business management is responsible for the identification and
assessment of risks and controls.
2. Risk functions provide support and challenge the completeness
and accuracy of risk assessments and the adequacy of
mitigation plans.
3. Internal audit provides independent and objective assurance
on the robustness of the risk management framework, and the
appropriateness and eectiveness of internal controls.
The current principal risks of the Group, its inherent risks and how
they are mitigated are described on pages 19-21.
The Group has adopted a risk management strategy that endeavours
to mitigate these risks, which is approved by the Board. In managing
these exposures, the Corporate Finance Executive Committee reviews
and monitors any significant investment and market risks.
The Group has exposure to a number of risks from its use of financial
instruments and risks associated with its insurance business. These
have been categorised into the following types of risk, and details of
the nature, extent, and how the Group has managed these risks is
described below:
(i) Insurance risk
(ii) Market risk
(iii) Credit risk
(iv) Liquidity risk
(i) Underwriting risk
Underwriting risk refers to the potential deviation from the actuarial
assumptions used for setting insurance premium rates which could lead
to premium inadequacy. Underwriting risk is therefore concerned with
both the setting of adequate premium rates (pricing risk) as well as the
management of claims (claims risk) for insurance policies underwritten
by the Group.
(ii) Pricing risk
Pricing risk relates to the setting of adequate premium rates taking into
consideration the volume and characteristics of the insurance policies
issued. External influences to pricing risk include (but are not limited to)
competitors’ pricing and product design initiatives, and regulatory
environments. The level of influence from these external factors can
vary significantly between regions and largely depend on the maturity
of health insurance markets and the role of the regulator. Thorough
actuarial analysis performed on a regular basis combined with an
understanding of local market dynamics and the ability to change
insurance premium rates when necessary can act as eective risk
mitigations.
In every general insurer in the Group, the dominant product or policy
category is of an annually renewable health insurance contract. This
permits insurance premium rate revisions to respond reasonably
quickly to changes in customer risk profiles, claims experience and
market considerations.
The ability to review benefit levels and premium rates is a significant
mitigant to pricing risk. The Group underwrites no material general
insurance business that commits it to cover risks at premiums
fixed beyond a twelve-month period from inception or renewal.
5.4
Risk management
Risk management in brief
The Bupa Risk Committee has responsibility to the Board for the
oversight of risk. It recommends to the Board a risk appetite that
reflects Bupa’s purpose and expresses the degree of risk Bupa
should accept in delivering on its strategy.
5.4.1
Insurance risk
Insurance risk in brief
Insurance risk only aects the general insurance businesses in the
Group. It consists of underwriting and pricing risks which relate to
inadequate taris of insurance products as well as reserving risk
which relates to the potential inadequacy of claims provisions.
Note
Note
109Bupa Annual Report 2016
Strategic report Governance Financial statements
(iii) Claims risk
Claims risk is the risk of failure in managing Bupa’s exposure to claims
inflation and fluctuations in claims leading to losses. This can be driven
by an adverse fluctuation in the amount and incidence of claims
incurred, higher than expected future claims on existing policies with
past exposures, and external factors such as medical inflation. Claims
reserving risk is part of claims risks and it is a risk of mis-estimation of
claims reserve.
Claims risk is managed and controlled by means of pre-authorisation
of claims, outpatient benefit limits, the use of consultant networks
and agreed networks of hospitals and charges. Specific claims
management processes vary across the Group depending on local
requirements, market environment and practice.
Future adverse claims experience, for example, which is caused by
external factors such as medical inflation, will aect cash flows after
the date of the financial statements. Recent adverse claims experience
is reflected in these financial statements in claims paid and in the
movement in the claims provisions.
Generally, the Group’s health insurance contracts contain terms and
conditions that provide for the reimbursement of incurred medical
expenses for treatment related to acute medical conditions. The
contracts do not provide for capital sums or indemnified amounts.
Therefore claims experience is underpinned by prevailing rates of
illness. Additionally, claims risk is generally mitigated by insurers running
control processes to ensure that both the treatments and the resulting
reimbursements are appropriate.
(iv) Reserving risk
Reserving risk is the risk that provisions made for claims prove to be
insucient in light of later events and claims experience. There is a
relatively low exposure to reserving risk compared to underwriting risk
due to the very short-term nature of our claims development patterns.
The short-term nature of the Group’s general insurance contracts
means that movements in claims development assumptions are
generally not significant. The development claims settlement patterns
are kept under constant review to maintain the validity of the
assumptions and hence, the validity of the estimation of recognised
general insurance liabilities.
The amount of claims provision at any given time that relates to
potential claims payments that have not been resolved within one
year is relatively small in the context of the Group. Also, of the small
provisions that do relate to longer than one year, it is possible to
predict with reasonable confidence the outstanding amounts.
(v) Other risks related to underwriting health insurance
business
Claims provisions are not discounted and their short-term nature
means that changes in interest rates have no impact on reserving risk.
In addition, the future premium income and claims outflows of health
insurance premium liabilities are largely unaected by changes in
interest rates. However, changes to inflationary factors such as wage
inflation and medical provider cost inflation aect the financial
soundness of health insurance businesses.
None of the Group’s general insurance contracts contain embedded
derivatives so the contracts do not give rise to interest rate risk.
The Group is exposed to foreign currency risk through some of the
insurance liabilities which are settled in a local currency. Where possible
these liabilities are matched to assets in the relevant currency to hedge
this exposure.
The majority of the Group’s general insurance activities are single line
health portfolios. Even though only one line of business is involved, the
Group does not have significant concentration of insurance risk for the
following reasons:
– broad geographical diversity across several markets – UK, Spain,
Australia, Latin America, the Middle East, Hong Kong and Thailand;
– product diversity between domestic and expatriate, and individual
and corporate health insurance; and
– a variety of claims type exposures across diverse medical
providers; consultants, nursing sta, clinics, individual hospitals
and hospital groups.
The Group as a whole, and its principal general insurance entities, are
well diversified. Only in selected circumstances does the Group use
reinsurance. The reinsurance used does not give rise to a material
counterparty default credit risk exposure to the Group.
(vi) Catastrophe risk
Either a natural disaster or a manmade disaster could potentially lead to
a large number of claims and thus higher than expected claims costs.
In the majority of jurisdictions Bupa is not liable. Such risks are further
reduced by excess of loss cover by Bupa and external providers.
Bupa’s Centre Risk Function oversee the risk management of this
risk exposure, and Bupa’s Centre Actuarial Function oversee and
implement strategic improvements to ensure overall adequacy of
these arrangements.
Notes to the Financial Statements continued
for the year ended 31 December 2016
110 B upa Annual Report 2016
In order to reduce the risk of assets being insucient to meet future
policyholder obligations, the Group actively manages assets using an
approach that balances duration, quality, diversification, liquidity and
investment return.
The Group manages market risk by ensuring that the majority of its
cash and investments are held with highly rated credit institutions.
Where the Group has moved away from straight money market
investments and invested in a limited portfolio of return seeking assets
(principally bonds), the Group uses a value at risk analysis (VaR) to
quantify risk, taking account of asset volatility and correlation between
asset classes. This portfolio is held in the UK and Australian insurance
companies and was £390.4m at 31 December 2016 (2015: £342.8m).
The one year VaR measured at a 95% confidence level attributable
to the portfolio is £31.0m at 31 December 2016 (2015: £20.8m).
5.4.2.1 Foreign exchange risk
The Group is exposed to foreign exchange risks arising from
commercial transactions and from recognising assets, liabilities and
investments in overseas operations. The Group is exposed to both
transaction and translation risk. The former is the risk that a company’s
cash flows and realised profits may be impacted by movements
in foreign exchange rates. The latter arises from translating the
financial statements of a foreign operation into the Group’s
presentational currency.
The results and financial position of the Group’s foreign entities that do
not have a functional currency of sterling are translated into sterling
as follows:
– assets and liabilities at the exchange rate at the balance sheet date;
and
– income and expenses at average rates for the period.
All foreign exchange dierences arising on translation are
recognised initially in the Statement of Comprehensive Income,
and only in the Income Statement in the period in which the entity
is eventually disposed.
The following significant exchange rates applied during the year:
Average rate Closing rate
2016 2015 2016 2015
Australian dollar 1.8234 2.0370 1.7106 2.0210
Chilean peso 916.9790 1,001.2247 826.5939 1,044.1436
Danish krone 9.1092 10.2797 8.7032 10.1194
Euro 1.2234 1.3782 1.1703 1.3560
Hong Kong dollar 10.5167 11.8520 9.5722 11.4186
New Zealand dollar 1.9473 2.1963 1.7786 2.1544
Polish zloty 5.3394 5.7671 5.1584 5.7834
Thai bhat 47.8002 52.3953 44.2258 53.0735
US dollar 1.3547 1.5288 1.2345 1.4734
In the consolidated financial statements, where a loan between Group
entities results in an exchange gain or loss, then it is recognised in the
Statement of Comprehensive Income to the extent that it relates to the
Group’s net investment in overseas operations.
Bupa has exposure to foreign exchange risk arising from its overseas
operations. Key exposures are to the Australian dollar, euro, Polish
zloty, New Zealand dollar, Hong Kong dollar, Chilean peso, US dollar,
Brazilian real, Singapore dollar and Thai baht. Currency exposures
as at 31 December are as follows:
Net currency
exposure
£m
Currency
contracts
£m
Net currency
exposure
including
hedges
£m
2016
Australian dollar 2,623.2 (248.9) 2,374. 3
Euro 771.4 (384.7) 386.7
New Zealand dollar 491.4 – 491.4
Polish zloty 439.8 – 439.8
Chilean peso 366.7 3.6 370.3
Hong Kong dollar 337.8 18.6 356.4
US dollar 248.1 (219.1) 29.0
Brazilian real 37.3 4.8 42.1
Singapore dollar 32.7 21.0 53.7
Thai baht 17.9 – 17.9
Other 19.1 (3.8) 15.3
Total foreign denominated net assets 5,385.4 (808.5) 4,576.9
Percentage of Group net assets 81.9% 69.6%
5.4.2
Market risk
Market risk in brief
Market risk is the risk of financial impacts due to changes in fair values
or future cash flows of financial instruments from fluctuations in
interest rates, foreign exchange rates, commodity prices, credit
spreads and equity prices. The focus of the Group’s long-term
financial strategy is to facilitate growth without undue balance sheet
risk.
Note
111Bupa Annual Report 2016
Strategic report Governance Financial statements
Net currency
exposure
£m
Currency
contracts
£m
Net currency
exposure
including
hedges
£m
2015
Australian dollar 2,158.1 (79.0) 2,079.1
Euro 681.8 (329.0) 352.8
Polish zloty 391.4 – 391.4
New Zealand dollar 366.8 – 366.8
Hong Kong dollar 284.7 – 284.7
Chilean peso 170.0 – 170.0
US dollar 183.8 (128.5) 55.3
Danish krone 7.0 7.5 14.5
Thai baht 16.0 – 16.0
Other 21.6 – 21.6
Total foreign denominated net assets 4,281.2 (529.0) 3,752.2
Percentage of Group net assets 78.9% 69.2%
Certain forward currency contracts are entered into to hedge net
monetary asset exposure and future cash flows of the Group, and
do not form part of designated hedging arrangements.
Foreign currency transactions in the Group’s subsidiary companies are
measured using the functional currency of the subsidiary company,
which is based on the primary economic environment in which the
subsidiary operates. The transactions are translated into the functional
currency at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rate ruling at
the balance sheet date; the resulting foreign exchange gain or loss is
recognised in operating expenses, except where the gain or loss arises
on financial assets or liabilities, when it is presented in financial income
or financial expense as appropriate.
Non-monetary assets and liabilities, denominated in a foreign currency
at historical cost (with the exception of deferred acquisition costs
and unearned premiums) are translated using the exchange rate at
the date of the transaction; therefore no exchange dierences arise.
Deferred acquisition costs and unearned premiums denominated in
foreign currency are translated at the average exchange rate for the
period. Foreign exchange dierences that arise on retranslation are
recognised in operating expenses.
Non-monetary assets and liabilities denominated in a foreign currency
at fair value are translated using the exchange rate ruling at the date
that the fair value was determined. Foreign exchange dierences that
arise on retranslation are recognised in operating expenses.
Transactional exposures arise primarily in the International Markets
businesses as a result of dierences between the currency of local
revenues and costs. A programme is in place to hedge a signficant
proportion of material currency exposures using forward foreign
exchange contracts. These contracts are not designated hedges, but
reduce the impact of foreign exchange volatility on the Company’s
economic balance sheet and corresponding Solvency II capital position.
The remaining currency exposures are deemed to be acceptable but
are kept under review by management.
The impact of a hypothetical strengthening/weakening of sterling
against the currencies below, with all other variables constant,
would have increased/(decreased) equity and profit by the amounts
shown below:
Strengthening 10% Weakening 10%
(Losses)/
gains
included in
Income
Statement
£m
Losses
included in
Equity
£m
Gains/(losses)
included in
Income
Statement
£m
Gains
included in
Equity
£m
2016
Australian dollar (32.5) (215.8) 39.7 263.8
Euro (13.2) (39.8) 16.2 48.6
US dollar 5.2 (7.4) (6.4) 9.1
New Zealand dollar (3.7) (4 4 .7 ) 4.5 54.6
Chilean peso (1.2) (40.0) 1.5 48.9
Polish zloty 1.3 (33.7) (1.6) 41.1
Hong Kong dollar (0.7) (32.4) 0.9 39.6
Singapore dollar 0.1 (4 . 9) (0.1) 6.0
Thai baht – (3.8) – 4.7
Brazilian real 0.1 (1.6) (0.1) 2.0
Other (4.6) (1.4) 5.7 1.7
Total sensitivity (49.2) (425.5) 60.3 520.1
2015
Australian dollar (25.2) (189.0) 30.8 231.0
Euro ( 7.1) (32.1) 8.7 39.2
US dollar (4.0) (5.0) 4.9 6.1
New Zealand dollar (1.5) (33.3) 1.9 40.8
Polish zloty (1.1) (35.6) 1.3 43.5
Chilean peso 1.1 (15.5) (1.3) 18.9
Hong Kong dollar (0.5) (25.9) 0.6 31.6
Danish krone (0.7) (1.3) 0.9 1.6
Other (1.0) (4.8) 1.2 5.9
Total sensitivity (40.0) (342.5) 49.0 418.6
Foreign exchange hedging activities
The Group manages its exposure to foreign exchange risk by entering
into hedging transactions using derivative financial instruments.
The Group applies fair value, cash flow and net investment hedge
accounting.
The hedging relationship between a hedging instrument and a
hedged item is formally documented. Documentation includes the
risk management objectives and the strategy in undertaking the
hedge transaction.
(a) Fair value hedges
Where a derivative financial instrument hedges the change in fair value
of a recognised asset or liability or an unrecognised firm commitment,
any gain or loss on remeasurement of the hedging instrument at fair
value is recognised in the Income Statement. The hedged item is fair
valued for the hedged risk with any adjustment being recognised in
the Income Statement.
Notes to the Financial Statements continued
for the year ended 31 December 2016
112 Bupa Annual Report 2016
The Group holds foreign currency forward contracts that hedge the
Group’s currency exposure, which arises from holding US dollar and
euro denominated financial investments classed as corporate debt
securities and secured loans and government debt securities.
(b) Cash flow hedges
Where a derivative financial instrument hedges the change in cash
flows related to a recognised asset or liability, a firm commitment or
a highly probable forecast transaction, it is accounted for as a cash
flow hedge.
The eectiveness of a cash flow hedge is the degree to which the
cash flows attributable to a hedged risk are oset by changes in the
cash flows of the hedging instrument. The eective portion of any
gain or loss on the hedging instrument is recognised directly in Other
Comprehensive Income until the forecast transaction occurs and
results in the recognition of a financial asset or liability which impacts
the Income Statement. The ineective portion of the gain or loss is
recognised in the Income Statement.
If the hedged cash flow is no longer expected to take place, all
deferred gains and losses are released to the Income Statement
immediately. If the hedging instrument or hedge relationship is
terminated but the hedged transaction is still expected to occur, the
cumulative gain or loss at that point remains in Other Comprehensive
Income and is recognised in accordance with the above policy when
the transaction occurs.
In 2016, a foreign currency forward contract of BRL 452.0m
(£102.8m) was entered into to hedge the cash outflows in relation
to the acquisition of Care Plus, acquired in December 2016.
The hedge resulted in a net cash flow hedge reserve loss of £8.0m.
In 2015 there were no derivative financial instruments assigned in
cash flow hedge relationships to hedge foreign exchange risks.
At 31 December 2016, the cash flow hedge reserve amounts to £14.7m
(2015: £20.8m).
(c) Net investment hedging
The Group applies hedge accounting to its foreign currency exposure
on a net investment basis. By designating opposing instruments in the
same currency, the net exposure to currency fluctuations is reported.
The Group uses foreign currency forward contracts, foreign currency
zero cost collar options and foreign currency borrowings to hedge its
net investment foreign exchange risk.
A collar option is an instrument that combines the purchase of a cap
and the sale of a floor to specify a range in which a foreign currency
rate will fluctuate. The instrument insulates the buyer against the risk of
a significant weakening of a foreign currency rate, but limits the benefit
of a strengthening of that foreign currency rate. Collar options are only
exercised, at specified intervals, if the benchmark rate is exceeded.
Settlement amounts are calculated by reference to the agreed
notional amounts.
If an external foreign currency denominated loan is used as a hedge,
the portion of the exchange gains or losses arising from the
retranslation, that is found to be an eective hedge, is recognised in the
Statement of Other Comprehensive Income. The same treatment is
applied to both the realised and unrealised exchange gains and losses
arising from foreign currency forward contracts and foreign currency
collar options.
These hedging relationships are documented and tested as required
by IAS 39.
All foreign currency forward contracts and collar options are accounted
for on a fair value basis.
Australian dollar translation exposure
The Group’s Australian dollar translation exposure of £2,623.2m
(AU$4,487.3m) (2015: £2,158.1m (AU$4,361.4m)) arises from the net
assets of Australian dollar denominated businesses. At 31 December
2016, the Group held foreign currency forward contracts totalling a
notional £206.9m (AU$353.9m) (2015: £45.7m (AU$92.4m)) and collar
options totalling £58.5m (AU$100.0m) (2015: £99.9m (AU$200.0m)) to
hedge a portion of net assets, which have been designated as hedges
under IAS 39. At 31 December 2016, options in the money had a fair
value liability of £9.1m (2015: £nil). In 2016, a £13.3m loss (2015: £nil) is
reflected in Other Comprehensive Income. Collar options totalling
AU$100.0m mature within one year (2015: AU$100.0m) from the
balance sheet date. The forward contracts mature within one year
from the balance sheet date.
Euro translation exposure
Euro translation exposure of £771.4m (€902.7m) (2015: £681.8m
(€924.5m)) arises from the net assets of euro denominated businesses.
At 31 December 2016, the Group held euro forward foreign exchange
contracts totalling £314.6m (€368.2m) (2015: £231.3m (€313.7m)) to
hedge a portion of these net assets, all of which have been designated
as hedges under IAS 39. The forward contracts mature within one
year from the balance sheet date and are rolled forward on an
ongoing basis.
Eect of foreign exchange hedging transactions
The impact of net investment currency hedging activity is set out
below. The ineective portion of all hedges recognised in the Income
Statement was £nil (2015: £nil).
(Losses)/gains included in Other Comprehensive Income are:
Currency contracts
2016
£m
2015
£m
Euro (47.0) 12.2
Danish krone (27. 5) (4 . 5)
Australian dollar (12.2) 0.8
Total (86.7) 8.5
113Bupa Annual Report 2016
Strategic report Governance Financial statements
5.4.2.2 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market
interest rates.
The Group is exposed to interest rate risk arising from fluctuations
in market rates. This aects both the return on floating rate assets,
the cost of floating rate liabilities and the balance sheet value of its
investment in fixed rate bonds. Floating rate assets represent a natural
hedge for floating rate liabilities.
The net balance on which the Group is exposed as at 31 December
2016 was £1,860.7m (2015: £2,153.8m). The rate at which maturing
deposits are reinvested represents a significant potential risk to the
Group, in currencies such as sterling and Australian dollar where the
Group has a significant net floating cash position.
The Group has also used interest rate swaps to manage interest rate
exposure whereby the requirement to settle interest at fixed rates has
been swapped for floating rates. This increases the ability to match
floating rate assets with floating rate liabilities.
The anticipated repayment profile of interest bearing financial liabilities
is as follows:
Variable
£m
Fixed
£m
Total
£m
2016
2017 (33.1) (63.7) (96.8)
2018 (20.3) (8.3) (28.6)
2019 (3.7) (3.1) (6.8)
2020 (385.7) (2.7) (388.4)
2021 (6.7) – (6.7)
2022-2026 (54.3) (1,271.5) (1,325.8)
After 2026 (28.9) (39.6) (68.5)
Total (532.7) (1,388.9) (1,921.6)
2015
2016 (27.3) (410 .0) (437.3)
2017 (16.0) (8.2) (24.2)
2018 (15.7) (7. 2) (22.9)
2019 (2.9) (2.9) (5.8)
2020 (385.0) (3.0) (388.0)
2021-2025 (17.3) (867.1) (884.4)
After 2025 (46.7) (264.8) (311.5)
Total (510.9) (1,563.2) (2,074.1)
Variable loans are repriced at intervals of between one and six months.
Interest is settled on all loans in line with agreements and is settled at
least annually.
The impact of a hypothetical rise of 100 bps in interest rates at the
reporting date, on an annualised basis, would have increased equity
and surplus by £2.4m (2015: £8.6m). The impact of a fall of 100 bps in
interest rates, on an annualised basis, would have the inverse eect.
This calculation is based on the assumption that all other variables,
in particular foreign exchange rates, remain constant.
Interest rate hedging activities
The Group applies fair value hedges and cash flow hedges to hedge
its exposure to interest rate risk.
(i) Fair value hedges
Interest rate swaps totalling £330.0m have been entered into to swap
the fixed rate coupon on the £330.0m callable subordinated perpetual
guaranteed bond to a floating rate. The swaps mature in September
2020. These interest rate swaps are designated as fair value hedges
of the underlying interest rate risk on the debt. The fixed receipt
occurs annually on the payment of the bond coupon in September.
The variable payment is settled quarterly and the rate is reset on the
floating element at this time. In the year ended 31 December 2016,
the fair value movement in the bond attributable to the hedged
risk amounted to a £0.4m gain (2015: £10.8m gain). The fair value
movement on the interest rate swaps amount to £0.4m loss
(2015: £10.8m loss).
(ii) Cash flow hedges
During 2009, interest rate swaps were designated to hedge the
variability of cash flows associated with £26.7m (€31.3m) (2015: £29.7m
(€40.3m)) of floating rate debt in Especializada Y Primaria L’Horta
Manises which matures on 30 December 2018. The swaps currently
cover 70.0% of the floating rate loan principal balance outstanding at
the balance sheet date. At 31 December 2016, the fair value of the
interest rate swap liability was £1.8m (€2.1m) (2015: £2.3m (€3.1m)).
During 2016, a gain of £0.5m (€0.8m) (2015: £0.7m (€1.0m)) was
recognised through Other Comprehensive Income.
Within the Bupa Chile business, cross currency swaps have been
designated to hedge the variability of cash flows associated with
£31.8m (CLP 26.3bn) (2015: £37.6m (CLP 39.3bn)) of floating rate debt
maturing June 2018. The interest payments have been swapped from
floating rate CLP to fixed rate UF (Unidad de Fomento – an inflation
linked currency commonly used in Chile). At 31 December 2016, the
fair value of the interest rate swap liability was £8.6m (CLP 7.1bn)
(2015: £7.6m (CLP7.9bn)). During 2016, a loss of £1.0m (gain of
CLP 1.3bn) (2015: gain of £0.4m (CLP 0.4bn)) was recognised
through Other Comprehensive Income.
During 2016, interest rate forwards were designated to hedge the
variability of cash flows associated with the £400.0m subordinated
debt issued in December 2016. The interest rate depended on the
UK government bond benchmark rate on debt pricing date plus
a fixed credit spread. The interest rate forwards were settled in
December 2016 with a gain of £0.4m recognised through Other
Comprehensive Income.
Notes to the Financial Statements continued
for the year ended 31 December 2016
114 Bupa Annual Report 2016
Credit risk is the risk of loss in the value of financial assets due to
counterparties failing to meet all or part of their contractual obligations.
Investment exposure with external counterparties is managed by
ensuring there is a sucient spread of investments and that all
counterparties are rated at least A by two of the three key rating
agencies used by the Group (unless specifically approved by the
Corporate Finance Executive Committee).
The investment profile (including financial investments, restricted
assets and cash and cash equivalents) at 31 December is as follows:
2016
£m
2015
£m
Investment grade counterparties 3,336.9 3,254.7
Non-investment grade counterparties 308.4 183.6
Total 3,645.3 3,438.3
Investment grade counterparties include restricted assets of £60.0m
(2015: £55.9m). Non-investment grade counterparties are those rated
below BBB–/Baa3, and mainly comprise corporate bonds, government
bonds and pooled investment funds of £224.3m (2015: £128.9m), cash
and cash equivalents of £84.1m (2015: £54.7m) and other loans of £nil
(2015: £0.2m).
Information regarding the ageing and impairment of financial and insurance assets is shown below.
Neither
past due
or impaired
£m
0-3 months
£m
3-6 months
£m
6 months-
1 year
£m
Greater than
1 year
£m
Impairment
£m
Total carr ying
value in
the balance
sheet
£m
2016
Debt securities and other loans 847.1 – – – – – 8 47.1
Pooled investment funds 252.7 – – – – – 252.7
Deposits with credit institutions 1,072.8 – – – – – 1,072.8
Reinsurers’ share of insurance provisions 19.3 – – – – – 19.3
Insurance debtors
1
870.8 140.0 14.1 34.5 - (17. 5) 1,041.9
Investment receivables and accrued investment incomes 0.3 - - - 5.5 – 5.8
Trade and other receivables
2
279.7 68.1 11.3 63.1 96.4 (20.4) 498.2
Total financial and insurance assets 3,342.7 208.1 25.4 97.6 101.9 (37.9) 3,737. 8
2015
Debt securities and other loans 605.3 – – – – – 605.3
Pooled investment funds 145.9 – – – – – 145.9
Deposits with credit institutions 1,437.1 – – – – – 1,437.1
Reinsurers’ share of insurance provisions 4.8 – – – – – 4.8
Insurance debtors
1
800.3 68.8 6.0 26.4 4.5 (18.2) 887.8
Investment receivables and accrued investment income 2.6 0.1 – 0.1 1.9 – 4.7
Trade and other receivables
2
281.6 134.0 16.8 21.3 96.0 (15.3) 534.4
Total financial and insurance assets 3,277.6 202.9 22.8 47.8 102.4 (33.5) 3,620.0
1
Comprises insurance debtors, Medicare rebate and Risk Equalisation Trust Fund recoveries detailed in Note 3.0.2
2 Comprises trade receivables, other receivables and service concession receivables detailed in Note 3.0.1
Note
115Bupa Annual Report 2016
Strategic report Governance Financial statements
The carrying amount of financial and insurance assets of £3,737.8m
(2015: £3,620.0m) and cash, cash equivalents and restricted assets
of £1,472.7m (2015: £1,250.0m) included on the Group balance sheet
represents the maximum credit exposure.
The movement in the allowance for impairment in respect of financial
and insurance assets during the year was as follows:
2016
£m
2015
£m
At beginning of year 33.5 34.9
Impairment loss recognised 5.9 5.0
Additions through business combinations 1.4 –
Disposals through business combinations (0.9) –
Bad debt provision released in year (7.5) (4. 5)
Foreign exchange 5.5 (1.9)
At end of year 37. 9 33.5
The Group believes no impairment allowance is necessary in respect of
financial assets not past due date.
The Group considers notified disputes, significant changes in the
counterparty’s financial position and collection experience in
determining which assets should be impaired. The credit quality of
receivables is managed at a local business unit level with uncollectable
amounts being impaired when necessary.
Assets pledged as security include £60.0m (2015: £55.9m) of cash held
in restricted access deposits.
The Group holds notional cash pools with banks under which
overdrafts can net with cash balances held by other members of the
Group. In these circumstances, where the criteria of IAS 32 are met,
cash balances and overdrafts are oset in the statement of financial
position. The amounts oset total £169.0m (2015: £207.5m).
The Group enters into derivative transactions under International Swaps
and Derivative Association (ISDA) master netting agreements. Under
such agreements the amounts owed to each counterparty may be
oset as a single amount in certain circumstances. The Group does not
oset these balances in the Statement of Financial Position as the right
of oset is enforceable only on the occurrence of a future event such
as a default.
The Group’s main source of short-term funding is via an £800.0m
revolving credit facility which matures in July 2021 and was undrawn at
31 December 2016, with the exception of £6.4m of outstanding letters
of credit for general business purposes. An additional committed bank
facility of £250.0m was agreed in June 2016 and then cancelled
following the issuance of the £400.0m unguaranteed subordinated
bond on 8 December 2016.
In January 2017, Bupa Finance plc signed a £650.0m committed facility
with one of its lending banks to ensure sucient funding would be
made available to complete the purchase of Oasis Dental Care in 2017.
This commitment in addition to further liquidity obtained following the
£400.0m bond issue in December, ensure that Bupa will retain good
quality liquidity following completion of the acquisition.
The Group monitors funding risk as well as compliance with existing
financial covenants within the banking arrangements. There were no
concerns regarding bank covenant coverage in 2016 and that position
is not expected to change in the foreseeable future.
The Group enjoys a strong liquidity position and adheres to strict
liquidity management policies as set by the Risk Committee as well
as adhering to certain liquidity parameters, as defined by regulatory
authorities for specific regulated entities within the Group.
Liquidity is managed by currency and by considering the segregation
of accounts required for regulatory purposes; short-term operational
working capital requirements are met by cash-in-hand and committed
bank facilities.
5.4.4
Liquidity risk
Liquidity in brief
Liquidity risk is the risk that the Group will not have available funds to
meet its liabilities when they fall due.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
116 Bupa Annual Report 2016
The contractual maturities of financial liabilities and the expected maturities of insurance liabilities including estimated interest payments of the
Group as at 31 December are as follows:
Subordinated
liabilities
£m
Other interest
bearing
liabilities
£m
Provisions
under
insurance
contracts
issued
£m
Other
liabilities
under
insurance
contracts
issued
£m
Trade
and other
payables
1
£m
Derivative
liabilities
£m
Total
£m
2016
2017 (65.2) (45 . 2) (2,594.8) (143.0) (1,569.9) (11.6) (4, 42 9.7)
2018 (65.2) (42 .4) (33.9) – (7. 5) (10.4) (159.4)
2019 (65.2) (20.6) – – (8.6) – (94.4)
2020 (391.0) (21.4) – – (2.5) – (414.9)
2021 (45 .0) (364.4) – – (1.1) – (410.5)
2022-2026 (1,092.0) (63.9) – – (3.3) – (1,159.2)
After 2026 – (80.6) – – (0.1) – (80.7)
Total (1,723.6) (638.5) (2,628.7) (143.0) (1,593.0) (22.0) (6,748.8)
Carrying value in the Statement of Financial Position (1,316.7) (604.9) (2,628.7) (143.0) (1,593.0) (22.0) (6,308.3)
2015
2016 (45.2) (452. 8) (2, 2 27. 3) (72.1) (1,401.7) (22.1) (4, 2 2 1 . 2)
2017 (45 . 2) (57. 2) (0.2) – (7.3) (1.5) (111.4)
2018 (45. 2) (53.9) (0.2) – (4.4) (8.8) (112.5)
2019 (45.2) (36.8) (0.3) – (1.2) – (83.5)
2020 (370.2) (41 9. 2) (0.4) – (1.0) – (790.8)
2021-2025 (610.3) (128.8) (6.1) – (3.9) – (749.1)
After 2025 – (241.2) (20.4) – (0.9) – (262.5)
Total (1,161.3) (1,389.9) (2,254.9) (72.1) (1,420.4) (32.4) (6,331.0)
Carrying value in the Statement of Financial Position (919.4) (1,154.7) (2,255.1) (72.1) (1,420.5) (32.4) (5,854.2)
1
Comprised of trade payables, other payables, accomodation bond liabilities and accruals detailed in Note 3.0.6.
The total liability is split by remaining duration in proportion to the cash flows expected to arise during that period. Interest payments are included
in the cash flows for subordinated liabilities and other interest-bearing liabilities.
Maturity profile of financial assets
The maturity profile of financial assets as at 31 December, which are available to fund the repayment of liabilities as they crystallise, is as follows:
Cash and
cash
equivalents
£m
Deposits with
credit
institutions
£m
Government
debt
securities
£m
Corporate
debt
securities and
other loans
£m
Pooled
investment
funds
£m
Total
£m
2016
2017 1,412.7 875.7 26.9 168.3 39.8 2,523.4
2018 – 99.0 8.5 186.4 135.5 429.4
2019 – 65.4 68.7 219.6 7.7 361.4
2020 – 29.3 0.6 32.3 2.0 64.2
2021 – – 0.9 52.0 5.5 58.4
2022-2026 – 3.4 20.6 38.4 38.8 101.2
After 2026 – – 23.9 – 23.4 47.3
Total 1,412.7 1,072.8 150.1 697.0 252.7 3,585.3
2015
2016 1,194.1 1,195.2 24.2 126.0 47. 8 2,587. 3
2017 – 90.9 2.1 110.4 3.9 207.3
2018 – 88.3 2.0 30.7 2.0 123.0
2019 – 35.1 0.1 24.7 3.6 63.5
2020 – 24.8 14.0 50.9 40.9 130.6
2021-2025 – 2.8 27.2 104.5 35.7 170.2
After 2025 – – 0.1 88.4 12.0 100.5
Total 1,194.1 1,437.1 69.7 535.6 145.9 3,382.4
117Bupa Annual Report 2016
Strategic report Governance Financial statements
All transactions with related parties are conducted on an arm’s-
length basis.
Where the Company enters into financial guarantee contracts to
guarantee the indebtedness of other companies within the Group, the
Company considers these to be insurance arrangements, and accounts
for them as such. In this respect, provision for expected claims is made
on an incurred basis.
There were no material transactions during the year with any related
parties, as defined by IAS 24, other than those disclosed in this note.
(i) Transactions with key management personnel
The key management personnel are the Group’s Executive and
Non-Executive Directors and includes the Chief Executive Ocers of
the Group’s Market Units. No director had any material interest in any
contracts with Group companies at 31 December 2016 (2015: £nil) or at
any time during the year. The remuneration of the Group’s Executive
and Non-Executive Directors is disclosed on pages 48-52.
The total remuneration of the Market Unit Chief Executive Ocers is
as follows:
2016
£m
2015
£m
Short-term employee benefits 4.1 4.6
Long-term incentive plan 2.0 0.9
Post-employment benefits 0.8 0.6
Total 6.9 6.1
The total remuneration of key management personnel is included in
sta costs (see Note 2.3).
(ii) Transactions in relation to the non-registered pension
arrangements
The Company has made pension commitments to certain current and
former Executive Directors and key management personnel through
a non-registered pension arrangement which mirrors the terms of
The Bupa Pension Scheme (see Note 3.6), maturing after 2022.
These unfunded benefits are governed by The Law Debenture Pension
Trust Corporation Plc which is the trustee of the non-registered pension
arrangement, and is secured by a charge over £55.8m (2015: £45.1m)
of cash deposits (see Note 3.0.4). The increase in the charge of £10.7m
during 2016 mainly reflects changes in market conditions and market-
related changes in the underlying actuarial assumptions.
6.0
Related party transactions
Related party transactions in brief
These are transactions between the Group and related individuals or
entities by nature of influence or control. The Company has such
relationships with its subsidiaries, key management personnel, equity
accounted investments and associated pension arrangements. The
disclosure of transactions with these parties in this section enables
readers to form a view about the impact of related party relationships
on the Group.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
118 Bupa Annual Report 2016
(i) Operating leases
The total value of future non-cancellable operating lease rentals is
payable as follows:
2016
£m
2015
£m
Less than one year 142.0 117.0
Between one and five years 390.3 354.2
More than five years 460.0 630.6
Total operating leases 992.3 1,101.8
The Group leases a number of properties under operating leases. The
leases typically run for a period of between 10 and 25 years, with an
option to renew the lease after that date. Lease payments are reviewed
regularly in accordance with the terms and conditions of the individual
lease agreements. None of these leases include contingent rentals.
Some of the leased properties have been sub-let by the Group. Both
the leased properties and the sub-leases expire between 2019 and
2024. Sub-lease receipts of £0.7m (2015: £0.8m) are expected to be
received during the next financial year. The Group has an unoccupied
property provision of £1.8m (2015: £2.9m) in respect of these leases
(see Note 3.5). The Group leases out some of its investment properties
as a lessor, see Note 3.3 for details.
(ii) Capital commitments
Capital expenditure for the Group contracted at 31 December 2016
but for which no provision has been made in the financial statements,
amounted to £128.7m (2015: £141.6m), of which £109.7m (2015: £99.8m)
related to property, plant and equipment and £19.0m (2015: £41.8m)
related to investment property.
(iii) 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, from which
it is anticipated that the likelihood of any material unprovided liabilities
arising is remote.
(iv) Pensions contributions
The Group had an obligation to make a final special contribution to
The Bupa Pension Scheme amounting to £40.0m for the year ended
31December 2016, which was made in December 2016.
6.1
Commitments and contingencies
Commitments and contingencies in brief
A commitment is future expenditure that is committed to as at
31December 2016. These commitments fall under non-cancellable
operating lease payments and contracted capital expenditure.
Contingent assets and liabilities are those that are considered possible
at year end, whose existence will be determined by a future event.
Note
119Bupa Annual Report 2016
Strategic report Governance Financial statements
Statement of Financial Position
as at 31 December 2016
Note
2016
£m
2015
£m
Non-current assets
Intangible assets 7.1 27.8 29.8
Property, plant and equipment 7.2 21.1 25.1
Investment in subsidiary companies 7.11 200.1 200.1
Investment property 7. 3 0.1 0.2
Other receivables 7.6 0.3 0.3
Post-employment benefit assets 7.4 474.0 408.4
723.4 663.9
Current assets
Trade and other receivables 7.6 93.2 58.5
Current taxation asset 0.2 0.2
Cash and cash equivalents 3.7 8.5
97.1 67.2
Total assets 820.5 731.1
Non-current liabilities
Post-employment benefit net liabilities 7.4 (64.6) (51.3)
Provisions for liabilities and charges 7.5 (10.7) (5.4)
Deferred taxation liabilities 7. 8 (59.0) (56.5)
Other payables 7.6 (7.8) (7.4)
(142.1) (120.6)
Current liabilities
Provisions for liabilities and charges 7.5 (3.1) (5.1)
Trade and other payables 7.6 (90.6) (76.9)
(93.7) (82.0)
Total liabilities (235.8) (202.6)
Net assets 584.7 528.5
Equity
Income and expenditure reserve 584.3 528.1
Foreign exchange translation reserve 0.4 0.4
Total equity 584.7 528.5
Approved by the Board of Directors and signed on its behalf on 1 March 2017 by
Lord Leitch Joy Linton
Chairman Chief Financial Ocer
7.0
Company Primary Statements
and Associated Notes
Company Primary Statements and Associated Notes
in brief
This section consists of the Company’s primary statements including
Statement of Financial Position, Statement of Cash Flows and
Statement of Changes in Equity. Notes 7.1-7.11 form the associated
notes to the Company financial statements.
The Company accounting policies are aligned with those of the
Group, described in Notes 2-6.
Note
Notes 7.1-7.11 form part of these financial statements.
Notes to the Financial Statements continued
for the year ended 31 December 2016
120 Bupa Annual Report 2016
Income Statement
for the year ended 31 December 2016
The profit for the financial year recorded within the accounts of the Company, The British United Provident Association Limited (Bupa), is £58.1m
(2015: £67.3m). In accordance with the exemption granted under Section 408 of the Companies Act 2006, a separate Income Statement and
Statement of Comprehensive Income for the Company have not been presented. The average number of full-time equivalent employees, including
Executive Directors, employed by the Company during the year was 1,689 (2015: 2,067).
Statement of Cash Flows
for the year ended 31 December 2016
Note
2016
£m
2015
£m
Operating activities
Profit before taxation expense 40.1 50.7
Adjustments for:
Net financial expense 0.4 0.2
Depreciation, amortisation and impairment 16.8 17.2
Other non-cash items 1.1 –
Changes in working capital and provisions:
Changes in net pension asset/liability 7.4 (56.0) (52.2)
Increase/(decrease) in provisions for liabilities and charges 1.8 (4. 8)
Decrease in trade and other receivables, and other assets 7.6 1.9 74.8
Increase in trade and other payables, and other liabilities 19.8 (56.0)
Cash generated from operations 3.6 29.9
Net cash generated from operations 25.9 29.9
Cash flows from investing activities
Purchase of intangible assets 7.1 (21.6) (32.3)
Proceeds from sale of intangible assets 7.1 – 15.0
Purchase of property, plant and equipment 7. 2 (8.7) (4. 8)
Interest received – 0.1
Net cash used in investing activities (30.3) (22.0)
Cash flow from financing activities
Interest paid (0.4) (0.4)
Net cash used in financing activities (0.4) (0.4)
Net (decrease)/increase in cash and cash equivalents (4.8) 7.5
Cash and cash equivalents at beginning of year 8.5 1.0
Cash and cash equivalents at end of year 3.7 8.5
Notes 7.1-7.11 form part of these financial statements.
121Bupa Annual Report 2016
Strategic report Governance Financial statements
Statement of Changes in Equity
for the year ended 31 December 2016
Note
Income and
expenditure
reserve
£m
Foreign
exchange
translation
reserve
£m
Total
equity
£m
2016
At beginning of year 528.1 0.4 528.5
Profit for the financial year 58.1 – 58.1
Other comprehensive (expense)/income:
Remeasurement loss on pension scheme 7.4 (3.7) – (3.7)
Taxation charge on income and expenses recognised directly in other comprehensive income 7.8 1.8 – 1.8
Other comprehensive income for the year, net of taxation (1.9) – (1.9)
Total comprehensive income for the year 56.2 – 56.2
At end of year 584.3 0.4 584.7
2015
At beginning of year 449.7 0.4 450.1
Profit for the financial year 67. 3 – 67.3
Other comprehensive income:
Remeasurement gain on pension scheme 7.4 11.0 – 11.0
Taxation charge on income and expenses recognise directly in other comprehensive income 7. 8 0.1 – 0.1
Other comprehensive income for the year, net of taxation 11.1 – 11.1
Total comprehensive income for the year 78.4 – 78.4
At end of year 528.1 0.4 528.5
Notes 7.1-7.11 form part of these financial statements.
Notes to the Financial Statements continued
for the year ended 31 December 2016
122 Bupa Annual Report 2016
Intangible assets – Computer software
2016
£m
2015
£m
Cost
At beginning of year 90.0 74.6
Additions 21.6 32.3
Disposals (15.1) (15.0)
Transfer to property, plant and equipment – (1.9)
At end of year 96.5 90.0
Amortisation and impairment loss
At beginning of year 60.2 50.0
Amortisation for year 9.2 10.2
Impairment loss 1.8 –
Disposals (2.5) –
At end of year 68.7 60.2
Net book value at end of year 27. 8 29.8
Net book value at beginning of year 29.8 24.6
7.1
Intangible assets
Intangible assets in brief
Intangible assets are the non-physical assets held by the Company
and consists of computer software only.
Note
123Bupa Annual Report 2016
Strategic report Governance Financial statements
Property, plant and equipment
2016 2015
Leasehold
property
£m
Equipment
£m
Total
£m
Leasehold
property
£m
Equipment
£m
Total
£m
Cost or valuation
At beginning of year 19.0 54.1 73.1 18.8 47. 5 66.3
Additions – 8.7 8.7 0.2 4.6 4.8
Disposals – (11.5) (11.5) – 1.9 1.9
At the end of the year 19.0 51.3 70.3 19.0 54.0 73.0
Depreciation and impairment loss
At beginning of year 12.1 35.9 48.0 10.5 30.5 41.0
Depreciation charge for year 1.3 4.5 5.8 1.6 5.4 7.0
Disposals – (4.6) (4.6) – – –
At the end of the year 13.4 35.8 49.2 12.1 35.9 48.0
Net book value at end of year 5.6 15.5 21.1 6.9 18.1 25.0
Net book value at beginning of year 6.9 18.1 25.0 8.3 17.0 25.3
The company had no finance leased properties in the current or prior year.
7. 2
Property, plant and equipment
Property, plant and equipment in brief
Property, plant and equipment are the physical assets utilised by the
Company to carry out business activities and generate revenues
and profits. The majority of the assets held relate to oce buildings,
IT and other oce equipment.
Note
There is currently only one oce building recognised as an investment property at £0.1m (2015: £0.2m).
7.3
Investment properties
Investment properties in brief
Investment properties are physical assets that are not occupied by
the Group and are leased to third parties to generate rental income.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
124 Bupa Annual Report 2016
The defined benefit scheme is The Bupa Pension Scheme which
has been closed to new entrants since 1 October 2002. The principal
defined contribution pension scheme is The Bupa Retirement
Savings Plan.
The Company is the sponsoring employer for The Bupa Pension
Scheme, the unfunded pension scheme and post-retirement medical
benefit scheme described in Note 3.6. The actuarial assumptions
underlying the valuation of obligations are detailed in Note 3.6.2.
(i) Assets and liabilities of schemes
The assets and liabilities in respect of the defined benefit funded pension scheme, unfunded pension and post-retirement medical benefit scheme
are as follows:
Note
Pension scheme
Post-retirement
benefit scheme Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
Present value of funded obligations (ii) (1,662.6) (1,262.2) – – (1,662.6) (1,262.2)
Fair value of scheme assets (iii) 2,136.6 1,670.6 – – 2,136.6 1,670.6
Net assets of funded schemes 474.0 408.4 – – 474.0 408.4
Present value of unfunded obligations (ii) (54.0) (42. 8) (10.6) (8.5) (64.6) (51.3)
Net recognised assets/(liabilities) 420.0 365.6 (10.6) (8.5) 409.4 357.1
Represented on the Statement of Financial Position as:
Net assets 474.0 408.4
Net liabilities (64.6) (51.3)
Net recognised assets 409.4 357.1
(ii) Present value of the schemes’ obligations
The movement in the present value of schemes’ obligations are:
Pension scheme
Post-retirement
medical benefit scheme Total
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
At beginning of year 1,305.0 1,332.2 8.5 11.4 1,313.5 1,343.6
Current service cost 7.6 8.5 – – 7.6 8.5
Past service costs 0.7 – – – 0.7 –
Interest on obligations 50.7 49.3 0.3 0.4 51.0 49.7
Contributions by employees 0.1 0.1 – – 0.1 0.1
Losses/(gains) arising from changes to financial assumptions 418.4 (41.7) 1.4 – 419.8 (41.7)
Gains arising from changes to experience assumptions (24.4) (17. 2) 1.1 – (23.3) ( 17. 2)
Losses/(gains) arising from changes to demographic assumptions – 6.2 – (2.8) – 3.4
Benefits paid (52.9) (32.4) (0.7) (0.5) (53.6) (32.9)
Group transfer
1
11.4 – – – 11.4 –
At end of year 1,716.6 1,305.0 10.6 8.5 1 ,727. 2 1,313.5
1 The Clinovia pension scheme was part of the Bupa Home Healthcare business disposed of in 2016. On disposal, the pension scheme was transferred to Bupa Limited from Bupa Finance plc.
7.4
Post-employment benefits
Post-employment benefits in brief
The Company operates a defined benefit and a defined
contribution pension scheme for the benefit of employees
and Directors, in addition to an unfunded and post-retirement
medical benefit scheme.
Note
125Bupa Annual Report 2016
Strategic report Governance Financial statements
(iii) Fair value of funded scheme’s assets
The movements in the fair value of the funded schemes’ assets are:
2016
£m
2015
£m
At beginning of year 1,670.6 1,637.5
Interest income 65.4 61.0
Return on assets excluding interest income 392.8 (4 4. 5)
Contributions by employer 48.4 48.0
Contributions by employees 0.1 0.1
Administrative expenses (1.7) (1.5)
Benefits paid (50.3) (30.0)
Group Transfer 11.3 –
At end of year 2,136.6 1,670.6
The market value of the assets of the funded scheme is as follows:
2016
£m
2015
£m
Debt instruments 494.2 587.7
Gilts 801.6 522.5
Corporate bonds 753.7 450.1
Cash/other assets 53.5 –
Diversified growth funds 8.8 67.9
Equities 24.8 42.4
Total market value of the assets of the funded scheme 2,136.6 1,670.6
All assets have a quoted market price.
(iv) Amounts recognised in the Income Statement
The amounts charged/(credited) to other operating expenses for the year are:
2016
£m
2015
£m
Current service cost 7.6 8.5
Past service cost 0.7 –
Net interest on defined benefit liability/asset (14.4) (11.3)
Administrative expenses 1.6 1.5
Total amount charged to Income Statement (4.5) (1.3)
(v) Amounts recognised directly in Other Comprehensive Income
The amounts (credited)/charged directly to equity are:
2016
£m
2015
£m
Actual return less return on assets included within profit and loss (392.8) 44.5
Loss arising from changes to financial assumptions 419.8 (41.7)
Gain arising from changes to experience assumptions (23.3) ( 17.2)
Gain arising from changes to demographic assumptions – 3.4
Total remeasurement losses/(gains) charged/(credited) directly to Equity 3.7 (11.0)
The cumulative amount of actuarial losses recognised directly in equity is £0.6m as at 31 December 2016 (2015: £0.2m).
Notes to the Financial Statements continued
for the year ended 31 December 2016
126 Bupa Annual Report 2016
Provisions for liabilities and charges
Insurance
£m
Unoccupied
property
£m
Other
£m
Total
£m
At beginning of year 9.7 0.8 – 10.5
Charge for year 7. 5 – 2.7 10.2
Released in year – – – –
Utilised in year – cash (6.9) – – (6.9)
At end of year 10.3 0.8 2.7 13.8
Non-current 7.6 0.7 2.4 10.7
Current 2.7 0.1 0.3 3.1
Total provisions for liabilities and charges 10.3 0.8 2.7 13.8
7.6.1 Trade and other receivables
2016
£m
2015
£m
Non-current
Prepayments 0.3 0.3
Total non-current other receivables 0.3 0.3
Current
Amounts owed by subsidiary companies 78.1 41.5
Other receivables 2.9 0.7
Prepayments 12.2 16.3
Total current trade and other receivables 93.2 58.5
Total trade and other receivables 93.5 58.8
7.6.2 Trade and other payables
2016
£m
2015
£m
Non-current
Amounts owed to subsidiary companies 0.3 0.3
Accruals 7.5 7.1
Total non-current trade and other payables 7.8 7.4
Current
Amounts owed to subsidiary companies 22.9 19.8
Other payables 6.3 6.5
Accruals 61.4 50.6
Total current trade and other payables 90.6 76.9
Total trade and other payables 98.4 84.3
7.5
Provisions for liabilities
and charges
Provisions for liabilities and charges in brief
Provisions for liabilities and charges are those not related to insurance
contracts issued that require settlement in the future as a result of a
past event.
7.6
Working capital
Working capital in brief
Working capital represents the assets and liabilities the Company
generates through its trading activities. The Company therefore
defines working capital as trade and other receivables, and trade
and other payables.
Note
Note
127Bupa Annual Report 2016
Strategic report Governance Financial statements
The Group’s risk management strategy is outlined in detail within Note 5.4.
The risks faced by the Company have been assessed as part of the Group’s ongoing risk management processes, a summary of these risks are
outlined below:
Risk type Summary of risk assessment
Insurance risk The Company is not exposed to insurance risk.
Market risk The Company is not materially exposed to foreign exchange or interest rate risk.
Credit risk The maximum credit risk exposure of the Company is £6.7m (2015: £9.2m). The Company believes amounts owed to it by
subsidiary companies carry no credit risk.
Liquidity risk The contractual maturity of financial liabilities, held by the Company, fall due within one year.
7.7
Risk management
Risk management in brief
The Board is responsible for identifying, evaluating and managing
risks faced by the Company and considers the acceptable level of
risk, the likelihood of these risks materialising, how to reduce the risk
and the cost of operating particular controls relative to the benefit
of managing the related risks.
Note
Recognised deferred taxation assets and liabilities
Deferred taxation assets and liabilities are attributable to the following:
Assets Liabilities Net
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
Accelerated capital allowances 5.5 2.5 – – 5.5 2.5
Post-employment benefit liability – – (69.6) (64.5) (69.6) (64.5)
Revaluation of properties to fair value 0.1 0.2 – – 0.1 0.2
Employee benefits (other than post-employment) 4.0 2.8 – – 4.0 2.8
Provisions 0.7 2.1 – – 0.7 2.1
Other 0.3 0.4 – – 0.3 0.4
Net deferred taxation asset/(liability) 10.6 8.0 (69.6) (64.5) (59.0) (56.5)
Recognised deferred taxation assets
Deferred taxation assets relating to the carry forward of employee benefits, other provisions, unused taxation losses and other deferred taxation
assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred taxation assets can
be utilised.
7.8
Deferred taxation assets
and liabilities
Deferred taxation assets and liabilities in brief
Deferred tax is an adjustment to recognise the dierences between
the carrying amounts of assets and liabilities for financial reporting
and the amounts used for taxation purposes.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
128 Bupa Annual Report 2016
Movement in net deferred taxation (liabilities)/assets
At beginning
of year
£m
Recognised in
Income
Statement
£m
Recognised
in Other
Comprehensive
Income
£m
At end
of year
£m
2016
Accelerated capital allowances 2.5 3.0 – 5.5
Post-employment benefit (asset)/liability (64.5) (6.9) 1.8 (69.6)
Revaluation of properties to fair value 0.2 (0.1) – 0.1
Employee benefits (other than post-employment) 2.8 1.2 – 4.0
Provisions 2.1 (1.4) – 0.7
Other 0.4 (0.1) – 0.3
Total (56.5) (4.3) 1.8 (59.0)
2015
Accelerated capital allowances 2.5 – – 2.5
Post-employment benefit liability (58.6) (5.9) – (64.5)
Revaluation of properties to fair value 0.1 – 0.1 0.2
Employee benefits (other than post-employment) 2.9 (0.1) – 2.8
Provisions 4.1 (2.0) – 2.1
Other 0.1 0.3 – 0.4
Total (48.9) (7.7) 0.1 (56.5)
The Company has a related party relationship with its key management
personnel and with its subsidiary companies (see Note 7.11).
(i) Transactions with key management personnel
The key management personnel for the Company are the same as for
the Group. These transactions are disclosed in Note 6.0.
The total remuneration of key management personnel is included in
sta costs (see Note 2.3).
(ii) Transactions in relation to the non-registered pension
arrangements
These transactions are disclosed in Note 6.0.
7.9
Related party transactions
Related party transactions in brief
These are transactions between the Company and related individuals
or entities by nature of influence or control. The Company has such
relationships with its subsidiaries, key management personnel and
associated pension arrangements. The disclosure of transactions
with these parties enables readers to form a view about the impact
of related party relationships on the Company.
Note
129Bupa Annual Report 2016
Strategic report Governance Financial statements
(iii) Transactions and balances with subsidiary companies
Transactions during the year Balance at 31 December
2016
£m
2015
£m
2016
£m
2015
£m
Income Statement
Management charges received 228.1 229.8
Interest income – 0.1
Interest expense (0.1) (0.1)
Income received 2.4 2.5
Expenses paid (including rental expense £6.0m (2015: £5.6m)) (7.7) (7.6)
Dividends received 147.6 138.3
Statement of Financial Position
Amounts owed by subsidiary companies 36.6 (75.4) 78.1 41.5
Amounts owed to subsidiary companies (3.1) 66.4 (22.9) (19.8)
Loans from subsidiary companies – 0.2 (0.3) (0.3)
The above outstanding balances arose during the ordinary course of business and are on substantially the same terms, including interest rates,
as for comparable transactions with third parties.
(i) Commitments
Capital expenditure for the Company contracted as at 31 December
2016 but for which no provision has been made in the financial
statements amounted to £38.0m (2015: £0.2m).
(ii) Operating leases
The Company has £51.9m of operating lease obligations (2015: £51.6m).
(iii) Pensions contributions
The Group has no obligation to make a special contribution to
The Bupa Pension Scheme for the year ending 31 December 2017.
In addition, Bupa Finance plc has entered into a legally binding and
irrevocable guarantee for the benefit of the trustees of The Bupa
Pension Scheme in respect of these payments.
(iv) Contingent assets and liabilities
The Company has given guarantees in respect of the £350.0m bond
issued in 2014 by Bupa Finance plc.
The Company is party to an £800.0m revolving credit facility, together
with various other companies within the Group. The revolving credit
facility was undrawn at 31 December 2016 (2015: £nil). There are £6.4m
of outstanding letters of credit required for general business purposes.
The Company has joint and several liability for all obligations under
the agreement.
7.10
Commitments and contingencies
Commitments and contingencies in brief
A commitment is future expenditure that is committed to as at
31 December 2016. These commitments primarily consist of
contracted capital expenditure.
Contingent liabilities include bank loan and bond issue guarantees.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
130 Bupa Annual Report 2016
Carrying value of investment in subsidiaries
Investments in subsidiary companies are carried at cost less impairment
in the Company’s accounts. Dividends received from subsidiaries are
recognised in the Income Statement when the right to receive the
dividend is established.
As at 31 December 2016, the Company held investments in subsidiaries
of £200.1m (2015: £200.1m).
In accordance with Section 409 of the Companies Act 2006 a full
list of subsidiaries, associated undertakings and significant holdings
in undertakings other than subsidiary undertakings, the registered
addresses and the eective percentage of equity owned, as at
31 December 2016 are disclosed below.
Fully owned subsidiaries registered at Bridge House,
Outwood Lane, Horsforth, Leeds, LS18 4UP, England
Unless stated otherwise, the subsidiaries below are 100% held by
Group companies.
Name Share class
ANS 2003 Limited £0.01 Ordinary
ANS Limited £0.10 Ordinary
Bede Village Management Limited £1.00 Ordinary
Belmont Care Limited
1
£0.50 Ordinary
Bridge Health Investments Limited £1.00 Ordinary
Bupa Care Homes (AKW) Limited £1.00 Ordinary
Bupa Care Homes (ANS) Limited £1.00 Ordinary
£1.00 Special share
Bupa Care Homes (Bedfordshire) Limited £1.00 Ordinary
Bupa Care Homes (BNH) Limited £1.00 Ordinary
Bupa Care Homes (BNHP) Limited
1
£1.00 Ordinary
Bupa Care Homes (CFCHomes) Limited £1.00 Ordinary
Bupa Care Homes (CFG) plc £0.25 Ordinary
Bupa Care Homes (CFHCare) Limited £1.00 Ordinary
€0.000001
redeemable preference
Bupa Care Homes (Developments) Limited £1.00 Ordinary
Bupa Care Homes (GL) Limited £1.00 Ordinary
Bupa Care Homes (HH Bradford) Limited £1.00 Ordinary
Bupa Care Homes (HH Hull) Limited £1.00 Ordinary
Bupa Care Homes (HH Leeds) Limited £1.00 Ordinary
Bupa Care Homes (HH Northumberland) Limited £1.00 Ordinary
Bupa Care Homes (HH Scunthorpe) Limited £1.00 Ordinary
Bupa Care Homes (HH) Limited £1.00 Ordinary
Bupa Care Homes (Partnerships) Limited £1.00 Ordinary
Bupa Care Homes Group Limited £1.00 Ordinary
Bupa Care Homes Limited £1.00 Ordinary
Bupa Care Services Limited £0.20 Ordinary
Calverguild Limited £1.00 Ordinary
Name Share class
Ebbgate Nursing Homes Limited £1.00 Ordinary
Ebbgate Nursing Homes (London) Limited £1.00 Ordinary
Goldsborough Estates Limited £1.00 Ordinary
Richmond Care Villages Holdings Limited £1.00 Ordinary
Richmond Care Villages (Property) Limited £1.00 Ordinary
Richmond Coventry Limited £1.00 Ordinary
Richmond Letcombe Limited £1.00 Ordinary
Richmond Nantwich Developments Limited £1.00 Ordinary
Richmond Nantwich Limited £1.00 Ordinary
Richmond Nantwich Properties Limited £1.00 Ordinary
Richmond Northampton Limited
1
£1.00 Ordinary
Richmond Northampton Management Limited
1
£1.00 Ordinary
Richmond Painswick Management Company Limited
1
£1.00 Ordinary
Richmond Villages Operations Limited £1.00 Ordinary
Watertight Investments Limited £1.00 Ordinary
Fully owned subsidiaries registered at Bupa House,
15-19 Bloomsbury Way, London, WC1A 2BA, England
Unless stated otherwise, the subsidiaries below are 100% held by
Group companies.
Name Share class
Andrew Greenwood Ltd £1.00 Ordinary
Aqua Dental Spa Limited £1.00 Ordinary
BHS (Holdings) 2006 Limited £1.00 Ordinary
Bupa Care Homes (Holdings) Limited £1.00 Ordinary
Bupa Care Homes (PT Lindsay) Limited £1.00 Ordinary
Bupa Care Homes (PT Lindsay Prop) Limited £1.00 Ordinary
Bupa Care Homes (PT Links Prop) Limited £1.00 Ordinary
Bupa Care Homes (PT Links) Limited £1.00 Ordinary
Bupa Care Homes (PT) Limited £1.00 Ordinary
Bupa Dental Services Limited £1.00 Ordinary
Bupa Europe Investments Limited
1
£1.00 Ordinary
Bupa Europe Limited £1.00 Ordinary
Bupa Finance plc
2
£1.00 Ordinary
Bupa Financial Investments Limited
1
£1.00 Ordinary
Bupa Global Holdings Limited €1.00 Ordinary
€0.01 Ordinary
£1.00 Ordinary
Bupa Health at Work Limited
1
£1.00 Ordinary
Bupa Healthcare Services Limited £1.00 Ordinary
Bupa Insurance Limited £1.00 Ordinary
Bupa Insurance Services Limited £1.00 Ordinary
Bupa Investments Limited £1.00 Ordinary
7.11
Investments in subsidiaries
Investments in subsidiaries in brief
Below is a summary of all investments in subsidiaries held by the
Company.
Note
131Bupa Annual Report 2016
Strategic report Governance Financial statements
Name Share class
Bupa Investments Overseas Limited AUD 1.00 Redeemable preference
CLP 1.00 Redeemable preference
€1.00 Redeemable preference
PLN 1.00 Redeemable preference
US$1.00 Redeemable preference
£1.00 Ordinary
Bupa Limited
1
£1.00 Ordinary
Bupa Occupational Health Limited £1.00 Ordinary
Bupa Pension Scheme Trustees Limited
1
£1.00 Ordinary
Bupa Secretaries Limited £1 .00 Ordinary
Bupa Treasury Limited £1.00 Ordinary
Bupa Trustees Limited £1.00 Ordinary
Bupa Wellness Group Limited
1
£0.01 Ordinary
Cranbrook Dental Practice Limited £1.00 Ordinary
David Row Limited £1 .00 Ordinary
Health Dialog UK Limited
1
£1.00 Ordinary
In Store Dental Limited £1.00 Ordinary
K R Postlethwaite Ltd £1.00 Ordinary
Lab 53 Limited £1.00 Ordinary
Occupational Health Care Limited £1.00 Ordinary
£1.00 Redeemable preference
Paul Coulthard Ltd £1.00 Ordinary
Perlan Limited £1.00 Ordinary
Personal Eectiveness Centre Limited £1.00 Ordinary
Plainprime Limited
1
£1.00 Ordinary
Stephen E B Jones Ltd £1.00 Ordinary
Store Dental Care Limited £1.00 Ordinary
The Smile Centres Limited £1 .00 Ordinary
Ultimate Smile Spa Ltd £1.00 Ordinary
Fully owned subsidiaries registered at Level 16, 33 Exhibition
Street, Melbourne VIC 3000, Australia
Unless stated otherwise, the subsidiaries below are 100% held by
Group companies.
Name Share class
Australia Fair Dental Care Pty Ltd AUD Ordinary
Bupa Aged Care Australasia Pty Limited AUD Ordinary
AUD Preference
Bupa Aged Care Australia Holdings Pty Ltd AUD Ordinary
Bupa Aged Care Australia Pty Ltd AUD Ordinary
Bupa Aged Care Holdings Pty Ltd AUD Ordinary
Bupa ANZ Finance Pty Ltd AUD 1.00 Ordinary
Bupa ANZ Group Pty Ltd AUD Ordinary
Bupa ANZ Healthcare Holdings Pty Ltd AUD Ordinary
Bupa ANZ Insurance Pty Ltd AUD Ordinary
AUD Preference
Bupa ANZ Property 1 and 2 Limited AUD Ordinary
Bupa ANZ Property 3 and 3A Pty Ltd AUD Ordinary
Bupa Dental Corporation Limited AUD Ordinary
Bupa Disability Services Pty Ltd AUD 1.00 Ordinary
Name Share class
Bupa Health Services Pty Ltd AUD Ordinary
Bupa HI Holdings Pty Ltd AUD Ordinary
Bupa HI Pty Ltd AUD Ordinary
Bupa Innovations (ANZ) Pty Ltd AUD Ordinary
Bupa Medical (GP) Pty Ltd AUD Ordinary
Bupa Medical Services Pty Limited AUD Ordinary
Bupa Optical Pty Ltd AUD Ordinary
Bupa Telehealth Pty Ltd AUD Ordinary
Bupa Wellness Pty Limited AUD Ordinary
DC Holdings WA Pty Ltd AUD Ordinary
Dental Care Network Pty Ltd AUD Ordinary
Dental Corporation Australia Fair Pty Ltd AUD Ordinary
Dental Corporation Cox Pty Ltd AUD Ordinary
Dental Corporation Gerber Pty Ltd AUD Ordinary
Dental Corporation Holdings Limited AUD Ordinary
Dental Corporation Levas Pty Ltd AUD Ordinary
Dental Corporation Petrie Pty Ltd AUD Ordinary
Dental Corporation Pty Ltd AUD Ordinary
Dr Chris Hardwicke Pty Ltd AUD Ordinary
Gerber Dental Group Pty Ltd AUD Ordinary
Larry Benge Pty Limited AUD Ordinary
Scott Petrie (Dental) Pty Ltd AUD Class E
AUD Class F
AUD Ordinary
Fully owned subsidiaries registered at 3rd Floor,
Skyline Tower, 39 Wang Kwong Road, Kowloon Bay,
Kowloon, Hong Kong
Unless stated otherwise, the subsidiaries below are 100% held by
Group companies.
Name Share class
Allied Medical Practices Guild Limited HKD 1.00 Ordinary
Case Specialist Limited HKD 1.00 Ordinary
DB Health Services Limited HKD 1.00 Ordinary
Great Option Limited HKD 1.00 Ordinary
Jadeast Limited HKD 1.00 Ordinary
Jadefairs International Limited HKD 1.00 Ordinary
Jadison Investment Limited HKD 1.00 Ordinary
Jadway International Limited HKD 1.00 Ordinary
Marvellous Way Limited HKD 1.00 Ordinary
Megafaith International Limited HKD 1.00 Ordinary
Quality HealthCare Dental Services Limited HKD 1.00 Ordinary
Quality HealthCare Medical Centre Limited HKD 100.00 Ordinary
Quality HealthCare Medical Services Limited HKD 1.00 Ordinary
Quality HealthCare Nursing Agency Limited HKD 1.00 Ordinary
Quality HealthCare Physiotherapy Services Limited HKD 1.00 Ordinary
Quality HealthCare Professional Services Limited HKD 1.00 Ordinary
Quality HealthCare Psychological Services Limited HKD 1.00 Ordinary
Quality Healthcare TPA Services Limited HKD 1.00 Ordinary
Notes to the Financial Statements continued
for the year ended 31 December 2016
132 Bupa Annual Report 2016
Fully owned subsidiaries registered elsewhere
Unless stated otherwise, the subsidiaries below are 100% held by Group companies.
Name Country Share class
Bupa Aged Care Property No.2 Trust Level 19, 201 Kent Street, Sydney 2000, Australia Australia AUD 1 .00Unit
Bupa Aged Care Property No.3 Trust Level 14, 255 George Street, Sydney, NSW 2000, Australia Australia AUD 1.00 Unit
Bupa Aged Care Property No.3A Trust Level 14, 255 George Street, Sydney, NSW 2000, Australia Australia AUD 1.00 Unit
Bupa Aged Care Property Trust Level 19, 201 Kent Street, Sydney 2000, Australia Australia AUD 1.040422 Units
AUD 1.00 Unit
AUD 1.178896 Units
Amedex Insurance Company (Bermuda) Limited Crawford House, 4th Floor, 50 Cedar Avenue, Hamilton, HM11, Bermuda Bermuda BMD 1.00 Ordinary
Bupa Insurance (Bolivia) S.A Santa Cruz – AV. San Martin No 1800, Equipetrol, Bolivia Bolivia BOB 100.00 Ordinary
Bupa Do Brasil Saúde Ltda Rua James Watt, 84, 10th floor, CEP 04576-050, São Paulo, Brazil Brazil BRL 1.00 Quota
Care Plus Medicina Assistencial Ltda City of Barueri, State of São Paulo, at Avenida Sagitário, No. 138, oce 1905
and 1906, Zip Code 06473-073
Brazil R$ 1.00 Quota
Care Plus Negócios Em Saúde Ltda City of Barueri, State of São Paulo, at Avenida Sagitário, No. 138, oce 2113,
Zip Code 06473-073
Brazil R$ 1.00 Quota
Personal System Serviços Médicos e
Odontológicos Ltda
Av. das Nações Unidas, no. 12,901, unit 901, Torre Oeste, Bloco C, Centro
Empresarial Nações Unidas, Brooklin Paulista, Zip Code-04578-000
Brazil R$1.00 Quota
Service Care Participações e Negócios S.A. Av. Sagitário, no. 138, 19th floor–conjunto 1915, Condomínio Alpha Square
Torre 2, City of Barueri, State of São Paulo
Brazil R$ Common shares
R$ Preferred shares
Bupa Guernsey No 2 Limited 1st & 2nd Floors, Elizabeth House, Les Ruettes Brayes, St Peter Port, GY1 1EW,
Guernsey
Channel Islands £1.00 Ordinary
Bupa Holdings (Guernsey) Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU,
Channel Islands
Channel Islands £1.00 Ordinary
Bupa Holdings (Jersey) Limited
1
13 Castle Street, St Helier, JE4 5UT, Jersey Channel Islands NZD 1.00 Ordinary
Bupa LeaseCo Holdings Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU,
Channel Islands
Channel Islands £1 .00Ordinary
Bupa LeaseCo. (Guernsey) Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU,
Channel Islands
Channel Islands £1.00 Ordinary
UK Care No. 1 Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU,
Channel Islands
Channel Islands £1 .00 Ordinary
Virgo Limited
1
PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU,
Channel Islands
Channel Islands £1.00 Ordinary
Bupa Chile S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary
Bupa Chile Servicios Corporativos SpA Cerro Colorado 5240, Piso 7, Las Condes, Santiago, Chile Chile CLP Ordinary
Bupa Inversiones Latam S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary
Cruz Blanca Compania De Seguros De Vida S.A. Cerro El Plomo 6.000, piso 2, Las Condes, Santiago, Chile Chile CLP Ordinary
Grupo Bupa Sanitas Chile Uno, SpA Avenida El Golf 40, piso 20, Las Condes, Santiago, Chile Chile CLP 1,000.00 Ordinary
Inmobiliaria Y Constructora CBS S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary
Inversiones Clinicas CBS S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary
Proisa Aseosorias SpA Cerro Colorado 5240, Piso 7, Las Condes, Santiago, Chile Chile CLP Ordinary
Servicios Clinicos Domiciliarios S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary
Servicios De Personal Clinico CBS Dos S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary
Bupa Consulting (Beijing) Co. Ltd. Room 07-08, 3rd floor, Building 1, 21st Century Plaza, 40A Liangmaqiao Road,
Chaoyang District, Beijing, 100125, China
China HKD 1.00 Ordinary
Guangzhou Bupa First Outpatient Facility
Company Limited
Unit 305A -305, 3/F, GT Land Autumn Plaza, No.11, 13 ZhuJiang East Road,
ZhuJiang New Town, Tianhe District, Guangdong Province, China
China CNY 1.00 Ordinary
Guangzhou Bupa Hospital Management
Company Limited
Unit 03, 13/F, No.604 RenMin North Road, Yuexiu District, Guangzhou, China China CNY 1.00 Ordinary
Quality EAP (Macau) Limited Rua De Xangai No. 175 Edif., Associacao Comercial De Macau, 11 Andar, K, Macau China MOP 1.00 Ordinary
Quality Healthcare Medical Services (Macau)
Limited
Rua De Xangai No. 175 Edif., Associacao Comercial De Macau, 11 Andar, K, Macau China MOP 1.00 Ordinary
Bupa Denmark Services A/S Palaegade 8, 1261 Copenhagen K, Denmark Denmark DKK 100.00 Ordinary
Amedex Medical Group, S.R.L. Av. Gustavo Melia Ricart, No. 81, Terre Profesional Biltmore II, Suite 1007, Piantini,
Santo Domingo, Dominican Republic
Dominican
Republic
DOP 1,000.00 Quota
Bupa Dominicana, S.A. Av. Winston Churchill, corner with Rafael Augusto Sanchez, Plaza Acropolis,
Apt. P2-D, Santo Domingo, Dominican Republic
Dominican
Republic
DOP 1,000.00
Ordinary
Bupa Egypt Insurance Bupa Global S.A.E. Building 55, Street 18, Maadi, Cairo, Egypt Egypt EGP 10.00.Ordinary
133Bupa Annual Report 2016
Strategic report Governance Financial statements
Name Country Share class
Bupa Egypt Services LLC Building 55, Street 18, Maadi, Cairo, Egypt Egypt EGP 100.00 Ordinary
Bupa Malta Investments No. 1 Limited
1
9/3a International Commercial Centre, Casemates Square, Gibraltar Gibraltar £1.00 Ordinary
Bupa Malta Investments No. 2 Limited
1
10/8 International Commercial Centre, Casemates Square, Gibraltar Gibraltar £1.00 Ordinary
Bupa Guatemala, Compania de Seguros, S.A. Quinta avenida número cinco guión cincuenta y cinco, Zona catorce de esta
ciudad, Edificio Europlaza World Business Center, Torre III, undécimo nivel,
área corporativa número un mil, Guatemala
Guatemala GTQ 1.00 Ordinary
Bupa (Asia) Limited 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong Hong Kong HKD 10.00 Ordinary
Bupa International Limited 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong Hong Kong HKD 1.00 Ordinary
Bupa Limited 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong Hong Kong HKD 1.00 Ordinary
Bupa Mexico, Compania de Seguros, S.A. de C.V. Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion,
C.P. 11000, Mexico City
Mexico MXN 1,000.00 Capital
Stock Series E (fixed)
MXN 1,000 Capital
Stock Services M
(variable)
Bupa Servicios Administrativos de Salud,
S. de R.L. de C.V.
1
Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion,
C.P. 11000, Mexico City
Mexico US$1.00 Ordinary
Bupa Servicios de Evaluacion Medica,
S. de R.L. de C.V.
Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion,
C.P. 11000, Mexico City
Mexico US$1.00 Ordinary
Bupa Servicios Ejecutivos de Salud,
S. de R.L. de C.V.
1
Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion,
C.P. 11000, Mexico City
Mexico US$1.00 Ordinary
BI Healthcare Holdings BV B-tower, sixth floor, Schiphol Boulevard 409, 1118 BK Amsterdam, Netherlands Netherlands €1.00 Ordinary
Bupa Holdings Overseas Cooperatief B.A. B-tower, sixth floor, Schiphol Boulevard 409, 1118 BK Amsterdam, Netherlands Netherlands € Membership capital
Bupa Care Services NZ Limited Level 5, 5-7 Kingdon Street, Newmarket, Auckland, New Zealand New Zealand NZD Ordinary
Bupa Retirement Villages Limited Level 5, 5-7 Kingdon Street, Newmarket, Auckland, New Zealand New Zealand NZD Ordinary
Dental Corporation (NZ) Limited Level 5, 5-7 Kingdon Street, Newmarket, Auckland, New Zealand New Zealand NZD 1.00 Ordinary
Bupa Panama S.A. Prime Time Tower, Floor 25, Oce 25 b La Rotonda Ave, Costa del Este, Panama Panama US$1,000.00 Ordinary
Integramedica Peru S.A.C. Av. Guardia Civil 664 San Isidro, Lima, Peru Peru PEN Ordinary
Centrum Medyczne Diagnostyka sp. z.o.o. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 100.00 Ordinary
Centrum Opieki Medycznej Comed Sp. z.o.o. ul. Elblaska 135, 80-718, Gdansk, Poland Poland PLN 500.00 Ordinary
Diagnostic – Med. Centrum Diagnostyki
Radiologicznej Sp. z.o.o.
Grunwaldzka 16/18 Street, 60-780, Poznan, Poland Poland PLN 500.00 Ordinary
Elba 1 Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Ordinary
Elblaska Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Ordinary
Euro-Clinic Sp. z.o.o. ul. Pilotow, nr 2, 31-462, Krakow, Poland Poland PLN 50.00 Ordinary
Lux Med Lodz Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Ordinary
LUX MED Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 500.00 Ordinary
LUX-MED Investment Spolka Akcyjna ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Series A
PLN 50.00 Series B
PLN 50.00 Series C
Medicor Centrum Medyczne sp. z.o.o. 35-068 Rzeszow, Stanislawa Jablonskiego, 2/4 Street, Poland Poland PLN 1,000.00 Ordinary
Medicor sp. z.o.o. 35-068 Rzeszow, Stanislawa Jablonskiego, 2/4 Street, Poland Poland PLN 1,000.00 Ordinary
Medika Uslugi Medyczne Sp. z.o.o. Kuznicka 1 Street, 72-010, Police, Poland Poland PLN 50.00 Ordinary
Megamed Sp. z.o.o. Czapliniecka 93/95, 97-400, Belchatow, Poland Poland PLN 1,000.00 Ordinary
Tomograf Sp. z.o.o. ul. Stefana Batorego 17/19, 87-100 Torun, Poland Poland PLN 500.00 Ordinary
Amedex Services Ltd. (St Kitts) Amory Building, Victoria Road, Basseterre, St. Kitts, Saint Kitts and Nevis Saint Kitts
and Nevis
US$1.00 Capital Stock
Bupa Singapore Holdings Pte Ltd 600, North Bridge Road, #05-01 Parkview Square, 188778, Singapore Singapore SGD Ordinary
Elegimosalud S.L.U Calle Ribera Del Loira , 52 – 28042, Madrid, Spain Spain €1.00 Ordinary
Especializada y Primaria L’Horta-Manises, S.A.U. Avenida Generalitat Valenciana no 501, Valencia, Spain Spain €1.00 Ordinary
Grupo Bupa Sanitas S.L.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €100.00 Ordinary
La Seu Valencia S.L.U. calle Gobernador Viejo, 21, Valencia, Spain Spain €1.00 Ordinary
Sanitas Emision S.L.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €1.00.Ordinary
Sanitas Holding, S.L.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €1.00 Ordinary
Sanitas Mayores Navarra S.L. Avda Marcelo Celayeta, 144 – Pamplona (31014), Spain Spain €60.10 Ordinary
Sanitas Mayores Pais Vasco S.A. c/ Eguskiaguirre no.8, 48902, Baracaldo, Bilbao, Spain Spain €120.00 Ordinary
Sanitas Mayores S.L. Calle Tuset 5 – 11, Barcelona, Spain Spain €651.28 Ordinary
Notes to the Financial Statements continued
for the year ended 31 December 2016
134 Bupa Annual Report 2016
Name Country Share class
Sanitas Nuevos Negocios S.L.U. Calle Ribera Del Loira, 52 – 28042, Madrid, Spain Spain €1.00 Ordinary
Sanitas S.L. de Diversificacion S.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €6.02 Ordinary
Sanitas, S.A. de Hospitales S.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €6.01 Ordinary
LMG Forsakrings AB Box 27093, 102 51, Stockholm, Sweden Sweden €1,000.00 Ordinary
Bupa Global Middle East (DIFC) Limited Unit 10, Level 3, Gate Village Building 10, Dubai International Financial Centre,
Dubai, UAE, PO Box 507019, United Arab Emirates
United Arab
Emirates
US$1.00 Ordinary
Bupa Care Homes (Carrick) Limited 39 Victoria Road, Glasgow, G78 1NQ United Kingdom £1.00 Ordinary
Cromwell Health Group Limited Cromwell Hospital, Cromwell Road, London, SW5 0TU United Kingdom £1.00 A Ordinary
Medical Services International Limited Cromwell Hospital, Cromwell Road, London, SW5 0TU United Kingdom £1.00 Ordinary
Bupa Insurance Company 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$1.25 Capital Stock
Bupa Investment Corporation, Inc. 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$1.00 Capital Stock
Bupa U.S. Holdings, Inc. 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$0.01 Common
Stock
Bupa Worldwide Corporation 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$5.00 Capital Stock
U.S.A. Medical Services Corporation 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$5.00 Capital Stock
Altai Investments Limited PO Box 957, Oshore Incorporations, Centre, Road Town, Tortola, Virgin Islands,
British
Virgin Islands,
British
HKD 1.00 Ordinary
USD 1.00 Ordinary
Berkshire Group Limited PO Box 957, Oshore Incorporations, Centre, Road Town, Tortola, Virgin Islands,
British
Virgin Islands,
British
USD 1.00 Ordinary
Dynamic People Group Limited PO Box 957, Oshore Incorporations, Centre, Road Town, Tortola, Virgin Islands,
British
Virgin Islands,
British
USD 1.00 Ordinary
Subsidiary undertakings
Name Registered Address Country Share class
Eective holdings
(%)
Bupa Servicios de Salud SpA
3
Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary 100.00
Examenes De Laboratorio S.A.
4
Avenida Italia 1056, Providencia, Santiago, Chile Chile CLP Ordinary 100.00
Integramedica S.A.
5
Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary 100.00
Sonorad I S.A.
4
Las Bellotas No.200, Providencia, Sanitago, Chile Chile CLP Ordinary 100.00
Sonorad II S.A.
4
Las Bellotas No.200, Providencia, Sanitago, Chile Chile CLP Ordinary 100.00
Isapre Cruz Blanca S.A. Cerro Colorado 5240, Piso 7, Las Condes, Santiago, Chile Chile CLP Ordinary 99.01
Clinica Renaca S.A. Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Ordinary 88.60
Desarrollo E Inversiones Medicas S.A. Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Ordinary 88.60
Inmobiliaria Centro Medico Antofagasta S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.44
Inversiones Clinicas Pukara S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43
Centro Medico Antofagasta S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43
Inmobiliaria Somequi S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43
Servicios Y Abastecimiento A Clinicas S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43
Sociedad De Resonancia Magnetica Del Norte
S.A.
Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43
Sociedad Medico Quirurgica De Antofagasta S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43
Sociedad Medica Imageneologia Clinica Renaca
Limitada
Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Social Rights 70.88
Sociedad De Inversiones Pacasbra S.A. Doctor Juan Noe 1370, Arica, Chile Chile CLP Ordinary 69.19
Centro De Diagostico Avanzado San Jose S.A. Doctor Juan Noe 1370, Arica, Chile Chile CLP Ordinary 69.98
Corporacion Medica de Arica S.A. Doctor Juan Noe 1370, Arica, Chile Chile CLP Ordinary 68.97
Promotora De Salud S.A. Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Ordinary 67.03
Recaumed S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary 58.40
Bupa Ecuador S.A. Compania de Seguros
6
Av. Republica de El Salvador N34-229, 4th Floor, Quito,
Ecuador
Ecuador USD 1.00 Capital
Stock
100.00
Central Medical Diagnostic Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay,
Kowloon, Hong Kong
Hong Kong HKD 1.00 Ordinary 70.00
135Bupa Annual Report 2016
Strategic report Governance Financial statements
Name Registered Address Country Share class
Eective holdings
(%)
Central MRI Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay,
Kowloon, Hong Kong
Hong Kong HKD 1.00 Ordinary 70.00
Central PET/CT Scan Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay,
Kowloon, Hong Kong
Hong Kong HKD 1.00 Ordinary 70.00
MediPeru S.A.C Av. Guardia Civil 664 San Isidro, Lima, Peru Peru PEN Ordinary 99.97
Anglolab S.A. Av. Guardia Civil 664 San Isidro, Lima, Peru Peru PEN Ordinary-A 70.00
Pory 78 Sp. z.o.o. Pory 78 Street, 02-757 Warsaw, Poland Poland PLN 100 Ordinary 98.91
Centrum Diagnostyki Obrazowej Sp. z.o.o. Broniewskiego 89 Street, 01-876, Warsaw, Poland Poland PLN 50 Ordinary 98.54
Centrum Edukacji Medycznej CEMED Sp. z.o.o. Broniewskiego 89 Street, 01-876, Warsaw, Poland Poland PLN 7,000.00
Ordinary
98.54
Service Medica Sp. z.o.o. Pory 78 Street, 02-757 Warsaw, Poland Poland PLN 50.00 Ordinary 98.54
Sport Medica S.A. Pory 78 Street, 02-757 Warsaw, Poland Poland PLN 1.00 Ordinary-A
PLN 1.00 Ordinary-B
PLN 1.00 Ordinary-C
PLN 1.00 Ordinary-D
PLN 1.00 Ordinary-E
PLN 1.00 Ordinary-F
98.54
Niepubliczny Zaklad Opieki Zdrowotnej
Przychodnia Lekarska “POGORZE” Sp. z.o.o.
Porebskiego 9 Street, 81-185, Gdynia, Poland Poland PLN 200.00
Ordinary
88.15
Lux Med Tabita Sp. z.o.o. ul. Dluga 43, 05-510 Konstancin Jeziorna, Poland Poland PLN 100.00 Ordinary 88.00
Magodent Sp. z.o.o. ul. Gen. Augusta Emila Fieldorfa “Nila” 40, Warszawa,
04-125, Poland
Poland PLN 50.00 Ordinary 80.00
Endoterapia Sp. z.o.o. Brzeska 12 Street, 03-737, Warsaw, Poland Poland PLN 1,000.00
Ordinary
80.00
Sanitas S.A. de Seguros C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €0.68 Ordinary 99.90
Torrejon Salud, S.A. Calle Mateo Inurria 1, Urb. Soto de Henares, 28850– Torrejón
de Ardoz, Madrid, Spain
Spain €1,000 Ordinary 60.00
Bupa Health Insurance (Thailand) Public
Company Limited
98, Sathorn Square Oce Tower, 14th-15th Floor, North
Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand
Thailand THB 100.00 Ordinary 74.83
Healthcare Management Company Limited 98, Sathorn Square Oce Tower, 14th-15th Floor, North
Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand
Thailand THB 100.00 Ordinary
THB 100.00
Preference
73.99
Minor Health Enterprises Limited 98, Sathorn Square Oce Tower, 14th-15th Floor, North
Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand
Thailand THB 100.00 Ordinary
THB 100.00
Preference
61.75
Notes to the Financial Statements continued
for the year ended 31 December 2016
136 Bupa Annual Report 2016
Significant holdings in undertakings other than subsidiary undertakings
Associates
Name Registered Address Country Direct/Indirect Share class
Eective
holdings (%)
Centro De Imagenes Medicas
Avanzadas San Jose S.A.
Doctor Juan Noe 1370, Arica, Chile Chile Indirect CLP Ordinary 48.28
Sociedad Instituto De
Cardiologia Del Norte
Limitada
Manuel Antonio Matta 1945, Antofagasta, Chile Chile Indirect CLP Social Rights 42.71
Forsikringens DataCenter A/S Lautrupvang 3A, DK-2750 Ballerup, Denmark Denmark Indirect DKK 1.00 Ordinary 33.33
Max Bupa Health Insurance
Company Limited
Max House, 1, Dr Jha Marg, Okhla, New Delhi, 110020, India India Indirect INR 10.00 Ordinary 49.00
Endoterapia PFG Sp. z.o.o Al. Niepodleglosci 18, 02-653, Warsaw, Poland Poland Indirect PLN 50.00 Ordinary 32.00
Bupa Arabia For Cooperative
Insurance Company
Al-Khalidiyah-Nour Al Ehsan 3538, Unit 1 Jeddah 7505-23423,
P.O. Box 23807, Jeddah, 21436, Saudi Arabia
Saudi Arabia Indirect SAR 10.00 Ordinary 26.25
Bupa Holdings (Thailand)
Limited
98, Sathorn Square Oce Tower, 14th-15th Floor, North
Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand
Thailand Indirect THB 100.00 Ordinary 49.00
Healthcode Limited Swan Court, Waterman’s Business Park, Kingsbury Crescent,
Staines, Surrey, England, TW18 3BA, UK
United Kingdom Indirect £1.00 A Ordinary
£1.00 E Ordinary
20.00
Highway to Health, Inc One Radnor Corporate Center, Suite 100, Radnor, PA 19087,
United States
United States Indirect US$0.01 Ordinary 49.00
HTH Re, Ltd United States United States Indirect US$1.00 Ordinary 49.00
HTH Worldwide, LLC United States United States Indirect US$1.00 Ordinary 49.00
Worldwide Insurance
Services, LLC
United States United States Indirect US$1.00 Ordinary 49.00
Joint Ventures
Name Registered Address Country
Eective
holdings (%)
Mobile Dental Pty Ltd Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia Australia 49.00
SmartGenRx Pty Limited Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia Australia 38.71
Bupa Middle East Holdings
Two W.L.L.
Flat 41, Building No. 962, Road 1812, Block 318, Manama/Al Hoora, Bahrain Bahrain 50.00
Alpha Medical MRI (TST)
Limited
3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong Hong Kong 65.00
Centrum Edukacyjne
Medycyny Sportowej
Sp. z.o.o.
Marszalkowska 99 A lok. 5B Street, 00-693, Warsaw, Poland Poland 49.27
Nazer Bupa Medical
Equipment Company
Limited
P.O. Box 5958 Jeddah 21432, Khaldyah Dist. Bin Suliman Centre 6th floor, Prince Sultan Road, Jeddah,
Saudi Arabia
Saudi Arabia 50.00
Bupa CSH Limited Bupa House, 15-19 Bloomsbury Way, London, WC1A 2BA, England United Kingdom 50.00
Fulford Grange Medical
Centre Limited
1
Bridge House, Outwood Lane, Horsforth, Leeds, LS18 4UP, England United Kingdom 50.00
1 Dormant
2 Directly owned by The British United Provident Association Limited.
3
Bupa Servicios de Salud SpA is 99.99861% owned by the Group.
4
Examenes De Laboratoria S.A., Sonorad I S.A. and Sonorad II S.A. are 99.99860% owned by the Group.
5 Integramedica S.A. is 99.9986% owned by the Group.
6
Bupa Ecuador is 99.999846% owned by the Group.
137Bupa Annual Report 2016
Strategic report Governance Financial statements
(i) Consolidation of entities in which the Group holds less
than 50%
Bupa Health Insurance (Thailand) plc
The directors have concluded that the Group controls Bupa Health
Insurance (Thailand) plc and its holding companies; Bupa Holdings
(Thailand) Ltd, Minor Health Enterprises Ltd and Healthcare
Management Co Ltd.
The Group holds 25% of the voting rights of Bupa Health Insurance
(Thailand) Plc directly along with a 49% minority interest in the
holding companies mentioned above, that in turn hold the other
75% of the voting rights. The articles of these holding companies
require shareholder decisions to be unanimous, meaning that the
holding companies are unable to exercise any actions without the
Group’s agreement.
Eurocredit Investment Fund 1 plc
Eurocredit Investment Fund is a structured entity set up for the purpose
of investing in primary and secondary secured loans. Bupa is the only
company contributing investment capital but the nominal share capital
is held by a charitable trust. The Group participates in the risks and
rewards, but 100% minority interest is recognised due to the Group
holding no share of the ownership.
UK Care No 1 Limited
During 2016, the Group acquired 100% of UK Care No 1 Limited, a
structured entity incorporated for the purposes of issuing the Group’s
secured loans which were repaid in 2016. In 2015, 100% minority interest
was recognised due to the Group holding no share of the ownership
but participating in the risks and rewards.
(ii) Subsidiary significant restrictions
There are no significant restrictions on the subsidiaries ability to access
or use the assets to settle the liabilities of the Group. The Group’s
insurance entities are subject to local regulatory requirements.
(iii) Non-controlling interests (NCI)
Set out below is summarised financial information for each subsidiary
that has non-controlling interests material to the Group. The amounts
disclosed for each subsidiary are before intercompany eliminations.
Bupa acquired 56.4% of the shares in Bupa Chile on 24 February
2014 and on 5 December 2015 exercised its option to acquire an
additional 17.3% of the shares, bringing the total ownership to 73.7%
at 31 December 2015. The Group acquired 100% ownership of Bupa
Chile in 2016 with the transaction occurring in two stages; on 8 January
2016 the Group secured a further 26% interest, with the remaining 0.3%
shareholding acquired on 26 February 2016. Please see acquisitions in
Note 4.0 for further detail.
On 22 April 2016, the Group increased its shareholding in Torrejón Salud
S.A. From 50% to 60%.
8.0
Non-controlling interests
Non-controlling interests in brief
Additional disclosure is provided for entities which are consolidated
where the Company does not hold a 100% interest.
Note
Notes to the Financial Statements continued
for the year ended 31 December 2016
138 Bupa Annual Report 2016
Summarised Statement of Financial Position
Torrejón
40.0% NCI
Torrejón
50.0% NCI
Bupa Chile
0.0% NCI
Bupa Chile
26.3% NCI
2016
£m
2015
£m
2016
£m
2015
£m
Current assets 60.2 41.9 – 109.9
Current liabilities (45.0) (32.5) – (172.4)
Current net assets/(liabilities) 15.2 9.4 – (62.5)
Non-current assets 89.9 77. 8 – 387. 3
Non-current liabilities (88.4) (73.9) – (139.9)
Non-current net assets 1.5 3.9 – 247.4
Net assets 16.7 13.3 – 184.9
Accumulated NCI 6.7 6.7 – 48.6
Summarised Statement of Other Comprehensive Income
Torrejón
40.0% NCI
Torrejón
50.0% NCI
Bupa Chile
0.0% NCI
Bupa Chile
26.3% NCI
2016
£m
2015
£m
2016
£m
2015
£m
Revenue 81.1 71.0 – 656.3
Profit for the period 1.3 (5.9) – (1.9)
Profit allocated to NCI 0.5 (3.0) – (1.2)
Dividends paid to NCI – – – (1.4)
Summarised cash flows
Torrejón Bupa Chile
2016
£m
2015
£m
2016
£m
2015
£m
Cash flow from operating activities (6.9) (3.3) – 0.4
Cash flow from investing activities – – – (16.6)
Cash flow from financing activities 5.8 2.5 – 5.0
Net decrease in cash and cash equivalents (1.1) (0.8) – (11.2)
139Bupa Annual Report 2016
Strategic report Governance Financial statements
2016
£m
2015
£m
2014
£m
2013
£m
2012
£m
Revenue – segmental analysis
Australia & New Zealand 4,360.6 3,648.4 3,759.6 3,791.8 3,554.0
UK 2,785.9 2,857.8 2,711.2 2,573.5 2,528.8
Europe & Latin America 2,474.7 2,027.4 2,036.3 1,497.2 1,190.8
International Markets 1 ,427. 8 1,295.7 1,271.6 1,196.6 1,099.3
Net reclassifications to other expenses or financial income and expense (1.1) (0.9) (0.9) (0.4) 0.9
Unallocated central revenues – – – – 0.1
Consolidated total revenues 11,047.9 9,828.4 9,777.8 9,058.7 8,373.9
Reorganised Market Unit structure is detailed in Note 2.0.
Claims and expenses
Operating expenses (including claims) (10,436.3) (9,250.1) (9,143.9) (8,497.8) (7,840.4)
Impairment of goodwill – (114.1) – (20.7) –
Impairment of other intangible assets arising on business combinations (20.7) – (0.7) (12.8) –
Other income and charges (38.9) (40. 6) 12.9 (7.1) (3.2)
Total claims and expenses (10,495.9) (9,404.8) (9,131.7) (8,538.4) (7, 843.6)
Profit before financial income and expense 552.0 423.6 646.1 520.3 530.3
Financial income and expense (29.1) (49.3) (36.9) (5.9) 54.8
Profit before taxation expense 522.9 374.3 609.2 514.4 585.1
Taxation expense (136.1) (96.0) (86.4) (103.0) (134.9)
Profit for the financial year 386.8 278.3 522.8 411.4 450.2
Attributable to:
Bupa 381.6 278.3 515.7 405.6 439.7
Non-controlling interests 5.2 – 7.1 5.8 10.5
Profit for the financial year 386.8 278.3 522.8 411.4 450.2
Equity
Property revaluation reserve 706.1 632.3 707.9 700.2 631.9
Income and expenditure reserve and other reserves 5,228.2 4,797.9 4,590.7 3,940.6 3,544.9
Cash flow hedge reserve 14.7 20.8 20.0 25.0 25.1
Foreign exchange translation reserve 595.3 (96.9) 71.4 182.8 590.1
Equity attributable to Bupa 6,544.3 5,354.1 5,390.0 4,848.6 4,792.0
Equity attributable to non-controlling interests 30.7 69.5 78.4 22.2 25.9
Total equity 6,575.0 5,423.6 5,468.4 4,870.8 4, 8 17. 9
9.0
Five year financial summary
Five year financial summary in brief
The five year financial summary provides a five year time summary
in order to better understand trends.
Note
140 Bupa Annual Report 2016
International Financial Reporting Standards
relevant to Bupa
International Financial Reporting Standards (IFRS)
IFRS 3 Business combinations
IFRS 4 Insurance contracts
IFRS 5 Non-current assets held for sale and discontinued
operations
IFRS 7 Financial instruments: disclosures
IFRS 8 Operating segments
IFRS 10 Consolidated financial statements
IFRS 11 Joint arrangements
IFRS 12 Disclosure of interests in other entities
IFRS 13 Fair value measurement
International Accounting Standards (IAS)
IAS 1 Presentation of financial statements
IAS 2 Inventories
IAS 7 Cash flow statements
IAS 8 Accounting policies, changes in accounting estimates
and errors
IAS 10 Events after the reporting date
IAS 12 Income taxes
IAS 16 Property, plant and equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19R Employee benefits
IAS 20 Accounting for government grants and disclosure
of government assistance
IAS 21 The eects of changes in foreign exchange rates
IAS 23 Borrowing costs
IAS 24 Related party disclosures
IAS 27 Consolidated and separate financial statements
IAS 28 Investments in associates
IAS 32 Financial instruments: presentation
IAS 36 Impairment of assets
IAS 37 Provisions, contingent liabilities and contingent assets
IAS 38 Intangible assets
IAS 39 Financial instruments: recognition and measurement
IAS 40 Investment property
Interpretations
IFRIC 4 Determining whether an arrangement contains a lease
IFRIC 9 Reassessment of embedded derivatives
IFRIC 10 Interim financial reporting and impairment
IFRIC 12 Service concession arrangements
IFRIC 13 Customer loyalty programmes
IFRIC 14 The limit on a defined benefit asset, minimum funding
requirements and their interaction
IFRIC 16 Hedges of a net investment in a foreign operation
IFRIC 17 Distributions of non-cash assets to owners
IFRIC 18 Transfer of assets from customers
IFRIC 21 Levies
SIC 15 Operating leases – incentives
SIC 27 Evaluating the substance of transactions involving the
legal form of a lease
SIC 29 Service concession arrangements: disclosures
SIC 32 Intangible assets – website costs
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Cover photo
Our cover photo was taken at our Sanitas La Zarzuela
hospital in Spain. Our Spanish business is leading
the way in the development of digital technology
to enhance care and services, aiming to provide a
seamless, comprehensive experience for clinicians
and patients. The photograph shows how clinicians
are able to share and discuss scans with patients in
a more personalised interaction.
Registered oce
Bupa House
15–19 Bloomsbury Way
London WC1A 2BA
For further copies of this document
+44 (0)20 7656 2300
Corporate aairs
+44 (0)20 7656 2176
The British United Provident
Association Limited is a
company limited by guarantee.
Registered in England No. 432511.
‘Bupa’ and the master brand logo are
registered trade marks of the British United
Provident Association Limited.
Bupa Annual Report 2016