bupa: an international healthcare company - annual report...

Annual Report 2017

Who we are and what we do

Financial performance summary1

Revenue2

£12.2bn

Statutory profi t before taxation

£620.3m

Net cash generated from operating activities

£929.4m

Solvency II capital coverage ratio4

180%

Underlying profi t3

£805.3m

+5% CER2016: £11.7bn

+11% AER2016: £11.0bn

+19% AER2016: £522.9m

+4% AER2016: £891.0m

2016: 204%

+10% CER2016: 732.7m

+15% AER2016: 700.7m

1 . We use Constant Exchange Rates (CER) to compare trading performance in a consistent manner to the prior year. We have therefore retranslated our 2016 results using 2017 average foreign exchange rates. Actual Exchange Rates (AER) as reported in our Financial Statements.

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.

3. To derive underlying profi t, profi t 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, profi ts or losses on the sale of businesses and fi xed assets, transaction costs on acquisitions and disposals, restructuring costs and other one-off items.

4. The 2017 Solvency II capital coverage ratio is an estimated value.

Bupa was established in 1947 as a company without shareholders, which means we can make customers our absolute focus. We reinvest our profi ts into providing more and better healthcare that will benefi t customers now and in the future.Our purpose is helping people live longer, healthier, happier lives. This defi nes everything we do for our customers, inspiring and motivating us to improve our performance. Through us, millions of people have access to high-quality healthcare and residential care they trust.

From our early days in the UK, we have listened to our customers and grown by responding to their needs. We’ve become an international healthcare company, providing health insurance, treatment in clinics, dental centres and hospitals, and running care homes where residents truly feel at home. We continue to build a successful business so that we can invest in delivering more and better care for our customers.

We understand the realities of healthcare delivery through bringing together a unique mix of health funding and care delivery – partnering with our network of the world’s leading health providers. That clinical expertise means we can guide our customers to make informed decisions about the care that’s right for them. As a leader in many markets, we have a role to play in some of today’s critical health challenges. We help customers to stay well, care for those in later life, and work with companies to improve their employees’ health.

Strategic Report

ifc Who we are and what we doifc Financial performance summary 02 Chairman’s Statement 03 Group Chief Executive’s Review 04 Our business model 05 Our strategic framework 06-09 Customers10-11 Our people12-13 Financial performance14-15 Corporate responsibility and

sustainability16-19 Market Unit Reports20-23 Financial Review24 Longer term viability statement 25-30 Risks

Governance

31-32 Chairman’s introduction33 Our Board Governance Structure 34-35 Board of Directors 36-37 Bupa Executive Team 38-39 Leadership 40 Board in action 41-42 Eff ectiveness43 Engagement44-47 Audit Committee Report48-49 Risk Committee Report50-51 Nomination and Governance

Committee Report52-62 Remuneration Report63 Report of the Board of Directors64 Statement of Directors’ responsibilities

Financial Statements

65-152 Financial Statements66-71 Independent Auditor’s Report

In this report

01Bupa Annual Report 2017

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02 Bupa Annual Report 2017

Lord Leitch

Chairman’s Statement

Health systems around the world are experiencing growing demand for more and better healthcare as populations age, chronic diseases proliferate and new diagnostic methods and treatments emerge to meet them. Healthcare costs are growing faster than incomes and consumer infl ation, leading to pressure on aff ordability. As a leading player in all of our markets, we understand these trends and are taking action to continue to provide high-quality, value-for-money care.

In 2016, the Board approved Bupa’s new strategic framework. It has three core pillars: Customers, People and Performance. It puts our current and future customers front and centre. As a service organisation, we must be a place where our people love to work. Bupa must deliver strong and sustainable performance so that it can continue to deliver for our customers, long into the future.

I am delighted that in 2017 we continued to deliver against this framework. We are focused on continually improving the experience of our customers, using the Net Promoter System, which we have evolved into the Bupa Customer Excellence Framework. Improving how we engage digitally is a key part of enhancing customer experience. This has been a strong theme right across Bupa in 2017. We have invested in our people, providing them with more training and invested in the capabilities of our managers so that they can engage, empower and inspire our people to make a real diff erence for our customers. We delivered good revenue growth of 5% and underlying profi t growth of 10%. This was in addition to continuing to invest in our risk management and compliance capabilities, as these too are key to long-term sustainability.

The near-term focus in the strategic framework is investing in strength and depth. We did this by reshaping our UK care homes portfolio and continuing to grow our dental business. We sold Bupa Thailand as we could not see a way to scale, and we increased our stake in our associate business, Bupa Arabia.

This has been a year in which Bupa has emerged stronger despite the challenges it has faced, and it is well placed for those that lie ahead.

Corporate responsibility and sustainability Being a responsible business makes good business sense. Our approach to corporate responsibility and sustainability clearly defi nes our ambitions across customer, people, ethics, community and environmental agendas. Our Values and the Bupa Code set out the behaviours we expect from our people. We have confi dential independent (‘Speak Up’) whistleblowing facilities in place.

Diversity and inclusion are core to our success. We aim to off er all our people opportunities to grow and develop in a positive, open and inclusive environment. This includes promoting gender equality. We have strong female representation at every level of our organisation. In the UK, Lord Davies’ report has called for at least 33% female representation on boards by 2020. I am proud to say that for the third year running we’ve surpassed this. Our Board is 45% female, including our CEO and our CFO.

Welcoming new Board members In November 2017, Caroline Silver joined the Bupa Board as Non-Executive Director, bringing over 30 years’ experience in

international investment banking as well as extensive experience in advising clients and of regulators across Europe. In March 2018, The Honourable Nicola Roxon became Chairman of the Bupa Australia and New Zealand Board as John Conde AO stepped down after a decade in the position. See pages 31-32 for more information about Bupa’s governance.

70th anniversaryBupa celebrated its 70th year in 2017. We have come a long way from our origins as a health funding organisation with just 30,000 customers in the UK. Today, Bupa is an international healthcare company serving around 15.5 million health insurance customers, around 14.5 million patients in our clinics and hospitals, and 23,300 residents in our care homes and villages. As we enter our eighth decade, the Board and I would like to thank all our people working across our organisation for everything you do every day to serve our customers. You are key to delivering Bupa’s purpose of helping people live longer, healthier, happier lives.

As I move into my last year as Chairman, I would like to reinforce what a privilege it has been to serve as Bupa’s Chairman over the past 12 years. I remain absolutely committed to Bupa over the year to come.

Our 2017 Strategic Report from pages 1-30 was reviewed and approved by the Board of Directors on 7 March 2018.

By order of the Board.

Lord Leitch Chairman

“ This has been a year in which Bupa has emerged stronger despite the challenges it has faced, and it is well placed for those that lie ahead.”


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Last year, we grew Group revenue by 5% and underlying profi t by 10%, with good growth in our largest Market Units – Australia and New Zealand, the UK, and Europe and Latin America. I’m very pleased with these results.

In 2017, we focused on improving and extending our services for customers, and investing in digital technologies keeping our customers front and centre.

Despite the challenging economic conditions in Australia and New Zealand, revenue grew 4% and underlying profi t increased by 3%. Although the overall number of Australian residents covered by private health insurance fell, we grew customer numbers by 1%, fuelled by strong growth in international insurance sales. We supported the Australian Federal Government’s health reform measures to help address health insurance aff ordability, and have introduced initiatives to improve value for money for our customers.

In the UK, revenue is up 1% year-on-year and underlying profi t increased by 19%. Our acquisition of Oasis Dental Care makes us the leading provider of private dentistry in the UK. The integration is progressing well, with the majority of practices now rebranded as Bupa Dental Care. We’ve signifi cantly reshaped our UK aged care business, selling a number of homes while investing in the quality of our retained care home and village portfolio. In health insurance, we launched our Cancer Direct Access self-referral service, which gives access to diagnosis and treatment without a GP referral.

In Europe and Latin America, revenue grew 7% and underlying profi t rose 10%. In Spain, where we operate under the Sanitas brand,

we increased the number of insurance customers through our strong partnerships. We also achieved excellent profi t growth in Sanitas Dental. We maintained our focus on improving customer experience through technology. We expanded our aged care business with the acquisition of fi ve care homes in Madrid and opened a new home in Barcelona. In Poland, we opened an oncology hospital in Warsaw. In Chile, growth was driven by higher activity in both the inpatient and outpatient businesses.

Revenue in International Markets grew 11%, but underlying profi t decreased 18% mainly due to a fall in profi t in Bupa Global. We have refi ned our market strategy and started a programme to strengthen our distribution, improve customer engagement, and review the products and service off ering. We made progress in customer service metrics and retention levels. In July, we acted swiftly after discovering an employee had inappropriately copied customer information relating to a portion of international health insurance policy holders. We informed aff ected customers and introduced additional security checks. We increased our stake in our associate business in Saudi Arabia by 8% to 34.25%, and sold our business in Thailand. Care Plus, the business we acquired in Brazil in late 2016, is performing well with integration on track.

We continue to prioritise investment in customer experience across service, value and standards. Digital technology is key. Examples include the launch of the myBupa app in Australia and MiBupa app in Chile. These enable customers to make claims, access medical records, and book appointments through their mobile devices. In the UK, Bupa Connect allows intermediaries to quote and buy directly with us

online. In Spain, we’ve introduced services such as video consultations, and online appointments. We launched Blue Table, a global programme in which start-ups partner with us to explore new ways of delivering high-quality health and care services, and we entered into a number of arrangements to accelerate bringing new digital health and care services to our customers.

The UK’s decision to leave the EU has led to uncertainty for Bupa. We are putting contingency plans in place to address a range of scenarios, including changes to cross-border fi nancial services regulation.

I made two new appointments to the Executive Team. In June, Nigel Sullivan, former Group HR Director for TalkTalk, joined us as our Chief People Offi cer. In October, Simeon Preston, former Group Chief Operations Offi cer at AIA, became CEO of our International Markets business.

Outlook Looking ahead, we expect slower growth in health insurance in our key markets. Economic and political conditions will remain testing. Internal controls, particularly information security, continue to be high on our agenda. We’re confi dent that focusing on our customers’ needs, and delivering high-quality services, through our great people, will help us grow in a sustainable way.

Evelyn Bourke Group Chief Executive Officer

Evelyn Bourke

Group Chief Executive’s Review

“ We’re confi dent that focusing on our customers’ needs, delivering high-quality services and having great people will help us grow in a sustainable way.”


How our business works

Our business model

With no shareholders, our starting point is our customers. They are at the heart of everything we do in delivering our purpose of helping people live longer, healthier, happier lives.

Our employeesWe employ over 78,000 people, principally in the UK, Australia, Spain, Poland, Chile, New Zealand, Hong Kong, the USA, Brazil, the Middle East and Ireland, and many more through our associate businesses in Saudi Arabia and India

Our partnersWe work with a wide range of partners including other health providers, brokers, distributors, partners in our associate businesses, and joint ventures

Society We want to have a positive impact on the communities in which we operate, delivering quality services, contributing to economies and taking care of our social and environmental responsibilities

Our customersAs a company without shareholders, our customers are our main stakeholder

Read mor e:About our customers on pages 6-9

We cre ate value for

We fund We provide

Brand healthOur brand is known

and trusted for quality experiences for customers

Status and purposeA private company limited

by guarantee without shareholders, with profi ts

reinvested

Financial strength

A robust capital base, strong profi tability and

cash generation

Regulation and governance

We operate in regulated sectors with strong

internal controls and risk management

International health insuranceFunding access to healthcare services in multiple countries

Health insuranceFunding access to healthcare services in one country

OtherPay-as-you-go services, subscriptions, dental and travel insurance

Under pinne d by...

Customers

HealtFundihealth

IntFuser

Clinics345

Hospitals17

Dental949 clinics

Aged care317 care homes, 61 villages

AdviceInformation and guidance,

including health assessments


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Our strategic framework

We have a simple strategic framework to guide our activity.

CustomersA true champion,

providing outstanding experiences

PeopleOur people love

working at Bupa and for our customers

PerformanceStrong and sustainable

performance with disciplined risk and

capital management

Our pillars

Our prior ities

Putting our customers front

and centre

Engaging and empowering our people to deliver

Maximising value through

healthcare co-ordination

Expanding into related

business lines

Digital transformation and continuous improvement

Passionate Caring Open Authentic Accountable Courageous Extraordinary

Our values

Our approachInvest in strength

and depth, prioritising our

existing business, with selective

expansion

Win locally, enabled and

supported globally

Ever-focused on quality,

effi ciency, safety and compliance

Integrate corporate

responsibility and sustainability

Consumers are increasingly looking for aff ordable, quality care that is readily available wherever and whenever they need it. Governments and consumers alike are fi nding the cost of managing health harder to meet as economic growth fails to keep pace with rising medical costs. This and volatile political and economic environments around the world are putting pressure on healthcare systems.

Global healthcare spending will continue to outpace economic growth due to factors such as a greater disease burden linked to unhealthier lifestyles and people living longer, and cost infl ation from medical innovation.

The healthcare sector is, rightly, closely regulated and expectations of quality and integrity are high. Market players need to evolve their businesses to make sure they meet or beat minimum standards, especially in customer care, including information security.

Meanwhile, competition is intensifying as players, old and new, seek to address changing customer expectations. The digital age is bringing new standards of customer choice, personalisation and accessibility, with the focus on the customer. Demands for transparency and accountability are higher than ever and will continue to increase. Healthcare is unique in each country and is regulated locally. In order to succeed in this changing world, we need to be ready to adapt and respond to these challenges with tailored solutions for each of the markets we operate in.

The market context


Customers: Putting customers front and centre

We have invested in technology to improve service for customers. Projects range from improving our ‘back offi ce’ systems and service portals to developing new products and services. In Spain, we’ve introduced services such as video consultations, online appointments and digital membership cards. In Australia and Chile, we’ve launched apps which enable our customers to make claims, view claims status, access medical records and book appointments through their mobile devices. In the UK, Bupa Connect allows intermediaries to quote and buy directly with us online. We launched Blue Table, a global programme in which we partner with start-ups to explore new ways of delivering health and care services. In January 2018, we entered into a number of arrangements to accelerate bringing new digital health and care services to our customers.

Improving customer experience through investment in digital

Listen

We listen to our customers to understand their needs and how to improve the services we provide. By collecting regular Net Promoter Score (NPS)1 data and fi rst-hand feedback from customers, we continually gain their input. We focus on making it easy for customers to give us feedback at the moments that matter most, and in the most eff ective way.

Learn

We learn from what our customers are telling us, spotting trends and understanding issues from their point of view. Across all our businesses, customer focus sessions are empowering teams to make fast, effective improvements for customers. We discuss customer feedback at every level. We also look at what it tells us about our services including the specifi c ‘micro moments’ that really matter to customers.

Act

We empower our people to act and improve things for our customers, using the feedback we get from them. Improvements may be made at a very local level within a team, or developed and implemented on a broader scale. The consistency of our measurement process together with the accessibility to all colleagues of the lessons learned ensure we can prioritise and act in the appropriate way.

With no shareholders, our customers are the reason we exist. Bupa’s purpose is helping people live longer, healthier, happier lives. We serve 15.5 million health insurance customers around the world. We have 14.5 million patients in our clinics and hospitals across many markets. We also look after 23,300 aged care residents in the UK, Australia, New Zealand and Spain.We aim to deliver truly outstanding experiences that make a real diff erence to our customers. We want to be known for our warm, empathetic service, and for helping people access high-quality, aff ordable services within health and care systems that can otherwise be complex and hard to navigate.

Over the past few years we’ve been working to make Bupa more customer-centric. In 2015, we piloted the Net Promoter System in some of our businesses, and in 2016 extended this into additional markets. It is now well established as a standard way of working across the entire organisation. We have developed it to create our own bespoke Customer Excellence Framework, a best practice methodology to help us continually improve for our customers.

Customer expectations are rising all the time – from the speed and ease of service to the degree of choice and personalisation available to them. We’re determined to anticipate, meet and exceed these expectations.

Blue Table programme participants with Group CEO Evelyn Bourke

1. Net Promoter Score is an internationally recognised measure of customer advocacy. It measures how likely customers are to recommend a company to their family and friends.


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Listening directly to our customers in SpainSanitas has introduced an app that lets all employees hear what customers are saying about us, following data protection requirements at all times. The feedback is anonymised and it doesn’t include clinical-related information. Recordings can be fi ltered by geography, business line and customer interaction so employees can search for feedback on areas that are relevant to them

and get a fi rst-hand picture of what our customers want. All of our businesses in Spain have been using the listening app in workshops to help put the customer voice at the heart of discussions around how we can improve our service. This engages and empowers employees to make their own suggestions and to see the actions that are being taken.

Connecting with customers in AustraliaIn Australia, we’ve launched CareCorner, an online research platform that allows our health insurance customers to share their opinions about health and care topics and discuss their experiences with us. This is infl uencing the design of products and services, providing the opportunity to truly listen to and connect with our customers on a personal level.

Our Customer Excellence Framework is designed to help us constantly improve. It takes a holistic approach to improvement and has three core components – Listen, Learn and Act.

Customer voice driving changein our UK health clinicsWe know that when customers visit our health clinics they are looking for a personalised service. We have placed the voice of the customer at the heart of our clinics, allowing us to listen to what they are saying about their experience, and learn how we can make it even better. We’ve rolled out customer excellence training to all of our people, both customer-facing and back offi ce. We’ve made feedback and NPS scores more

accessible to our clinic staff , who are using team huddles to learn from these insights and to inform action planning. Clinics don’t just have access to their own feedback, they can see what is happening in their region, meaning they can adopt best practice from other centres and share their experience with clinics in need. As a result, NPS scores increased by eight points in 2017.

Bupa Arabia: addressing‘pain points’We have introduced a continuous improvement process that allows teams to identify and make changes to customer service in response to feedback from customers. As a result of the feedback received we’ve been able to address key customer ‘pain points’, such as appointment and discharge waiting times. We’ve also improved the clarity of policy documents and the accessibility of medical records.

Using customer insights in AustraliaCustomer Connect in Australia, our ‘Google for Bupa’, provides access to over 500,000 pieces of customer insight, helping us to take action at the most important point in a customer’s individual journey. It also enables us to design and test new products and services based on customer needs.

Embracing digital in Hong Kong In Hong Kong, we have introduced e-ticketing for GP appointments, e-booking for specialty and vaccination services, and personal e-Health Records, all helping customers save time and eff ort.

Enabling families to feel closerto their loved ones in SpainIn Spain, an app now enables families to stay close to their loved ones in our care homes by receiving information about their day, the activities they have enjoyed, the meals they have eaten and the treatment they have received. It allows them to interact with a range of home staff , from the laundry supervisor, letting them know the resident needs warmer clothing, to the activities leader, letting them know about an event they might like to participate in.

Reduced call waiting timesin the UK In the UK, we learned that customers felt they were spending too long on the phone to us, so we have introduced a two-tier contact centre strategy, drastically reducing call waiting times. We’ve also reviewed our customer communications, providing more clarity on pricing and equipping our people with training and tools to help them have better conversations with our customers.

The Sanitas Dental team using the app in a workshop

Employees at our Chancery Lane health clinic in London discussing insights from NPS scores

Employee in Australia accessing the CustomerConnect platform


We have strong brand awareness in our key markets.

Feel

Customers: Our performance

We track our performance using a range of customer metrics. In 2017, we introduced a new global Customer and Brand Dashboard, which creates a ‘balanced scorecard’ for each Market Unit across three areas: Feel, Do and Say. The Dashboard shows: – how our customers Feel about us, considering brand health and reputational metrics as well as levels of engagement in digital and social media;

– what our customers Do, including health insurance customer numbers and lapse rates, clinic and hospital visits and care home occupancy levels;

– what our customers Say about us, looking at key Net Promoter Scores (NPS) and other feedback metrics.

The Dashboard is now a core management tool within our businesses, helping focus the customer agenda and informing decision-making. The Bupa Executive Team reviews progress across the Group on a quarterly basis.

Say

Do

Marketing and brand campaigns connect our customers to Bupa and our purpose of helping people live longer, healthier, happier lives.

We have increased the focus on customers within management incentive schemes. Customer metrics now account for 20% of the Management Bonus Scheme and Long Term Incentive Plan. Teams are measured on their delivery of specifi c actions to improve customer excellence, as well as their improvement of NPS scores and overall performance as measured through the Dashboard.

Customer metrics built into management incentives

We look at what our customers are doing, tracking customer numbers and lapse rates in health insurance, as well as the number of clinic and hospital visits in our provision businesses. In aged care, home occupancy levels are a key indicator of performance.

We listen to what our customers have to say and track all feedback received via our Net Promoter programme and other feedback metrics. We track clear targets for improving customer experiences, linked to local business priorities, with a particular focus on key moments for our customers, such as becoming a customer, visiting a clinician or making a claim.

We consider brand health and reputational metrics, as well as levels of engagement in social media, to measure how our customers feel about us.

“ Eve ryon e I spoke to at Bupa was kind, he lpful and con sider ate. The whole proce ss was extre mely easy and uncom plicated.”Bupa UK health insurance customer

20%of the Management Bonus Scheme and Long Term Incentive Plan are aligned to customer performance.


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Brand awareness in Australia is

87%

UKIn the UK, our brand awareness is 94%. In 2017, we launched the ‘For Living’ brand campaign, which focuses on helping people get the most out of everyday life. The lead advert, ‘For owning the dance fl oor’, won 11 industry awards, including Cannes Lion and British Arrows. Relevance scores of the campaign doubled from 10% to 20%, and search volumes experienced the highest traffi c in a year.

Brand awareness in the UK is

94%Brand awareness in Spain is

71%

AustraliaAfter fi ve years in the market, our brand awareness in Australia reached 87% in 2017. We’ve developed our brand proposition around ‘care’ to show Bupa as a diverse health and care provider. Our new brand campaign, ‘Life is a gift. Take care of it’ is designed to build awareness of health and care services over and above health insurance, which we’re well known for.

SpainIn Spain, we operate under the Sanitas brand. In 2017, our brand awareness remained strong at 71%. We launched the Sanitas ‘micro-moments’ campaign to drive awareness of the diverse range of digital solutions available to customers. Sanitas was recently named one of the country’s top 30 best brands by Interbrand.

Customer numbers

Health insurance

15.5mWe are the leading health insurance provider in Australia, UK and Saudi Arabia.

Provision

14.5mWe are one of the largest dental businesses with operations across the UK, Australia, Spain, Poland, Chile and Hong Kong.

Aged care residents

23,300We have care homes in the UK, Australia, New Zealand and Spain, with an average occupancy rate of 91%.

Bupa Global improving claims experiences Bupa Global improved their claims experience NPS by eight points, as a result of making it easier for customers to claim and speeding up customer reimbursements.

Acting where it matters mostIn Australia, we educated our teams on what customers are saying in a Customer Immersion Expo. This aimed to engage all areas of the business to walk in the customers’ shoes and see things from a customer’s perspective, no matter what their role within Bupa.

All of our businesses in Spain achieved improved growth in NPS to +60 and above.

The Cromwell Hospital in the UK achieved an NPS of +80. UK Clinics NPS is +65.

Bupa Chile increased its NPS by six points and Bupa Arabia increased it by nine points.

UK and New Zealand care homes were both up two points over the year, while Spain was up over three points.

Health Insurance Australia has increased its new customer NPS by nine points following the introduction of a number of initiatives based directly on customer feedback, including welcome calls to all new domestic customers.

Quality HealthCare in Hong Kong had a 17 point increase in NPS in 2017.

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A core element is to call back customers who provide negative feedback during their survey. This is a standard practice across Bupa.


Performance

Our people: Empowered, enabled and inspired to deliver for our customers

People Pulse – our employee listening and engagement survey – helps us understand how our people feel about working at Bupa and what they think of our products and services. This feedback is invaluable and we use it to improve the employee experience.

Following a positive increase of our employee Net Promoter Score (eNPS) in 2016, in 2017 we achieved a further uplift of +38. Each of our Market Units improved throughout the year, with Europe and Latin America showing an impressive eNPS of +52.

‘A great working environment’ / ‘A friendly workplace’ continue to be the top two reasons why people say they would recommend Bupa as a place to work.

People Pulse: Measuring how our people feel about working at Bupa

Diversity and inclusion

Safety, compliance and internal controls

Wellbeing

Recognition

Development and professional standardsOur people need the right knowledge, qualifications, skills and experience to give the best possible service and meet our high professional standards. This commitment is captured in the Bupa Code, a must-follow document for all Bupa people. We put a big eff ort in developing and promoting our own internal talent, and have clear succession plans.

We pride ourselves on being an inclusive organisation. We welcome everyone, from all talents and backgrounds. We promote a diverse and inclusive workplace and embrace our diff erences. They make us stronger and refl ect the needs of our customers. We do not tolerate any kind of discrimination or bullying and have a strong, independent and confi dential ‘Speak Up’ whistleblowing process in place to support this.

We keep people healthy and safe, promoting a culture of zero-harm, upholding health and safety policies and procedures. We work to create a culture which emphasises serving the interests of our customers by 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.

We enable all our people to bring the very best of themselves to the workplace. We invest through our Smile employee health and wellbeing programme, with tailored activities, tools and benefi ts in each of our businesses. Our Performance Energy resilience-building programme operates across Bupa, helping people to be at their best physically and mentally, and to manage everyday pressures.

Our annual global Bupa Awards programme recognises and celebrates people who are delivering for our customers and living our Bupa Values. From digital projects redefi ning the future of healthcare, to those who go above and beyond for our customers, the 2017 awards brought together some of our brightest stars from across Bupa. We also celebrate people and teams locally, through recognition schemes and awards programmes delivered at Market Unit level.

eNPS progression since 2016

March 2016 +14

June 2016 +21

October 2016 +30

March 2017 +29

October 2017 +38

80% Bupa employees who are motivated to go above and beyond

Our people strategy is clear: we want Bupa to be a place where people love to work and make a real diff erence for our customers. We employ over 78,000 people, principally in the UK, Australia, Spain, Poland, Chile, New Zealand, Hong Kong, the USA, Brazil, the Middle East and Ireland, and many more through our associate businesses in Saudi Arabia and India.As a service business, everything we do for our customers is delivered through our people. We listen to them and we understand and respond on the things that matter most to them.

We enable all our people to be themselves and be their best. We want them to be healthier and happier because they work at Bupa, and we actively encourage participation in our global ‘Smile’ employee health and wellbeing programme. We seek to create a diverse, inclusive workforce that refl ects our customers and our global business.

We off er development opportunities and competitive reward programmes, and we foster an open and authentic culture. We focus on developing and championing great leaders and managers so they enable our people to deliver the best for customers. We are developing our digital processes and agile ways of working to ensure our people have the right tools and resources to deliver.

We do all of this in the spirit of our Bupa Values: passionate, caring, open, authentic, accountable, courageous and extraordinary, and the principles set out in our Bupa Code.


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Developing our people is key to our strategy. Global development initiatives in 2017 included participation in the London Business School Global Business Consortium programme and our Leading at Bupa programme. Our ‘HIT’ programme brings small High Impact Teams together to help solve a business critical issue. ‘Bupa Advance’ helps leaders prepare for expanded roles.

Each Market Unit also has its own mandatory training programme tailored to local needs including compliance and regulatory requirements.

We reported our gender pay gap in the UK. Our median gap for insurance and corporate is 16.4%, and 2.4% for provision (UK national average: 18.1%). Our approach to pay is gender-neutral by design and the gap is mainly caused by the structure of our workforce: we have more men than women in those roles that are higher paid, and more women than men in those roles that are lower paid. We see similar trends in our other key markets. We’re committed to understanding the gap better and, where appropriate, acting to reduce it.

We launched quarterly global campaigns for employees on the Bupa Code, including information security and ‘phishing’.

‘Speak Up’People Pulse survey shows 82% of respondents are aware of our ‘Speak Up’ process.

Bupa New Zealand ran a training programme to reduce injuries in care home workers resulting from moving care home residents.

Finalists from across the Bupa world attended a celebratory ceremony in Madrid, where winners of the six Bupa Awards categories were announced.

Internal hiring for Bupa Leadership Team positions rose from 41% to

65%

Jerson Lat New Zealand care home Habourview’s Head Chef, won the ‘Everyday Hero’ award for his work.

Globally, lost time injury rate in 2017 was 1.43 per 100 employees. 12% reduction in days lost following an accident from 2016.

Our annual ‘Bupa Week’ recognition and engagement campaign for employees was themed on ‘#grateful’.

Mental health was a particular focus as we aim to reduce stigmas and highlight the support available to our people. We shared personal experiences of dealing with mental health issues and provided guidance to managers to help them recognise and act when people may need support. We also promoted our free, confi dential support services.

80% of our people feel that their managers care for them (People Pulse, October 2017).

We have strong female representation throughout our workforce. Women comprise 38% of our senior managers and 38% of our Executive Team. We are proud signatories of The 30% Club and, with 45% of our Board being female, we’ve surpassed Lord Davies’ recommendation of 33% female representation by 2020, for the third year in a row.

In Australia, we focus on closing the gap on indigenous disadvantage by improving employment opportunities, through our wider Reconciliation Action Plan.

Our associated business, Bupa Arabia, is focused on recruiting and developing women. They have enhanced their maternity leave policy above the statutory requirement. They also have an in-house child care facility for employees’ children aged between three months old and two years old, to help their people better manage their work-life balance.

“ Care hom e re siden ts des er ve to fe el like fine dine rs at eve ry meal.”

126 fi nalists

6categories

7 winners

1Everyday Hero

45% of our Board are female, including our CEO and CFO.

38% of our Executive Team are female.


Revenue (CER)

Underlying profi t (CER)

Statutory profi t before taxation (AER)

Net cash generated from operating activities (AER)

Solvency II capital coverage ratio (AER)

Performance

Financial performance

Our key fi nancial metrics help keep us focused on both in-year performance and longer-term sustainability. Our key fi nancial metrics include revenue, underlying profi t, statutory profi t before taxation, net cash generation, and Solvency II capital coverage ratio.

Revenue The sales we make through underwriting health insurance, managing insurance on behalf of others and the provision of care, health, dental and other related services.

Underlying profi tRefl ects our trading performance and so excludes a number of items otherwise included in statutory profi t, to facilitate year-on-year comparison. These relate to amortisation and impairment of intangible assets and goodwill arising on business combinations, as well as market movements such as gains or losses on foreign exchange, on return-seeking assets, on property revaluations and other one-off items.

Statutory profi t before taxation Our profi tability as reported on the face of the Consolidated Income Statement.

Net cash generated from operating activitiesOur trading view of cash generation, before changes in investing or fi nancing cash fl ows.

Solvency II capital coverage ratioA measure of our regulatory solvency and ability to absorb unexpected losses where our eligible capital resources are divided by our capital requirement.


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Estimated solvency capital coverage ratio as at 31 December 2017 is 180% (2016: 204%). In December 2016, we issued £400m tier 2 subordinated debt, in preparation for the purchase of Oasis Dental Care in February 2017, and the additional shareholding in Bupa Arabia in June 2017. This increased our coverage ratio at December 2016 to 204%. Following the acquisition of Oasis Dental Care, the coverage ratio fell to 160% as reported at half year. The coverage ratio of 180% as at 31 December 2017 primarily refl ects the increase in available capital from profi ts in the year.

Revenue grew by 5% to £12.2bn (2016: £11.7bn) at CER. This growth was delivered by all of our Market Units.

Underlying profi t increased by 10% to £805.3m (2016: £732.7m) at CER. This growth occurred in our major Market Units of Australia and New Zealand, the UK, and Europe and Latin America. Underlying profi t in International Markets fell as we continue to experience diffi cult trading conditions in our Bupa Global business.

Statutory profi t before taxation was £620.3m (2016: £522.9m) representing growth of 19% at AER. This was driven by trading performance, with non-underlying items broadly unchanged in magnitude compared to 2016, albeit driven by diff erent factors.

Net cash generated from operating activities remains solid, increasing by £38.4m (4%) to £929.4m in 2017 (2016: £891.0m). This refl ected the year’s increased profi tability, supported by foreign exchange movements, and off set predominantly by changes in our operating receivables following our acquisitions and divestments during the year.

£12.2bn

£805.3m

£620.3m

£929.4m

180%

2016

2017

11.7

12.2

2016

2017

732.7

805.3

374.3

522.9

620.3

2015

2016

2017

788.1

891.0

929.4

2015

2016

2017

178

204

180

2015

2016

2017


Performance

Corporate responsibility and sustainabilityCorporate responsibility and sustainability (CRS) is an integral part of Bupa’s strategy, generating trust and safeguarding our reputation. Our approach spans fi ve pillars: Customer, People, Ethics, Community and Environment. This refl ects Bupa’s purpose and values and recognises the high expectations of our customers, employees, partners, regulators, governments and other stakeholders.

In 2017, we made good progress across our CRS agenda:

Customer: CRS starts with the integrity and value of the services we provide and in our dealings with our customers. See pages 6-9.

People: We directly employ over 78,000 people and our associates employ many more. We listen to our people and help them to look after their health and wellbeing. See pages 10-11 for details on our People agenda.

Ethics: Our purpose, values and the Bupa Code, our code of conduct, set clear expectations on ethics. While of course seeking to comply with all relevant regulatory and legal requirements, we have policies and compulsory training to ensure that we run our business ethically. This is underpinned by our independent and confi dential ‘Speak Up’ whistleblowing process. We’ve published our approach to human rights and our modern slavery statement.

Community: We continue to invest in communities, including through our Health Foundations in Australia, the UK and Spain. In 2017, our Health Foundation in Australia invested AUD3.5m in research and initiatives to ensure the sustainability of aff ordable healthcare. Our UK Foundation awarded over £380,000 in grants, supporting more than 50 projects focused on mid-life mental health, healthy futures and caring for carers. We invested a further £400,000 through match funding, fundraising, donations and partnerships. Our Foundation in Spain invested €990,000 to support social initiatives, with a special focus on promoting healthy lifestyles and social integration of children with disabilities through sport.

Environment: We closely manage our environmental impact and actively promote positive environmental practices. Despite growth (organic and through acquisition) we’ve reduced absolute carbon emissions year-on-year (a reduction of 28% against our 2009 baseline). We continued to prioritise renewable energy sources, which accounted for 50% of our energy by the end of 2017.

Our group-wide corporate responsibility and sustainability policy sets out our ambition across these fi ve pillars. Market Units are individually accountable for integrating CRS in their business plans to meet local priorities. We review progress every six months, and this is discussed annually by the Bupa Executive Team and the Bupa Board.

Funding and providing quality health and care services

See pages 6–9 for more

Making a positive impact on the environment

Our people love working at Bupa and make a real diff erence for our customers


Engaging with our communities

Conducting ourbusiness ethically


Penalty shoot-out at the 8th Inclusive Sports Week, organised by the Sanitas Foundation, in Spain


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In 2017, almost all energy used in our facilities in Spain and the UK came from renewable sources.

Globally, we produced

9.7 GWhof renewable energy on site, covering 4% of our power needs.

We gained our fourth annual recertifi cation of the Carbon Trust Standard, acknowledging best practice and year-on-year carbon reductions.

We increased our recycling rate from 38% to

51% across our UK Care Services business.

In Hong Kong, Quality HealthCare continued its partnership with Senior Citizen Home Safety Association, focused on improving the health of the elderly.

Bupa Global funded 13 separate projects, including funding shelter for young homeless people in Brighton, UK, and repairing fl ood-damaged housing in Sri Lanka through our Community Grants scheme.

The Bupa CodeWe developed digital training in our Bupa Code, helping us deliver great experiences for customers and colleagues in a consistently ethical manner.

We published our approach on human rights which states our commitment to being a responsible business and our aim to align our activity with international best practice.

Passionate Caring Open Authentic Accountable Courageous Extraordinary

THE BUPA

C DE

In Australia, we’re driving positive, sustainable and scalable change in terms of LGBTI+ inclusion. We’ve recruited LGBTI+ inclusion champions trained in self-care and improving mental health outcomes for the LGBTI+ community.

Improving health and wellbeingBupa Global, our international health insurance division, ran a three-week movement challenge as part of our Smile employee health and wellbeing programme. Employees also learned about customers and unlocked funds for local charities.

Gender pay gap We’ve reported our gender pay gap in the UK for the fi rst time (see page 11) and ran a number of initiatives to support our wider diversity agenda. In the UK, we celebrated the diversity of women in the workplace by being the main supporter of the Business in the Community Same But Diff erent campaign.

A healthy startIn Australia, our Health Foundation supported research into factors infl uencing a baby’s healthy development, even long before birth.

Cancer Direct Access In the UK, our new, extended direct access service means our customers with cancer concerns can see a specialist without needing a GP referral.

30Bupa UK care homes signed up to ITV’s Good Morning Britain’s One Million Minutes campaign, combating loneliness by engaging communities with older people in care homes.

40 companies joined the ‘Sanitas Healthy Cities’ project, which combats the eff ects of sedentary lifestyles.

95%We achieved the targeted completion ratio of 95% of mandatory training across Bupa.

We published our fi rst statement on modern slavery, outlining the steps we’re taking to tackle modern slavery and human traffi cking across our business and beyond.

Supporting inclusive sport in SpainOur Sanitas Foundation in Spain hosted its 8th Inclusive Sports Week. More than 500 children took part, culminating in a record-breaking 1,600 strong penalty shoot-out.

Bupa New Zealand extended its work with Rotorua Lakes Council to help make Rotorua the country’s fi rst dementia-friendly region.

REDUCING CO2YEAR ON YEAR

Australia and New Zealand

Market context – The Australian economy remained sluggish, with GDP and CPI growth of around 1.8%, both below long-term economic trends.

– Pressure on domestic private health insurance aff ordability resulted in a 1% annual decline in the overall number of Australians with hospital cover. This is the fi rst fall in 13 years.

– There was increased government focus, with Senate Committee Inquiries into both health insurance aff ordability and quality and standards of aged care.

– To help improve consumer aff ordability, the Australian Federal Government announced its largest health insurance reform package in a decade.

– Changes to the Australian Government’s Aged Care Funding Instrument led to a challenging fi rst half of the year for Aged Care Australia’s revenue. This is expected to continue into 2018 and beyond.

– While volumes continued to grow, lower average consumer spending across the dental sector impacted revenue.

Operational highlightsAustralia and New Zealand delivered solid performance in 2017 despite the challenging economy. Revenue grew 4% and underlying profi t increased by 3%.

Despite an overall decline in the number of Australian residents covered by private health insurance, we increased customer numbers by 1%, fuelled by strong growth in international insurance sales.

We are responding to continuing pressure on household budgets through our lowest premium increase in more than a decade. We are cutting indirect costs and working with the Australian Government to support broader health reform. For example, we have committed to pass on savings made on the government’s Prostheses List to customers in full. We are also off ering better value to customers by expanding the gap-free services

(no out-of-pocket medical expenses) for children at any provider in the Bupa network.

In our Health Services business, we drove growth through Bupa Medical Visa Services (BMVS), dental acquisitions and rebrands. The Australian Government extended our BMVS contract for the provision of medical assessments to visa applicants for a further two years, recognising our strong record of delivering quality care to customers. We expanded our hearing business, introducing the services within a number of optical stores, and launched our fi rst therapy clinic, serving customers with disabilities.

The opening or extension of four care homes boosted performance in Aged Care Australia, along with a renewed focus on costs in response to reductions in the Government’s funding of aged care. We made good progress in talks with unions in Victoria, fi nalising negotiations for a new Enterprise Bargaining Agreement. Our business in New Zealand continued to deliver revenue growth, largely thanks to improved returns from our care village investments. Government funding helped cover additional staff costs arising from an equal pay case that concluded during the year. We worked with Rotorua Lakes Council and other local bodies to actively help make Rotorua the region’s fi rst dementia-friendly community in New Zealand. Following an extensive review of our New Zealand operations, in December we announced the sale of 12 of our care homes and four care villages. The occupancy rate for Australia and New Zealand is 93.7%. The integration of our Australian and New Zealand aged care and retirement businesses will strengthen our position, with a shared vision and an improved operating model.

Our Australian health insurance transformation programme continued as we improved our systems and our customers’ digital experience. This has resulted in better real-time claims payment systems and complaint visibility, digitised benefi t statements and more streamlined customer application processes.

We’ve delivered solid growth in both revenue and underlying profi t despite challenging ongoing economic conditions.Richard BowdenCEO, Australia and New Zealand


Revenue +4% CER (2016: £4,730.0m)£4,926.6mUnderlying profi t +3% CER (2016: £375.1m)£384.7mCustomers

4m Insurance

1.7m Provision

11,000 Aged care

1. Bupa Health Insurance 82%2. Bupa Health Services 7%3. Bupa Villages and

Aged Care Australia and New Zealand 11%

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United Kingdom

Market context – The UK economy grew 1% in the fi rst nine months of the year, the slowest rate for the January to September period since 2009.

– The UK Government increased the Insurance Premium Tax to 12% in June, aff ecting aff ordability for health insurance customers.

– Hospital price infl ation is also driving up costs for customers. We are working to ensure that the fees charged by hospitals are fair and reasonable for both health insurance and self-pay customers.

– Aged care remains under pressure in the public sector. We are continuing our disciplined approach to fee negotiations and our focus on covering the cost of caring for our residents from local authority contracts.

– The NHS and various insurance providers have made a number of digital advances, including the launch of GP consultation via a videolink on a smartphone.

– There is still signifi cant uncertainty around the full implications of Brexit and concerns that restricted access to the EU workforce will worsen the current nursing shortage.

Operational highlightsOur UK business performed well. Revenue is up 1% year-on-year, factoring in sales from the acquisition of Oasis Dental Care in February 2017 and the 2016 sale of Bupa Home Healthcare. Underlying profi t increased by 19% with health insurance and the acquisition of Oasis Dental Care key to this good performance.

In February, we completed our acquisition of Oasis Dental Care. This important milestone enabled us to transform our market position and has made Bupa the leading provider of private dentistry in the UK and a major provider to the NHS. We now provide high-quality dental care for over two million patients across 470 practices. Integration is going well, with the majority of practices now rebranded as Bupa Dental Care.

Performance in our health insurance business was strong. Through our enhanced care pathways and better healthcare cost management we have improved customer experience and claims performance. In November, we launched our Cancer Direct Access self-referral service, which gives access to diagnosis and treatment without needing to see their GP fi rst. We are the fi rst healthcare organisation in the UK to off er such a comprehensive service.

More customers are using our online site to book GP, musculoskeletal and dermatology appointments as well as health assessments in our clinics. Overall, customers rate our services highly with Net Promoter Score (NPS) for clinic attendance of +65. At Bupa Cromwell Hospital, we are investing in both medical technology and facilities, and are developing new clinical pathways. In May, we opened the Kensington Diagnostic Centre, a new heart, lung and neurology hub within the hospital site. This means we can off er tests and follow-up appointments at a single location.

In our Care Services business, we are focusing investment on continuing to provide high-quality care for our residents, and have made important progress in this area. We signifi cantly reshaped our UK aged care business, selling 110 care homes to HC-One, a leading provider of health and social care, and agreed the sale of a further 22 to Advinia Health Care, which was completed in February 2018. We remain one of the largest providers of residential care in the UK and continue to invest strongly in the sector. We invested £110m in refurbishing 15 existing homes and opening a further retirement village. Another village and four new care homes are under construction. Within Care Services, our occupancy rate is currently 84.7%.

We launched our ‘For Living’ brand campaign which focuses on helping people get the most out of their everyday lives. The lead advert, ‘For owning the dance fl oor’, won 11 industry awards including Cannes Lion and British Arrows.

In the UK, we delivered a good performance. Insurance and the acquisition of Oasis Dental Care were key.David HynamCEO, UK


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Revenue +1% CER (2016: £2,785.9m)£2,807.2mUnderlying profi t +19% CER (2016: £194.9m)£231.1mCustomers

2.2m Insurance

3m Provision

6,600 Aged care

1. Bupa UK Insurance 55%2. Bupa Dental Care 12%3. Bupa Care Services 27%4. Bupa Health Services 6%

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Europe and Latin America

Market context – The Spanish economy is recovering from years of recession, and is growing at around 3% with stable infl ation. Some indicators such as unemployment have not yet recovered.

– The Spanish public health system is improving. Waiting lists remain long but have shortened.

– In Spain, national politics are stable, although the political situation in Catalonia is uncertain.

– In Poland, the market continues to grow. Regulatory changes may aff ect access to publicly funded healthcare. Mateusz Morawiecki was appointed Prime Minister in December.

– In Chile, the economy is recovering. Conservative Sebastián Piñera was elected as President in December. Recent presidential elections are expected to lead to increased consumption.

Operational highlightsWe delivered good growth in Europe and Latin America, with revenue up 7% and underlying profi t rising 10%. All of our business units delivered good performance, with excellent profi t growth in our Spanish dental business. Bupa Chile is benefi ting from the early stages of recovery in the local economy.

In Spain, where we operate under the Sanitas brand, we grew our insurance membership through our successful partnerships with BBVA and SantaLucia, and continuing focus on containing lapse rates.

We are on track with our digital transformation agenda to improve customer experience. We have implemented new services such as video consultations, online appointments and digital membership cards. This has driven the good performance of Blua, Spain’s fi rst digital health insurance product, and of Sanitas Pro Pymes digital, specially designed for small companies.

Sanitas Dental is growing across dental centres and dental insurance, and is benefi ting from digital innovations such as our online emergency video consultation service.

In Sanitas Hospitales, we are proud of our high standards of care across our hospitals and centres. This year, our Manises hospital (a public private partnership) gained the +500 EFQM Global Excellence certifi cate. Meanwhile, Hospital Sanitas CIMA in Barcelona obtained the Joint Commission International certifi cation. This is our third hospital to receive this recognition.

Sanitas Mayores, our aged care business, grew with the acquisition of fi ve Valdeluz Group care homes in Madrid and the opening of a new home in Barcelona. We now care for over 5,700 residents across 46 homes and three day centres in Spain. We introduced the Sanitas Mayores app, which off ers the families of care home residents day-to-day contact with their loved ones and carers. Our occupancy rate is high at 95%.

Our Polish business, LUX MED, delivered strong growth, especially in its ambulatory and inpatient businesses. We opened an oncology hospital in Warsaw and were acknowledged by consumers as delivering the highest standards of medical care.

Bupa Chile delivered year-on-year growth in revenue and profi t despite market and regulatory changes. This was mainly driven by higher activity in both inpatient and outpatient businesses. We launched the MiBupa app, giving customers access to their medical records and allowing them to make appointments with a doctor of their choice via their mobile device. Construction of Clinica Bupa Santiago is well underway. This will be Bupa’s largest hospital with 17 diagnostic rooms, 122 ambulatory care rooms, 36 emergency rooms, and over 460 beds. The fi rst phase of the hospital will off er 100 beds. It is expected to be operational in 2018.

We delivered good revenue and strong underlying profi t growth, as we continued to use technology to improve our service to customers.Iñaki EreñoCEO, Europe and Latin America


Revenue +7% CER

(2016: £2,679.6m)£2,869.0mUnderlying profi t +10% CER

(2016: £179.4m)£197.1mCustomers

3.1m Insurance

8.9m Provision

5,700 Aged care

1. Sanitas Seguros 37%2. Sanitas Hospitales and New Services 10%3. Sanitas Dental 4%4. Sanitas Mayores 5%5. LUX MED, Poland 11%6. Bupa Chile 33%

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International Markets

Market context – The economic and regulatory environments in our markets are constantly changing. Customer experience is becoming an increasingly important diff erentiator, with technology playing a crucial role.

– The international private medical insurance market remains competitive, with global insurers traditionally focused on company plans increasingly looking to off er individual products.

– In Saudi Arabia, the operating environment has become more challenging due to increasing regulation and intense competition. Lower oil prices and austerity measures continue to aff ect growth in the market.

– In Hong Kong, the economic outlook remains stable but competition in our markets is strong.

– In India, the health insurance sector continues to grow, although penetration and healthcare expenditure are still low.

Operational highlightsRevenue in International Markets grew 11% in 2017 but underlying profi t declined 18%, mainly due to a fall in profi t in Bupa Global, our international health insurance business. As noted in our half year results in August, Bupa Global’s performance is aff ected, in part, by our exit from a number of non-strategic markets. There was also a shift in customer mix towards corporate customers, which resulted in higher loss ratios. Throughout 2017, we refi ned Bupa Global’s market strategy and started a programme to strengthen our distribution, improve customer engagement, and review the products and service off ering to our customers. We made progress in the customer service metrics and retention levels. Bupa Global will continue to be an area of focus.

As we reported in our half year statement, we acted quickly to manage an incident in which a portion of Bupa Global customer data was inappropriately copied and removed from the

company. We have brought in additional security checks and are tightening information security and data protection controls across our business.

Following Bupa Global’s acquisition of Care Plus in Brazil in late 2016, integration is on track.

In June, we increased our stake in Bupa Arabia, our associate business in Saudi Arabia, from 26.25% to 34.25%. Bupa Arabia now has 3.3 million customers. It continued to roll out its insurance point-of-care service in clinics in 2017. This supports our customers with administrative tasks, pre-authorisation and clinical matters, and the customer experience has improved dramatically.

In Hong Kong, Quality HealthCare, our private clinic network business, opened one integrated centre in a residential area, and upgraded two major centres in business districts. In early 2018, we rolled out a new digital platform that off ers customers e-ticketing for GP appointments, e-booking for specialty and vaccination services, and access to a personal e-health record. Our domestic health insurance business has invested heavily in its operations and in improvements to customer experience. We are in active discussions on the Government’s Voluntary Health Insurance Scheme, which aims to create a new type of individual health insurance product. In China, we opened our fi rst integrated medical centre in Guangzhou. This means we off er high-quality, digitally-enabled care to customers in the Pearl River Delta region.

We completed the sale of Bupa Thailand in July as part of our strategy to focus on key markets, where we have scale.

In India, Max Bupa launched a point-of-care service as a pilot in May, with plans to extend it across the country in 2018. Max Bupa has also introduced innovative ‘Health ATMs’ in Bank of Baroda branches across India. These off er customers a basic health check-up and the chance to buy tailor-made insurance products with no clinical checks needed.

While our revenue grew in 2017, underlying profi t declined due to Bupa Global.Simeon PrestonCEO, International Markets


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6.2m Insurance

0.9m Provision

1. Bupa Global 59%2. Bupa Arabia 21%3. Bupa Hong Kong 17%4. Bupa Thailand 2%5. Max Bupa (India) 1%

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Revenue by business2

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.

2. Chart includes Bupa’s revenue including our share of revenues from associates to give a sense of scale.


I am pleased to report a strong set of results for Bupa in 2017. Our revenue was £12.2bn, up 5% (2016: £11.7bn), and our underlying profi t, our most useful measure for comparisons with previous years, grew by 10% to £805.3m (2016: £732.7m) at Constant Exchange Rates (CER). This in turn led to an increase in statutory profi t of 19% to £620.3m (2016: £522.9m) at Actual Exchange Rates (AER).

We generated cash from operating activities of £929.4m, up £38.4m on 2016, and strengthened our capital position from the 160% reported at the half year to 180% as at 31 December 2017 (2016: 204%).

This performance is the result of successfully putting our strategic framework into practice. We have concentrated on delivering an exceptional experience for our customers, growing in carefully chosen areas that are complementary to our business, and selling operations that are no longer a good strategic fi t. As a result, we made a number of acquisitions and disposals during the year.

In February, we completed the purchase of Oasis Dental Care in the UK. This means a signifi cant expansion of our presence in the UK dental market. We also increased our shareholding in Bupa Arabia by 8% to 34.25% in June.

We continued to actively manage our UK Care Services portfolio, resulting in the sale of a number of homes in December 2017 and an additional transaction fi nalised in February 2018, the homes for which were held for sale as at 31 December 2017. In July, we completed the sale of Bupa Thailand as part of our strategy to focus on key markets, where we have scale.

RevenueOur revenue grew by 5% to £12.2bn (2016: £11.7bn) at CER and 3% on a like for like basis, which excludes the recent acquisitions of Oasis Dental Care in the UK and Care Plus in Brazil as well as the sale of Bupa Thailand in July 2017 and Bupa Home Healthcare in July 2016.

Revenue grew in all our Market Units. Around 70% of our total revenue was generated in our insurance businesses. In Australia and New Zealand, insurance made up around 80% of the total Market Unit revenue, in the UK, 55%, in Europe and Latin America, 60%, and in International Markets, 90%. Overall insurance customer numbers fell by 0.2 million to 15.5 million, mainly due to the sale of Bupa Thailand.

Our provision and aged care businesses contributed 16% and 12% of total revenue respectively, while our dental businesses represented around a third of our provision revenues. Overall customer numbers for our provision businesses rose by 16% to 14.5 million, mainly due to the acquisition of Oasis Dental Care in the UK. Our aged care customers reduced by 29% compared to the same period last year due to the disposal of a number of care homes in the UK.

Underlying profi tUnderlying profi t refl ects our trading performance and excludes a number of items included in statutory profi t, to facilitate year-on-year comparison. These relate to amortisation and impairment of intangible assets and goodwill arising on business combinations, as well as market movements such as gains or losses on foreign exchange, on return-seeking assets, on property revaluations and other one-off items.

Financial Review

Revenue

£12.2bn+5% CER(2016: £11.7bn)

+11% AER(2016: £11.0bn)

Underlying profi t

£805.3m+10% CER(2016: £732.7m)

+15% AER(2016: £700.7m)

Statutory profi t before taxation

£620.3m+19% AER(2016: £522.9m)

Net cash generated from operating activities

£929.4m+4% AER(2016: £891.0m)

Solvency II capital coverage ratio1

180%(2016: 204%)

1. The 2017 Solvency II capital position, SCR and coverage ratio are estimates.

“ I am pleased to report a strong set of results for 2017. This performance is the result of successfully putting our strategic framework into practice.”Joy LintonChief Financial Offi cer


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Our underlying profi t increased by 10% to £805.3m (2016: £732.7m CER) and by 7% when excluding our recent acquisitions and divestments. This growth occurred in our major Market Units of Australia and New Zealand, 3%, the UK, 19% and Europe and Latin America, 10%. Underlying profi t in International Markets fell by 18% as we continued to experience diffi cult trading conditions in our Bupa Global business.

Health insurance is our largest line of business and continued to perform well despite diffi cult trading conditions. It represents around 70% of our total underlying profi t. Most of our health insurance profi ts are generated in our three main insurance businesses in Australia, the UK and Spain, and these delivered around 65% of our total underlying profi t.

In spite of macroeconomic pressures in Australia and New Zealand and an overall decline in the private health insurance market, our private health insurance business grew revenue, profi tability and customer numbers,

particularly in the overseas visitors sector. Our Australian insurance entity’s combined operating ratio remained stable at 92%1.

In Europe and Latin America, our Spanish private health insurance business, Sanitas Seguros, showed revenue and profi t growth thanks to stronger partnership sales and growing member numbers. In 2017, our combined operating ratio marginally improved at 88%1 (2016: 89%).

The UK private health insurance market remains diffi cult, with strong competitor activity and pressures on customer aff ordability. Even so, we were able to maintain our profi tability, driven by favourable claims experience.

In International Markets, the international private medical insurance market remains competitive. Bupa Global’s result was disappointing with a fall in underlying profi t compared with 2016. We have refocused our eff orts on an improvement programme that aims to provide excellent customer service, strengthen our distribution capabilities and enhance our product off erings.

Bupa Insurance Limited, our UK insurance entity, underwrites both domestic and international private medical insurance, the latter being written by Bupa Global. In 2017, its combined operating ratio improved slightly to 94%1 (2016: 95%).

Combined with our other smaller health insurance businesses located in countries including the United States of America, Chile,

Hong Kong and Brazil, our overall Group combined operating ratio was 93%1, unchanged from the prior year.

The profi tability of our aged care businesses has increased compared to 2016, benefi ting from no depreciation on assets held for sale in our UK Care Services business. This was a one-off item in 2017. Our profi tability was also supported by the larger portfolio in Sanitas Mayores following the acquisition of fi ve care homes in the Madrid region. Operating costs rose in our Australian aged care business, although underlying profi t remained stable year-on-year.

Total underlying profi ts grew in our provision businesses, largely thanks to the acquisition of Oasis Dental Care in the UK. Performance at Sanitas Dental was also strong as customer numbers grew by over 15%. This was partially off set by diffi cult trading conditions in Bupa Health Services in Australia.

Statutory profi tStatutory profi t before taxation was £620.3m (2016: £522.9m) representing growth of 19% at Actual Exchange Rates. This was driven by trading performance, with non-underlying items broadly unchanged in magnitude compared to 2016, albeit driven by diff erent factors.

In 2017, these items totalled £185.0m (2016: £177.8m). We recognised £111.1m of losses on property revaluations in 2017 (2016: £23.8m), primarily resulting from the sale of a number of our care homes in the UK. Our triennial external property valuation in Australia and New Zealand led to £36.7m charged to statutory profi t and £220.2m credited to other comprehensive income.

The amortisation and impairment of intangibles and goodwill of £84.2m (2016: £70.7m) was higher due to the acquisition of Oasis Dental Care in early 2017 and an impairment of intangibles in Bupa Chile.

Realised and unrealised foreign exchange losses amounted to £24.5m (2016: gain of £19.4m). The movement of £43.9m compared to 2016 was primarily as a result of a one-off £63.5m gain in 2016 that arose from the devaluation of the Egyptian pound in November of that year as well as other off setting operational currency movements.

2017 2016

1. Australia and New Zealand 40% 40%2. United Kingdom 24% 25%3. Europe and Latin America 23% 22%4. International Markets 13% 13%

1

2

3

4

Revenue by Market Unit (AER)

2017 2016

1. Australia and New Zealand 44% 45%2. United Kingdom 26% 25%3. Europe and Latin America 23% 21%4. International Markets 7% 9%

1

2

3

4

Underlying profit by Market Unit (AER)

Revenue

Market Unit

2017AER£m

2016AER£m

2016CER£m

Australia and New Zealand 4,926.6 4,360.6 4,730.0

United Kingdom 2,807.2 2,785.9 2,785.9

Europe and Latin America 2,869.0 2,474.7 2,679.6

International Markets 1,647.1 1,427.8 1,487.1

1. Combined operating ratio is calculated based on incurred claims and operating expenses divided by net earned premiums. These are calculated based on local requirements.

Underlying Profi t

Market Unit

2017AER£m

2016AER£m

2016CER£m

Australia and New Zealand 384.7 344.4 375.1

United Kingdom 231.1 194.9 194.9

Europe and Latin America 197.1 165.6 179.4

International Markets 56.6 65.9 69.2


Net cash used in investing activities increased by £685.5m to £995.5m, refl ecting our signifi cant investments made during 2017. The largest of these was the acquisition of shares in Oasis Dental Care for £575.4m (net of cash acquired). The purchase of fi ve care homes in Spain and an additional 8% shareholding in Bupa Arabia, also contributed to net investments, as did our further spend on dental acquisitions in the UK throughout the year.

We invested £470.3m during the year (2016: £465.0m) in developing our existing businesses including construction and maintenance in our care home portfolio, development of our Santiago Hospital in Chile, new Richmond Villages in the UK, customer transformation programmes in Australia, the construction of our new offi ce building, in Salford, and improving our IT infrastructure across the Group.

The proceeds from sale of properties, plant and equipment during 2017 were £374.0m (2016: £19.1m) following the disposal of a number of care homes in the UK and the sale of our London offi ce, in December.

Cash infl ows from fi nancial investments and deposits with credit institutions are down on the prior year as 2016 included the redemption of a security relating to the early termination of the secured loans.

Cash infl ows from fi nancing activities in 2017 increased by £713.7m compared to 2016. This is a result of entering into a £650m acquisition fi nancing facility and the issuance of a senior unsecured bond of £300m in 2017. This was off set by the repayment of borrowings outstanding in Oasis on acquisition, disposal proceeds received, and repayment of listed debt in 2016 not recurring in 2017.

Overall cash and cash equivalents increased by 8% to £1,520m. These are managed conservatively and in line with our risk appetite.

Cash is invested with counterparties rated A/A2 or higher, unless approved by the relevant Investment Committee.

FundingWe manage our funding prudently to ensure a platform for our continued growth. A key element of our funding policy is to target an A-/A3 senior credit rating for Bupa Finance plc, the main issuer of Bupa debt. Our Bupa Finance plc senior debt rating with Fitch and Moody’s rating agencies remains unchanged at A- (stable) and Baa1 (stable), respectively.

On 17 January 2017, Bupa Finance plc entered into a £650m fi nancing facility to fund the purchase of Oasis Dental Care. Bond issue proceeds and disposal proceeds received during the year were used to part repay the facility. The amount outstanding on the facility at the end of 2017 was £48.6m. On 17 January 2018, the balance was fully repaid and the facility cancelled.

At 31 December 2017, we had drawn £226.0m under our £800m revolving credit facility, including outstanding letters of credit of £6.4m. During the year, this facility was extended by a further year and is now due to mature in August 2022. Our only debt issuance in 2017 was a £300m senior bond issued in April.

We focus on managing our leverage in line with our credit rating targets. Leverage at 30 June 2017 was 30.2% but this has fallen to 25.3% due to the disposals in the second half of the year. Coverage of fi nancial covenants remains well within the levels required in our bank facilities.

Solvency position1

We hold suffi cient capital to cover our Solvency Capital Requirement (SCR) which takes account of all of our risks, including those related to non-insurance businesses.

The Group SCR is calculated in accordance with the Standard Formula specifi ed in the EU’s Solvency II legislation. We have obtained approval from the Prudential Regulation Authority (PRA) to substitute the insurance premium risk parameter in the Standard Formula with an Undertaking Specifi c Parameter (USP) which refl ects our own loss experience.

The sale of Bupa Thailand resulted in a net gain of £36.4m. Transaction costs of £11.4m in 2017 were related to the acquisition of Oasis Dental Care and subsequent dental acquisitions during the year. In 2016, we recognised a one-off net loss of £112.3m on the redemption of secured loan notes (2017: £nil).

TaxationOur eff ective tax rate for the year was 21.7% (2016: 26.0%), which is higher than the UK corporation tax rate for the period of 19.25%. This was mainly due to profi ts generated in jurisdictions with a higher rate of corporate income tax. Bupa operates in a number of markets with tax rates ranging from 16.5% to 35.0%.

The fall in the eff ective tax rate compared to 2016 was mainly the result of non-recurring items including the non-taxable gain on the disposal of Bupa Thailand and prior-year tax credits arising from the settlement of historic matters with tax authorities. These prior year credits included the benefi t of a settlement with the Danish tax authority for which interest income of £14.3m is included in underlying profi t.

Our Approach to Tax is available on bupa.com.

Net cash generation Net cash generated from operating activities remained solid, increasing by £38.4m (4%) in 2017 to £929.4m (2016: £891.0m). This refl ected the year’s increased profi tability, supported by foreign exchange movements, and the £40m pension contribution in 2016 not recurring in 2017. This is off set predominantly by changes in our operating receivables following our acquisitions and divestments during the year.

Financial Review continued

Funding

Bupa Finance plc senior debt rating

Fitch

A-(Stable outlook)

Moody’s

Baa1(Stable outlook)

2017 2016

1. AAA 7% 3%2. AA 40% 39%3. A 38% 44%4. BBB 7% 6%5. <BBB-/NR 8% 8%

1

23

45

Cash and Investments by Credit Rating (%)

1. The 2017 Solvency II capital position, SCR and coverage ratio are estimates.


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The Own Funds as at 31 December 2017 were £3.7bn, £0.5bn lower than at 31 December 2016 (2016: £4.2bn) primarily due to goodwill and other intangible assets arising on acquisition of Oasis Dental Care, which are not recognised in Own Funds. The SCR as at 31 December 2017 was stable when compared to the same period last year at £2.1bn. The Solvency II surplus capital as at 31 December 2017 was £1.6bn, compared to £2.1bn at 31 December 2016. This represents a solvency coverage ratio of 180% (2016: 204%).

In December 2016, we issued £400m tier 2 subordinated debt in preparation for the purchase of Oasis Dental Care in February 2017 and the additional shareholding in Bupa Arabia in June 2017. This increased our solvency coverage ratio at December 2016 to 204%. Following the acquisition of Oasis Dental Care, the coverage ratio fell to 160% as reported at half year. The coverage ratio of 180% as at 31 December 2017 primarily refl ects the increase in available capital from profi ts in the year.

Reporting our fi nancial position under Solvency II diff ers from the fi nancial statements in this Annual Report. The key items of the reconciliation are:

– goodwill and intangibles in the IFRS statement of fi nancial position are not recognised as available capital under Solvency II; and

– subordinated debt is treated as available capital under Solvency II but as a liability in the statement of fi nancial position.

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 in 2023 and a £400m dated hybrid bond which matures in 2026. These bond issues are accounted for as liabilities in the statement of fi nancial position, but are treated as solvency capital for regulatory and management reporting purposes.

Solvency capital requirement As previously mentioned, we have obtained approval from the PRA to replace the standard parameter for insurance premium risk with our own loss experience. This refl ects the lower risk resulting from our size, expertise and geographic diversifi cation.

We continue to be resilient in the face of the individual sensitivities, illustrating the stability of the solvency position and strength of our balance sheet.

Risk sensitivitiesWe have performed an analysis of the relative sensitivity of our estimated solvency coverage ratio (as at 31 December 2017) to changes in market conditions and underwriting performance. Each sensitivity is an independent stress of a single risk and before any management actions. The selected sensitivities do not represent our expectations for future market and business conditions. A movement in property values continues to be the most sensitive item, with a 10% movement having an 11 percentage point impact on the solvency coverage ratio.

Outlook and upcoming changes to accounting standards In 2017, we focused on investing in customer experience and in strengthening our portfolio in line with our strategic framework. We will continue to focus on our customers, internal controls and driving operational effi ciencies across our businesses while maintaining a strong capital position under Solvency II and managing funding to ensure a sustainable platform for continued growth.

We expect growth to slow in health insurance in our key markets. Our largest businesses face continuing macroeconomic and political challenges, with Brexit, price and aff ordability pressures and rising infl ation remaining key areas of concern. We will continue to assess the eff ects of Brexit on our business and have a number of initiatives to minimise disruption to our customers and our people.

We will see changes to a number of IFRSs over the next few years. We have assessed the eff ects of applying IFRS 9 (Financial Instruments) and IFRS 15 (Revenue Recognition), and we have concluded that there are no signifi cant impacts for the Group. The impacts of IFRS 16 (Operating Leases) and IFRS 17 (Insurance Contracts) are currently being evaluated. IFRS 16 will primarily aff ect the accounting for operating leases. As at the reporting date, the amount of non-cancellable operating lease commitments is £1.2bn. In relation to IFRS 17, it is anticipated that the simplifi ed premium allocation approach will be available for the majority of our insurance contracts.

Solvency IIOwn Funds

Subordinateddebt

Pensionsurplus

adjustment

Valuationdifferences

Goodwill andintangibles

IFRS equityattributable

to Bupa

Reconcilliation of IFRS equity to Solvency II Own Funds

£7.3bn

£4.3bn £0.2bn

£0.4bn

£1.3bn £3.7bn

180%

179%

178%

180%

169%

177%

179%

178%

172%

Solvency Coverage Ratio

Interest rate +/- 100bps

Credit spreads + 100bps*

Equity markets -20%

Property value -10%

GBP appreciates by 10%

Pension risk +10%

USP +0.2%

Loss ratio worsening by 2%

*assuming no credit transition

Group – Risk Sensitivities

Risk Sensitivities

SII Coverage Ratio


Our Directors have examined the outlook for the Company and the Group as required by provision C2.2 of the 2016 UK Corporate Governance code, assessing our ability to operate and meet our liabilities as they fall due over a three-year period.

Refreshed in 2016, our strategic framework is the force behind our planning process. We chose a three-year assessment period because it ties in with our internal strategic planning process – this period suits the nature of our business and lends itself well to strategic planning. Our planning takes into consideration all important fi nancial and capital measures over the period and stresses the risks facing individual business units, as well as the global risks impacting Bupa as a whole. This process has shown that our plan would remain robust even under the most challenging circumstances examined.

At Group level, we also conduct ‘reverse stress testing’, which works backwards from the point at which our business model might hypothetically fail and aims to identify circumstances that could result in such a failure.

The EU’s Solvency II directive (which harmonises insurance regulations) has led to a greater focus on risk management and monitoring capital. At Bupa, our Own Risk Solvency Assessment (ORSA) considers the level of capital we need to remain fi nancially strong over the planning period, given the nature of the risks we currently face and our strategy as set out in the Bupa business plan and risk appetite statement. It takes into account all realistic risks to Bupa as a whole. This assessment concluded that our strategy and business plan show that we have enough capital and cash assets to continue to meet regulatory requirements and our own appetite for capital risk over the period.

As part of their assessment of our viability, the Directors looked at our fi nancial performance, capital management, cash fl ow, solvency and future outlook. Bupa is well capitalised and is expected to remain so over the plan period. The insurance businesses generate cash and are therefore expected to be able to settle liabilities as they fall due.

Bupa has no shareholders and there are therefore no dividends to pay. Instead, we can invest in growing organically and through acquisition.

The Directors looked at each of the main risks and uncertainties set out in the Risks section from page 25, including those that would threaten our business model, future performance, solvency or liquidity. They were satisfi ed that we have the right risk management and governance procedures in place to manage and off set these risks over the three-year period. Our governance structure and the robust, regular reviews we undertake through the Internal Control Risk Management Assessment (ICRMA) process are reassuring in this regard. We also identify and report on emerging risks to ensure we properly understand them and that our future strategic decisions take them into account.

Based on this analysis and our 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 2020.

The ‘going concern assessment’ (see Basis of Preparation in the fi nancial statements section) includes information on the Directors’ detailed assessment of the Group’s status as a going concern based on its current position and forecast results. As part of this assessment, we provide details on Bupa’s revolving credit facility and the Group’s short-term liquidity position.

Longer term viability statement


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Risks

Delivering our purpose sustainably into the future

Overview Our risk profi les for our funding and provision business activities are diff erent. Our diverse geographical reach also means that our local businesses are exposed to a wide range of political, legal and economic risks. We manage these by understanding the factors behind the risks to each individual business and to our balance sheet, and by assessing how these risks interact. By understanding the risks we face – including emerging and strategic risks – we can make sure we’re best placed to manage and mitigate them.

Risk governanceExecutive governanceWe have a ‘three lines of defence’ approach to risk management.

The fi rst line of defence covers management and employees across all of our businesses worldwide. Local CEOs are responsible for identifying and managing their risks, while within each Market Unit (MU) Executive Risk Committees chaired by the CEOs scrutinise the risk profi le and take mitigating action where necessary. The culmination of this process is a meeting of the Bupa Enterprise Risk Committee (BERC), chaired by the Group CEO, which provides Group-level risk oversight. For some key risks, we’ve set up specifi c fi rst-line risk forums, such as the Bupa Clinical Governance Committee and the Solvency Capital Committee.

The second line of defence brings together our risk, compliance and clinical governance functions. We have a Group Risk Function (GRF) led by the Chief Risk Offi cer and the Chief Risk Offi cers in each MU. As well as leading the risk function in the MUs, the GRF

advises, challenges and oversees fi rst-line risk management activities and keeps the Executive Team and the Board informed of their independent view on risk issues.

The third line of defence is Internal Audit. We have a Group Internal Audit function led by the Chief Internal Auditor. This function is responsible for assessing the eff ectiveness and adequacy of governance and risk and controls. This includes activities performed by the fi rst and second lines of defence, in accordance with the Global Internal Audit Plan.

Non-executive governanceWe have non-executive governance at subsidiary board level for our main insurance subsidiaries and also at Group Board level.

Each of our large insurance entities has a Board Risk Committee, consisting mainly of independent Non-Executive Directors (NEDs) who oversee the risk management framework. Subsidiary boards receive regular reports from local management and Chief Risk Offi cers.

The Bupa Board Risk Committee receives reports from the Chief Risk Offi cer, Chief Medical Offi cer and other Bupa executives as appropriate, as well as minutes from the subsidiary boards’ risk committees and the BERC. The Committee is responsible for the leadership and oversight of risk across the Group and recommends risk appetite to the Board for approval.

Risk framework We manage risk across both our funding and provision businesses in line with our Board-approved Risk Management Framework, which sets out the principles behind a robust and continuous risk management system for the fi rst line.

This ensures that:

– current and emerging risks to the businesses and strategy are identifi ed and potential consequences are understood;

– we have clear and established risk appetites within which we operate (these are discussed further below);

– we take appropriate and eff ective steps to mitigate and manage identifi ed risks;

– we use risk management information to help inform risk-based decisions across the business;

– there is clear ownership of, and accountability for risk;

– we have a culture in which:

– appropriate risk behaviours are encouraged and rewarded;

– inappropriate behaviours are challenged and sanctioned; and

– risk events are communicated as quickly as good news without fear of blame.

We have well-established reporting systems in place to make sure that major risks to our businesses are identifi ed, escalated, managed and mitigated.

Our Enterprise Policies defi ne the way we do business. They cover all key areas of risk for our funding and provision businesses and are implemented by our MUs, which check our compliance with the requirements. These policies are reviewed annually, and have designated owners with defi ned roles and responsibilities at both the enterprise and local levels.

“ At Bupa, we are all responsible for understanding the risks we face. This allows us to make the right decisions for our customers, our people, our partners and our business.”David FletcherChief Risk Offi cer


Risks continued

The processes we use to identify, measure, manage, monitor and report risks include a stress and scenario testing programme. We also carry out detailed reviews and in-depth analysis on particular risks where needed.

We test how eff ectively we are putting the Risk Management Framework into practice through our Internal Control and Risk Management Assessment. This assesses how well internal control and risk management practices and policy compliance are working across Bupa. It’s a self-assessment conducted by the fi rst line of defence and reviewed and challenged by the second and third lines. We run this assessment annually and the results are presented to the Board Risk Committee. The results for 2017 showed that Bupa has eff ective risk management and internal control systems in place, while acknowledging that there is investment planned in 2018 to enhance the control environment further.

Risk appetiteOur Board risk appetite is a measure of 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 fi nancial strength;

– the treatment of customers and employees;

– the sustainability of our business; and

– operational risk.

Our risk appetite statements are an important tool in our business planning process and a central reference point for key decisions. These statements are not intended to automatically prevent activity outside of our risk appetite, but are used to help identify such activities in a timely manner so that the Bupa Executive Team and Board can consider an appropriate course of action.

The risk appetite statements apply to all of our MUs. Executive Risk Committees make sure we have risk limits consistent with our risk appetite statements to help us manage the amount of risk taken within businesses and at an MU level. We have regular reporting against our risk appetite statement limits at both local and Group level to the Executive Risk Committees and to the Board Risk Committee. We identify and take appropriate action to return any ‘out of appetite’ positions to within appetite.

The risk appetite statements are reviewed annually, with the Board Risk Committee recommending any changes to the statements to the Board for approval.

What we did in 2017 In 2017, we continued to strengthen our risk management approach and capability as we respond to growth in our business and the increasing demands of regulators around the world. Insurance and healthcare provision are highly sensitive and regulated sectors and we are sharpening our focus on management of risk and compliance to make sure we maintain the high standards our customers and regulators expect.

We continue to embed all aspects of our risk management framework, including:

– enhancing our Enterprise Policies, amending them where appropriate to make sure their scope and requirements remain adequate;

– strengthening our crisis management and business continuity capability, specifi cally including our preparedness for pandemics;

– conducting in-depth reviews of specifi c aspects of risk as they arise in the external environment and focusing on defi ned areas of risk for both our funding and provision businesses;

– improving our regular risk reporting to the Board Risk Committee to assist in its eff ective oversight;

– undertaking a stress and scenario testing programme to strengthen our understanding of severe risks and how they may aff ect the business plan, for both insurance and healthcare provision businesses;

– strengthening the way we defi ne the emerging risks facing our strategy, including the introduction of a standardised process for reviewing and reporting emerging risks;

– improving our controls over regulatory conduct, particularly in the UK;

– improving our controls over exposures to information risk; and

– embedding the risk management framework into our recent acquisitions.

We are working to make sure that our risk management framework is fully understood and properly utilised across Bupa. This includes making sure that processes and controls are designed, documented and operating eff ectively across our businesses in line with our Enterprise Policies. We continue to ensure our people are appropriately trained.

Risk profi leWe accept risk as part of our business. Some risks, including certain fi nancial risks,

are avoidable, while others are part and parcel of our business model, such as operational risks. We have an eff ective risk management system and internal controls in place to mitigate our risks.

We maintain signifi cant economic capital as a means of mitigating certain inherent risks. This refl ects the nature of our operations and the level of risk associated with them.

Clinical Leadership: A pillar of safe clinical care Strong clinical leadership is an important factor in the provision of safe, quality-driven clinical care and eff ective clinical risk management. Bupa employs over 8,500 qualifi ed nurses across the globe, and we recognise that the development of our Global Nurse Strategy is essential to our focused leadership development. Clinical leadership and engagement form the cornerstone of this strategy, which recognises that having excellent clinical nurse leaders who set high standards, demand excellence in care delivery and who are supported in their professional development will give Bupa a signifi cant strategic advantage. To bring the strategy to life, Bupa held its fi rst Global Nurse Leadership forum in June 2017, bringing together a core group of nursing talent from across Bupa for an experience that allowed them to connect, fi nd inspiration and develop skills.

The focus of the forum was to deliver:

– learning, skills development and advanced knowledge that help nurses become confi dent leaders;

– exposure to leadership theory and action-focused learning relevant to practice;

– inspiration to deliver a nursing contribution to the strategic framework; and

– the skills and knowledge in transformation that are essential in eff ective leadership.

Following on from the forum, Bupa will be launching a Global Nurse Fellowship in March 2018. Bupa nurses will have access to resources to help them connect and grow as clinical leaders, including shared education and training, global nurse scholarships and mentoring over and above our existing internal communication mechanisms. Since June 2017, the Global Nurse Leaders community has grown to over 200 active members. We aim to grow this community to over 500 by June 2018.


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These risks are set out in the table below in order of the amount of Solvency Capital Requirement.

Risk Comment and outlook Mitigating actions

Property riskRisk of devaluations in property markets leading to a material devaluation of our property portfolio, such as head offi ces, hospitals and care homes.

– We generally own rather than rent property, which keeps lease commitments down but leaves us exposed to falls in property values.

– Care home valuations are based on the underlying profi tability of the individual homes.

– The risk exposure has decreased during the year as the strategic decision was taken to sell a number of care homes in the UK.

– By maintaining a geographic spread of businesses across a number of countries, we are able to diversify exposure to individual property markets.

Insurance riskRisk of inadequate pricing and/or underwriting of insurance policies, and of claims experience being materially adversely diff erent to expectations.

– Health insurance is short-tailed with lower outstanding claims as a percentage of revenue than most general insurance lines.

– Insurance risk exposure will grow in step with planned growth in premium income of the insurance businesses.

– The relatively short-tailed nature of Bupa’s products allows us to respond to market changes quickly.

– We have extensive control mechanisms in place to mitigate against the risk of higher than expected claims costs.

– Health insurance is a diversifi ed business and the geographical diversity of Bupa off ers further mitigation against insurance risk.

Currency riskRisk arising from changes in the level or volatility of currency exchange rates impacting on cash fl ows and assets held in currencies other than sterling, and on the fi nancial 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 for which premiums and claims are in diff erent currencies.

– Currency translation risk is, where possible, materially mitigated through a hedging programme.

– Asset liability matching in local currencies helps ensure that suffi cient funds are held in the local currency therefore limiting currency risk exposure.

Credit spread and counterparty default risksRisk of a loss in value of bond assets and/or that a counterparty fails to meet its obligations in the face of adverse economic conditions. This also includes the risk of a loss in value of the bond assets held within the pension schemes.

– Our 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.

– Our bond portfolio is small in relation to our cash and cash equivalents, and other fi nancial assets, and is of investment grade.

– Counterparty exposure is managed by dealing with highly rated counterparties with exposure limits as per Group Treasury Policy.

Operational risk (including customer risk and clinical risk)Risk of loss arising from inadequate or failed internal processes, or from personnel, systems or external events. This risk also includes customer risk (the risk that our behaviours, actions or controls result in detriment or unfair outcomes for our customers); and clinical risk (the risk of injury, loss or harm to customers in receipt of healthcare).

– We are committed to managing operational risk eff ectively. This includes continued close attention to management of regulatory risk and proactive engagement with regulators.

– As we expand our care provision businesses, there will be an increase in inherent exposure to clinical risk. This is being actively managed through continued refi nement of our approach to clinical risk governance.

– Maintaining robust internal control processes and governance frameworks, approving risk policies, and assessing compliance helps mitigate this risk.

– All our Market Units have a Medical Director responsible for ensuring clinical quality and governance within the business. They are accountable to the Chief Medical Offi cer for clinical governance.


Risks continued

Other signifi cant risks to Bupa cannot be eff ectively mitigated through capital. Our MU Risk Committees regularly review these residual risks and the mitigating actions taken to reduce them. They also inform the Board Risk Committee and Bupa Enterprise Risk Committee, about key areas of specifi c concern. This provides management with a view of the priority areas in which resources should be focused. The table below refl ects the themes of the most signifi cant risks currently facing Bupa. This list and the residual risks for each have remained relatively stable throughout 2017.


Cyber resilienceThe risk that our inability to identify and respond to a successful information breach through an Advanced Persistent Threat (APT) results in adverse impacts.

Risks impacted: – Operational risk

– Healthcare funders and providers are increasingly being targeted by APTs.

– We have a detailed programme of activities across Bupa to appropriately mitigate this risk.

Privacy and information securityThe risk that a failure in our policies or controls over the management and security of personal data and other information results in adverse impacts.


– We continually review and improve our controls over the management and security of information.

– For relevant markets there is an additional risk arising from the implementation of a new European regulation on data in May 2018.

– We have specifi c programmes in place in each of our markets to manage this risk.

– This is being supported by the implementation of the Information Risk Operating Model.

– We have set up a Privacy Committee to support the BERC to enable us to better protect privacy of our customers while delivering continual improvements to service through our digital transformation. Progress on readiness for the General Data Protection Regulation (GDPR) is being tracked via this Committee.

Change risks – transformations and transactionsThe risk that change programmes and portfolios of transformation are not properly planned or managed, fail to deliver the expected benefi ts, or do not meet appropriate timescales, resulting in adverse impacts.


– This risk could lead to management stretch, inadequate capability within the organisation or failure to identify and manage key risks.

– Failure to deliver on aspects of existing strategically important transformation programmes could have signifi cant impacts.

– MU ownership is an important component of how change is managed. Each market has defi ned plans in place covering the change programmes underway.

PeopleThe risk that we do not have the appropriate levels of capacity and capability of people to deliver our strategic objectives.


– As a complex business with an international footprint it’s critical to our strategy that our people have the appropriate knowledge, skills and experience to identify and manage risk and to deliver on objectives.

– We are focusing on ensuring that we have the right experience and succession plans to run our businesses and manage change, supported by a simple operating model and improved ways of delivering training.

Changes in government and regulatory policyThe risk that we fail to anticipate, respond to, or infl uence changes in the government and regulatory environment.

Risks impacted: – Market risk – Insurance risk – Strategy risk

– Our funding and healthcare provision businesses are subject to government and regulatory policy including minimum wage requirements, prudential requirements, changes to tax regimes and the interpretation of existing tax practices, pricing controls in some of our funding businesses and clinical care requirements for our healthcare provision businesses.

– All our MUs have defi ned key activities to make sure we can continue to monitor and assess the strategic implications on our businesses of any future changes in policy or regulation, and to lobby for appropriate change in these areas.


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External market conditionsCurrent economic conditions, geopolitical volatility and competitor activity have created a challenging business environment.

Risks impacted: – Market risk – Operational risk – Strategy risk

– This includes structural market changes (e.g. political change or medical infl ation), and economic volatility.

– We review our strategy and processes to ensure that they are fl exible enough to cope with changing external conditions.

UK exit from the EUThe UK’s decision to leave the EU has led to uncertainty for our business.

Risks impacted: – Market risk – Operational risk – Strategy risk

– While the Brexit negotiations are ongoing there is still uncertainty surrounding the regulation of fi nancial services (passporting rights), the wider impact on the UK economy, and the UK’s future immigration rules for EU nationals.

– In Europe, Bupa Global relies on passporting rights to undertake cross-border activities between the UK and the rest of the EU for the sale of international private medical insurance and travel insurance.

– We are working through the operational, commercial and legal impacts of the UK’s eventual exit from the EU.

– We have contingency plans in place, particularly for a loss of fi nancial services passporting rights.

There are also other risks which capital cannot appropriately mitigate and which always remain a priority for management even though they are not highlighted in the table above. These are set out in more detail in the table below.


Liquidity riskThe risk that we hold insuffi cient fi nancial resources to enable us to meet our obligations as they fall due or to take advantage of potential opportunities, or of being able to secure such resources only at excessive cost, resulting in adverse impacts.

– Liquidity risk is addressed not by capital but by holding liquid assets and through appropriate controls.

– Policyholder liabilities are predominantly backed by liquid assets, so our liquidity risk exposure primarily relates to the funding risk associated with borrowings.

– This is mitigated by the Treasury Function actively managing borrowings, for which the amount and timing of outfl ows are known, and by maintaining a portion of the bank facility undrawn.

Strategic risksThe risk that we are unable to design or implement appropriate business plans and strategies, to make decisions, to allocate resources, or to adapt to changes in the business environment.

This includes the risks associated with acquisition and disposal decisions and their implementation.

– The world is changing rapidly. The political, economic and social backdrop is uncertain. Populations are ageing, public health solutions are evolving, governments are facing funding issues in healthcare and aged care, and competition is intense.

– 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 identifi cation and assessment of emerging risks we can react to issues in a timely and appropriate manner.



Environmental risksThe risk that our activities cause harm to the environment.

– Climate change is a health concern as well as an environmental risk. We play an active part in promoting positive environmental practices and we look for opportunities to reduce waste and conserve energy where possible.

– We have an Environmental Enterprise Policy which is reviewed on an annual basis.

– Each of our MUs has developed a plan outlining actions to manage our social and environmental responsibilities.

– Each MU must have either a Head or Director of Corporate Aff airs or other nominated person responsible for the delivery of the plan.

– This is reinforced by the Bupa Code principle that ‘we take care of the planet’.

We also recognise that our operations could expose us to risks that could aff ect individual human rights in areas including modern slavery and human traffi cking. We are absolutely committed to remaining alert to the risks, however small, in our business and in our wider supply chain. We are conscious that such risks can arise in certain industries connected to the healthcare sector – in particular nursing, home nursing and personal care provision, as well as in the manufacturing of healthcare equipment, and are committed to monitoring and mitigating them.

Our commitment to integrity and transparency begins with our own people. Our employees adhere to the ethical standards set out in the Bupa Code and related policies, including: Confl icts of Interest, Financial Crime Risk, and ‘Speak Up’. We have mandatory training in place to make sure all our employees understand their responsibilities under our policies, including those noted above.

We do not tolerate bribery or corruption. Our training and awareness initiatives, clear operational standards and risk-based due diligence procedures keep our own people, and the third parties we deal with, fully informed about our commitment to ethical business practices.

Our Values are fundamental in shaping the way we behave towards our customers and one another, and the Bupa Code has been designed to help our people make the right choices in living our Values. Our strategic framework makes it clear that as a service organisation, everything we do is for our customers, and that our success in this area relies on our people and partners. This is why it is so critical to our success that Bupa is a place where people love to work.

Risks continued

See pages 14-15 for more about our corporate responsibility and sustainability commitments.


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Governance Report

Chairman’s introduction to Governance

Strong corporate governance standards are pivotal to the success of any organisation. Within Bupa our governance framework ensures that key risks and issues are escalated appropriately and that we can eff ectively oversee how our strategy is put into practice.

At Bupa, we can make customers our primary focus because we are a company limited by guarantee, without shareholders. We reinvest our profi ts to provide more and better healthcare for customers now and in the future, taking a longer-term view.

We aim to operate to the same corporate governance standards as required of UK FTSE 100 companies, where appropriate. The Board closely monitors governance developments and assesses how these can be applied to Bupa.

Related items which the Board debated in 2017 included: refreshing our corporate strategy; risk management, particularly in response to information security; and Board succession planning. We began the search for my successor as Chairman, and we also appointed a new Non-Executive Director, Caroline Silver.

The Board oversaw the successful acquisition and rebranding of Oasis Dental Care. Integration is going well, with the majority of practices now rebranded as Bupa Dental Care. The purchase has made us the leading provider of private dentistry in the UK. We’ve signifi cantly reshaped our UK aged care business, selling 110 care homes to HC-One, a leading provider of health and social care and agreed the sale of a further 22 to Advinia Health Care, which completed in February 2018. We remain one of the largest providers of residential care in the UK and continue to invest strongly in the sector.

Board composition and succession planningAs we announced last year, I will be stepping down as Chairman at the end of 2018. Lawrence Churchill, our Senior Independent Director, has been leading the process to identify my successor. Following a tender exercise, the Nomination & Governance Committee appointed The Zygos Partnership to undertake this search. The Committee considered and agreed the draft role specifi cation and began the process of interviewing potential candidates. This process will continue during 2018.

To help us maintain the right level of skills and experience on the Board, the Nomination & Governance Committee members began a search for an additional Non-Executive Director (NED) with fi nancial services experience. Caroline Silver joined the Board as a NED on 1 November 2017 and became a member of the Audit and Risk Committees on 1 January 2018. She brings over 30 years of experience in international investment banking as well as extensive experience in advising clients and of regulators across Europe. Caroline’s biographical details are included on page 34.

We will continue to regularly review our succession plans to ensure that the Board is refreshed in an orderly way as NEDs come to the end of their tenure. We will also continue to ensure that there is a strong pipeline of talented executives within the business.

Board diversityOnce again, we have exceeded Lord Davies’ recommendation that, by 2020, boards of FTSE 100 companies should aim to have 33% female representation. At the end of 2017, 45% of our Board was female. Gender is, however, only one measure and we believe 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 39 of this report.

Risk and controlsThroughout 2017, the Risk Committee, and our Group Chief Risk Offi cer, considered the Group’s entire risk profi le, and the policies and frameworks around which our risk management processes and cultures are built. Through representations from management, the Risk Committee has gained insight into our key risk areas: customer; clinical, fi nancial, strategy, insurance, and operational (including information security), challenging and supporting where appropriate. The Risk Committee has also focused on the Board’s mergers and acquisitions activities, ensuring management understands the risks involved in acquiring new businesses with suitable controls in place to manage them. Finally, the Board has ensured that there are synergies between strategy, risk appetite and decision-making through its discussions as well as the Risk Committee’s consideration of the Group’s Own Risk and Solvency Assessment (ORSA).

“ Strong corporate governance standards are pivotal to the success of any organisation.”

Lord Leitch


Governance Report

Chairman’s introduction to Governance continued

RemunerationThe 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 linked with Bupa’s purpose: helping people live longer, healthier, happier lives. The Directors’ Remuneration Report on pages 52-62 gives further detail of the Remuneration Policy and how it was implemented during 2018.

Association MembersAt Bupa, the type of Board oversight that in listed companies is normally provided by shareholders, is exercised by a body of around 100 distinguished Association Members (AMs). These AMs, who serve for an initial term of up to ten years, are drawn 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 are not paid for their services and do not receive a share of profi ts or dividends.

There were 108 AMs at the end of 2017. They are kept up to date on Bupa’s strategy and performance through regular AM Briefi ngs and at the AGM. The Group CEO, Chairman and Senior Independent Director (SID) are also available to answer questions on an individual basis. The AMs’ views are then communicated to the Board and to the relevant teams throughout the business. More information on how we engage with our AMs is on page 43.

Subsidiary governance reviewDuring the year, we undertook a review of Bupa’s subsidiary governance arrangements. Details of the review are included in the Nomination & Governance Committee Report on page 50.

Statement of complianceAs part of our commitment to excellence, we aim, where appropriate, to operate to the same governance standards as are required of UK FTSE 100 companies. We have applied the main principles and complied with all of the provisions, relating to a company without shareholders, in the UK Corporate Governance Code (the Code) throughout 2017.

The Corporate Governance Report on pages 31-51, together with the Remuneration Report on pages 52-62, describe how we applied the main principles of the Code during the year.

We continue to review our governance arrangements in line with developments in best practice. This process includes considering consultations and guidance from the Financial Reporting Council in the UK as well as governance bodies globally.

Lord LeitchChairman


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Bupa BoardChairman, Group CEO, CFO and eight independent Non-Executive Directors

A Schedule of Matters reserved for the Board sets out matters that can only be decided by the Board.

Terms of Reference for each Committee set out matters the Board has authorised the Committee to deal with.

All other matters are delegated to the Group CEO. A Delegated Authority Framework sets out the levels of authority delegated to management in respect of the decision-making required for the day-to-day operation of the business.

Audit Committee

Risk Committee

Nomination and Governance Committee

Remuneration Committee

Five independent Non-Executive Directors

Six independent Non-Executive Directors

Chairman, Group CEO and four independent

Non-Executive Directors

Chairman and four independent

Non-Executive Directors

Clare Thompson Chair

Simon Blair

Lawrence Churchill

Roger Davis

Caroline Silver

Simon Blair Chair

Lawrence Churchill

Clare Thompson

Prof. Sir John Tooke

Janet Voûte

Caroline Silver

Lord Leitch Chair

Evelyn Bourke

Lawrence Churchill

Martin Houston

Clare Thompson

Prof. Sir John Tooke

Martin Houston Chair

Lawrence Churchill

Roger Davis

Lord Leitch

Janet Voûte

Role: Review of fi nancial statements, the eff ectiveness of systems of internal controls, and performance of the external and internal auditors.

Role:Assisting the Board in its leadership and oversight of risk across Bupa.

Role: Review of Bupa’s governance structures including succession planning, subsidiary governance and selection of Association Members.

Role: Remuneration Policy in respect of the executives, designated individuals and the Chairman.

Bupa Executive Team (BET)

The 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 focusing on performance, risks, talent, and the delivery of the strategic agenda.

Our Board Governance Structure

The Schedule of Matters reserved for the Board, the Terms of Reference of the Board’s Committees and the Division of Responsibilities between the Chairman and the Group CEO are available on the

Group’s website at bupa.com.

See page 44 See page 48 See page 50 See page 52


Lord Leitch, ChairmanNon-Executive Chairman

SkillsLord 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.

External appointmentsLord Leitch is currently Chairman of FNZ (Group) and a member of the House of Lords.

ExperienceLord Leitch was previously Deputy Chairman of Lloyds Banking Group plc, Chairman of Scottish Widows plc, Chairman of Intrinsic Financial Services, Non-Executive Director of Old Mutual Wealth, Senior Independent Director at United Business Media plc, Chairman and Chief Executive of Zurich Financial Services UK, Ireland, South Africa and Asia Pacifi c, and Chairman of the Association of British Insurers.

Joine d th e Board in May 2005; appointed Chairman in Nove mber 2006.

Evelyn Bourke, Group Chief Executive Offi cerExecutive Director

SkillsEvelyn 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.

ExperienceEvelyn was previously a Non-Executive Director of the IFG Group in Ireland. She joined from Friends Life where she was Chief Executive Offi 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 Offi cer.

Joine d as CFO in 2012.

Appointed as Grou p CEO on 25 July 2016. Pre viou sly ser ve d as Acting Grou p CEO from 4 April 2016.

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Martin HoustonIndependent Non-Executive Director

SkillsMartin brings extensive international business experience to the Board.

External appointmentsMartin is Chairman of Moelis & Company’s Global Energy Group and Vice Chairman of Tellurian Inc. He is also a Non-Executive Director of CC Energy and Vice Chairman of Hakluyt North America.

ExperienceMartin was previously Chief Operating Offi cer and Executive Director of BG Group plc where he spent 32 years and is a former Chairman of TPH International, and former Non-Executive Director of Severn Trent plc. He is a Fellow of the Geological Society of London, is on the advisory board of the Royal Opera House of London, and is a member of the advisory board of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs in New York.

Joine d th e Board in January 2014.

Caroline SilverIndependent Non-Executive Director

Skills Caroline brings 30 years of experience in international investment banking as well as extensive experience in advising clients and of regulators across Europe.

External appointmentsShe is a Managing Director at Moelis & Company, Non-Executive Chairman of FMCG Group PZ Cussons plc, and a Trustee of the Victoria & Albert Museum.

ExperienceA qualifi ed Chartered Accountant, Caroline was previously Vice Chairman of EMEA Investment Banking at Bank of America Merrill Lynch and spent 14 years at Morgan Stanley where she held a number of senior positions including Global Vice Chairman of Investment Banking and European Head of Financial Institutions.

Joine d th e Board in Nove mber 2017.

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Full details of each Dire cto r are available on bupa.com/corporate/about-us

Read mor e

Board composition

0-3yrs6

Board tenure

4-6yrs2

7+yrs3

Gender diversity Male

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Female5

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Committee Chairman

Audit

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Remuneration

Sector experience

Financial services 8

Clinical and Healthcare Systems 6

International Business 8

Brand and Marketing 6

Strategy and Development 9

See Board evaluation page 41See Engagement page 43


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Joy Linton, Chief Financial Offi cerExecutive Director

Skills Joy brings over 30 years’ experience in fi nancial and strategic roles in Australia and the UK.

ExperienceShe 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 Offi 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.

Appointed CFO on 25 July 2016, and pre viou sly ser ve d as Acting CFO from 1 May 2016.

Lawrence Churchill, CBESenior Independent Director

Skills Lawrence brings considerable expertise from operating in large, complex organisations and has extensive knowledge of financial services, risk management, general management and public policy.

External appointmentsLawrence 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 a Trustee of International Longevity Centre (UK).

ExperienceLawrence was 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.

Joine d th e Board in July 2009 and became th e SID on 14 May 2015.

Simon BlairIndependent Non-Executive Director

Skills Simon brings international experience, particularly gained in Australia and New Zealand, and a strong understanding of the insurance and healthcare sectors.

External appointmentsHe is a Non-Executive Director of the Sovereign Assurance, ASB Bank and BoCommLife.

ExperienceSimon was Group Executive International Financial Services for the Commonwealth Bank of Australia. He was previously Chief Operating Offi 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.


Roger DavisIndependent Non-Executive Director

Skills Roger has extensive business experience and an international mindset acquired during a wide-ranging career in fi nancial services.

External appointmentsHe is Chairman of Sainsbury’s Bank, Global RadioData Communications (GRC) and Future for Heroes. Roger is also a Non-Executive Director of Experian plc.

ExperienceHe has extensive experience in the UK and Asia with previous positions including Managing Director of India for Jardine Fleming, Chief Executive Offi 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.

Joine d th e Board in July 2015.

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Clare ThompsonIndependent Non-Executive Director

Skills Clare brings a wealth of experience, particularly in the areas of fi nance and insurance.

External appointmentsShe is 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.

ExperienceClare 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.

Joine d th e Board in May 2015.

Professor Sir John TookeIndependent Non-Executive Director

Skills Sir John brings medical expertise, gained over 40 years, to advise the Board on clinical governance and advances in healthcare practices and treatments.

External appointmentsA 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.

ExperienceSir John was formerly Vice Provost (Health) and Head of the Medical School at UCL, and Academic Director of UCL’s Academic Health Science Centre, UCL Partners.

Joine d th e Board in July 2009.

Janet VoûteIndependent Non-Executive Director

Skills Janet brings an international perspective and experience gained in corporate strategy, the health and care sector and consumer-facing businesses.

External appointmentsShe is Chairman of the Creating Shared Value Council at Nestlé SA and serves as an Ambassador of the International Integrated Reporting Initiative.

ExperienceJanet previously served as Global Head of Public Aff 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.


Julian SandersCompany Secretary

SkillsJulian was formerly Deputy Company Secretary, having joined Bupa in 1988.

ExperiencePrior to joining Bupa Julian was a Supervisor in the Business Services Group at Coopers & Lybrand (now PwC).

Appointed as Com pany Secre tary in July 2014.

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Governance Report

Bupa Executive Team

The Bupa Executive Team (BET) comprises 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 focusing on performance, risks, talent, and the delivery of the strategic agenda. In particular, the BET focuses on:

– Bupa’s strategic framework;

– calibrating performance and generating opportunities;

– aligning on priorities, including business development and M&A;

– high-level resource and capital allocation;

– culture and talent management in the organisation; and

– key global strategic initiatives such as driving innovation and leadership development.

Evelyn BourkeGroup Chief Executive Offi cer

Joy LintonChief Financial Offi cer

Paul Zollinger-ReadChief Medical Offi cer

Paul became Chief Medical Offi cer of Bupa in July 2012. He has had 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.

Alex ColeChief Customer and Corporate Aff airs Offi cer

Alex joined Bupa in July 2014. As Chief Customer and Corporate Aff airs Offi cer she has global accountability for Bupa’s customer experience, brand, corporate communications, CRS, and public aff airs. She previously held senior positions at J Sainsbury plc and Cadbury plc.

Garry FinglandChief Information Offi cer

Garry joined Bupa as its Chief Information Offi 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. He will leave Bupa in 2018.

See page 34 for biographical details.

See page 35 for biographical details.


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Nigel SullivanChief People Offi cer

Nigel joined as Bupa’s Chief People Offi cer in June 2017. Previously he was HR Director at TalkTalk and HR Director for Sales and Marketing at Rover Group. He has also worked in Human Resources at Nortel Networks and Marconi. Nigel is a Non-Executive Director on the boards of Royal United Hospitals NHS Foundation Trust in Bath and Noble Foods.

Penny DudleyChief Legal Offi cer

Penny was appointed as Chief Legal Offi 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.

David FletcherChief Risk Offi cer

David became Chief Risk Offi cer in January 2017 having previously worked for Bupa as Chief Internal Auditor and then MD of International Development Markets. 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.

Gabriela PueyoChief Strategy Offi cer

Gabriela was appointed as Chief Strategy Offi cer in January 2017 having previously held a number of senior roles in the Sanitas business, including Dental GM, CFO and Strategy Director. Starting her career as a strategy consultant at McKinsey, Gabriela has an MBA from Harvard University and a degree in Economics and International Relations from Stanford University.

Richard BowdenCEO, 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.

David HynamCEO, United Kingdom (UK)

David was appointed as CEO 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 Offi cer and UK CEO of Friends Life, and before this held a number of senior roles across AXA and Barclays. David is also the Chairman of HomeServe UK.

Iñaki EreñoCEO, Europe and Latin America Domestic (ELA)

Iñaki was appointed as CEO 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.

Simeon PrestonCEO, International Markets (IM)

Sim was appointed as CEO of IM in October 2017. Working in Asia for over 20 years, he was previously, AIA’s Group Chief Operations Offi cer, and member of the Group Executive Committee responsible for technology, innovation, operations and transformation. Prior to this he served as a senior partner at global management consultants Bain & Company, where his twin specialisms were Asia insurance and organisational design.


Bupa’s governance framework and the role of the BoardThe Board is responsible for the long-term success of Bupa. Our governance structure is designed to help the Board lead Bupa within a framework of prudent and eff ective controls that enable risk to be assessed and managed. In 2017, the Board held 11 full meetings and scheduled three additional meetings to discuss specifi c matters including Solvency II reporting, the Bupa Global customer data loss incident and M&A opportunities. The Board devotes its time to overseeing Bupa’s strategy, approving business plans and signifi cant capital expenditure, acquisitions and disposals, and 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 and Governance and Remuneration Committees. The activities of the Board and its Committees are detailed later in this Governance Report.

We have an annually updated schedule of matters reserved for the Board’s approval, while 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 suffi cient resources to undertake their duties, including access to 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 offi cers’ insurance policy in place as well as a deed of indemnifi cation.

The roles of the Chairman and the Group CEOThe roles of the Chairman and the Group CEO are clearly separated.

The Chairman is responsible for leading the Board and has a key role in ensuring that the Board and individual Directors can work eff ectively, both in and outside the boardroom. It is also the Chairman’s role to ensure that there is eff 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 aff ecting the operations, performance and strategy of Bupa’s businesses, except for 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 36-37.

Governance Report

Leadership

Non-Executive Director Induction 2017 Following any appointment to the Board, we draw up a personalised induction programme including knowledge building, site visits to Bupa’s businesses and discussions on strategy and development plans for the business. The objective of an induction is to provide the new Director with the information they will need about Bupa to function eff ectively.

As a new member of the Board appointed during 2017, Caroline Silver commenced her extensive induction programme, which includes

meetings with the heads of various businesses across Bupa. As part of this, an initial site visit was arranged to the Retirement Village in Witney, Oxfordshire in November 2017 to enable her to experience fi rst hand how Bupa cares for its customers. Caroline will also be invited to participate in further visits during 2018, including those taking place overseas with the Board. Examples of these are included in the Board in action section on page 40.

Caroline attended one of the AM briefi ng sessions in October 2017 at which attendees are encouraged to question the Group CEO, CFO and Chairman in relation to strategy and performance. Caroline has served as an Association Member since 2013 and therefore has some prior knowledge of Bupa.

Caroline Silver commented:

“The visit to the Retirement Village in Witney was an excellent start to my induction into the business. It provided me with a great opportunity to see Bupa’s operations and to spend time with the front-line staff and residents in the village. With a number of local and overseas site visits arranged throughout 2018, I look forward to gaining greater insight into Bupa’s operations internationally.”


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The role of the Senior Independent DirectorThe Senior Independent Director (SID) is Lawrence Churchill, one of the NEDs. 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. He has taken on responsibility for the leadership of the recruitment process to identify and appoint Bupa’s next Chairman.

The role of the Non-Executive DirectorsLawrence Churchill, Simon Blair, Roger Davis, Martin Houston, Caroline Silver, Clare Thompson, Sir John Tooke and Janet Voûte were appointed 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 NED Terms of Appointment, which set out their expected time commitment, is available on bupa.com and at Bupa’s registered offi ce and is also available for inspection before and during the AGM. NEDs have the same general legal responsibilities to the Company as any other Director.

Board diversity policyBupa’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 on increasing Board diversity without compromising on the calibre of Directors. Appointments to the Board are based both on merit and on complementing and expanding the skills, knowledge and experience of the Board as a whole. In this regard the Board aspires to have an appropriate proportion of Directors with direct experience of some of Bupa’s key markets. In 2017, Caroline Silver, who has signifi cant fi nancial services experience, was appointed to the Board. Our Board diversity policy can be found on bupa.com.

Succession plansSuccession plans are continually reviewed and we plan a phased replacement of NEDs coming to the end of their tenure. This approach is designed to ensure continuity on the Board, to maintain an appropriate balance of skills and experience on the Board and its Committees to ensure we have a strong pipeline of executive talent within the business.

Board composition and tenureBupa’s Board consists mainly of NEDs (nine including the Chairman), who considerably 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 off er themselves for annual re-election by the AMs.

The ChairmanLord 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 34.

Senior Independent DirectorShould Lawrence Churchill be re-appointed at our AGM in May, he will have served as a NED for nine years as of July 2018. The Board extended his term to March 2019 as we consider that Lawrence maintains his independence and that his continued membership of the Board is important during the recruitment and induction of our new Chairman in 2018.

Should Sir John Tooke be re-appointed at our AGM in May 2018, he will have served as a NED for nine years as of July 2018. The Board extended his term to June 2019 as we consider that Sir John maintains his independence, and brings an important contribution on medical matters.

Confl icts of interestThe 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 agrees 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 pages 34-35. Each NED confi rmed that they are able to devote suffi cient time to perform their role eff ectively.

Board training and developmentDuring 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. In 2017, the training included Strategic Thinking, Crisis Management, Tomorrow’s World of Medicine and a session on requirements under Solvency II. In May, the Board attended a digital immersion day. This included updates on Bupa’s Customer Lab, a demonstration of virtual reality and an update on artifi cial intelligence. Relevant Directors also attended a training review of their continuing regulatory responsibilities. NEDs undertook training independently throughout the year to ensure that they maintained their skills and knowledge required for the role. Examples of these were Brexit, clinical governance, age discrimination and pension issues. The Committee members also receive training as necessary on specifi c technical topics. For example, in 2017, the Audit Committee received awareness training on the new IFRS requirements.


Governance Report

Board in action

The Board undertook two site visits during the year, the fi rst to Madrid in April and the second in the UK in October. Visits like these enable our Directors to deepen their knowledge of Bupa’s global operations and meet with local executives, both of which can help better decision-making.

Madrid, Spain site visit In Spain, the Board visited the Virgen del Mar hospital where they toured the refurbished facilities. The Board also visited the Jardines de Sabatini care home which was opened in 2016. They saw technology that allows relatives to remotely access data about the residents’ daily care. One-to-one meetings with executives were held, at Sanitas (ELA), tailored to the Directors’ expertise and Committee positions, e.g. Finance and Audit, Risk, Clinical, Communications and Digital Marketing.

UK site visit In the UK, Board members visited the Richmond Village in Oxfordshire, the Fulham Road Dental Practice and the Kensington Care Home. At the dental practice, Board members received a presentation from the General Manager of Bupa Dental UK who previously served as the COO at Oasis Dental Care. At the care village, Board members were able to talk to residents participating in an art class and attended a visit from a local nursery. The Board members also visited the UK Market Unit head offi ce at Battle Bridge House (BBH), London, where they received presentations from senior executives on the UK business. BBH was refurbished in 2017 to facilitate better collaboration, more effi cient working and an increased focus on digital.

These site visits enabled Board members to experience the customer journey fi rst hand and to speak to Bupa’s people directly, as well as see the Bupa off ering in that market.

Additional overseas visitsDirectors undertook some additional overseas visits during 2017, including:

– Lord Leitch, Evelyn Bourke, Lawrence Churchill, Joy Linton and Sir John Tooke visited Saudi Arabia in January. This was an opportunity to meet with local executives as well as regulators; and

– Lord Leitch and Lawrence Churchill travelled to Australia in September to conduct interviews for the appointment of the new Bupa ANZ Chairman due to take up her role in March 2018.

1. L-R Clare Thompson, Lord Leitch and Iñaki Ereño visiting the Virgen del Mar hospital in Madrid.

2. L-R Evelyn Bourke and Clare Thompson talking to Bupa employees at the Richmond Village.

3. L-R Sir John Tooke, Julian Sanders, Joy Linton, Lord Leitch, Simon Blair, Janet Voûte and Martin Houston at the Fulham Road Dental Practice.

4. L-R Roger Davis, Lawrence Churchill, Clare Thompson and Evelyn Bourke observe a nursery visit at the Richmond Village.

5. L-R Evelyn Bourke and Lawrence Churchill at the Richmond Village.

6. L-R Janet Voûte and Lord Leitch at the Fulham Road Dental Practice.

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Board performance and evaluation

Our last external performance evaluation was conducted by Independent Audit Limited (IAL) in 2016. IAL has no connection with Bupa, other than having provided the online questionnaire tool used for the internal reviews in 2014 and 2015. Our next three-yearly external review will take place in 2019.

In 2017, the Board undertook an internal Board and Committee evaluation using an online facility developed by IAL. The two previous external reviews in 2010 and 2013 were conducted by Boardroom Review.

The 2017 review concluded that Bupa’s Board continued to operate eff ectively in an open and transparent manner, providing support and challenge to executive management.

The Board considered the performance of the Chairman during 2017 and concluded that he continued to provide strong leadership of the Board.

Board performance evaluation action plan 2017 (from the 2016 Board evaluation) 2018 goals

The results from the 2017 action plan (arising from the 2016 internal evaluation) and achievements against the goals set are outlined in the table below.

Priorities arising from the 2017 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 2018 Annual Report.

Categories Board action plan for 2017 Achievements against action plan during 2017 Categories Board action plan for 2018

Clarity on medium/long-term strategy

– Keep Bupa’s long-term ambitions and strategy under review.

– The Board considered a number of key strategy issues including:

– a revised strategic fi nancial framework;

– a review of the long term structure of its international private medical insurance business;

– the future implications of digital healthcare; and

– opportunities for growth in Bupa Dental.

Clarity on long-term strategy

– Keep Bupa’s long-term ambitions and strategy under review.

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.

– The Board reviewed its NED succession plans during the year, resulting in the appointment of Caroline Silver (Financial Services) in November 2017. It also commenced the recruitment process for the new Chairman which is now at an advanced stage.

Focus on Non-Executive Director succession planning

– Finalise appointment of new Chairman. Commence process to recruit NEDs with international fi nancial services and medical expertise respectively.

Board impact

– Ensure the Board agenda continues to have space for adequate discussion of emerging risks and opportunities.

– The Board considered both emerging and actual risks and opportunities during 2017.

BET leadership succession

– Signifi cant focus on further strengthening of succession planning in a number of specifi c areas agreed by the Board in December 2017.


Board attendance

The following table sets out the attendance of the Company’s Directors at scheduled Board and Committee meetings during 2017:

Number of meetings held

Scheduled Board

meetings11

Audit Committee

6

Nomination & Governance Committee

7

Remuneration Committee

7

Risk Committee

6

Chairman

Lord Leitch1 11/11 – 5/7 7/7 –Executive DirectorsEvelyn Bourke 11/11 – 7/7 – –Joy Linton 11/11 – – – –Non-Executive Directors Lawrence Churchill 11/11 6/6 7/7 7/7 6/6Simon Blair2 11/11 6/6 – – 5/6Roger Davis3 11/11 4/6 – 6/7 –Martin Houston4 9/11 – 7/7 7/7 –Carolin e Silver5 2/2 – – – –Clare Thompson 11/11 6/6 7/7 – 6/6Sir John Tooke6 10/11 – 5/7 – 6/6Janet Voûte7 9/11 – – 7/7 5/6

1. Excused himself from Nomination and Governance Committee (NGC) meetings in August and November as these related to Chairman’s succession.2. Confl icting commitment for the April Risk Committee meeting.3. Confl icting meetings with Remuneration Committee meeting in July and with Audit Committee meetings in July and October.4. Confl icting meeting with Board in April. 5. Appointed on 1 November 2017.6. Confl icting commitment with August Board. Confl icting commitments for NGC in August and at short notice in November.7. Confl icting commitment in March, and unable to attend scheduled Board meeting in June due to recovery from an operation. Unable to attend Risk Committee meeting in March due to

confl icting commitment.

2017 Board meetingsThe Board held 11 scheduled meetings during the year (both in the UK and overseas) and three additional meetings convened at short notice. The following table shows the main items discussed at the scheduled meetings. The additional meetings covered approval of Solvency II Annual reports, the Bupa Global data breach incident and M&A opportunities. The Board also attended an annual strategy off site session in June 2017.

Examples of key items covered at scheduled Board meetings included:

Governance Report

Eff ectiveness continued

February – 2016 Outturn and Impact on 2017-19 Plan

– Proposed Care Home Sales

– Bupa Arabia Stake Increase – UK Brand Update – Chief Risk Offi cer’s Report

March – Approval of 2016 Annual Report & Accounts

– Customer and Brand Dashboard

– Bond Issue – Brexit Planning

April(meeting held in Spain)

– ELA MU Update – Bupa Arabia Stake Increase

May – PRA Update – 2017 ORSA & Policy

– Modern Slavery Act – Brexit Planning

June – Chairman Succession Planning – Sale of Bupa Thailand – Solvency II Reporting – Customer & Brand Dashboard

– Information Systems Transformation Update

– Bo ard Strategy Away Day

July – Bupa’s approach to corporate responsibility and sustainability

– Brexit Planning – Bupa Insurance Limited (BINS)

Update

– Employee Health & Wellbeing – Speak Up Report – Chief Risk Offi cer’s Report

August – Half Year Results

September – Bupa Dental – Chief People Offi cer’s fi rst 90 days – Brexit Planning – IM MU Update

October – ANZ MU Update – UK MU Update – NZ Care Village Investment

– Strategy Update (Financial Strategic Framework)

November – 2018–2020 Plan Overview – Bupa Global Strategy Refresh

December – Approval of 2018-2020 Plan – Bupa Global Data Incident – IM MU CEO – First 90 Days

– Health & Safety Update – Internal Board Evaluation – Subsidiary Governance Review – Senior Talent Succession Review


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Association MembersBupa maintains a register of around 100 Association Members (AMs) (108 as at 31 December 2017) who perform the kind of key governance role ordinarily undertaken by shareholders. AMs normally serve for an initial term of ten years which can be extended for further terms of fi ve years. AMs have no equity holding in Bupa and, consequently, no right to dividends. They are eminent individuals in their own fi eld, coming from a diverse range of sectors, including health and social care, business, regulatory, academia, charities and the public sector. Their expertise enables them to challenge the Board on matters of performance and strategy. The Board can also draw upon their skills, knowledge and experience to help inform future strategy and development. Fundamentally, the role of AMs is to hold the Board to account in delivering on our purpose of helping people live longer, healthier, happier lives. AMs are selected using criteria including recent and relevant experience in their fi eld, independence from Bupa, the capacity to make a contribution, and experience in the key overseas markets in which Bupa operates.

Bupa’s AMs have various opportunities to engage with the entire Board, including at the well-attended AGM. The calendar of events is 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, along with weekly media briefi ngs and a calendar of forthcoming events.

BondholdersBupa 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 held 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. Our CFO and Group Treasurer hold roadshows for bondholders after every year end and on an ad hoc basis if any debt issuances are planned. Bondholders are kept up to date on signifi cant developments at Bupa via email.

Other stakeholdersAcross our markets, we engage regularly with policymakers and regulators, health and social care professionals, consumer groups, NGOs and other key stakeholders. This enables us to champion issues that matter to our customers and contribute to policy debates by sharing our international experience of health and care systems. We also work with a wide range of partners, building strong, mutually benefi cial relationships so we can succeed for our customers. Beyond that, we also work with other commercial and non-profi t organisations to make a positive impact on specifi c health issues as part of our commitment to help more people access better healthcare. Our business model on page 4 shows how we create value for customers, employees and other stakeholders.

Calendar of Association Members engagement events in 2017

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 2017, the Seminar was “The Future of Healthcare”. 56 (49%) of AMs attended the 2017 AGM (2016: 48%).

– 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 2017 meeting covered a broad range of areas such as Bupa’s strategy, Insurance Premium Tax increase, Brexit, Mental Health, Remuneration and Bupa’s status.

August – Half Year Results Briefi ng Call

– As for the Financial Results Briefi ng Call (above).

October – 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 49 (45%) AMs in attendance during 2017 (2016: 45 (39%)). 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.


Role of the CommitteeThe principal role of the Committee is to monitor the integrity of Bupa’s fi nancial statements and the eff ectiveness of our internal control systems, and to monitor the eff ectiveness, performance, objectivity and independence of the internal and external auditors. The Committee also reviews regulatory reporting and disclosure requirements.

A full description of the Committee’s role is set out in its Terms of Reference on bupa.com.

Committee governanceAll members of the Committee are Non-Executive Directors (NEDs). This remained the case throughout the year.

The Group CEO, CFO, Corporate Controller, Chief Internal Auditor, Chief Risk Officer and external auditors are routinely invited to attend meetings. The Committee holds separate discussions at least annually 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 pages 34-35.

2017 activities As set out in last year’s report, the Committee’s focus for 2017 was to monitor the ongoing programme of improvements in the control environment and receive regular reports from the Internal Audit function; to oversee the automation and effi ciency improvements in accelerated Solvency II Pillar 3 reporting; to oversee the purchase price accounting for major acquisitions such as for Care Plus and

Oasis Dental Care; to work closely with Bupa’s new KPMG Lead Audit Partner, Philip Smart, and receive a refreshed audit plan; and to oversee the analysis and implementation of new accounting standards, and particularly the impact of the new leasing standard (IFRS 16) when it takes eff ect from 2019. The Risk Committee assumed responsibility for the Internal Control and Risk Management Assurance process in January 2017.

During 2017, the Committee also:

– reviewed the fi nancial reporting relating to the issue of the £300m 2.00% Fixed Rate Notes due 2024 by our subsidiary Bupa Finance plc;

– reviewed and monitored the accounting treatment of assets held for sale including a number of our care homes in the UK;

– received an update on the current tax landscape, highlighting the strategic focus and key priorities of the global tax team;

– undertook a review of ongoing work to strengthen our IT control and governance environment;

– reviewed our 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 Finance Development Programme to deliver additional processes, systems and data capabilities to ensure continued compliance with Solvency II Pillar 3 reporting requirements and to bring together other activities relating to fi nancial strategic change activities;

– received updates on the approach taken to implementing actions recommended by internal and external audit, including meetings with management where appropriate;

– received an update on the status of the whistleblowing programme (Speak Up) and reviewed and recommended the related policy to the Board;

– received training on the new requirements under IFRS accounting standards – IFRS 9/15/16/17; and

– discussed the timing of the rotation of the external auditor, KPMG.

Governance Report

Audit Committee Report

“ During the year the Committee oversaw the ongoing improvement in the control environment.”

Clare ThompsonCommittee Chair

Committee members’ meetings attendance

Clare Thompson Chair 6/6

Simon Blair 6/6

Lawrence Churchill 6/6

Roger Davis 4/6

Key items covered

At most meetings the Committee receives reports from Internal Audit, Finance and KPMG. The following items were discussed during the year:

JanuaryKey Accounting Issues & Areas of Judgement

IT Access Controls Update

Audit and Non-Audit Services Policy Review and Approval

Eff ectiveness of the Audit Committee

External Auditor Eff ectiveness Survey

FebruaryAnnual Report & Accounts 2016

Risk Management Framework

Insurance Reserving Update

June

Solvency II Reporting

KPMG Management Letter, Solvency II, Audit Plan & Letter of Engagement and Fee

July Key Accounting Issues and Areas of Judgement

Half Year Reporting

Tax Strategy Update

OctoberIT Projects Update

Upcoming IFRS Training Session

External Auditor Rotation

Enterprise Policy Review and Approval of Policies including ‘Speak Up’

DecemberKey Accounting Issues & Areas of Judgement

Insurance Reserving Update


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Financial reportingThe Committee reviewed the appropriateness of the half year and annual fi nancial statements, with both management and the external auditors including:

Fair, balanced and understandableIn assessing whether the Annual Report was fair, balanced and understandable, the Committee evaluated as follows:

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; and

– Key Performance Indicators refl ect those 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; and

– The layout and presentation are clear with appropriate language used throughout.

Going concern and longer term viability statementThe 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.

The signifi cant issues and areas of judgement discussed in respect of the 2017 reporting period and how they were addressed are detailed in the table:

Signifi cant issues and areas of judgement

Key issue Committee response

Goodwill and intangible asset valuationsSignifi 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 noted and approved the work done to align the Weighted Average Cost of Capital (WACC) used for goodwill testing and the cost of capital used for internal purposes taking into account the mandatory requirements of IAS 36 (Impairment of Assets). The Committee critically reviewed and discussed management reports outlining the basis of the assumptions used for our most sensitive Cash Generating Units (CGUs) and challenged the results in the light of business performance and the external environment. In addition, the Committee received management reports on other intangibles such as brands, with particular focus on the impairment of brands in Bupa Chile. Further to, the Committee also received from KPMG an audit of the assessments performed by management. The Committee is satisfi ed that the assumptions applied were reasonable and the carrying value of goodwill and other intangible assets is appropriate.

Claims provisioningCalculation 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 a report from the Chief Actuary setting out estimates of the technical provisions, including the margin of prudence held by each insurance entity, as well as the result of the annual review of compliance with Bupa’s Claims Reserving and Liability Adequacy Standards. The Committee considered the appropriateness of the overall level of insurance technical provisions, including the aggregate margin of prudence. In reviewing and approving the insurance technical provisions, the Committee also took into consideration the auditor’s report to the Committee.

Property valuationsBupa has a signifi cant portfolio of care homes, villages 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 received the results from the external valuations in Australia and New Zealand, undertaken as part of the triennial property review, and Directors’ valuations performed in other Market Units. Consideration was given to the valuations during the year in relation to properties classifi ed as held for sale. The Committee also reviewed reporting from the external auditors addressing the valuations to assess their reasonableness and considered the appropriateness of disclosures made. 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 liabilitiesBupa’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 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 disposalsDuring 2017 Bupa completed the acquisition accounting for Care Plus, a Brazilian health insurer, the acquisition of Oasis Dental Care, the disposal of Bupa Thailand and a number of care homes in the UK.

The Committee considered the proposed accounting for the respective acquisition balance sheets, including the valuation of acquired customer relationship intangible assets, The Committee challenged management and concluded that the approach and assumptions used were appropriate. Proposed disclosures were also presented to the Committee.

Operations held for saleNet assets classifi ed as held for sale during 2017 include a small number of homes in the UK care services business and freehold land in Australia.

The Committee considered the proposed accounting for the respective disposal groups, including whether a disposal was highly probable and the assumptions used to measure the disposal group at the lower of carrying value and fair value less costs to sell. The Committee concluded that the approach and assumptions used were appropriate.

Provisions and contingent liabilitiesThe Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, disputes, and interpretation of tax law.

The Committee received reports from management setting out the rationale applied to the consideration of the recognition and disclosure of provisions and contingent liabilities. The Committee challenged the assumptions made and the conclusions reached requesting further details where they felt necessary. After due consideration and discussion, the Committee concluded that management’s assumptions were appropriate regarding the need or otherwise for accounting provisions and also that the proposed disclosure in the fi nancial statements was appropriate.

Solvency IIThe Solvency II capital position is reliant on certain key assumptions aff ecting the valuation, availability of Own Funds and the calculation of the Solvency Capital Requirement (SCR). Signifi cant judgement is involved in the fair value adjustments applied in preparing the economic balance sheet.

The Committee reviewed and challenged the papers that management prepared to support year end and half year reporting of the solvency position. These papers outlined all key assumptions underlying the balance sheet valuation and the SCR calculation. This was supplemented by reports from the external auditor KPMG. The Committee also reviewed the proposed disclosures for inclusion in the Annual Report and the Solvency and Financial Condition Report (SFCR) in advance of the year end together with management’s summary of the changes to key judgements and assumptions. The Committee is satisfi ed that assumptions used are appropriate and the valuation and proposed disclosures are in accordance with the Solvency II legislative framework.

IFRS 9 (Financial Instruments) and IFRS 15 (Revenue Recognition)The requirements of the standards have been assessed in advance of application on 1 January 2018.

The Committee considered and approved the appropriateness of the conclusions in the classifi cation of fi nancial instruments, the assumptions to determine the Expected Credit Loss (ECL) provisions for fi nancial assets under IFRS 9, and the time pattern and presentation of revenue recognition under IFRS 15.


Governance Report

Audit Committee Report continued

In addition to the issues disclosed in the table on page 45, the Committee considered one-off transactions, such as the increased stake in Bupa Arabia and the disposal of care homes in the UK. The Committee is satisfi ed that these have been appropriately recognised and disclosed in the fi nancial statements.

The move to a liquidity presentation for the Consolidated Statement of Financial Position, considered to be more relevant to the Group’s operations, was also approved by the Committee during the year.

External Auditors Eff ectiveness The Committee assessed the scope, fee, objectivity and eff ectiveness of the external audit process during the year. Prior to making a recommendation on the reappointment of KPMG, the Committee reviewed the eff ectiveness of its performance against criteria which were agreed, in liaison with executive management, at the outset of each year’s audit.

In 2017, the Committee assessed KPMG’s eff ectiveness during Committee meetings held throughout the year. The Committee also considered the results of the auditor satisfaction survey sent to senior fi nance management across the Group and the auditor evaluation survey sent to the Committee members along with the Group CEO, CFO, Chief Internal Auditor and the Corporate Controller.

The Committee considered 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 eff ective audit service.

The Committee requested and reviewed the external audit plan, ahead of its approval to provide the opportunity to challenge resources in meeting the plan.

Mandatory rotation of external auditors KPMG has been Bupa’s auditor since 1985, during which time Bupa has not put the audit out to tender.

In accordance with the Financial Reporting Council Ethical Standard, Daniel Cazeaux of KPMG rotated off Bupa’s account following the completion of the fi nancial year ended 31 December 2016 audit. In 2016, Philip Smart became the new lead audit partner for the fi nancial year ending 31 December 2017 audit.

Under the new EU Audit Regulation transitional arrangements, Bupa is required to rotate its audit fi rm at the next appointment on or after 17 June 2020. In 2017, the Committee re-assessed tendering options and decided to progress with a tender to appoint a new audit fi rm for the audit of the fi nancial year ending 31 December 2021. The Committee agreed that replacing the external audit fi rm at an earlier date is likely to be disruptive when signifi cant focus is being given to the implementation of a new group fi nancial reporting consolidation system in 2018 and forthcoming IFRS changes.

In the meantime, the Committee will continue to monitor the eff ectiveness of KPMG closely.

Auditor independence and non-audit services To ensure that KPMG’s objectivity and independence are safeguarded, the Committee has a formal policy addressing Bupa’s relationship with the external auditors. This includes fi nancial approval limits for non-audit services and restrictions on the nature of work that can be performed. In 2017, this policy was updated and approved by the Committee to include further auditor independence safeguards. In addition, the limit to which the Audit Chair or the Audit Committee must approve all non-audit related engagements decreased from £200,000 to £100,000 and above. On a quarterly basis, the Committee reviews non-audit services provided by KPMG and other audit fi rms, 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 £1.0m representing a non-audit to audit fee ratio of 0.2:1. Of the non-audit fees paid, £0.4m was in relation to Solvency II assurance activities. The audit and non-audit services are shown in Note 2.3 to the fi nancial statements.

The Committee was satisfi ed that KPMG remained independent. In addition, KPMG also reports annually on whether and why it deems itself to be independent.

Internal Audit Internal Audit provides the Committee with assurance over the eff ectiveness of governance, risk and internal controls. It reviews the eff 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 25). 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 to 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 in improving the eff ectiveness of governance, risk management and internal controls.

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 may procure the services of expert external advisers and we appointed PricewaterhouseCoopers as Internal Audit’s fi rst global co-sourcing provider. Consequently, Internal Audit was able to deploy additional expertise and insights 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. Bupa’s Internal Audit Plan is risk-based, formally refreshed every six months, and approved by the Committee. In 2017, 116 audits were completed. 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 2017 Plan and budget in December 2016. 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 2017 Plan based on a renewed 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 2017.


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The function operates in accordance with the Global Institute of Internal Auditors’ international standards. In addition to the external assessment on the eff 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 remain appropriate for the Bupa business. Our global Internal Audit function has a diverse skill-set. The majority of team members hold accounting or internal auditing qualifi cations and are experienced in insurance, health provision, transformation or technology assurance.

Over recent years we have invested in growing the depth and breadth of our Internal Audit team as Bupa’s ‘three lines of defence’ model has matured. The structure of the function has also evolved to match changes in Bupa, for example, it now ensures acquisitions receive appropriate audit coverage. The strength of the function will continue to develop as we invest further.

Internal Controls and Risk Management Assessment As noted in the Risks section on pages 25-30, Bupa has an ongoing process for the identifi cation and management of its principal risks and conducts the Internal Controls and Risk Management Assessment (ICRMA). The ICRMA process did not identify any weakness 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 in the current year that were signifi cant to the preparation of the fi nancial statements.

Strengthening linkages with subsidiary committees

Progress was made in strengthening linkages with major subsidiaries. The Committee Chair held meetings with the Actuarial, Internal Audit and Medical Directors as well as the Chief Finance and Strategy Offi cers during the Board’s visit to Spain. The Chair also holds one-to-one calls with the Chairs of the audit committees of Bupa’s major subsidiaries throughout the year.

Clare Thompson also chairs the UK Regulated Entities Board Audit Committee.

WhistleblowingThe Committee kept under review the adequacy and security of Bupa’s whistleblowing arrangements, known as ‘Speak Up’. The Committee reviewed the Speak Up policy and recommended its approval to the Board. The Board received an update on the results of the process and reviewed the report to identify any areas for further focus.

Committee eff ectiveness reviewOverall, the Committee considered that it was eff ective during 2017. Areas to focus on included the addition of a further member with accounting experience. This had already been achieved with the appointment of Caroline Silver to the Committee.

Plans for 2018 In 2018 the Committee plans to:

– review progress made on strengthening IT security;

– oversee the implementation of new accounting standards for 2018 onwards; and

– oversee the new consolidation system as part of the Finance Transformation project.


Role of the CommitteeThe 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, optimising 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; and

– promoting a risk awareness culture throughout Bupa.


In this report, the Committee does not wish to duplicate the detailed description of Bupa’s risks which are set out on pages 25-30 and form part of the Strategic Report.

Committee governance Committee membership was stable throughout 2017. On 1 January 2018, Simon Blair was appointed as Chairman of this Committee succeeding Lawrence Churchill. Caroline Silver was also appointed as a member of the Committee on 1 January 2018. Throughout the year, all members of the Committee were Non-Executive Directors (NEDs). The Group CEO, CFO, Chief Risk Offi cer, Chief Medical Offi 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 pages 34-35. David Fletcher became Group Chief Risk Offi cer on 1 January 2017 and, like his predecessor, has unrestricted access to all members of the Risk Committee.

2017 activitiesThe Committee’s focus for 2017 was to continue to monitor Bupa’s risk profi le; to further develop interaction with the risk committees of our major subsidiaries; to help connect risk appetite and Bupa’s strategy even more closely; to promote the understanding and deployment of our Enterprise Risk Policies; and continue to articulate the emerging risks challenging Bupa’s strategy.

Monitoring Bupa’s risk profi leOur risk profi le ends the year somewhat raised as growing external threats keep pace with improvements in internal capability. The Bupa Board provides oversight of the key subsidiary boards and their risk committees, particularly on operational risk. This included oversight of a data theft incident in Bupa Global in the summer of 2017. As we have previously said, all customers aff ected have been notifi ed. In addition, Government reaction to the increasing costs of health provision is a risk common to all our major markets. The UK’s decision to leave the EU has led to uncertainty for Bupa. We are putting contingency plans in place to address a range of Brexit scenarios, including changes to cross-border fi nancial services regulation.

Embedding risk policiesDeployment of Bupa’s suite of 31 Enterprise Risk Policies continued throughout the business. The Committee has worked to ensure planned changes in the business are aligned with existing policies, and that the amendments to policies, proposed as part of Bupa’s Annual Policy Review process, not only improve the control environment but also support our ability to serve customers.

Governance Report

Risk Committee Report

Simon BlairCommittee Chair


Simon Blair Chairman 5/6


Clare Thompson 6/6

Sir John Tooke 6/6

Janet Voûte 5/6

Key items covered

FebruaryInternal Controls and Risk Management Assessment

Committee Eff ectiveness Review

Regulatory Update

Internal Audit Findings

Emerging Risks

MarchReverse Stress and Scenario Testing

2017 ORSA Draft Report

MU/Centre Risk Outcomes

Proposed Bupa Arabia Stake Increase

AprilCyber Update

Governance Information Update

Financial Crime Risk Annual Update

2017 ORSA

JulyMedical Practices Case Study

Bupa Global Data Incident

Regulatory Update

BUPA 2017 Actuarial Function Report

Worldwide and Local Scenario Testing

OctoberBupa Global Data Incident

Information Risk Update

Oasis Dental Risk Management

Enterprise Policy Suite Review

Tax Strategy and Approach to Tax

Emerging Risks

November2018 ORSA

“ The Committee continued to monitor information risk, identify emerging risks and further align risk appetite with Bupa’s strategy.”

Risks see pages 25-30


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Internal Controls and Risk Management Assessment As noted in the Risks section on pages 25-30, Bupa has a process for identifying and managing its principal risks and conducts the annual Internal Controls and Risk Management Assessment (ICRMA) to review the eff ectiveness of risk management and internal controls across the business along with the level of policy compliance. This is a measure of how well policies are embedded in Bupa and was one of the Committee’s priority areas for 2017. It is a ‘fi rst line of defence’ self-assessment, subject to review and challenge by the second and third lines of defence. The Committee considered the results of the ICRMA in February 2018, with the results showing an improvement on the previous year. The Risk Committee assumed this responsibility from the Audit Committee in January 2017.

Our approach to the ICRMA is subject to regular review and revision by management to ensure its continued eff ectiveness.

Strengthening our information security systemsThe risks posed to our customer information have been a key focus of the Company and the Risk Committee throughout 2017. As we deliver on our digital aspirations, it is essential that we can protect the data we are given by customers, partners, employees and providers. The Committee has worked to improve understanding of these, including Advanced Persistent Threats, and to develop suitable controls to meet them. Bupa operates in a variety of geographies but the cyber domain is global, and so the Committee takes a global approach.

Articulation of emerging and strategic risks challenging Bupa’s strategyEmerging and strategic risks are reviewed by the Committee on a bi-annual basis and this feeds into the Group Own Risk and Solvency Assessment (ORSA) report, which the Committee reviews and endorses for Board approval. Bupa’s Chief Strategy Offi cer attended a Committee meeting in 2017 to consider, amongst other things, risks to Bupa’s digital plans and their eff ect on longer-term strategy. The Committee draws on work done at all levels of the business to understand the future risk environment, considering risk from a Group perspective, and supporting planning for how we can prepare ourselves for the threats and opportunities that the future risk environment presents. The thinking developed

was fed into this year’s Board Strategy off -site session, ensuring that our strategy takes account of the risk environment now and in the future.

Connection between risk appetite and strategyThe Committee is responsible to the Board for ensuring the strategy is correctly articulated in terms of the risks the Board is willing to accept (risk appetite). To this end, the Committee has endorsed work which will deliver proposals in Q1 2018 to allow the revised Risk Appetite Framework to feed into the 2018 Group ORSA, as well as the 2018 Strategy meeting.

Subsidiary risk committeesThe Committee Chairman held meetings with the Sanitas Risk Committee Chair and the Sanitas Chief Risk Offi cer during the Board’s visit to Spain and with the Chief Risk Offi cer of Australia and New Zealand in Melbourne. In addition, the Chair of the Australian subsidiary Board Audit Committee attended a Group Risk Committee meeting. The Committee reviewed the minutes of the subsidiary Risk Committees during the year, providing insight into the risks and concerns of those subsidiaries.

In 2017, the Committee also considered the following:

Risk and remuneration oversightThe 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. A member of the Risk Committee also serves as a member of the Remuneration Committee to ensure close liaison between the two Committees.

Committee eff ectiveness reviewOverall, the Committee considered that it was eff ective during 2017 and noted that it would benefi t from more time spent on considering longer-term developments and emerging risks.

Plans for 2018In 2018, in addition to monitoring Bupa’s overall Risk Profi le, the Committee plans to:

– refresh the analysis of emerging and strategic risks;

– review the risk appetite framework and statements;

– have deep oversight of key issues such as privacy including GDPR and information security; and

– enhance committee capability in information security risk.


Role of the CommitteeThe Committee leads the Board appointments process 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.


Committee governanceMembers’ biographies can be found on pages 34-35. The Chief People Offi cer and CFO are invited to attend meetings where appropriate.

2017 activitiesIn 2017, the Committee considered the following:

Board successionThe Committee focused on Board succession during 2017. Lawrence Churchill, our Senior Independent Director, and I are both due to step down by early 2019.

Consequently, the Committee identifi ed a skills gap and the need to appoint a new Non-Executive Director with experience in fi nancial services. The Committee appointed Ridgeway Partners to conduct the search and Caroline Silver was appointed to the Board on 1 November 2017.

Lawrence Churchill led the Committee in agreeing the key attributes required of my successor and considered both internal and external candidates against these criteria. Lawrence worked with Nigel Sullivan, the Chief People Offi cer, to prepare a detailed role specifi cation. After a competitive tender, The Zygos Partnership (Zygos) was retained to provide external search consultancy services in relation to the appointment of our new Chairman.

Zygos and Ridgeway were also retained for executive search services in the year.

Both Lawrence Churchill and Professor Sir John Tooke will have served nine years on the Board in July 2018. The Committee has considered the performance of each of them and their continued independence. We consider that they have both maintained their independence. Lawrence’s continued membership of the Board is key during the recruitment and induction of our new Chairman in 2018 and Sir John brings a strong contribution from both a medical and a business perspective.

Our approach to Board diversity is explained on page 39.

Bupa Board and Subsidiary Governance ReviewDuring the year, the Committee oversaw a review of Bupa’s subsidiary governance arrangements. The fi ndings of this review undertaken by management with support from Promontory were considered at the end of 2017. These included a number of recommendations, some of which had already been adopted. These included:

– revising the classifi cation of Bupa’s subsidiaries to better refl ect the legal entities’ potential risk impact on the Group as a whole; and

Governance Report

Nomination and Governance Committee Report

Lord LeitchCommittee Chair


Lord Leitch Chairman 5/7

Evelyn Bourke 7/7


Martin Houston 7/7

Clare Thompson 7/7

Sir John Tooke 5/7

Key items covered

FebruaryBoard & Committee Evaluation Process for Coming Year

Bupa’s Annual Report & Accounts 2016: Corporate Governance Report Approval

Subsidiary Non-Executive Director Appointment

JulySuccession Planning

AugustExecutive Search Company Presentations and Selection

SeptemberSuccession Planning

Association Members Update

OctoberChairman Succession Planning

Proposed Appointment of Non-Executive Director

Appointment of ANZ Chairman

Subsidiary Non-Executive Director Appointment

Association Member Update

NovemberChairman Succession Planning

DecemberSubsidiary Governance Review

Chairman Succession Planning

“ In 2017, the Committee oversaw the appointment of a new Non-Executive Director, Caroline Silver, to the Board. We also oversaw the process to appoint a new Chairman to lead our Board and further build on our strategic developments.”


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– further formalising the governance documentation for all of Bupa’s major subsidiaries; appointing a Group Board Non-Executive Director, or recent Group Board alumni, to the board of the major insurance subsidiaries;

– the Chairman and CEO of each of the major insurance subsidiaries presenting an update at least annually to the Group Board; and

– all major insurance subsidiaries undertaking an external board eff ectiveness review every three years.

These recommendations will be implemented during 2018, with oversight from the Committee.

Appointment of Bupa Australia and New Zealand (ANZ) ChairmanFollowing a thorough selection process supported by the Chairman and Senior Independent Director, the Committee considered and recommended to the Bupa Board, for its recommendation to the ANZ Board, the appointment of the Rt. Hon. Nicola Roxon as the new ANZ Chairman. The ANZ Chairman plays a key governance role in ensuring the success of that business.

Governance issuesThe 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 MembersThe Committee agreed at its meeting in September 2017 that there was no immediate need to identify any further AMs at this time because there were 108 AMs at year ended 31 December 2017 with only one scheduled to retire during 2017. There would therefore continue to be in excess of 100 AMs, our target number, at the end of 2018.

Committee eff ectiveness reviewOverall, the Committee considered that it was eff ective during 2017 and noted the continued need to focus on ensuring that the Board’s skills and experience were linked to the evolving strategy of the Group which would assist in future Board appointment needs.

Plans for 2018In 2018, the Committee plans to focus on Board succession planning, including identifying the key skills, knowledge and experience that the Board requires for the future. The Committee will also focus on enhanced main Board and subsidiary governance during 2018 and keep under review the need to undertake a further recruitment exercise for AMs.


Remuneration Report

Part 1: Committee Chairman’s letter

On behalf of the Board and the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for 2017.

As you know, our role includes making sure that Bupa maintains high standards of governance and best practice in remuneration. Our Remuneration Policy exists to support sustainable long-term performance and is clearly linked to Bupa’s strategic framework and purpose. This is a continuing journey as our business and strategy develop and evolve.

2017 activitiesHere are some of the areas we focused on in 2017:

1. Customer outcomesWe welcomed the Association Members’ high level of engagement on remuneration at the AGM in May. We particularly share the aim of strengthening the link between customer outcomes and remuneration. In 2017, the Committee reviewed the Customer Excellence Framework that we have been introducing across Bupa to improve customer outcomes. Since there are no established external direct comparators, we want fi rst to ensure that our customer metrics are stable and well understood and have clear baselines. We can then set targets and measure outcomes in the best possible way. We are monitoring progress with a view to extending the customer weighting in either the Management Bonus Scheme (MBS) or the Long Term Incentive Plan (LTIP) scorecards.

2. Regulatory and governanceThis was the fi rst year of a potential overall adjustment to the MBS outcomes based on risk management across Bupa. The Committee reviewed a wide variety of risk-related matters both in setting up the incentives and in reviewing the MBS outcomes.

It was the second year the Committee’s oversight extended beyond the Bupa Executive Team (BET) to cover some individuals whose remuneration is subject to regulatory requirements such as those introduced by Solvency II. As we work to make sure this governance is fully eff ective, two of our major insurance subsidiary companies set up remuneration committees to provide specifi c oversight of certain individuals outside the BET in Bupa Insurance Ltd and Bupa Australia.

3. Executive appointmentsThere were two key changes at BET level with the appointments of the Chief People Offi cer and International Markets CEO. The Committee carefully considered the terms for both individuals and used external benchmarking in setting the levels of remuneration.

4. Wider employee contextThis year we placed signifi cant emphasis on management discussions about the remuneration of the broader employee population, which is an area of major interest for the Committee. We reviewed our disclosures for the fi rst year of mandatory gender pay reporting in the UK and discussed the insights they off ered.

5. Foreign exchange movementsGiven the volatility in sterling since the Brexit referendum, we took a further look at our approach to measuring performance for the 2018-20 LTIP and future awards. In measuring management performance we will use constant exchange rates (i.e. the exchange rates used for setting the targets at the beginning of the performance period). This is a fair approach given currency volatility and our approach to currency hedging, which is in principle only for capital purposes.

Martin HoustonCommittee Chairman

Committee members’ attendance at meetings

Martin Houston 7/7


Roger Davis 6/7

Lord Leitch 7/7

Janet Voûte 7/7

Key items covered at scheduled meetings

9 FebruaryAnnual reward review, Subsidiary NED fees, Committee eff ectiveness review

22 February

2014-16 LTIP payout level and 2017-19 LTIP targets

May

Terms of Reference for subsidiary remuneration committees, 2017 MBS targets

July

Review of Committee advisor, Introduction to gender pay gap reporting, 2017 incentive plans rules , Review of subsidiary NED fees, Review of Chairman’s fee

September2018 incentive design, Gender pay gap reporting, Hong Kong remuneration regulations, Remuneration Policy statement, Comparator groups

DecemberRemuneration governance, Gender pay gap disclosures, 2018 incentive design, Regulatory update

A full description of the Committee’s role is set out in its Terms of Reference on bupa.com

In the Remuneration Report:

Part 1:Committee Chairman’s letter

Part 2:Policy

Part 3:Implementation (audited)


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Performance and PaySalaryWhen the Group CEO and CFO were promoted into their current roles in 2016 their salaries were reviewed and increased on appointment. No salary increases were made to the Group CEO and CFO in 2017. For 2018 the Committee reviewed their salaries and approved increases of 6.25% and 2.7%, respectively, to refl ect their performance in role and position against external market benchmarks. The Committee also reviewed the salaries of the BET during 2017 and 2018 and, absent any increases to address market positioning, the general increases approved were in line with the rest of the organisation.

Management Bonus SchemeBupa’s performance in 2017 was strong. Profi t grew by 10% and revenue by 5%, both at Constant Exchange Rates, as a result of good growth in Bupa’s three largest Market Units: Australia and New Zealand; the UK; and Europe and Latin America.

This strong performance can be seen in our growth in statutory profi t, as noted in the Financial Review on page 20, and correspondingly in the risk-adjusted profi t measure.

Overhead costs were tightly managed throughout the year and this, in combination with strong revenue performance, resulted in good cost effi ciency performance.

Customer performance was strong both in the implementation of our Customer Excellence Framework based around the methodology of ‘Listen’, ‘Learn’ and ‘Act’, and in improving our Net Promoter Scores. This refl ects our strong focus on operations and fi nancial investment in improving the customer experience across Bupa.

Alongside the measures that make up the MBS scorecard, the MBS outcome is subject to an overall adjustment relating to risk management. The Committee discussed risk management across Bupa, assisted by contributions from the Risk Committee, the Group CEO and the Risk Review Panel. There was good evidence of widespread engagement and improvement in risk management. The Risk Committee’s report on page 48 covers many of the issues discussed.

The focus of the MBS risk review is to ensure that appropriate risk management is encouraged with, for example, inappropriate risk behaviours resulting in reduced MBS outcomes. Given the improvement in the culture of risk management at Bupa during 2017 and the fact that the assessment of individual performance, including individuals within scope of the Committee, took account of adjustments for risk management, applying reductions where appropriate, the Committee decided that no business-wide risk adjustments would apply.

The individual performance multipliers for the Group CEO and CFO, based on their performance during the year, were 120% and 115%, respectively. This led to MBS awards for the Group CEO and CFO of 127.5% and 122.2%, respectively, of their target bonus opportunities.

Long Term Incentive PlanThe 2015-17 LTIP vesting is based on performance against profi t after tax (PAT), revenue, and quality and sustainability targets. In reviewing the LTIP vesting in the context of overall value creation, the Committee exercised discretion to exclude the impact of the redemption of secured loan notes (as per last year), the impact of some key strategic acquisitions, and the impact of property revaluations. As with the MBS, the Committee

also reviewed risk management across Bupa using the contributions received from the Risk Committee, the Group CEO and the Risk Review Panel, and having noted the overall improvement in risk management, determined that no adjustment was required.

Over the three-year period, PAT performance was just below target, revenue performance was around threshold and quality and sustainability was above target. Based on overall performance, the 2015-17 LTIP vested at 82.84% of target.

Plans for 2018In 2018, the Committee plans to:

– continue to focus on aligning incentives to Bupa’s strategy and ongoing approach to risk management;

– look at the balance between complexity and clarity of the arrangements;

– develop the link to Customer further;

– monitor ongoing developments in external best practice and corporate governance; and

– review the remuneration off ering for the general workforce.

We welcome the input of Association Members and I am available to our Association Members on any aspect of Bupa Remuneration.

Martin HoustonCommittee Chairman1 March 2018

For more information please see page 58

2017 single total figure of remuneration (£000)

Joy Linton

Evelyn Bourke

Management Bonus SchemeBase Salary Pension Other benefits

550 165 132 504 169

800 240 1,020 403

Total£000

1,520

2,511

Long Term Incentive Plan

48


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.

Remuneration Policy table – Executive Directors

Base Salary Management Bonus Scheme Long Term Incentive Plan Pension Benefi ts

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 eff 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 immediately 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. 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 off 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 nancial 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

Remuneration Report

Part 2: Policy


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Malus and clawbackMalus 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 Committee in its discretion considers to be similar in nature or eff ect to the above.

Performance measures and target settingMeasures 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 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 PolicyBupa 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 potential remuneration outcomes variation for diff erent levels of performance using the incumbents’ salaries as at 1 April 2018 to calculate the MBS values.

Remuneration at various levels of performance (£000)Evelyn Bourke Group CEO

Maximum2

On target1

Fixed pay

Joy Linton CFO

Maximum2

On target1

Fixed pay

Base Salary Pension Benefits

850

850

850

255

255 850 1,100

255 1,700 2,200

3,103

1,153

5,053

48

Management Bonus Scheme Long Term Incentive Plan

Base Salary Pension Benefits

565

565

565

170

170 424 688

170 848 1,375

1,861

750

2,973

16

Management Bonus Scheme Long Term Incentive Plan

Total£000

1. On target fi gures have been calculated on the basis that Bupa achieves target fi nancial and non-fi nancial performance, and the 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 the individual multiplier is set at 200%.


Remuneration Committee discretionThe 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; and

– making one-off adjustments in exceptional circumstances.

Approach to Remuneration Policy on recruitment of an Executive DirectorOur 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 54 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 offi ce where the terms of the payment were agreed (i) before the Remuneration Policy came into eff 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 Committee.

Any special joining arrangements may include malus and/or clawback, for example tied to leaving within a certain period.

Diff erences in Remuneration Policy for Executive Directors compared with other employeesThe 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 are the same for the senior employee population.

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 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. Junior employees are not eligible for LTIP awards.

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.

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Policy on payments for loss of offi ceThe table to the right summarises the key elements of our policy on payment for loss of offi ce, which will comply with the relevant plan rules and local employment legislation.

Any payments made due to loss of offi ce may include malus or clawback provisions as described under malus and clawback on page 55.

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.

Provision Policy

Notice period and compensation for loss of offi 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 offi 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 offi 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

Remuneration Policy table – Non-Executive Directors

Service contracts for Non-Executive DirectorsTerms 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 eff ectively perform their role. Copies of the standard terms of engagement are available on bupa.com.

The table to the right describes the Remuneration Policy as it applies to the Chairman and Non-Executive Directors.

ElementPurpose 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 or 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 offi 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.


This section sets out details of Executive Directors’ and Non-Executive Directors’ remuneration, showing how the Remuneration Policy has been implemented in 2017 and how it will be applied for 2018. As well as disclosing remuneration fi gures for the Executive Directors, it includes details on how well performance targets have been met 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 2017. Comparable fi gures for 2016 are also shown.

Executive Directors: Single total fi gure of remuneration

Director YearSalary£000

Benefi ts£000

MBS1

£000LTIP1

£000Pension2

£000Total

£000

Evelyn Bourke3, Group CEO(appointed 25 July 2016) 2017 800 48 1,020 403 240 2,511

2016 729 17 480 416 195 1,837

Joy Linton4, CFO(appointed 25 July 2016) 2017 550 132 504 169 165 1,520

2016 376 91 180 102 69 818

Notes1. MBS refers to bonus payments earned during that year, and LTIP refers to payouts from the performance period which ended in that year including any deferred element.2. Pension fi gures refl ect a cash allowance paid to Executive Directors in lieu of company contributions into a pension scheme.3. Evelyn Bourke’s benefi ts fi gure includes certain travel and subsistence expenses that are treated as taxable, grossed up to meet the costs of the additional tax.4. Prior to appointment as CFO, Joy Linton was an international assignee in receipt of additional assignment-related benefi ts (e.g. housing, school fees). Following her appointment as CFO in July 2016,

she transitioned on to local terms and the additional assignment-related benefi ts ceased by the end of January 2017. The 2017 benefi ts fi gure includes both the assignment-related benefi ts paid in 2017 and, in accordance with her assignment terms, payments to meet additional tax and NIC arising on assignment-related benefi ts for 2017 and earlier.

2017 MBS measures and performanceFor 2017, the Group CEO’s target bonus opportunity was 100% of salary with a maximum of 200%. The CFO’s target bonus opportunity was 75% of salary with a maximum of 150%.

The performance measures used to determine the 2017 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 diff erences being the inclusion of restructuring and transaction costs on acquisitions and disposals;

– risk adjusted profi t (10% of award) – this is a measure which looks at the return of the business less a capital charge;

– group revenue (10% of award), including Bupa’s proportionate share of revenue from associates and joint ventures, which is not included within reported revenue;

– cost effi ciency (10% of award) – this is a measure focused on ensuring we are running the business effi ciently, calculated as overhead costs divided by revenue; and

– customer (20% of award) – this measure includes both improving our customer insights and our customer delivery.

Bupa’s performance in 2017 was strong. Profi t grew by 10% and revenue by 5%, both at constant exchange rates, as a result of good growth in Bupa’s three largest Market Units: Australia and New Zealand; the UK; and Europe and Latin America.

This strong performance can be seen in our growth in statutory profi t, as noted in the Financial Review on page 20, and correspondingly in the risk-adjusted profi t measure.

Overhead costs were tightly managed throughout the year and this, in combination with strong revenue performance, resulted in a good cost effi ciency performance.

Customer performance was strong both in the implementation of our Customer Excellence Framework based around the methodology of ‘Listen’, ‘Learn’ and ‘Act’, and in improving our Net Promoter Scores. This refl ects our strong focus on operations and fi nancial investment in improving the customer experience across Bupa.

Remuneration Report

Part 3: Implementation (audited)

2017 MBS payoutThreshold

Performance Level

£m or % if indicated

On Target Performance

Level£m or % if indicated

Stretch Performance


Actual Performance


Evelyn Bourke1 Joy Linton2

Max bonus% of

salary

Actual payout% of

salary

Max bonus% of

salary

Actual payout% of

salary

Group profi t 697.4 774.9 852.4 788.2 100% 62.6% 75% 45.0%

Risk adjusted profi t 49.2 54.7 60.2 93.5 20% 15.0% 15% 10.8%

Group revenue 11,893.4 13,214.9 14,536.4 13,106.6 20% 11.0% 15% 7.9%

Cost effi ciency 15.0% 13.6% 12.2% 13.2% 20% 13.0% 15% 9.3%

Customer 90% 100% 110% 103.2% 40% 25.9% 30% 18.6%

Total 200% 127.5% 150% 91.6%

1. The actual payout fi gures include an adjustment to the whole bonus for personal performance. Evelyn Bourke ‘s individual multiplier for 2017 was 120%.2. The actual payout fi gures include an adjustment to the whole bonus for personal performance. Joy Linton’s individual multiplier for 2017 was 115%.


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Alongside the measures that make up the MBS scorecard, the MBS outcome is subject to an overall adjustment relating to risk management. The Committee discussed risk management across Bupa, assisted by contributions from the Risk Committee, the Group CEO and the Risk Review Panel. There was good evidence of widespread engagement and improvement in risk management. The Risk Committee’s Report on page 48 covers many of the issues discussed. The focus of the MBS risk review is to ensure that appropriate risk management is encouraged with, for example, inappropriate risk behaviours resulting in reduced MBS outcomes. Given the improvement in the culture of risk management at Bupa during 2017 and the fact that the assessment of individual performance, including individuals within scope of the Committee, took account of adjustments for risk management where appropriate, the Committee decided that no business-wide risk adjustments would apply.

The Group CEO received an individual multiplier of 120% based on her 2017 performance, including her handling of risk matters during the year. Key achievements included refocusing Bupa on delivery, creating and driving a strong short-to medium-term strategy, delivering strong fi nancial performance despite ongoing challenges, increasing the focus on the customer and digital, progressing our relationships with regulators and moving forward with signifi cant acquisitions and divestments linked to our strategy.

The CFO received an individual multiplier of 115% based on her 2017 performance, including her handling of risk matters during the year. Key achievements included driving strong fi nancial performance across Bupa, playing a leading role on major strategic transactions such as the sale of UK care homes, embedding the monitoring and oversight of key fi nancial controls and increasing the understanding and application of our fi nancial metrics across our businesses to improve the quality of business decision-making as defi ned in our strategy.

The fi nancial targets for the 2017 MBS and actual performance are set out in the table to the left.

2015-17 LTIP vestingThe 2015-17 LTIP vesting was based on performance against profi t after tax (PAT), revenue, and quality and sustainability targets. In reviewing the LTIP vesting in the context of overall value creation, the Committee

exercised discretion to exclude the impact of the redemption of secured loan notes (as per last year), the impact of some key strategic acquisitions, and the impact of property revaluations. As with the MBS, the Committee also reviewed risk management across Bupa using the contributions received from the Risk Committee, the Group CEO and the Risk Review Panel, and having noted the overall improvement in risk management, determined that no adjustment was required.

Over the three-year period, PAT performance was just below target, revenue performance was around threshold and quality and sustainability was above target. Based on overall performance, the 2015-17 LTIP vested at 82.84% of target. The Committee calculated vesting of the 2015-17 LTIP using an equal balance of actual and constant exchange rates.

Interests awarded during 2017During the year, LTIP awards for the 2017-19 Plan were made to the Executive Directors. The Plan covers the three-year performance period to 31 December 2019. Subject to the performance targets being met, up to 50% of the award may be paid in April 2020 with any excess being deferred for a further two years.

Within the LTIP scorecard, profi t after tax growth is weighted at 60% and Return on Capital Employed (ROCE) is weighted at 20%. The remaining 20% weighting for the LTIP is based on Customer. For any LTIP payout to be made, profi t after tax growth must at least achieve threshold performance.

The tables below show the 2017-19 LTIP metrics.

Financial targets 2017-19 LTIP (80% weighting)2017-19 targets

Profi t after taxWeighted 60%

ROCEWeighted 20%

Below threshold performance 0% vesting < 5% p.a. < 7%

Threshold performance 15% vesting 5% p.a. 7%

On-target performance 50% vesting 9% p.a. 7.5%

Out-performance 100% vesting 11% p.a. 8%

NotesProfi t after tax growth measures the compound annual growth rate.ROCE measures average, annual ROCE over the three-year period.Straight-line vesting occurs between the discrete levels of achievement.

Customer targets 2017-19 LTIP (20% weighting)

Vesting determined by the Remuneration Committee based on three-year improvement in the Customer and Brand Dashboard.

The table below shows the detail of the LTIP awards made to the Executive Directors in the year.

Long Term Incentive Plan2017-19 Long Term Incentive Plan

Evelyn Bourke Joy Linton

Basis of award 275% of base salary 250% of base salary

Face value of award (100% of award) £2,200,000 £1,375,000

Amount that would vest at on-target performance (50% of award) £1,100,000 £687,500

Amount that would vest at threshold performance (15% of award) £330,000 £206,250

Date performance period ends 31 December 2019

Payment due date April 2020, and April 2022 (for any deferred amounts)


HistoricalThe table to the right shows levels of payout to the Group CEO against the maximum incentive opportunity for the last fi ve years. Year Group CEO

Single fi gureof total

remuneration (£’000)

Management Bonus Scheme payout

against maximum opportunity %

Long term incentive vesting rates

against maximum opportunity %

2017 Evelyn Bourke 2,511 64% 41%

2016 Evelyn Bourke1 1,837 56% 44%2

2016 Stuart Fletcher3 1,315 46% 44%2

2015 Stuart Fletcher 2,081 62% 30%

2014 Stuart Fletcher 2,812 82% 71%

2013 Stuart Fletcher 1,703 71% N/A4

1. Evelyn Bourke was appointed Group CEO on 21 July 2016.2. Figure corrected from 2016 Annual Report.3. Stuart Fletcher left Bupa on 31 May 2016, his annual bonus payment refl ects a pro-rated payment.4. Stuart Fletcher was not a participant of this plan. However, the payment to participants was 84% of the maximum opportunity.

Percentage change in remuneration of the Group CEOThe table to the right shows the change in salary, benefi ts and short-term incentives (annual bonus) for the Group CEO in 2017 compared to 2016 alongside a corresponding average fi gure for the Bupa employee comparator group. The UK salaried population has been chosen by the Committee as the most appropriate comparison, as the Group CEO is located in the UK.

Group CEO1 Employees2

Salary 8.3% 2.7%

Benefi ts (excluding pension) 70.3% no material change

Short-term incentives 84.9% 46.4%

1. Comparing fi gures for Evelyn Bourke for 2017 with those for Stuart Fletcher as Group CEO until 31 May 2016 and Evelyn Bourke from 1 June 2016, initially as acting Group CEO and, from 25 July 2016, as Group CEO.

2. Employees refers to the UK salaried population, being the UK-based permanent employees whose records are held on the HR database.

Relative importance of spend on payThe 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.

2017(£m)

2016(£m)

Diff erence2017-2016

(£m)

Remuneration paid to all employees 2,115.2 1910.7 204.5

Cash fl ow used in investing activities 995.5 310.0 685.5

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Part 3: Implementation (audited) continued

Payments to former DirectorsThere were no payments for loss of offi ce agreed for Executive Directors in 2017.

In accordance with the arrangements agreed in 2016 at the time of his leaving Bupa, Mr Fletcher’s healthcare cover continued to 31 May 2017, the related cost for which was £4,836 in 2017.

Mr Fletcher also received ‘good leaver’ treatment under Bupa’s Long Term Incentive Plan (LTIP), with pro rata vesting based on his employment ending on 31 May 2016 and awards remaining subject to the rules of the plans (including, for example, the satisfaction of any applicable performance conditions, and

malus, clawback and deferral provisions). For the 2015-17 LTIP, Mr Fletcher received £326,442 in March 2018 for the period worked in the performance period.


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Statement of Implementation of Remuneration Policy in 2018 (unaudited)

The remuneration of the Group CEO and CFO for 2018 was reviewed by the Committee for 2018, in the context of the Remuneration Policy as described on pages 54-57. Having reviewed but not altered their salaries in 2017, the Committee approved salary increases for the Group CEO and CFO of 6.25% and 2.7% respectively, to refl ect their performance in the role and position against external market practice.

Salary(eff ective from 1 April)

ManagementBonus Scheme

Long termIncentive Plan

Evelyn Bourke

Group CEO£850,000(6.25% increase)

Target opportunity –100% salary

Fair (on-target) value – 137.5% salary (£1,100,000)

Maximum opportunity –200% salary

Maximum award – 275% salary(£2,200,000)

Joy LintonCFO

£565,000(2.7% increase)

Target opportunity –75% salary

Fair (on-target) value – 125% salary(£687,500)

Maximum opportunity –150% salary

Maximum award – 250% salary(£1,375,000)

For 2018 onwards the MBS and LTIP have been designed, in line with the Remuneration Policy, to support the Bupa strategy. The targets and the weighting of these were carefully considered to ensure 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 Group profi t – 50% Profi t after tax – 60%

Revenue 10% –

Return Risk adjusted profi t – 10% ROCE – 20%

Cost effi 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.

Chairman and Non-Executive Director FeesDuring 2017 the fee for the Chairman was reviewed by the Committee and the fees for the Non-Executive Directors were reviewed by the Chairman and the Executive Directors. The Chairman’s fee was increased by 2.5% and the Non-Executive Director basic fee was increased by 3%, both with eff ect from 1 July 2017. No changes were made to the other fees. The current fee levels are set out in the table on the right.

2017 Fee

Chairman fee £410,000

Non-Executive Director basic fee £67,000

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


Non-Executive Directors: Single total fi gure of remuneration

Fees£000

Benefi ts1

£000Total

£000

2017 2016 2017 2016 2017 2016

Lord Leitch (Chairman) 380 365 50 42 430 407

Lawrence Churchill 129 148 23 14 152 162

Simon Blair 82 71 8 2 90 73

Roger Davis 82 77 5 2 87 79

Martin Houston 96 92 52 34 148 126

Caroline Silver2 11 – – – 11 –

Clare Thompson3 174 159 0 1 174 160

Prof Sir John Tooke 107 100 2 2 109 102

Janet Voûte 88 72 28 28 116 100

Total 1,149 1,084 168 125 1,317 1,209

1. Travel and subsistence expenses for attending meetings at Bupa’s head offi ce 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. Caroline Silver was appointed as a Non-Executive Director on 1 November 2017.3. The 2017 fees for Clare Thompson include £70,437 (for 2016 £64,000) in respect of her services as a Non-Executive Director of Bupa subsidiaries.

Committee governanceMartin Houston has chaired the Committee since 11 June 2014.

In addition to the Company Secretary, regular attendees at the Committee meetings who provided comment and advice were the Group CEO, the CFO, the Chief People Offi cer and the Performance and Reward Director.

Mercer is the independent advisor to the Committee. The Committee re-appointed Mercer, from September 2017, as their independent advisor. 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 2017 were £184,434 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 full description of the Committee’s role is set out in its Terms of Reference on bupa.com.

Plans for 2018During 2018, the Committee intends to:

– continue to focus on aligning incentives to Bupa’s strategy and ongoing approach to risk management;

– look at the balance between complexity and clarity of the arrangements;

– develop the link to Customer further;

– monitor ongoing developments in external best practice and corporate governance; and

– review the remuneration off ering for the general workforce.

Voting at the Annual General MeetingThe Association Members will be invited to vote on the implementation report at the Annual General Meeting on 16 May 2018.

Committee eff ectiveness reviewOverall the Committee considered that it was eff ective during 2017 and that it continued to be well managed, particularly when considering executive remuneration. The review noted the need to ensure continued focus on aligning incentives with strategy and on balancing the complexity of incentives with their clarity and impact.

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The Directors of The British United Provident Association Limited (Bupa) present their reports and the fi nancial statements for the year ended 31 December 2017. The Strategic Report and the audited fi nancial statements are presented on pages 1-30, and from page 65 respectively. The Governance Report on pages 31-62, including the Remuneration Report on pages 52-62 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 1-30 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 resultsThe results of the Group for 2017 are reported on pages 65-134. The profi t for the fi nancial year of £485.9m (2016: profi t £386.8m) has been transferred to equity.

Acquisitions and disposalsDetails of the acquisitions and disposals made during the year are shown in Note 22.

Board of DirectorsThe 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 nine Non-Executive Directors who held offi ce at the end of the year, are set out on pages 34-35. Caroline Silver was appointed as a Non-Executive Director on 1 November 2017.

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 concernThe Directors confi rm that they are satisfi ed that the Company and the Group has adequate resources to continue in operation for the next 12 months. Accordingly, they continue to adopt a going concern basis in preparing the fi nancial statements.

Political contributionsNo political donations were made, nor any political expenditure incurred.

Employment policiesBupa considers clear communication with employees about employment issues to be key. Information is given to employees about employment matters and about the fi nancial and economic factors aff ecting the Company’s performance through a wide range of channels to ensure accessibility by all.

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 refl ected 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 eff ort would be made to continue their employment and, if necessary, appropriate training would be provided.

More de tails can be found in the People section on pages 10-11.

Disclosure of information to auditorsThe Directors who held offi ce at the date of approval of this Directors’ Report confi rm 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.

AuditorsA resolution to reappoint KPMG LLP as auditors will be put to the forthcoming Annual General Meeting of the Company.

By order of the Board.

Julian SandersCompany Secretary7 March 2018

Company number: 432511

Report of the Board of Directors


In respect of the Annual Report and the fi nancial statementsThe Directors are responsible for preparing the Annual Report and the Group and Parent Company fi nancial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company fi nancial statements for each fi nancial year. Under that law they have elected to prepare the Group and the Parent Company fi nancial statements in accordance with IFRS as adopted by the EU and applicable law.

Under company law the Directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of aff airs of the Group and Parent Company and of their profi t or loss for that period. In preparing each of the Group and Parent Company fi nancial 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 fi nancial 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:

– assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

– using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company, or to cease operations, or have no realistic alternative but to do so.

The Directors are also responsible for keeping adequate accounting records that are suffi cient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Parent Company and to enable them to ensure that its fi nancial statements comply with the Companies’ Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error. They also 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 fi nancial statements taken as a whole are fair, balanced and understandable and provide 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 fi nancial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of fi nancial statements may diff er from legislation in other jurisdictions.

Governance Report

Statement of Directors’ responsibilities


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Independent auditor’s report 66

Consolidated group fi nancial statements 72

Notes to the Consolidated Financial Statements 77

1. Basis of preparation 77

2. Operating segments 80

2.1 Revenues 82

2.2 Insurance claims 83

2.3 Other operating expenses 84

2.4 Other income and charges 85

2.5 Financial income and expense 86

2.6 Taxation expense 87

3. Goodwill and intangible assets 88

4. Property, plant and equipment 92

5. Investment properties 96

6. Equity accounted investments 97

7. Post-employment benefi ts 99

8. Restricted assets 103

9. Financial investments 104

10. Derivatives 107

11. Deferred taxation assets and liabilities 108

12. Assets arising from insurance business 110

13. Inventories 111

14. Trade and other receivables 111

15. Cash and cash equivalents 112

16. Assets and liabilities held for sale 112

17. Borrowings 113

18. Provisions and other liabilities under insurance contracts issued 115

19. Provisions for liabilities and charges 118

20. Trade and other payables 119

21. Non-controlling interests 120

22. Business combinations and disposals 120

23. Capital management 123

24. Risk management 124

24.1 Insurance risk 124

24.2 Market risk 125

24.3 Credit risk 129

24.4 Liquidity risk 131

25. Related party transactions 133

26. Commitments and contingencies 134

Financial Statements of the Company 135

A. Intangible assets 138

B. Property, plant and equipment 139

C. Investment in subsidiaries 139

D. Investment properties 140

E. Post-employment benefi ts 140

F. Trade and other receivables 142

G. Provisions for liabilities and charges 142

H. Deferred taxation assets and liabilities 143

I. Trade and other payables 144

J. Risk management 144

K. Related party transactions 145

L. Commitments and contingencies 145

Subsidiaries and related undertakings 146

Five-year fi nancial summary 155

International Financial Reporting Standards relevant to Bupa 156

Financial Statements


Independent auditor’s report to the members of The British United Provident Association Limited

1. Our opinion is unmodifi edWe have audited the fi nancial statements of The British United Provident Association Limited (“the Company”) for the year ended 31 December 2017 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity, Company Statement of Financial Position, Company Statement of Cash fl ows, Company Statement of Changes in Equity, and the related notes, including the accounting policies in Note 1.

In our opinion: – the fi nancial statements give a true and fair view of the state of the Group’s and of the parent Company’s aff airs as at 31 December 2017 and of the Group’s profi t for the year then ended;

– the Group fi nancial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

– the parent Company fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

– the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion:We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a suffi cient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.

We were appointed as auditor by the Directors on 20 June 1985. The period of total uninterrupted engagement is for the 33 fi nancial years ended 31 December 2017. We have fulfi lled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to public interest entities. No non-audit services prohibited by that standard were provided.

Overview

Materiality:Group fi nancial statements as a whole

£26.1m (2016: £28.0m)

4.2% (2016: 5.3%) of profi t before tax

Coverage 89% (2016: 91%) of Group profi t before tax

Risks of material misstatement vs 2016

Recurring risks Valuation of goodwill and intangible assets

Valuation of freehold, leasehold and investment properties

Valuation of insurance contract liabilities

New risk Parent Company risk: Valuation of N/Apost-employment benefi ts

2. Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgment, were of most signifi cance in the audit of the fi nancial statements and include the most signifi cant assessed risks of material misstatement (whether or not due to fraud) identifi ed by us, including those which had the greatest eff ect on: the overall audit strategy; the allocation of resources in the audit; and directing the eff orts of the engagement team. We summarise below the key audit matters, in decreasing order of audit signifi cance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the fi nancial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.


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The risk Our response

Valuation of goodwill and other intangible assets

Goodwill £2,963.3m (2016: £2,381.5m).

Other intangible assets £1,324.4m (2016: £1,010.7m).

Refer to page 44 (Audit Committee Report) and Note 3.

Forecast based valuations:As described in Note 3, impairment is assessed based on discounted cashfl ow projections. Estimating and discounting the cashfl ows requires signifi cant judgement. The assumptions requiring the most signifi cant judgement vary by asset or cash generating unit (CGU), as a result of the diff erences in Bupa’s operations and market environments globally.

Considering goodwill; for Bupa Care Services UK and Bupa New Zealand CGUs, cashfl ow forecasts require signifi cant judgement in respect of fee rate and customer volume, and cost of care. For Bupa Chile, UK Dental, LUX MED, and Quality HealthCare CGUs, the key assumptions are the forecast terminal growth rates and gross margin. As these businesses were acquired more recently, Bupa Group has limited historical experience to support growth and profi t forecasts, and there is limited headroom in the impairment calculations.

For intangible assets with indefi nite useful lives, the most signifi cant judgements relate to the benefi ts that are expected to derive from the asset, and the period over which they are realised.

For intangible assets held at cost and subject to amortisation there is signifi cant judgement required to determine whether changes in internal or external market factors indicate an impairment in the value of any intangible asset.

Our procedures included:

– Control design: evaluating the management review control performed by Bupa Group over the impairment assessments performed locally by management within each Market Unit, which is designed to provide independent review and challenge of the assumptions used to estimate the value in use of goodwill and other intangible assets.

– Our valuation expertise: using our own valuation specialists to support us in evaluating and challenging 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 within the same geography.

– Historical comparisons: comparing cashfl ow forecasts used in the review to historical performance, and challenging where forecasts indicated performance that deviated signifi cantly from historical performance, in the absence of signifi cant changes in the business or market environment.

– Key factors assessment: for intangible assets subject to amortisation, evaluating indicators of impairment, focusing in particular on the extent to which assets are still being utilised, the levels of customer attrition, and the current operating margin, in comparison to the assumptions applied when the assets were acquired.

– Benchmarking assumptions: comparing assumptions relating to cashfl ow forecasts, terminal growth rates, cost infl ation and discount rates to externally derived data and our knowledge of sector performance, to evaluate the reasonableness of the Group’s assessments.

– Sensitivity analysis: performing sensitivity analyses using diff erent forecast periods, and stressing total cashfl ow, terminal growth rate and discount rate assumptions, to identify assumptions that the goodwill or intangible asset valuation was highly sensitive to.

– Assessing transparency: assessing the Group’s disclosures over the goodwill and intangible asset impairment review, including the disclosures regarding the sensitivity of the outcome of the impairment reviews to changes in key assumptions.

Our results – We found the resulting estimate of the recoverable amount of goodwill and

intangible assets, i.e. their valuation, to be acceptable.

Valuation of freehold, leasehold and investment properties

Freehold and leasehold property £2,520.7m (2016: £2,245.6m).

Investment properties £399.2m (2016: £391.3m).

Refer to page 44 (Audit Committee Report) and Notes 4 and 5 (for accounting policy and fi nancial disclosures).

Subjective valuation:The Group revalues its freehold, leasehold and investment properties, including care homes, dental practices and hospitals, to fair value on a cyclical 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 Australia and New Zealand and select properties within the UK, was performed by chartered surveyors during 2017. Directors’ valuations were performed for other properties where there was an indication that the fair value may have signifi cantly diff ered from the prior valuation.

The principal assumptions underpinning the valuation of properties – including operating cash fl ows, future profi tability and competitor activity – require signifi cant judgement, whether developed by external valuation specialists or Bupa Directors. A small change in the assumptions and estimates used to value the property could have a signifi cant impact on the overall valuation.


– Assessing valuers’ credentials: for properties that were valued externally, primarily in Australia, New Zealand and the UK, critically assessing the qualifi cations and experience of the external valuers to determine whether they have the knowledge required to perform the valuations.

– Historical accuracy: for properties such as hospitals and care homes, challenging the valuation models by comparing past cashfl ow forecasts to actual performance, and using this in the evaluation of the expected accuracy of current cashfl ow forecasts.

– Assessing key assumptions: challenging the key assumptions relating to operating cashfl ows, occupancy rates, future profi tability, discount rates, market multiples and competitor activity used in the valuations. In critically assessing assumptions we have utilised our own valuation specialists, considered external benchmarks and forecasts, and reports from external chartered surveyors.

– Assessing transparency: assessing the Group’s disclosures regarding the valuation basis applied, revaluation gains and any impairment losses.

Our results – We found the resulting estimate of the valuation of properties to be

acceptable.


The risk Our response

Valuation of insurance contract liabilities

£877.4m (2016: £888.6m)

Refer to page 44 (Audit Committee Report) and Note 18 (for accounting policy and fi nancial disclosures).

Subjective valuation: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 valuation of insurance contract liabilities requires signifi cant judgement and actuarial expertise. Calculation of the actuarial best estimate and the margin over best estimate uses historical data, which is sensitive to external inputs including claims cost infl ation and medical trends, and requires assumptions to be made in respect of current and future experience. Small changes in the assumptions and estimates used to value the insurance contract liabilities can have a signifi cant impact on the overall liability valuation.


– Control design and implementation: testing the design and implementation of key controls over the reserving process, including controls over the completeness and accuracy of data supporting key calculations, such as the data in respect of current and historical claims.

– Benchmarking assumptions: benchmarking the Group’s reserving methodology and claims experience against industry peers.

– Our actuarial expertise: using our own actuarial specialists, inspecting the claims reserving reports for each insurance business and evaluating and challenging the assumptions relating to current and future experience, including cost infl ation and medical trends, and margin estimates. This is done by comparing them to expectations based on the Group’s historical experience, current trends and our own industry knowledge in each territory.

– Sensitivity analysis: performing sensitivity analyses to assess the adequacy of liabilities in the event of severe but possible adverse deviations in key assumptions.

– Independent re-performance: for a sample of portfolios, selected on the basis of assessed risk of material misstatement, calculating our own estimate of the liability using the Group’s data, and comparing to the liability calculated by the Group, and considering the impact of any signifi cant diff erences.

– Assessing transparency: assessing the Group’s disclosures relating to the provision for insurance contract liabilities, in particular in relation to key and sensitive assumptions.

Our results – We found the resulting estimate of insurance contract liabilities to be

acceptable.

Parent company risk: Valuation of post- employment benefi ts

Parent: £519.5m (2016: £406.8m).

Refer to page 44 (Audit Committee Report) and Note 7 (for accounting policy and fi nancial disclosures).

Subjective valuation:The Company operates several defi ned benefi t funded pension schemes. The estimate of the defi ned benefi t pension obligations is inherently uncertain and requires signifi cant judgement around assumptions relating to mortality improvements, infl ation, and discount rates. Small changes in the assumptions and estimates can have a signifi cant eff ect on the parent Company’s net pension surplus.

Whilst subject to less judgment, the valuation of the schemes assets is also an important factor in deriving the net surplus recognised.

The net asset (surplus) is also impacted by actions to de-risk the schemes and the schemes’ investment strategies.


– Control design and implementation: testing the design and implementation of key controls over the valuation of post-employment benefi ts, including the challenge and review of the work performed by the external actuary.

– Tests of detail: agreeing the defi ned benefi t pension asset holdings to independent custodian confi rmations.

– Assessing accounting treatment: critically assessing the basis for the recognition of the surplus against the requirements of accounting standards.

– Independent re-valuation: independently re-valuing the material defi ned benefi t pension scheme assets, using external data and market inputs.

– Assessing external actuary’s credentials: critically assessing the qualifi cations and experience of the external actuary to determine if they have the knowledge and experience required to perform the valuation of the defi ned benefi t pension schemes.

– Benchmarking assumptions: benchmarking the assumptions applied in the valuation of the defi ned benefi t pension obligations against market data and peers.

– Our actuarial expertise: using our own actuarial specialists in evaluating and challenging the assumptions on mortality rates, forecast future infl ation rates, and discount rates applied to estimate the present value of the future obligations of the defi ned benefi t pension schemes, by the external actuary.

– Sensitivity analysis: performing sensitivity analyses to identify the assumptions that have a signifi cant impact on the value of the defi ned benefi t pension obligations under stress scenarios, e.g. a reduction in the mortality rate or an increase in future infl ation rates, in order to focus audit procedures on the most sensitive assumptions.

– Assessing transparency: assessing the Group’s disclosures for adequacy against the requirements of IAS 19.

Our results – We found the resulting estimate of post-employment benefi ts to be

acceptable.

Independent auditor’s report to the members of The British United Provident Association Limited continued


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3. Our application of materiality and an overview of the scope of our auditMateriality for the Group fi nancial statements as a whole was set at £26.1m (2016: £28.0m), determined with reference to a benchmark of Group profi t before tax, of which it represents 4.2% (2016: 5.3%).

Materiality for the parent Company fi nancial statements as a whole was set at £19.6m (2016: £21.0m), determined with reference to a benchmark of parent Company total assets, of which it represents 2.0% (2016: 2.6%).

We agreed to report to the Audit Committee any corrected or uncorrected identifi ed misstatements exceeding £1.3m, (2016: £1.4m) in addition to other identifi ed misstatements that warranted reporting on qualitative grounds.

We subjected ten reporting components (2016: eight) to full scope audits for Group purposes and three (2016: three) to specifi ed risk-focused audit procedures. The latter were not individually fi nancially signifi cant enough to require a full scope audit for Group purposes, but did present specifi c individual risks that needed to be addressed.

The components within the scope of our work accounted for the percentages illustrated across.

The Group team instructed component auditors as to the signifi cant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materiality of £19.6m (2016: £21.0m). The work on 12 out of 13 components (2016: 10 of the 11 components) was performed by component auditors and the rest, including the audit of the parent Company, was performed by the Group team.

The Group team visited fi ve (2016: four) component locations in UK, Spain, Australia, Chile, and Hong Kong (2016: UK, Spain, Australia, and Hong Kong), to assess the audit risk and strategy. Telephone conference meetings were also held with these component auditors and all other component auditors that were not physically visited. At these visits and meetings, the fi ndings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor.

Group profit before tax

£26.1mWhole financial statements materiality(2016: £28.0m)

£19.6mRange of materiality at 13 components £19.6m (2016: £21.0m)£1.3mMisstatements reported to the audit committee (2016: £1.4m)

£620.3m (2016: £522.9m)

Group materiality£26.1m (2016: £28.0m)

Group profit before taxGroup materiality

Group revenue

94%

6

89

92

2

9

Full scope for Group auditpurposes 2017Specified risk-focused auditprocedures 2017Full scope for Group audit purposes 2016Specified risk-focused audit procedures 2016Residual components

Group profit before tax

90%

Group total assets

92%

2

89

91

7

101

2

82

93

8

10 52

4. We have nothing to report on going concernWe are required to report to you if we have anything material to add or draw attention to in relation to the Directors’ statement in note 1.4 to the fi nancial statements on the use of the going concern basis of accounting with no material uncertainties that may cast signifi cant doubt over the Group and Company’s use of that basis for a period of at least twelve months from the date of approval of the fi nancial statements. We have nothing to report in these respects.

Under the terms of our engagement we are required to review the Directors’ statement in relation to going concern, set out on page 63, as if the company were required to comply with the Listing Rules.

We have nothing to report in these respects.

5. We have nothing to report on the other information in the Annual ReportThe Directors are responsible for the other information presented in the Annual Report together with the fi nancial statements. Our opinion on the fi nancial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our fi nancial statements audit work, the information therein is materially misstated or inconsistent with the fi nancial statements or our audit knowledge. Based solely on that work we have not identifi ed material misstatements in the other information.


Independent auditor’s report to the members of The British United Provident Association Limited continued

Strategic Report and Directors’ Report Based solely on our work on the other information:

– we have not identifi ed material misstatements in the strategic report and the Directors’ report;

– in our opinion the information given in those reports for the fi nancial year is consistent with the fi nancial statements; and

– in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Directors’ remuneration report In addition to our audit of the fi nancial 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 to be audited has been properly prepared in accordance with the Companies Act 2006, as if those requirements were to apply to the company.

Disclosures of principal risks and longer-term viability Based on the knowledge we acquired during our fi nancial statements audit, we have nothing material to add or draw attention to in relation to:

– the Directors’ confi rmation within the Longer Term Viability Statement on page 24 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;

– the principal risks disclosures describing these risks and explaining how they are being managed and mitigated; and

– the Directors’ explanation in the Longer Term Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifi cations or assumptions.

Corporate governance disclosures We are required to report to you if:

– we have identifi ed material inconsistencies between the knowledge we acquired during our fi nancial statements audit and the Directors’ statement that they consider that the annual report and fi nancial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or

– the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

In addition to our audit of the fi nancial statements, the Directors have engaged us to review their Governance Report as if the company were required to comply with the Listing Rules and the Disclosure Guidance 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 part of the Corporate Governance Statement on pages 31-64 relating to the company’s compliance with the eleven provisions of the UK Corporate Governance Code specifi ed for our review.


6. We have nothing to report on the other matters on which we are required to report by exception 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 fi nancial 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 specifi ed by law are not made; or

– we have not received all the information and explanations we require for our audit.


7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 64, the Directors are responsible for: the preparation of the fi nancial statements including being satisfi ed that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the fi nancial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of the fi nancial statements.


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A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detectWe identifi ed areas of laws and regulations that could reasonably be expected to have a material eff ect on the fi nancial statements from our sector experience, through discussion with the Directors and other management (as required by auditing standards).

We had regard to laws and regulations in areas that directly aff ect the fi nancial statements including fi nancial reporting (including related company legislation) and taxation legislation. We considered the extent of compliance with those laws and regulations as part of our procedures on the related fi nancial statements items.

In addition we considered the impact of laws and regulations in the specifi c areas of regulatory capital and liquidity recognising the fi nancial and regulated nature of certain of the group’s activities. With the exception of any known or possible non-compliance, and as required by auditing standards, our work in respect of these was limited to enquiry of the Directors and other management and inspection of regulatory and legal correspondence. We considered the eff ect of any known or possible non-compliance in these areas as part of our procedures on the related fi nancial statements items.

We communicated identifi ed laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.

As with any audit, there remained a higher risk of non-detection of non-compliance with relevant laws and regulations (irregularities), as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and the terms of our engagement by the company. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report, and the further matters we are required to state to them in accordance with the terms agreed with the company, and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Philip Smart (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada SquareLondonE14 5GL

7 March 2018


Note2017

£m2016

£m

Revenues

Gross insurance premiums 2.1 8,920.0 8,044.3

Premiums ceded to reinsurers 2.1 (63.4) (53.9)

Net insurance premiums earned 8,856.6 7,990.4

Revenues from insurance service contracts 2.1 22.2 18.7

Care, health and other revenues 2.1 3,370.0 3,038.8

Total revenues 12,248.8 11,047.9

Claims and expenses

Insurance claims incurred 2.2 (7,111.5) (6,332.9)

Reinsurers’ share of claims incurred 2.2 45.4 42.9

Net insurance claims incurred (7,066.1) (6,290.0)

Share of post-taxation results of equity accounted investments 29.1 30.3

Other operating expenses 2.3 (4,484.1) (4,197.3)

Impairment of goodwill 3 (0.5) –

Other income and charges 2.4 (99.3) (38.9)

Total claims and expenses (11,620.9) (10,495.9)

Profi t before fi nancial income and expense 627.9 552.0

Financial income and expense

Financial income 2.5 90.3 212.1

Financial expense 2.5 (97.9) (241.2)

Net fi nancial expense (7.6) (29.1)

Profi t before taxation expense 620.3 522.9

Taxation expense 2.6 (134.4) (136.1)

Profi t for the fi nancial year 485.9 386.8

Attributable to:

Bupa 482.0 381.6

Non-controlling interests 3.9 5.2


Notes 1-26 form part of these fi nancial statements.

Consolidated Income Statementfor the year ended 31 December 2017


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Note2017

£m2016

£m


Other comprehensive income/(expense)

Items that will not be reclassifi ed to the Income Statement

Remeasurement gains/(losses) on pension schemes 7 94.1 (14.6)

Unrealised gains on revaluation of property 4 233.4 63.5

Taxation (charge)/credit on income and expenses recognised directly in other comprehensive income 2.6 (64.7) 13.3

Items that may be reclassifi ed subsequently to the Income Statement

Foreign exchange translation diff erences on goodwill 3 (13.9) 335.5

Other foreign exchange translation diff erences (10.3) 453.6

Net loss on hedge of net investment in overseas subsidiary companies (6.6) (86.7)

Change in fair value of underlying derivative of cash fl ow hedge 5.1 2.0

Reclassifi cation of foreign exchange translation diff erences to profi t or loss on disposal of subsidiary (4.3) 2.0

Unrealised gains/(losses) on available-for-sale assets 0.9 (0.2)

Taxation charge on income and expenses recognised directly in other comprehensive income 2.6 (3.3) (0.2)

Total other comprehensive income 230.4 768.2

Comprehensive income for the year 716.3 1,155.0

Attributable to:

Bupa 712.9 1,136.0

Non-controlling interests 3.4 19.0

Comprehensive income for the year 716.3 1,155.0


Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2017


Consolidated Statement of Financial Positionas at 31 December 2017

Note2017

£m

2016 (restated)1,2

£m

Goodwill and intangible assets 3 4,287.7 3,392.2

Property, plant and equipment 4 3,203.1 2,851.6

Investment property 5 399.2 391.3

Equity accounted investments 6 552.7 302.9

Post-employment benefi t net assets 7 576.9 481.3

Restricted assets 8 76.3 60.0

Financial investments 9 2,227.0 2,172.6

Derivative assets 10 47.4 60.3

Deferred taxation assets 11 6.2 7.1

Assets arising from insurance business 12 1,230.2 1,166.9

Inventories 13 103.5 92.2

Trade and other receivables 14 737.4 614.1

Cash and cash equivalents 15 1,521.1 1,412.7

Assets held for sale 16 89.0 505.3

Total assets 15,057.7 13,510.5

Subordinated liabilities 17 (1,303.2) (1,316.7)

Other interest bearing liabilities 17 (1,170.1) (604.9)

Post-employment benefi t net liabilities 7 (67.5) (85.1)

Provisions under insurance contracts issued 18 (2,636.6) (2,627.7)

Derivative liabilities 10 (19.2) (22.0)

Provisions for liabilities and charges 19 (131.7) (107.4)

Deferred taxation liabilities 11 (310.4) (229.6)

Trade and other payables 20 (1,930.0) (1,697.4)

Other liabilities under insurance contracts issued 18.2 (116.5) (143.0)

Current taxation liabilities (73.5) (54.6)

Liabilities directly associated with assets held for sale 16 (10.7) (45.5)

Total liabilities (7,769.4) (6,933.9)

Net assets 7,288.3 6,576.6

Equity

Property revaluation reserve 796.1 706.1

Income and expenditure reserve 5,882.2 5,229.8

Cash fl ow hedge reserve 22.2 14.7

Foreign exchange translation reserve 557.5 595.3

Equity attributable to Bupa 7,258.0 6,545.9

Equity attributable to non-controlling interests 30.3 30.7

Total equity 7,288.3 6,576.6

1. Please refer to Note 1.1 Basis of preparation, for details of the change to a liquidity presentation.

2. Restatement following fi nalisation of the purchase price allocation exercise for Care Plus. See Note 22 for further detail.

Approved by the Board of Directors and signed on its behalf on 7 March 2018 by

Lord Leitch Joy LintonChairman Chief Financial Offi cer



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Note2017

£m2016

£m

Operating activities


Adjustments for:

Net fi nancial expense 2.5 7.6 29.1

Depreciation, amortisation and impairment 432.4 345.7

Other non-cash items (26.6) 28.4

Changes in working capital and provisions:

Increase in provisions and other liabilities under insurance contracts issued 61.0 123.7

Increase in assets under insurance business (57.3) (50.0)

Change in net pension asset/liability (19.1) (56.2)

Increase in trade and other receivables, and other assets (137.2) (26.6)

Increase in trade and other payables, and other liabilities 222.7 119.8

Cash generated from operations 1,103.8 1,036.8

Income taxation paid (158.1) (142.0)

Increase in cash held in restricted assets 8 (16.3) (3.8)

Net cash generated from operating activities 929.4 891.0

Cash fl ow from investing activities

Acquisition of subsidiary companies, net of cash acquired 22 (668.4) (127.5)

Increase in equity accounted investments 6 (191.4) (31.8)

Acquisition of non-controlling interests in subsidiary company 22 (0.4) (95.1)

Disposal of subsidiary companies, net of cash disposed of 23.2 21.9

Purchase of intangible assets 3 (114.2) (103.1)

Purchase of property, plant and equipment (356.1) (361.9)

Proceeds from sale of property, plant and equipment 374.0 19.1

Purchase of investment property 5 (27.8) (37.7)

Disposal of investment property 5 2.0 0.6

Purchase of fi nancial investments, excluding deposits with credit institutions (252.2) (142.7)

Net withdrawal from deposits with credit institutions 155.0 509.9

Interest received 60.8 38.3

Net cash used in investing activities (995.5) (310.0)

Cash fl ow from fi nancing activities

Proceeds from issue of interest bearing liabilities and drawdowns on other borrowings 1,327.2 556.0

Repayment of interest bearing liabilities and other borrowings 1 (1,040.3) (903.8)

Interest paid 2 (94.6) (101.3)

Payments for hedging instruments (3.8) (77.7)

Dividends paid to non-controlling interests (3.7) (2.1)

Net cash generated from/(used in) fi nancing activities 184.8 (528.9)

Net increase in cash and cash equivalents 118.7 52.1

Cash and cash equivalents at beginning of year 15 1,412.7 1,194.1

Eff ect of exchange rate changes (11.4) 166.5

Cash and cash equivalents at end of year 15 1,520.0 1,412.7

1. 2016 includes £151.6m loss on early settlement of secured loan notes issued by UK Care No.1 Limited (see Notes 2.5 and 17).

2. Includes other bank fees and charges of £10.8m (2016: £8.4m).


Consolidated Statement of Cash Flowsfor the year ended 31 December 2017


Consolidated Statement of Changes in Equityfor the year ended 31 December 2017

Note

Property revaluation

reserve£m

Income and expenditure

reserve£m

Cash fl ow hedge

reserve£m

Foreign exchange

translation reserve

£m

Total attributable

to Bupa£m

Non-controlling

interests£m

Total equity

£m

2017

At beginning of year 706.1 5,229.8 14.7 595.3 6,545.9 30.7 6,576.6

Retained profi t for the fi nancial year – 482.0 – – 482.0 3.9 485.9


Unrealised profi t on revaluation of property 4 233.4 – – – 233.4 – 233.4

Realised revaluation profi t on disposal of property (95.1) 95.1 – – – – –

Remeasurement gain on pension schemes 7 – 94.1 – – 94.1 – 94.1

Unrealised gain on available-for-sale assets – 0.9 – – 0.9 – 0.9

Foreign exchange translation diff erences on goodwill 3 – – – (13.9) (13.9) – (13.9)

Other foreign exchange translation diff erences 0.6 – 2.6 (13.0) (9.8) (0.5) (10.3)

Net loss on hedge of net investment in overseas subsidiary companies – – – (6.6) (6.6) – (6.6)

Change in fair value of underlying derivative of cash fl ow hedge 24.2 – – 5.1 – 5.1 – 5.1

Foreign exchange reserve on disposal of subsidiary – – – (4.3) (4.3) – (4.3)

Taxation charge on income and expense recognised directly in other comprehensive income 2.6 (48.9) (18.9) (0.2) – (68.0) – (68.0)

Other comprehensive income/(expense) for the year, net of taxation 90.0 171.2 7.5 (37.8) 230.9 (0.5) 230.4

Total comprehensive income/(expense) for the year 90.0 653.2 7.5 (37.8) 712.9 3.4 716.3

Acquisition of subsidiary companies attributable to non-controlling interests 22 – (0.8) – – (0.8) (0.1) (0.9)

Dividends paid to non-controlling interests – – – – – (3.7) (3.7)

At end of year 796.1 5,882.2 22.2 557.5 7,258.0 30.3 7,288.3

2016 (restated)1

At beginning of year 632.3 4,797.9 20.8 (96.9) 5,354.1 69.5 5,423.6

Retained profi t for the fi nancial year – 381.6 – – 381.6 5.2 386.8


Unrealised loss on revaluation of property 4 63.5 – – – 63.5 – 63.5

Realised revaluation profi t on disposal of property (6.6) 6.6 – – – – –

Remeasurement loss on pension schemes 7 – (14.6) – – (14.6) – (14.6)

Unrealised loss on available-for-sale assets – (0.2) – – (0.2) – (0.2)

Foreign exchange translation diff erences on goodwill 3 – – – 335.5 335.5 – 335.5

Other foreign exchange translation diff 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 fl ow hedge 24.2 – – 2.0 – 2.0 – 2.0

Foreign exchange reserve on disposal of subsidiary – – – 2.2 2.2 (0.2) 2.0

Taxation (charge)/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 22 – 55.8 – – 55.8 (55.7) 0.1

Dividends paid to non-controlling interests – – – – – (2.1) (2.1)

At end of year 706.1 5,229.8 14.7 595.3 6,545.9 30.7 6,576.6




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1.1 Basis of preparationThe 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 fi nancial statements and the Group’s consolidated fi nancial 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 155.

During the period the Group has adopted a liquidity presentation for the Consolidated Statement of Financial Position as this is considered to be more relevant to the nature of the Group’s operations and more straightforward for the user. This changes the presentation of line items within the Consolidated Statement of Financial Position to be broadly in order of liquidity, but does not impact measurement of assets or liabilities. Comparatives have been re-presented accordingly. Current assets and liabilities disclosed in the notes to the accounts are those expected to be settled in less than one year.

The fi nancial statements were approved by the Board of Directors on 7 March 2018. 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 fi nancial statements are prepared on a going concern basis and under the historical cost convention, modifi ed by the revaluation of property, investment property, fi nancial investments at fair value through profi t or loss, available-for-sale fi nancial assets and derivative instruments.

1.2 Basis of consolidationThe consolidated fi nancial statements for the year ended 31 December 2017 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 fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences to the date that control ceases. Non-controlling interests in the net assets of subsidiaries are identifi ed 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 fi nancial statements of the Group.

The consolidated fi nancial statements are presented in sterling, which is the Group’s presentational currency. The functional currency is identifi ed 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 fi nancial position into the Group’s presentational currency, sterling, for presentation in the Group consolidated fi nancial statements.

1.3 Accounting estimates and judgementsThe preparation of fi nancial statements requires the use of certain accounting estimates and assumptions that aff 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 signifi cant to the consolidated fi nancial statements, are set out below and in more detail in the related notes. Claims, provisions, property valuations and pension assets and liabilities are the areas where there is more risk of a material adjustment to the carrying amounts within the next fi nancial year.

Area Judgement Note

Claims provisioning Expected claims payments and expenses 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 infl ation, medical trends and seasonality.

18

Property valuations The Group has a signifi cant portfolio of care home, hospital and offi ce properties and fl uctuations in the value of this portfolio can have a signifi cant impact on the Consolidated Statement of Financial Position, Consolidated Income Statement, Consolidated Statement of Comprehensive Income and solvency position of the Group.

4, 5

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 indefi nite lives are tested for impairment on an annual basis; other intangible assets are tested if a trigger of impairment is identifi ed. The judgemental areas within this process include the inputs within the discount rate and the forecast cash fl ows.

3

Pension assets and liabilities The principal defi ned benefi t 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.

7

Other judgements: – Taxation (Note 2.6) – Financial investments (Note 9)

– Assets and liabilities held for sale (Note 16) – Provisions and contingent liabilities (Note 19 and 26)

Notes to the Consolidated Financial Statementsfor the year ended 31 December 2017

1Basis of preparation

Basis of preparation in briefThis section describes the Group’s signifi cant accounting policies and accounting estimates and judgements that relate to the fi nancial statements and notes as a whole. Where accounting policies relate toa specifi c note, the applicable accounting policies and estimates are contained within the note.

Note


Notes to the Consolidated Financial Statements continuedfor the year ended 31 December 2017

1.4 Going concernManagement has conducted a detailed assessment of the Group’s going concern status based on its current position and forecast results, and has concluded that the Group has adequate resources to operate for the next 12 months. In making this assessment, management has 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, if applicable.

Details of the Group’s business activities, together with the factors likely to aff ect its future development, performance and position are set out in the Strategic Report on pages 1 to 30. The fi nancial position of the Group, its cash fl ows, liquidity position and borrowing facilities are described in the Financial Review on pages 20 to 23.

The Group has a £800.0m revolving credit facility (RCF) maturing in August 2022, which was drawn by £226.0m as at 31 December 2017, including £6.4m of outstanding letters of credit required for general business purposes. In April 2017, the Group also issued a £300.0m senior bond which was three times oversubscribed.

The £650.0m acquisition bank facility signed on 17 January 2017, originally used to fi nance the acquisition of Oasis Dental Care (acquisition facility), was largely repaid using the proceeds from the £300.0m senior bond issue above and the disposal proceeds from the sale of both Bupa Thailand and a portion of the UK Care Services business. £48.6m was outstanding at 31 December 2017 and was fully repaid on 17 January 2018 by drawing on the RCF.

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 has 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 fi nancial and operational risk framework.

1.5 New fi nancial reporting requirementsNewly eff ective amendments to fi nancial reporting standards applicable to the Group for the fi rst time for the year ended 31 December 2017 do not have a material impact on the fi nancial statements of the Group.

(a) IAS 7 Disclosure Initiative Requires that an entity provide disclosures that analyse changes in liabilities (and related hedging assets) arising from fi nancing activities, including cash fl ow and non-cash changes and was endorsed by the EU on 6 November 2017, with a 1 January 2017 eff ective date. This information has been provided in Note 17 Borrowings.

(b) IAS 12 Recognition of Deferred Tax Assets for Unrealised LossesClarifi cation of the requirements for recognising deferred tax assets on unrealised losses on debt instruments, endorsed by the EU on 6 November 2017, with a 1 January 2017 eff ective date. These amendments have had no impact on the Group.

1.6 Forthcoming fi nancial reporting requirementsThe following fi nancial reporting standards, amendments and interpretations have been issued but are not eff ective for the year ended 31 December 2017 and have not been early adopted by the Group.

(a) IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance ContractsThe amendments address temporary volatility concerns arising from implementing the new fi nancial instruments standard, IFRS 9, before implementing IFRS 17 Insurance Contracts and was endorsed by the EU on 4 November 2017. The amendments introduce two approaches:

Companies that issue insurance contracts have the option to recognise in other comprehensive income, rather than profi t or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued; and companies whose activities are predominantly connected with insurance have an optional temporary exemption from applying IFRS 9 until 2021.

The Group is not eligible for the deferral exemption and will not take advantage of the volatility option, as the adoption of IFRS 9 does not result in temporary volatility before implementing IFRS 17.

(b) IFRS 9 Financial InstrumentsIFRS 9 Financial Instruments addresses the classifi cation, measurement, recognition and de-recognition of fi nancial assets and fi nancial liabilities, introduces new rules for hedge accounting and a new impairment model for fi nancial assets. The mandatory eff ective date for applying IFRS 9 is for annual periods beginning on or after 1 January 2018. The Group will apply the new rules retrospectively from 1 January 2018, but comparatives for 2017 will not be restated. IFRS 9 was endorsed by the EU on 22 November 2016.

The Group has reviewed its fi nancial assets and liabilities and is expecting the following impact from the adoption of the new standard on 1 January 2018:

Under IFRS 9, the Group classifi es fi nancial investments as ‘held to collect’ at amortised cost when they are debt instruments with contractual terms that give rise on specifi ed dates to cash fl ows that are solely payments of principal and interest on the principal amount outstanding and sales are infrequent or insignifi cant. Financial investments are classifi ed at fair value through profi t or loss (FVTPL) where management monitors performance and makes decisions on a fair value basis. The Group does not have any fi nancial assets that meet the ‘held to collect and sell’ classifi cation. Financial liabilities are classifi ed at amortised cost. The Group’s debt instruments of £393.8m that are currently classifi ed as available-for-sale under IAS 39 will satisfy the conditions for classifi cation as held to collect under IFRS 9 and will be measured at amortised cost. Related fair value gains of £0.7m will be transferred from the available-for-sale fi nancial assets to the income and expenditure reserve on 1 January 2018. There are no other reclassifi cations as a result of applying IFRS 9 and assets that are currently designated as fair value through profi t or loss continue to be managed on a fair value basis and assets currently classifi ed as held to maturity (HTM) and loans and receivables satisfy the IFRS 9 conditions to be measured at amortised cost.


Strateg

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The Group’s current hedge relationships will qualify as continuing hedges upon the adoption of IFRS 9.

The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than incurred credit losses as is the case under IAS 39. It applies to fi nancial assets classifi ed at amortised cost, debt instruments measured at Fair Value through other comprehensive income, contract assets under IFRS 15 Revenue from Contracts with Customers and lease receivables. The Group holds high-quality fi nancial investments and the provisions that will be established under IFRS 9 will be based on 12-month ECL using an established default probability model. Financial investment ECL provisions have not been disclosed, as they are not signifi cant. ECL for other receivables will be based on a probability matrix and are expected to be similar to the level of existing bad debt provisions.

(c) IFRS 15 Revenue RecognitionIFRS 15 establishes principles that an entity should apply to report information about the nature, amount, timing and uncertainty of revenue and cash fl ows 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 new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Group will apply the new rules retrospectively from 1 January 2018, but comparatives for 2017 will not be restated. Adjustments to retained earnings on 1 January 2018 have not been disclosed as they are not signifi cant. IFRS 15 was endorsed by the EU on 31 October 2017.

The Group has assessed the eff ects of applying the new standard and there will not be any signifi cant changes in revenue recognition, as the Group’s revenue streams are generally for short-term services that have fi xed, rather than variable, transaction prices and there is no signifi cant judgement to be applied when considering the time pattern of revenue recognition. Where there are variable revenue streams, i.e. service concession arrangements, these have been assessed and there is not deemed to be a signifi cant risk of reversal and no change in revenue recognition is required. As such, no presentation of qualitative or quantitative impact is given here.

(d) IFRS 16 LeasesIFRS 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 eff ective date for applying IFRS 16 is for annual periods beginning on or after 1 January 2019. IFRS 16 was endorsed by the EU on 31 October 2017.

IFRS 16 will result in almost all leases being recognised on the balance sheet for lessees, as the distinction between operating and fi nance leases is removed. Under the new standard, an asset (the right to use the leased item) and a fi nancial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not signifi cantly change.

The impact of IFRS 16 on the fi nancial statements is currently being evaluated by the Group. The standard will primarily impact the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of £1,206.2m (see Note 26).

(e) IFRS 17 Insurance ContractsIFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. It requires a current measurement model where estimates are remeasured each reporting period. Contracts are measured using the building blocks of: discounted probability-weighted cash fl ows, an explicit risk adjustment, and a contractual service margin (CSM) representing the unearned profi t of the contract which is recognised as revenue over the coverage period. An optional, simplifi ed premium allocation approach is permitted for the liability for the remaining coverage for short-duration contracts. The mandatory eff ective date for applying IFRS 17 is for annual periods beginning on or after 1 January 2021. IFRS 17 has not yet been endorsed by the EU.

The impact of IFRS 17 on the fi nancial statements is currently being evaluated by the Group, but it is anticipated that the simplifi ed premium allocation approach option will be available for the majority of the Group’s insurance contracts.

(f) IFRIC 22 Foreign Currency Transactions and Advance ConsiderationIFRIC 22 was issued in December 2016 and clarifi es the date of the transaction for determining the exchange rate to use on initial recognition of advanced consideration. The mandatory eff ective date for applying IFRIC 22 is for annual periods beginning on or after 1 January 2018. IFRIC 22 is pending endorsement by the EU. The amendments will have no impact on the Group.

(g) Amendments to IAS 40 Investment PropertyThe amendment was issued in December 2016 and clarifi es that a change in intention, in isolation, is not enough to support a transfer to or from Investment Property. The mandatory eff ective date for applying this is for annual periods beginning on or after 1 January 2018. The amendments are pending endorsement by the EU. The amendments will have no impact on the Group.

(h) IFRIC 23 Uncertainty over Income Tax TreatmentsIFRIC 23 was issued in June 2017. The mandatory eff ective date for applying IFRIC 23 is for annual periods beginning on or after 1 January 2019. IFRIC 23 has not yet been endorsed by the EU and the requirements of the interpretation are currently being assessed by the Group.

The Group has reviewed the eff ect of all other amendments to IFRS and interpretations eff ective for accounting periods beginning on or after 1 January 2018 and do not expect them to have a signifi cant impact on the fi nancial statements.

1.7 Events occurring after the reporting periodThe Group completed the transfer of 22 of its UK care homes to Advinia Health Care on 14 February 2018. There is no profi t or loss on disposal.



Reportable segments Services and products

Australia and New Zealand Health insurance, health assessments, health coaching and international health cover in Australia

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

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

Health insurance and operation of outpatient clinics and hospitals in Chile

Medical subscription, health insurance, diagnostics and operation of clinics and hospitals in Poland

International Markets International health insurance to individuals, small businesses and corporate customers

Domestic health insurance and related products within Brazil, Hong Kong, China, Saudi Arabia and India

Diagnostics, primary healthcare and day care clinics in Hong Kong

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 Offi cer (the Group’s chief operating decision maker) to assess performance and make decisions about the allocation of resources.

The segmental underlying profi t 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 specifi cally allocated to the operating segments.

A key performance measure of operating segments utilised by the Group is underlying profi t. This measurement basis distinguishes underlying profi t from other constituents of the IFRS reported profi t before tax, excluding items relating to business combinations and disposals, fl uctuations in foreign exchange, property revaluations and investment return on return-seeking assets, along with other one-off 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 profi t 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-off and not refl ective of the ongoing trading performance of the business. Amortisation and impairment of internally generated intangible assets and purchased computer software is included within underlying profi t.

– 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-off 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 fl uctuations which would distort underlying trading performance. Includes unrealised gains or losses on investment properties, defi cit on revaluations and property impairment losses.

– Foreign exchange volatility – short-term fl uctuations outside of management control, which would distort underlying trading performance.

– Other Market Unit non-underlying items – include impairment of investment in associates, Market Unit restructuring costs (which are one-off and outside the normal operations of the business) and net gains/losses on disposal of fi xed assets (not part of the continuing business or trading activity).

– Early termination of secured loans – relates to the one-off impact of UK care homes securitisation redemption.

– Gains on return-seeking assets, net of hedging – fl uctuations on investments that are not considered to be directly related to underlying trading performance.

– Central non-underlying items – include central items of a one-off nature and outside normal operations, such as central restructuring costs, net gains/losses on disposal of fi xed assets, and treasury foreign exchange gains/losses.

2Operating segments

Operating segments in briefThe Group is managed through four Market Units based on geographic locations and customers. Management monitorsthe operating results of the Market Units separately to assessperformance and make decisions about the allocation of resources. The segmental disclosures below are reported consistently with the way the business is managed and reported internally.

Note


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The total underlying profi t of the reportable segments is reconciled below to profi t before taxation expense in the Consolidated Income Statement.

Australia and New Zealand UK


International Markets Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

(i) RevenuesTotal revenues for reportable segments 4,926.6 4,360.6 2,807.2 2,786.1 2,869.0 2,474.7 1,647.3 1,427.9 12,250.1 11,049.3Inter segment income – – – (0.2) – – (0.2) (0.1) (0.2) (0.3)External revenues for reportable segments 4,926.6 4,360.6 2,807.2 2,785.9 2,869.0 2,474.7 1,647.1 1,427.8 12,249.9 11,049.0

Net reclassifi cations to other expenses or fi nancial income and expense (1.1) (1.1)

Consolidated total revenues 12,248.8 11,047.9

(ii) Segment resultUnderlying profi t for reportable segments1 384.7 344.4 231.1 194.9 197.1 165.6 56.6 65.9 869.5 770.8Central expenses and net interest margin (64.2) (70.1)Consolidated underlying profi t before taxation 805.3 700.7

Non-underlying items:Amortisation and impairment of intangible assets

and goodwill arising on business combinations (15.9) (14.4) (17.5) (14.7) (34.1) (28.3) (16.7) (13.3) (84.2) (70.7)Net (losses)/gain on disposal of businesses and

transaction costs on business combinations2 – (0.3) (11.4) 9.7 (0.1) (0.1) 36.4 (2.8) 24.9 6.5Net property revaluation gains/(losses)3 (18.3) 17.8 (95.4) (35.3) 2.6 (6.3) – – (111.1) (23.8)Realised and unrealised foreign exchange (losses)/gains4 (0.9) (0.3) – (0.3) (5.3) (2.5) (18.3) 22.5 (24.5) 19.4Other Market Unit non-underlying items5 (1.2) (1.0) (4.9) (12.7) (1.6) (0.7) (1.1) (0.9) (8.8) (15.3)Early termination of secured loans – (112.3)Gains on return-seeking assets, net of hedging 18.5 22.9Central non-underlying items 0.2 (4.5)Total non-underlying items (185.0) (177.8)Consolidated profi t before taxation expense 620.3 522.9

1. Underlying profi t 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 6.

2. Includes £36.4m profi t on disposal of Bupa Thailand in 2017 and transaction costs of £11.4m in relation to acquisitions during the year. 2016 includes £12.3m profi t on disposal of Bupa Home Healthcare (see Note 2.4).

3. 2017 includes £97.1m of write downs on items previously held for sale. 2016 includes an £11.2m write down on reclassifi cation as held for sale in the UK (see Note 2.4).

4. Includes the FX impact of treating unearned premiums and deferred acquisition costs as a monetary item.

5. 2017 includes £6.4m UK Market Unit restructuring costs (2016: £11.0m) and net losses on disposal of fi xed assets.

Australia and New Zealand UK


International Markets Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

(iii) Other information

Amortisation and depreciation costs for reportable segments 81.6 61.9 81.7 93.9 91.8 64.6 46.9 36.6 302.0 257.0

Other non-cash expense for reportable segments (146.0) (209.9) (8.6) (30.7) (28.3) 64.8 (7.5) (7.8) (190.4) (183.6)Unallocated non-cash (expense)/income (19.9) 15.9Total non-cash expenses (210.3) (167.7)

Australasia UK Spain Rest of the World Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016 £m

2017£m

2016 £m

2017£m

2016£m

(iv) Geographic informationConsolidated total revenues 4,926.6 4,360.6 3,386.3 3,344.1 1,608.8 1,414.6 2,327.1 1,928.6 12,248.8 11,047.9Consolidated non-current assets1 3,566.5 3,418.1 2,821.4 1,980.3 573.2 522.9 1,640.7 1,646.5 8,601.8 7,567.8

1. Consolidated non-current assets excludes fi nancial investments, restricted assets, assets arising from insurance business, deferred taxation assets and post-employment benefi t net assets.



Revenue stream Recognition policy

Insurance premiums Gross insurance premiumsGross insurance premiums represent the premiums earned relating to risk exposure for the reported fi nancial year. They comprise gross premiums written, adjusted for the change in provision for unearned premiums for premiums written relating to period of risk in subsequent fi nancial years. Premiums are shown gross of commission payable and net of insurance premium taxes that may apply in certain jurisdictions.

Premiums ceded to reinsurersPremiums ceded to reinsurers represent reinsurance premiums payable for contracts entered into that relate to risk mitigation for the reported fi nancial 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 insurance entities that do not result in the transfer of signifi cant 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 fi nancial 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 revenues for performance based service contracts which are recognised as deferred income. The accounting policy for deferred income for performance based service contracts is explained in Note 20.

Service concession receivablesThe 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 14.

2017£m

2016£m

Gross premiums written 8,990.6 8,058.1

Change in gross provision for unearned premiums (70.6) (13.8)

Gross insurance premiums 8,920.0 8,044.3

Gross premiums written ceded to reinsurers (60.2) (59.3)

Reinsurers’ share of change in gross provisions for unearned premiums (3.2) 5.4

Premiums ceded to reinsurers (63.4) (53.9)

Net insurance premiums earned 8,856.6 7,990.4

Revenues from insurance service contracts 22.2 18.7

Care, health and other revenues 3,370.0 3,038.8

Total revenues 12,248.8 11,047.9

2.1 Revenues

Revenues in briefThe 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


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Insurance claimsInsurance 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 Special Account (previously the Risk Equalisation Trust Fund) levy for Australian health insurance businesses. See Note 18 for details of the claims provision.

In Australia, the Risk Equalisation Special Account 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 incurredReinsurers’ 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 12 for the related balance sheet item and detail of impairments.

2017£m

2016£m

Insurance claims paid 7,181.8 6,335.4

Change in gross provisions for claims 4.7 62.6

7,186.5 6,398.0

Risk Equalisation Special Account levy (net of recoveries) (75.0) (65.1)

Insurance claims incurred 7,111.5 6,332.9

Recoveries from reinsurers on claims paid (45.5) (45.3)

Reinsurers’ share of change in gross provisions for claims 0.1 2.4

Reinsurers’ share of claims incurred (45.4) (42.9)

Net insurance claims incurred 7,066.1 6,290.0

2.2Insurance claims

Insurance claims in briefInsurance 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



Note2017

£m2016

£m

Staff costs 2.3.1 2,198.9 1,962.1

Acquisition costs 2.3.2 280.2 258.2

Medical supplies and fees 814.7 794.9

Property costs 211.5 181.8

Operating lease rentals 176.8 148.1

Marketing costs 115.8 124.3

Catering and housekeeping costs 81.9 75.2

Consultancy fees 76.8 53.5

Net (gain)/loss on foreign exchange transactions (3.8) 58.6

Amortisation of intangible assets 3 130.0 120.2

Impairment of intangible assets 3 21.2 35.0

Depreciation expense 4 172.3 161.7

Other operating expenses (including auditors’ remuneration) 2.3.3 207.8 223.7

Total other operating expenses 4,484.1 4,197.3

2.3.1 Staff cost and employee numbersStaff costsThe below table represents the total employee benefi t expenses incurred by the Group during the period.

2017

£m2016

£m

Wages and salaries 2,115.2 1,910.7

Social security costs 141.7 128.3

Contributions to defi ned contribution schemes 35.2 32.7

Other pension costs 5.5 (2.7)

Total staff costs 2,297.6 2,069.0

Staff costs relating to claims handling reported in claims (98.7) (106.9)

Staff costs in operating expenses 2,198.9 1,962.1

Directors’ Remuneration Report is described on pages 52-62 of this report.

Employee numbersThe average number of full-time equivalent employees, including Executive Directors, employed by the Group during the year was:

Average employee numbers 2017 2016

Australia and New Zealand 13,227 13,287

UK 21,535 26,960

Europe and Latin America 23,344 22,503

International Markets 4,306 3,588

Centre 577 331

Total employee numbers 62,989 66,669

The total employee headcount as at 31 December 2017 was 81,988 (2016: 86,423).

2.3Other operating expenses

Other operating expenses in briefOther operating expenses include staff 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, fi nance costs and taxation.

Note


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Note2017

£m2016

£m

Net gain on disposal of business1 22 36.4 10.7

Defi cit on revaluation of property 4 (33.8) (30.9)

Write-down of property2 4 (99.5) (14.5)

Net loss on disposal of property, plant and equipment3 (2.4) (4.2)

Total other income and charges (99.3) (38.9)

1. 2017 includes £36.4m profi t on disposal of Bupa Thailand to Aetna on 25 July 2017. 2016 includes £12.3m profi t 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.

2. Includes £97.1m write down on assets previously classifi ed as held for sale (2016: £11.2m).

3. 2017 includes write off of fi xed assets in Bupa House and care homes and retirement villages in Australia and New Zealand.

2.3.2 Acquisition costs

2017

£m2016

£m

Commission for direct insurance 280.4 253.8

Other acquisition costs paid 14.3 14.2

Changes in deferred acquisition costs (14.5) (9.8)

Total acquisition costs 280.2 258.2

The movement in deferred acquisition costs is detailed in Note 12.

2.3.3 Auditor’s remuneration

2017

£m2016

£m

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 0.9 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 4.8

– audit-related assurance services 0.8 0.8

Total audit fees payable to the Company’s auditors, KPMG LLP and its associates 6.5 6.4

Fees payable to other auditors:

Audit of overseas subsidiary companies 0.2 0.5

Total audit fees 6.7 6.9

Fees payable to the Company’s auditor and its associates for other services:

Tax compliance services – 0.2

Tax advisory services – 0.1

Other assurance services 0.1 –

All other non-audit services 0.1 1.1

Total non-audit fees 0.2 1.4

Total auditors’ remuneration 6.9 8.3

In addition, fees in respect of the audit of The Bupa Pension Scheme were £46,000 (2016: £56,000).

2.4Other income and charges

Other income and charges in briefOther income and charges comprise income or expenses that arerelated to the investing and divesting activities of the Group.

Note



Financial incomeInterest income, except in relation to assets classifi ed at fair value through profi t or loss, is recognised in the Consolidated Income Statement as it accrues, using the eff ective interest method. Any mark to market movements are split between realised or unrealised.

Changes in the value of fi nancial assets designated as at fair value through profi t or loss are recognised within fi nancial 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 fi nancial income as a realised gain or loss.

Note2017

£m2016

£m

Interest income:

Loans and receivables 44.5 41.2

Investments designated as available-for-sale 4.3 1.3

Investments held to maturity 7.7 2.8

Investments designated at fair value through profi t or loss – 3.3

Net realised gains on fi nancial investments designated at fair value through profi t or loss 1.5 5.4

Realised gains on early termination of long-term investment – 39.3

Net increase/(decrease) in fair value:

Investments designated at fair value through profi t or loss 22.1 19.7

Investment property 5 22.2 21.2

Net foreign exchange translation (losses)/gains (12.0) 77.9

Total fi nancial income 90.3 212.1

Included within fi nancial income is a net gain, after hedging, on the Group’s return-seeking asset portfolio of £18.5m (2016: net gain of £22.9m). No fi nancial investments designated at fair value through profi t or loss are held for trading.

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 expenseInterest payable on borrowings is calculated using the eff ective interest method.

2017

£m2016

£m

Interest expense on fi nancial liabilities at amortised cost 94.3 86.3

Finance charges in respect of fi nance leases 0.5 0.8

Loss on early repayment of debt – 151.6

Other fi nancial expenses 3.1 2.5

Total fi nancial expenses 97.9 241.2

During 2016, 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 was partially off set by a £39.3m gain (in fi nancial income) on the early termination of the fi nancial investment which provided security against the A1 notes.

2.5Financial income and expense

Financial income and expense in briefFinancial income and expenses are earned/(incurred) from the Group’s fi nancial assets and liabilities, and non-fi nancial assets such as investment property.

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Income taxation is recognised in the Consolidated 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 Consolidated Statement of Comprehensive Income.

(i) Recognised in the Consolidated Income Statement

2017

£m2016

£m

Current taxation expense

UK corporation tax on income for the year 51.4 33.8

Adjustments in respect of prior periods (16.0) (3.2)

35.4 30.6

Double taxation relief (12.0) (2.9)

Foreign taxation on income for the year 178.0 136.4

Foreign taxation adjustments in respect of prior years1 (24.3) 0.2

153.7 136.6

Total current taxation 177.1 164.3

Deferred taxation income

Origination and reversal of temporary diff erences (38.0) (33.6)

Adjustments in respect of prior periods (3.0) 2.7

Changes in taxation rates (1.7) 2.7

Total deferred taxation (42.7) (28.2)

Taxation expense 134.4 136.1

1 . During the year a tax tribunal in Denmark was favourably settled, resulting in a prior year adjustment of £27.7m.

Current taxation is the expected taxation payable on the taxable profi t 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 diff er from the amount initially recorded and this diff erence is recognised in the period in which such a determination is made.

(ii) Reconciliation of eff ective taxation rate2017

£m2016

£m


UK corporation tax rate 19.25% 20.00%

Taxation at the UK corporation tax rate 119.4 104.6

Eff ects of recurring tax reconciliation items:

Diff erent taxation rates in foreign jurisdictions 42.8 30.7

Deductions not allowable for tax purposes 14.7 22.5

Income not taxable or taxable at concessionary rates (3.9) (27.1)

Property revaluation 15.9 (17.5)

Results of joint ventures and associates (5.7) (6.0)

Changes in tax rates (2.4) 2.7

Deferred tax assets not recognised (6.7) 0.1

Irrecoverable withholding taxes 1.3 0.6

56.0 6.0

Eff ects of non-recurring tax reconciliation items:

Adjustments to tax charge in relation to prior years (43.3) (0.3)

Profi t/loss on disposal of business (7.0) (2.7)

Profi t/loss on disposal of property, plant and equipment 9.0 1.1

Movements in provisions for open tax matters – 23.8

Impact of changes in local statutory tax rates – 1.1

Other 0.3 2.5

(41.0) 25.5

Taxation expense at the eff ective rate of 21.7% (2016: 26.0%) 134.4 136.1

(iii) Current and deferred taxation recognised directly in other comprehensive income

2017Taxation

(expense)/benefi t

£m

2016Taxation benefi t/

(expense)£m

Current taxation credit/(charge) in respect of:

Other foreign exchange translation diff erences – 15.9

Deferred taxation (charge)/credit in respect of:

Unrealised profi t on revaluation of property (48.9) (10.3)

Remeasurement gain on pension schemes (15.8) 7.7

Change in fair value of underlying derivative of cash fl ow hedge (0.2) (0.2)

Other foreign exchange translation diff erences (2.9) –

Unrealised loss on available-for-sale assets (0.2) –

Taxation (charge)/credit on income and expenses recognised directly in other comprehensive income (68.0) 13.1

2.6Taxation expense

Taxation expense in briefTaxation expense on the profi t for the year comprises current and deferred taxation and considers foreign tax, double tax relief and absorbs adjustments in respect of prior periods.

Note



GoodwillGoodwill represents the excess of the cost of a business combination over the fair value of the Group’s share of identifi able 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 accounting date of acquisition, as the allocation of the purchase price to identifi able intangible assets is fi nalised within that period. Goodwill arising on business combinations is capitalised and presented with 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 identifi able group of assets that generates cash infl ows that are largely independent of the cash infl ows 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 Consolidated Income Statement.

Other intangible assetsIntangible assets, other than goodwill, that are acquired as part of a business combination are capitalised at fair value which represents cost at acquisition and are subsequently held at cost less accumulated amortisation and impairment. Intangible assets acquired separately are stated at cost less accumulated amortisation and impairment.

Amortisation is charged to the Consolidated Income Statement on a straight-line basis as follows:

– Computer software 2-7 years

– Brand and trademarks 3 years-indefi nite

– Technology and databases 10 years

– Distribution networks 10 years

– Customer relationships 3-20 years

– Present value of acquired in-force business 20 years

– Customer contracts 4-6 years

– Licences to operate care homes term of licence

– Rental contracts 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 Consolidated Income Statement to reduce the carrying amount to the recoverable amount.

Bed licences, with a carrying value of £121.6m (2016: £123.1m), held by the Group have been attributed an indefi nite useful life due to the fact that these licences, which are issued by the Australian government, have no expiry date. Intangible assets with an indefi nite useful life, or not yet available for use, are subject to annual impairment reviews.

3Goodwill and intangible assets

Intangible assets in briefIntangible assets and goodwill are non-physical assets used by the Group to generate revenues.

Note


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Goodwill

£m

Computer software

£m

Brands/Trademarks

£m

Customer relationships

£mOther

£mTotal

£m

2017

Cost

At beginning of year 2,722.4 794.0 360.2 547.7 316.5 4,740.8

Assets arising on business combinations 596.2 2.1 2.5 342.5 15.5 958.8

Additions – 110.2 – – 4.0 114.2

Disposals of subsidiary companies – (2.7) – – – (2.7)

Other disposals – (8.0) – – – (8.0)

Other – (0.1) – – – (0.1)

Foreign exchange (18.9) 0.7 (2.2) (9.9) (3.0) (33.3)

At end of year 3,299.7 896.2 360.5 880.3 333.0 5,769.7

Amortisation and impairment loss

At beginning of year 340.9 550.4 103.2 218.3 135.8 1,348.6

Amortisation for year – 62.1 9.2 50.5 8.2 130.0

Impairment loss 0.5 5.2 16.0 – – 21.7

Disposals of subsidiary companies – (2.2) – – – (2.2)


Other – (1.9) – – 1.8 (0.1)

Foreign exchange (5.0) 0.5 (0.6) (4.3) 0.3 (9.1)

At end of year 336.4 607.2 127.8 264.5 146.1 1,482.0

Net book value at end of year 2,963.3 289.0 232.7 615.8 186.9 4,287.7

Net book value at beginning of year 2,381.5 243.6 257.0 329.4 180.7 3,392.2

2016 (restated)1

Cost

At beginning of year 2,352.0 654.2 295.9 463.4 266.6 4,032.1

Assets arising on business combinations 68.4 8.6 6.8 31.6 1.8 117.2

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)


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 2,722.4 794.0 360.2 547.7 316.5 4,740.8


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)


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 2,381.5 243.6 257.0 329.4 180.7 3,392.2

Net book value at beginning of year 1,977.7 215.8 220.1 284.0 164.4 2,862.0




Intangible assets of £4,287.7m (2016: £3,392.2m) includes £1,035.4m (2016: £767.1m) which is attributable to other intangible assets arising on business combinations (included within customer relationships, brands/trademarks and other) as follows:

2017

£m

2016 (restated)1

£m

Customer relationships 615.8 329.4

Bed licences (within Bupa Aged Care Australia) 121.6 123.1

Brand and trademarks 232.7 257.0

Licences to operate care homes 19.8 22.7

Customer contracts 0.9 3.4

Rental contracts 26.6 9.3

Distribution networks 15.8 19.3

Present valuation of acquired in-force business 0.9 1.1

Non-compete agreement 1.3 1.8

Total 1,035.4 767.1


Impairment testing of goodwillIntangible assets with indefi nite useful lives are tested at least annually for impairment by comparing the net carrying value with the recoverable amount, using value in use calculations for all CGUs.

In arriving at the value in use for each CGU, key assumptions have been made regarding future projected cash fl ows, discount rates and terminal growth rates. The main assumptions upon which the cash fl ow 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.

Aside from those mentioned below, cash fl ow projections have been based on management operating profi t projections for a three-year period which have been approved by the Board. Cash fl ow projections for Bupa Care Services UK, Bupa Cromwell Hospital, Bupa Global, Care Plus, Quality HealthCare and Bupa Chile are based on fi ve years. LUX MED is based on a longer period of seven years, and UK Dental and Bupa New Zealand are based on a period of ten years as the business model of these CGUs requires investment beyond a three-year period to reach a steady state of operation.

Taxation has been applied to the pre-taxation management operating profi ts based on the statutory taxation rates in the country of operation.

Future post-taxation cash fl ows 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 specifi c 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 fl ows are generated.

Cash fl ow projections beyond the forecast periods have been extrapolated by applying a terminal growth rate between 2.0% and 5.3% (2016: 2.0% and 3.5%) 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:

2017

%2016

%

Bupa Australia Health Insurance 12.2 9.3

Bupa Aged Care Australia 9.0 8.7

Bupa Health Services Australia 10.7 11.0

Bupa New Zealand 7.4 8.8

Bupa Care Services UK 8.2 7.9

UK Dental 10.5 7.7

Bupa Cromwell Hospital 7.0 10.0

Bupa Chile 12.3 12.6

LUX MED 10.1 10.3

Sanitas Seguros 10.4 10.1

Sanitas Mayores 9.0 –

Quality HealthCare 9.2 10.5

Bupa Global 9.9 10.3

Care Plus 17.2 –

All CGUs are valued using the value in use method.


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The testing undertaken determined the recoverable amount of all CGUs to be higher than their respective carrying value, resulting in no impairment to goodwill. As described in Note 16, a number of care homes and retirement villages in New Zealand have been classifi ed as held for sale. An impairment of £0.5m has been recognised in the Consolidated Income Statement in respect of the goodwill attached to these properties.

The following table summarises goodwill by CGU as at 31 December:

2017

£m

2016 (restated)1

£m


Bupa Australia Health Insurance 916.6 928.8

Bupa Aged Care Australia 279.9 283.3

Bupa Health Services Australia 307.9 311.3

Bupa New Zealand 35.1 38.2

UK

Bupa Care Services UK 87.4 87.4

UK Dental2 620.8 38.0

Bupa Cromwell Hospital 16.2 16.2

Other 2.5 2.5


Bupa Chile 178.5 179.9

LUX MED 246.6 223.2

Sanitas Seguros3 41.6 40.0

Sanitas Mayores3 19.9 7.7

Other3 1.0 1.0

International Markets

Quality HealthCare 112.2 123.8

Bupa Global 67.8 67.8

Care Plus 29.3 32.4

Total 2,963.3 2,381.5


2. UK Dental includes the Oasis Dental Care acquisition completed on 27 February 2017. See Note 22 for further detail.

3. Goodwill attributable to Sanitas Seguros and Sanitas Mayores CGUs in 2016 have been presented separately from Other Europe and Latin America. The Sanitas Mayores CGU also includes the Valdeluz acquistion completed on 6 March 2017. See Note 22 for further detail.

Sensitivity to changes in key assumptionsA sensitivity analysis has been performed on the key assumptions used to determine the value in use for each CGU as at 31 December 2017.

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 indefi nite useful life to exceed its recoverable amount.

It is possible that a change in key assumptions could cause the impairment of goodwill for Bupa Health Services Australia, Bupa Aged Care Australia, Bupa New Zealand, Bupa Care Services UK, UK Dental, Bupa Chile, 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 Health Services Australia 42.6 3.0 0.8 0.8

Bupa Aged Care Australia 245.0 3.0 2.1 1.9

Bupa New Zealand 46.6 2.8 0.6 0.4

Bupa Care Services UK 23.9 2.5 0.2 0.2

UK Dental 21.6 2.6 0.3 0.1

Bupa Chile 180.0 3.2 2.5 1.9

LUX MED 155.4 3.6 2.1 1.5

Quality HealthCare 16.1 3.5 0.3 0.3

Impairment of other intangible assetsAt 31 December 2017, the recoverable amounts of other intangible assets with indefi nite useful lives were tested in respect of their carrying amounts, resulting in an impairment of £16.0m relating to impairment of brands arising on business combinations in Bupa Chile and £4.2m in relation to impairment of computer software projects not yet completed in Bupa Global. In the prior year there were £15.0m impairments of intangible assets with indefi nite lives. £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.

Intangible assets that are subject to amortisation were reviewed, resulting in an impairment of £1.0m, relating to IT development in Bupa Global. In the prior year there was an impairment of £20.0m to intangible assets. £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.



EquipmentEquipment (including leasehold improvements) is stated at historical cost less subsequent depreciation and impairment losses.

DepreciationFreehold 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

– Leasehold improvements shorter of useful life or lease term

– Equipment 3-10 years

ImpairmentImpairment 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 Consolidated Income Statement within other income and charges.

Leased assetsLeases are classifi ed as fi nance leases when the terms of the lease substantially transfer all the risks and rewards of ownership to the lessee. All other leases are classifi ed 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 fi nance charges in respect of future periods, are included within other interest bearing liabilities (see Note 17). The interest element of the obligation is allocated over the lease term to refl ect 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 classifi ed as being under operating leases are not capitalised and therefore not recognised within the Consolidated Statement of Financial Position (Note 26). Payments made under operating leases are recognised as prepayments within trade and other receivables within Note 14 and are recognised in the Consolidated 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 fi nance leases is £0.4m (2016: £0.3m).

4Property, plant and equipment

Property, plant and equipment in briefProperty, plant and equipment are the physical assets utilised bythe Group to carry out business activities and generate revenues and profi ts.

Most of the assets held relate to care homes and hospital propertiesand equipment, and offi ce buildings.

Note


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Property, plant and equipment

Note

Freehold property

£m

Leasehold property

£m

Leasehold improvements

£m Equipment

£m Total

£m

2017

Cost or valuation

At beginning of year 2,261.4 90.4 178.8 999.4 3,530.0 Additions through business combinations 8.1 – 25.6 34.8 68.5 Additions 160.0 9.3 26.1 135.7 331.1 Transfer to assets held for sale 16 (33.9) – – (12.8) (46.7)Disposals (10.1) – (6.0) (70.3) (86.4)Disposals of subsidiaries – – (1.7) (2.1) (3.8)Revaluations 134.8 – – – 134.8 Other 10.4 (8.0) (7.3) 11.0 6.1 Foreign exchange (20.4) 0.6 (3.5) 9.7 (13.6)At end of year 2,510.3 92.3 212.0 1,105.4 3,920.0 Depreciation and impairment loss At beginning of year 83.1 23.1 49.2 523.0 678.4 Depreciation charge for year 33.9 2.7 22.9 112.8 172.3 Transfer to assets held for sale 16 – – – (9.5) (9.5)Disposals (1.0) – (4.9) (63.5) (69.4)Disposals of subsidiaries – – (0.6) (1.6) (2.2)Revaluations (62.4) – – – (62.4)Impairments 2.1 – – 6.8 8.9 Other 1.1 (1.0) (2.0) 1.0 (0.9)Foreign exchange 0.2 0.1 (2.1) 3.5 1.7 At end of year 57.0 24.9 62.5 572.5 716.9

Net book value at end of year 2,453.3 67.4 149.5 532.9 3,203.1Net book value at beginning of year 2,178.3 67.3 129.6 476.4 2,851.6

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 16 (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 16 – – – (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 2,851.6Net book value at beginning of year 2,122.6 87.3 60.8 568.0 2,838.7



Freehold and leasehold propertiesFreehold and leasehold properties comprise care homes, care villages, clinics, hospitals and offi 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 propertiesValuations are performed with suffi cient regularity to ensure that the carrying value does not diff er signifi cantly from fair value at the balance sheet date. The revaluation of certain care homes in Australia carried out in 2017 was performed independently by Knight Frank Chartered Surveyors and in New Zealand by Extensor.

Revaluations were eff ective as of 31 December in the year in which they were undertaken. Directors’ valuations were performed in the year where it was identifi ed that carrying value diff ered signifi cantly from fair value.

Care homes and hospitals are valued with regard to their trading potential based on discounted cash fl ow techniques, the principal assumptions are: quantifying a fair, maintainable level of trade and profi tability; levels of competition; and assumed ability to renew existing licences, consents, certifi cates or permits.

At each revaluation date, accumulated depreciation is eliminated against the gross carrying amount of the asset.

The signifi cant 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 Poland

Average occupancy rate 95.7% 89.8% 87.2% 95.4% 28.9% N/A

Average capitalisation rate 13.8% 13.3% 13.0% 16.7% 19.5% 34.2%

Level twoUKAll UK properties apart from those held by Bupa Care Services UK are classifi ed as level two with fair values being determined by an external valuer based on observable market values of similar properties.

Europe and Latin AmericaRegional offi ces and clinics are valued by external valuers based on observable market values of similar properties.

Level threeUK, Australia and New Zealand, Europe and Latin America All care homes in the Group and hospitals in Spain, Chile and Poland are classifi ed 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 fi nancial 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.


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Sensitivity analysisThe 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.

Australia0.5% absolute

increase0.5% absolute

decrease

Average occupancy rate £12.7m increase £12.7m decrease

Average capitalisation rate £20.0m decrease £21.5m increase

New Zealand0.5% absolute


decrease



UK0.5% absolute


decrease



Spain0.5% absolute


decrease



Chile0.5% absolute


decrease



The table below sets out the reconciliation of the opening and closing balances for property classifi ed as level three fair value measurement as at 31 December 2017.

Freehold property

£m

Leasehold property and

improvements£m

At 1 January 2017 2,065.5 132.2

Additions 159.5 41.1

Transfer of assets held for sale (33.9) –

Disposals (8.7) (1.5)

Revaluation and write-down through the Consolidated Income Statement (38.2) –

Revaluation and write-down through other comprehensive income 233.4 –

Depreciation (32.1) (17.2)

Other 8.8 (8.3)

Foreign exchange (19.7) (0.6)

At 31 December 2017 2,334.6 145.7

The table below shows the date at which properties were last subject to external valuation.

Freehold property

£m

Leasehold property and

improvements£m

Valuation — December 2017 1,241.1 7.9

Valuation — December 2016 947.2 42.2

Valuation — December 2015 176.3 38.6

Assets held at cost1 145.7 215.6

Cost or valuation 2,510.3 304.3

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 defi cit is recognised in the Consolidated Income Statement. Where a revaluation reverses the losses taken to the Consolidated Income Statement in prior years, the credit is recognised in the Consolidated Income Statement.

A £233.4m net revaluation gain (2016: £63.5m) has been recognised in the property revaluation reserve. In the current year, a revaluation defi cit of £33.8m (2016 defi cit: £30.9m) and write-down of £2.1m (2016: £14.5m) were charged to the Consolidated Income Statement (see Note 2.4).

Recognised in the carrying amount of freehold property is £189.9m (2016: £158.4m) in relation to freehold property in the course of construction.

Historical cost of Group’s revalued assets2017

£m2016

£m

Historical cost of revalued assets 2,303.2 2,153.8

Accumulated depreciation based on historical cost (226.4) (176.9)

Historical cost net book value 2,076.8 1,976.9

Depreciation charge for the year on historical cost 46.1 43.1

The historical cost of all property, plant and equipment is £3,160.2m (2016: £3,194.1m).



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 qualifi cation, 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 confi guration 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 fl ow projections based on reliable estimates of future cash fl ows.

Any gain or loss arising from a change in the fair value is recognised in the Consolidated Income Statement within fi nancial income and expense.

(i) Investment properties

2017

£m2016

£m

At 1 January 2017 391.3 270.9

Additions 27.8 37.7


Increase in fair value 22.0 21.2

Transfer to assets held for sale (13.2) –

Reclassifi cations from property, plant and equipment 0.4 –

Foreign exchange (27.1) 62.1

At 31 December 2017 399.2 391.3

In the current year, a revaluation surplus of £22.0m (2016: £21.2m) was credited to the Consolidated Income Statement. Also included in fi nancial income is a realised gain of £0.2m relating to investment property sold during the year (2016: £nil). Of the £399.2m (2016: £391.3m) of investment properties in the Consolidated Statement of Financial Position as at 31 December 2017, £2.6m (2016: £6.5m) 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 £396.6m (2016: £384.8m), primarily consisting of the Group’s portfolio of retirement villages in New Zealand, was valued by management using internally prepared discounted cash fl ow 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 refl ect current market assessments of the uncertainty in the amount or timing of the cash fl ows. The discounted cash fl ow projections are reviewed by an independent valuer, Deloitte. These properties are categorised as level three within the fair value hierarchy.

The historical cost of investment properties is £195.2m (2016: £210.5m).

Signifi cant assumptions used in the valuation include:


Discount rate 9.5%

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 classifi ed as level three in the fair value hierarchy as at 31 December 2017:

Total

£m

At 1 January 2017 384.8

Reclassifi cation of investment property levels 4.5

Additions 27.8

Disposals (2.0)

Unrealised gains recognised in fi nancial income 21.7

Transfer to assets held for sale (13.2)

Foreign exchange (27.0)

At 31 December 2017 396.6

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 Zealand0.5% absolute


decrease

Discount rate £10.1m decrease £11.6m increase

Capital growth rate £28.0m increase £24.2m decrease

5Investment properties

Investment properties in briefInvestment 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


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(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:

2017

£m2016

£m

Less than one year 0.3 0.2

Between one and fi ve years 1.0 1.0

More than fi ve years 0.1 0.5

Total 1.4 1.7

During the year ended 31 December 2017, the Group’s retirement village portfolio generated £17.2m (2016: £13.4m) of income which was recognised as revenue in the Consolidated Income Statement. Total direct operating expenses of these retirement villages amounted to £9.6m (2016: £8.5m). £0.3m (2016: £0.3m) was recognised as rental income in the Consolidated Income Statement for other investment properties held by the Group. Direct operating expenses of these properties amounted to £nil (2016: £nil).

Associated companies include those entities in which the Group has signifi cant infl uence, 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 fi nancial and operating decisions. The Group also has the rights to the net assets.

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. The carrying value of the investment is adjusted for the Group’s share of any post acquisition profi ts or losses of the associated entity.

If 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 venturesOn 14 June 2017, Bupa increased its shareholding in the associate Bupa Arabia from 26.25% to 34.25% as a result of the acquisition of a portion of the Nazer Group’s stake for £195.3m. This is in line with the Group’s strategy to strengthen market position in existing territories. During the year the Group received dividends of £6.4m (2016: £8.3m) from Bupa Arabia.

On 1 February 2017, Bupa Innovations (ANZ) Pty Ltd invested £1.8m (AUD3.0m) in a 20% interest in Whitecoat Holdings Pty Ltd. Whitecoat owns and operates a comprehensive online healthcare provider directory and customer review website.

On 8 November 2017, Bupa Innovations (ANZ) Pty Ltd increased its investment in SmartGenRx Pty Ltd by £0.7m (AUD1.15m). SmartGenRx is a joint venture with The George Institute for Global Health, for the development of a cardiovascular polypill.

During 2017, capital injections of £nil (2016: £23.8m) were made in Max Bupa Health Insurance Company Limited. Distributions to shareholders are currently restricted by local regulatory requirements which are re-assessed on a regular basis.

The consolidated fi nancial 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 diff erent, from the date that signifi cant infl uence or control commences until the date that signifi cant infl uence or control ceases.

The carrying amount of equity accounted investments is £552.7m (2016: £302.9m). All equity investments are included on a coterminous basis.

6Equity accounted investments

Equity accounted investments in briefEquity accounted investments comprises associated companies and joint ventures.

Note



The Group’s principal equity accounted investments are:

Business

activityShare of

issued capitalPrincipally

operates inCountry of

incorporation

Bupa Arabia for Cooperative Insurance Company Associate Insurance 34.25% 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 fi nancial information for associates and joint venturesThe tables below provide summarised fi nancial information for those associates and joint ventures that are material to the Group. The information disclosed refl ects the amounts presented in the

fi nancial statements of the relevant associates and joint ventures, and not the Group’s share of those amounts. They have been amended to refl ect adjustments made by the Group when using the equity method, including fair value adjustments and modifi cations for diff erences in accounting policy.

Bupa Arabia

Highway to Health

Max Bupa

2017£m

2016 (restated)1

£m2017£m

2016£m

2017£m

2016£m

Revenue 1,512.7 1,656.3 177.4 155.4 67.2 56.1

Cash and cash equivalents 45.3 48.8 86.9 85.5 3.0 3.5

Other current assets 871.7 1,167.6 66.1 57.2 2.6 2.8

Current assets 917.0 1,216.4 153.0 142.7 5.6 6.3

Non-current assets 568.1 330.7 12.9 7.8 78.5 75.5

Current liabilities (1,026.4) (1,109.2) (99.7) (87.6) (25.0) (21.3)

Non-current liabilities (1.0) – (1.5) (0.2) (33.0) (31.2)

Net assets 457.7 437.9 64.7 62.7 26.1 29.3

Reconciliation to carrying amounts

Bupa Arabia

Highway to Health

Max Bupa

2017£m

2016 (restated)1

£m2017£m

2016£m

2017£m

2016£m

Opening net assets 437.9 301.4 62.7 41.3 29.3 21.1

Profi t/(loss) for the period 103.6 124.1 5.4 10.1 (7.6) (4.9)

Other comprehensive expenses (0.4) – – – – –

Dividends paid (24.8) (31.5) – – – –

Other reserve movements (58.6) 43.9 (3.4) 11.3 4.4 13.1

Closing net assets 457.7 437.9 64.7 62.7 26.1 29.3

% ownership 34.25% 26.25% 49.00% 49.00% 49.00% 49.00%

Reporting entity’s share 156.8 114.9 31.7 30.7 12.8 14.4

Fair value and local accounting diff erences 149.7 (20.2) 171.6 133.1 18.3 18.3

Carrying amount 306.5 94.7 203.3 163.8 31.1 32.7

Reporting entity’s share of profi t/(loss)2,3 26.6 26.3 2.5 5.1 (1.2) (0.1)

1. Restatement following the Saudi Arabian Monetary Authority (SAMA) Circular no. 381000074519, issued on 11 April 2017, in relation to the accounting of Zakat and Income tax that are to be recognised through equity. There have also been restatements to correct classifi cations between current and non-current assets.

2. 2017 share of profi ts in Bupa Arabia are based on a share in ownership of 26.25% up to 14 June.

3. Included in the share of post-taxation results of equity accounted investments within the Consolidated Income Statement is a £3.7m correction to profi t relating to historical errors in the recognition of share of profi ts of associates.

(ii) Individually immaterial associates and joint venturesIn 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 £11.8m (2016: £11.7m). The reporting entity’s share of loss recognised during the year for these associates was £2.5m (2016: £1.0m).


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Defi ned contribution pension schemesThe defi ned 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 benefi ts at retirement. Benefi ts 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 defi ned in the scheme rules or plan specifi cations and these contributions are recognised as an expense in the Consolidated Income Statement as incurred.

Defi ned benefi t post-employment schemesThe defi ned benefi t pension schemes provide benefi ts based on fi nal pensionable salary. The Group’s net obligation in respect of defi ned benefi t pension and the post-retirement medical scheme is calculated separately for each scheme and represents the present value of the defi ned benefi t 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 benefi t will be paid. When the calculation results in a benefi t 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.

The charge to the Consolidated Income Statement for defi ned benefi t 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 Consolidated Statement of Comprehensive Income in the period in which they occur.

(i) Amount recognised in the Consolidated Income StatementThe amounts charged/(credited) to other operating expenses for the year are:

2017

£m2016

£m

Current service cost 12.0 9.1

Past service costs – 0.7

Net Interest on defi ned benefi t liability/asset (11.0) (14.2)

Administrative expenses 1.8 1.7

Total amount charged/(credited) to Consolidated Income Statement 2.8 (2.7)

The charge to operating expenses in respect of cash contributions to defi ned contribution schemes is £35.2m (2016: £32.7m).

(ii) Amount recognised directly in other comprehensive incomeThe amounts (credited)/charged directly to equity:

2017

£m2016

£m

Actual return less expected return on assets (42.7) (396.6)

Loss arising from changes to fi nancial assumptions 37.8 437.2

Gain arising from changes to experience assumptions (27.5) (25.7)

Gain arising from changes to demographic assumptions (61.7) (0.3)

Total remeasurement (gains)/losses (credited)/charged directly to equity (94.1) 14.6

The cumulative amount of remeasurement gains recognised directly in equity is £69.0m (2016: £25.1m loss).

7Post-employment benefi ts

Post-employment benefi ts in briefThe Group operates several funded defi ned benefi t and defi ned contribution pension schemes for the benefi t of employees and Directors, in addition to an unfunded scheme and a post-retirement medical benefi t scheme.

The main defi ned benefi t scheme is The Bupa Pension Scheme which has been closed to new entrants since 1 October 2002. The principal defi ned 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



7.1 Group post-employment benefi t schemesDefi ned contribution pension schemesThe principal defi ned contribution pension scheme in the UK is The Bupa Retirement Savings Plan. This scheme has been in eff 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 defi ned 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).

Defi ned benefi t post-employment schemesThe principal defi ned benefi t 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.

The results of the latest triennial valuation have yet to be fi nalised. At the previous 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 sacrifi ce arrangement (known as PeopleChoice Pensions). There is a corresponding reduction in members’ wages and salaries as a result.

The expected contributions payable in 2018, with regards to the accumulation of future benefi ts, are £7.6m in respect of The Bupa Pension Scheme and £6.5m in respect of PeopleChoice Pensions.

The most recent triennial valuation of the Bupa Pension Scheme showed that the scheme was in surplus on its Technical Provisions basis. The scheme was also in surplus on the more prudent actuarial basis which the trustees use to set their long-term funding target. As a result, no defi cit reduction contributions are currently due. This position could change as a result of future valuations.

There are several other smaller defi ned benefi t pension schemes operated by UK and overseas subsidiaries. The defi ned benefi t pension schemes are assessed by independent scheme actuaries in accordance with UK or local practice and under IAS 19 as at 31 December 2017 for the purposes of inclusion in the Group’s consolidated fi nancial statements. Complete disclosure of these other defi ned benefi t pension schemes is not practicable within this report but they are disclosed within the fi nancial statements of the relevant sponsoring employer of each scheme.

Unfunded schemesUnfunded defi ned benefi t pension arrangements exist for certain employees and former employees to provide benefi ts in addition to the funded pension arrangements provided by the Group. There are no separate funds or assets in the Consolidated Statement of Financial Position to support the unfunded schemes; however, provisions included in the Consolidated Statement of Financial Position in respect of these liabilities and assets are ring-fenced to support these liabilities (see Note 8).

The latest valuation of these arrangements was performed as at 31 December 2017 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 2017 have been made in accordance with this latest valuation, which used the same principal assumptions as adopted at 31 December 2017 under IAS 19 for The Bupa Pension Scheme.

Post-retirement medical benefi t schemeThe Group also provides unfunded post-retirement medical benefi ts for certain former employees. These benefi ts were granted under an agreement which closed to new entrants in 1992. The latest valuation of this scheme was carried out on 31 December 2017 by an actuary employed by the Group using the same key assumptions as adopted at 31 December 2017 under IAS 19 for The Bupa Pension Scheme.


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(iii) Assets and liabilities of schemes

Note

Pension schemes

Post-retirement medical benefi t scheme

Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

Present value of funded obligations (iv) (1,699.1) (1,764.2) – – (1,699.1) (1,764.2)

Fair value of scheme assets (v) 2,263.3 2,225.0 – – 2,263.3 2,225.0

Net assets of funded schemes 564.2 460.8 – – 564.2 460.8

Present value of unfunded obligations (iv) (44.7) (54.0) (10.1) (10.6) (54.8) (64.6)

Net recognised assets/(liabilities) 519.5 406.8 (10.1) (10.6) 509.4 396.2

Represented on the Statement of Financial Position:

Net liabilities (67.5) (85.1)

Net assets 576.9 481.3

Net recognised assets 509.4 396.2

(iv) Present value of funded schemes’ obligationsThe movements in the present value of schemes’ obligations are:

Pension schemes


Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

At beginning of year 1,818.2 1,399.1 10.6 8.5 1,828.8 1,407.6

Current service costs 12.0 9.1 – – 12.0 9.1

Past service costs – 0.7 – – – 0.7

Interest on obligations 48.2 54.1 0.3 0.3 48.5 54.4

Contribution by employees 0.4 0.5 – – 0.4 0.5

Loss arising from changes to fi nancial assumptions 37.7 435.8 0.1 1.4 37.8 437.2

(Gain)/loss arising from changes to experience assumptions (27.4) (26.8) (0.1) 1.1 (27.5) (25.7)

Gain arising from changes to demographic assumptions (61.5) (0.3) (0.2) – (61.7) (0.3)

Benefi ts paid (83.5) (56.6) (0.6) (0.7) (84.1) (57.3)

Foreign exchange (0.3) 2.6 – – (0.3) 2.6

At end of year 1,743.8 1,818.2 10.1 10.6 1,753.9 1,828.8

(v) Fair value of funded schemes’ assetsThe movements in the fair value of the funded schemes’ assets are:

2017£m

2016£m

At beginning of year 2,225.0 1,761.5

Interest income 59.4 68.6

Return on assets excluding interest income 42.7 396.6

Contributions by employer 8.7 50.1

Contributions by employees 0.4 0.5

Administration expenses (1.8) (1.7)

Benefi ts paid (70.9) (54.0)


At end of year 2,263.3 2,225.0



The market values of the assets of the funded schemes are as follows:

2017£m

2017%

2016£m

2016%

Debt instruments 523.9 23 494.1 22

Government bonds 858.4 38 808.6 36

Corporate bonds 763.9 34 767.8 35

Cash/other assets 50.9 2 77.5 4

Equities 39.1 2 51.7 2

Diversifi ed growth funds 26.3 1 23.7 1

Property 0.8 – 1.6 –

Total market value of the assets of the funded schemes 2,263.3 100 2,225.0 100

All assets have a quoted market price.

The Group has taken steps to de-risk The Bupa Pension Scheme’s investment strategy. The main return-seeking asset class in the scheme is credit; there is minimal remaining market risk from equities or property. The scheme’s liabilities will fl uctuate in line with interest rates and infl ation. However, the investment strategy aims to hedge the majority of the interest and infl ation risk in the scheme, as measured on the long-term funding basis agreed with the trustees. This hedging is achieved via a liability-driven investment strategy utilising a combination of gilts and swaps. As the scheme’s hedging assets will move in line with the scheme’s liabilities, the interest and infl ation risk are substantially reduced.

Given the scheme’s asset holdings, the key remaining risk in The Bupa Pension Scheme’s investment strategy is credit risk. This is managed via limits on credit quality of counterparties, collateral arrangements in the

case of derivatives and repurchase agreements and regular monitoring of investment managers. The specifi c risks associated with the derivatives used in the hedging programme are managed via limits on leverage as well as stress testing of collateral arrangements.

7.2 Actuarial assumptionsThe responsibility for setting the assumptions underlying the IAS 19 valuations rests with the Directors, having fi rst taken advice from an independent actuary.

The key weighted average fi nancial assumptions used when valuing the obligations of the post-employment benefi t schemes under IAS 19 for the smaller schemes are as follows:

Note

Funded schemes

Unfunded schemes

2017%

2016%

2017%

2016%

Infl ation rate (a) 3.2 3.2 3.2 3.3

Rate of increase in salaries (a) 3.7 3.7 3.7 3.8

Rate of increase to pensions in payment (a) 3.0 3.1 3.1 3.2

Rate of increase to pensions in deferment (a) 2.2 2.3 2.2 2.2

Discount rate for scheme assets and obligations (a) 2.6 2.7 2.5 2.9

Medical cost trend rate (b) – – 4.0 4.0

(a) Actuarial assumptions underlying the valuation of obligationsThe infl ation assumption is set by reference to the diff erence between the yield on long-term fi xed interest gilts and the real yield on index-linked gilts, with a deduction of 0.2% to refl ect an infl ation risk premium.

The rate of increase of pensions in payment is the same as the infl ation rate, with the exception of benefi ts which receive fi xed increases in payment as defi ned 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 infl ation 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 rateThe medical cost trend rate is the assumed additional escalation of medical costs over and above the assumed infl ation rate. It is assumed that such an eff ect will continue during the remaining run-off 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 benefi t obligation:

1% point increase

2017

1% point decrease

2017

1% point increase

2016

1% point decrease

2016

Eff ect on post-retirement medical benefi t obligation 1.5 (1.2) 1.6 (1.3)


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(c) Mortality assumptionsThe trustees of The Bupa Pension Scheme have undertaken a scheme-specifi c mortality investigation as part of the 1 July 2017 triennial valuation, which is currently pending fi nalisation.

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 2017.

The mortality tables adopted at 31 December 2017 are the S2PA year of birth mortality tables using the CMI 2016 projection model, with a long-term rate of improvement of 1.5% pa adjusted by 97% (male non-pensioners); 96% (female non-pensioners); 92% (male pensioners) and 94% (female pensioners). The average life expectancies at age 60 based on these tables for a male currently aged 60 (45) is 27.6 years (28.6 years) and for a female currently aged 60 (45) is 29.6 years (30.7 years).

(d) Assumptions over duration of liabilitiesThe weighted average duration of the defi ned benefi t obligation is approximately 22 years.

(e) Sensitivity analysis of the principal assumptions used to measure scheme liabilitiesThe 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 defi ned benefi t obligation to signifi cant actuarial assumptions the same method (projected unit credit method) has been applied as when calculating the pension liability recognised within the Consolidated 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 £81m

Rate of infl ation Increase/decrease by 0.25% Increase/decrease by £75m

Rate of increase in salaries Increase/decrease by 0.25% Increase/decrease by £7m

Rate of mortality Increase by one year Increase by £51m

2017

£m2016

£m

Non-current restricted assets 43.1 55.8

Current restricted assets 33.2 4.2

Total restricted assets 76.3 60.0

The restricted assets balance of £76.3m (2016: £60.0m) is split between non-current and current. The non-current restricted assets balance of £43.1m (2016: £55.8m) consists of cash deposits held to secure a charge over the non-registered pension arrangement maturing after 2022 (see Note 25). Included in current restricted assets is £32.0m (2016: £3.2m) in respect of claims funds held on behalf of corporate customers.

8Restricted assets

Restricted assets in briefRestricted assets are amounts held in respect of specifi c obligations and potential liabilities and may be used only to discharge thoseobligations and potential liabilities if and when they crystallise.

Note



All fi nancial investments are initially recognised at fair value, which includes transaction costs for fi nancial investments not classifi ed at fair value through profi t or loss.

Financial investments are derecognised when the rights to receive cash fl ows from the fi nancial investments have expired or where the Group has transferred substantially all risks and rewards of ownership.

The Group has classifi ed its fi nancial investments into the following categories: available-for-sale (AFS), at fair value through profi t or loss, held to maturity, and loans and receivables. Management determines the classifi cation at initial recognition.

The accounting policy for the impairment of fi nancial investments is detailed in Note 14.

The analysis of derivatives is disclosed in Note 10.

Financial investmentsFinancial investments are analysed as follows:

Carrying value2017

£m

Fair value2017

£m

Carrying value2016

(restated)1

£m

Fair value2016

(restated)1

£m

Available-for-sale

Corporate debt securities 307.4 307.5 192.2 192.2

Government debt securities 86.4 86.4 17.2 17.2

Designated at fair value through profi t or loss


Corporate debt securities and secured loans 198.2 198.2 188.9 188.9

Pooled investment funds 276.8 276.8 252.6 252.6

Deposits with credit institutions 8.1 8.1 4.1 4.1

Other loans 1.2 1.2 – –

Unlisted equities 18.7 18.7 – –

Held to maturity

Corporate debt securities and secured loans 283.7 285.6 316.1 323.1


Loans and receivables

Deposits with credit institutions 886.0 888.9 1,067.9 1,074.0

Other loans 0.6 0.6 0.6 0.6

Total fi nancial investments 2,227.0 2,233.6 2,172.6 2,186.1

Non-current 1,093.2 1,097.5 1,061.9 1,073.6

Current 1,133.8 1,136.1 1,110.7 1,112.5

1. A review of the Group’s classifi cation and measurement of fi nancial instruments has identifi ed that £28.3m of government debt securities, £58.2m of corporate debt securities and £0.8m of deposits with credit institutions as at 31 December 2016 should be reclassifi ed from fair value through profi t and loss to held to maturity and loans and receivables, as these debt instruments are held to maturity and are not managed on a fair value basis.

9Financial investments

Financial investments in briefThe Group generates cash from its underwriting, trading andfi nancing activities and invests the surplus cash in fi nancial investments. These include government bonds, corporate bonds, pooled investments funds and deposits with credit institutions.

Note


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Classifi cation Criteria and treatment

Available-for-sale Available-for-sale assets are non-derivative fi nancial assets classifi ed on initial recognition as available for sale or any other instruments that are not classifi ed in the below categories. Available-for-sale assets are measured at fair value in the Consolidated Statement of Financial Position. Fair value changes on available-for-sale assets are recognised through other comprehensive income, except for interest and foreign exchange gains or losses which go through the Consolidated Income Statement. The cumulative gain or loss that was recognised in other comprehensive income is recognised in the Consolidated Income Statement when an available-for-sale fi nancial asset is derecognised.

Fair value through profi t or loss Financial investments designated at fair value through profi t or loss consists 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 Consolidated Income Statement in the period in which they arise.

Held to maturity Held to maturity investments are non-derivative fi nancial assets which are quoted on an active market, with fi xed or determinable payments and fi xed 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 eff ective interest method, less any impairment losses.

Any discount or premium on purchase is amortised over the life of the investment through the Consolidated Income Statement.

Loans and receivables Loans and receivables are carried at amortised cost calculated using the eff ective interest method, less impairment losses.

Fair value of fi nancial investmentsFair value is a market-based measurement for assets for observable market transactions where market information might be available. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the asset would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset).

The fair values of quoted investments in active markets are based on current bid prices. The fair values of unlisted securities and quoted investments for which there is no active market are established by using valuation techniques corroborated by independent third parties.

These may include reference to the current fair value of other investments that are substantially the same and discounted cash fl ow analysis.

Financial investments carried at fair value are measured using diff erent valuation inputs categorised into a three-level hierarchy. The diff erent levels have been defi ned by reference to the lowest level input that is signifi cant to the fair value measurement, as follows:

– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

– Level 2: inputs other than quoted prices included within level one that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).



An analysis of fi nancial investments by hierarchy level is as follows:

Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

2017 Available-for-sale

Corporate debt securities 307.5 – – 307.5 Government debt securities 86.4 – – 86.4

Designated at fair value through profi t or loss Government debt securities 33.7 28.7 – 62.4 Corporate debt securities and secured loans 14.5 183.7 – 198.2 Pooled investment funds 176.5 99.2 1.1 276.8 Deposits with credit institutions 8.1 – – 8.1 Other loans – 1.2 – 1.2 Unlisted equities – 0.2 18.5 18.7

Held to maturity Corporate debt securities and secured loans 279.9 5.7 – 285.6 Government debt securities 97.8 1.4 – 99.2

Loans and receivables Deposits with credit institutions – 888.9 – 888.9 Other loans – 0.6 – 0.6

Total 1,004.4 1,209.6 19.6 2,233.6

Level 1£m

Level 2£m

Level 3£m

Total£m

2016 (restated)1

Available-for-sale

Corporate debt securities 192.2 – – 192.2

Government debt securities 17.2 – – 17.2

Designated at fair value through profi t or loss

Government debt securities 5.6 25.0 – 30.6

Corporate debt securities and secured loans 12.4 176.4 – 188.8

Pooled investment funds 163.8 88.9 – 252.7

Deposits with credit institutions 4.1 – – 4.1

Held to maturity

Corporate debt securities and secured loans 323.1 – – 323.1

Government debt securities 102.3 0.5 – 102.8

Loans and receivables

Deposits with credit institutions – 1,074.0 – 1,074.0

Other loans – 0.6 – 0.6

Total 820.7 1,365.4 – 2,186.1

1. A review of the Group’s classifi cation and measurement of fi nancial instruments has identifi ed that £28.3m of government debt securities, £58.2m of corporate debt securities and £0.8m of deposits with credit institutions as at 31 December 2016 should be reclassifi ed from fair value through profi t and loss to held to maturity and loans and receivables, as these debt instruments are held to maturity and are not managed on a fair value basis.

The Group currently holds level three investments totalling £19.6m. The majority of the investments are valued using earnings multiples of comparable companies, which are deemed to be unobservable inputs. The average multiple applied is 4.3. Changing these multiples to a reasonable alternative would result in a change in fair value of plus or minus £5.0m.

The Group did not hold any level three fi nancial investments in 2016.

The table below shows movement in the level three assets measured at fair value:

£m

Opening balance –

Additions 21.6

Foreign exchange (2.0)

Total 19.6

There have been no signifi cant transfers between the valuation hierarchies.

The Group uses a market interest curve as at the balance sheet date to discount fi nancial 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:

2017

%2016

%

Sterling assets and liabilities 0.7-1.0 0.6-0.9

Australian dollar assets and liabilities 1.8-2.2 1.7-2.8

Euro assets and liabilities (0.7)-(0.1) (0.8)-(0.5)

US dollar assets and liabilities 1.7-2.6 0.9-3.2


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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 profi t or loss.

Derivative fi nancial 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 fl ows based on observable yield curves.

All derivatives are disclosed as level two in the fair value hierarchy.

2017

£m2016

£m

Derivative assets

Non-current* 35.5 50.9

Current 11.9 9.4

Total derivative assets 47.4 60.3

Derivative liabilities

Non-current (4.2) (10.4)

Current (15.0) (11.6)

Total derivative liabilities (19.2) (22.0)

* See fair value hedges in Note 24.2.

10Derivatives

Derivatives in briefA derivative is a fi nancial instrument whose value is based on one or more underlying variable. The Group uses derivative fi nancial instruments to hedge its exposure to foreign exchange and interest rate risk. Derivatives are not held for speculative reasons.

Note



Deferred taxation assets and liabilitiesDeferred taxation is recognised in full using the balance sheet liability method, providing for temporary diff erences between the carrying amounts of assets and liabilities for fi nancial reporting purposes and the amounts used for taxation purposes.

The following temporary diff 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, aff ects neither the accounting profi t nor taxable profi t 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 diff erences arising on investments in subsidiary companies, except where the timing of the reversal of the temporary diff erence is controlled by the Group and it is probable that the temporary diff 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 profi ts will be available against which the asset can be utilised.

Deferred taxation assets and liabilities are off 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.

Recognised deferred taxation assets and liabilitiesDeferred taxation assets and liabilities are attributable to the following:

Assets Liabilities Net

2017£m

2016£m

2017£m

2016 (restated)1

£m2017

£m

2016 (restated)1

£m

Accelerated capital allowances – – (76.8) (99.6) (76.8) (99.6)

Post-employment benefi t liability – – (84.9) (67.1) (84.9) (67.1)

Revaluation of properties to fair value – – (92.4) (39.7) (92.4) (39.7)

Employee benefi ts (other than post-employment) 33.9 30.5 – – 33.9 30.5

Provisions 24.1 24.4 – – 24.1 24.4

Taxation value of losses carried forward 41.3 43.2 – – 41.3 43.2

Goodwill and intangible assets – – (142.4) (109.2) (142.4) (109.2)

Other – 4.2 (7.0) (9.2) (7.0) (5.0)

Deferred taxation assets/(liabilities) 99.3 102.3 (403.5) (324.8) (304.2) (222.5)

Allowable netting of deferred tax assets and liabilities (93.1) (95.2) 93.1 95.2 – –

Net deferred taxation assets/(liabilities) 6.2 7.1 (310.4) (229.6) (304.2) (222.5)


Recognised deferred taxation assetsDeferred taxation assets relating to the carry forward of employee benefi ts, other provisions, unused taxation losses and other deferred taxation assets are recognised to the extent that it is probable that future taxable profi ts will be available against which the deferred taxation assets can be utilised.

Unrecognised deferred taxation assetsAs at 31 December 2017, the Group had deductible temporary diff erences relating to intangible assets of £4.5m (2016: £7.7m), trading losses of £57.0m (2016: £72.0m) and capital losses of £68.5m (2016: £66.7m) for which no deferred taxation asset was recognised due to uncertainty of utilisation of those temporary diff erences.

11Deferred taxation assets and liabilities

Deferred taxation assets and liabilities in briefDeferred tax is an amount which recognises the diff erences between the carrying amounts of assets and liabilities for fi nancial 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 fi nancial reporting purposes and written down allowances being applied for the relevant tax authorities.

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Movement in net deferred taxation (liabilities)/assets

At beginning of year

£m

Recognised in Consolidated

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

2017

Accelerated capital allowances (99.6) 11.2 1.6 5.7 (1.2) 5.5 (76.8)

Post-employment benefi t asset/(liability) (67.1) (3.3) (15.8) – – 1.3 (84.9)

Revaluation of properties to fair value (39.7) (3.2) (48.9) – – (0.6) (92.4)

Employee benefi ts (other than post-employment) 30.5 3.3 0.4 – (0.1) (0.2) 33.9

Provisions 24.4 1.9 – 0.1 – (2.3) 24.1

Taxation value of losses carried forward 43.2 (6.4) – 4.3 – 0.2 41.3

Goodwill and intangible assets (109.2) 32.8 – (64.5) – (1.5) (142.4)

Other (5.0) 6.4 (5.3) 0.1 (1.8) (1.4) (7.0)

Total (222.5) 42.7 (68.0) (54.3) (3.1) 1.0 (304.2)

2016 (restated)1

Accelerated capital allowances (94.4) 13.2 – (0.1) (0.6) (17.7) (99.6)

Post-employment benefi t asset/(liability) (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 benefi ts (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) 0.8 0.1 2.2 (5.0)

Total (221.6) 28.2 (2.8) 0.7 (0.8) (26.2) (222.5)




Note2017

£m2016

£m

Insurance debtors (b) 1,010.2 952.8

Reinsurers’ share of insurance provisions (c) 18.2 19.3

Deferred acquisition costs (a) 117.1 105.7

Medicare rebate (d) 68.8 72.9

Risk Equalisation Special Account recoveries 15.9 16.2

Total assets arising from insurance business 1,230.2 1,166.9

Non-current 2.4 2.2

Current 1,227.8 1,164.7

The above balance is stated net of provision for impairment losses. Information regarding the ageing of insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries is shown in Note 24.3.

(a) Deferred acquisition costsAcquisition costs represent commissions payable and other expenses related to the acquisition of insurance contract revenues written during the fi nancial year. Acquisition costs that have been paid that relate to subsequent periods are deferred and recognised in the Consolidated Income Statement in the relevant period on a straight-line basis.

The movement in deferred acquisition costs is as follows:

2017

£m2016

£m

At the beginning of the year 105.7 88.0

Acquisition costs deferred 383.2 341.8

Acquisition costs released to Consolidated Income Statement (368.7) (332.0)

Disposal of subsidiary (0.9) –


At end of year 117.1 105.7

(b) Insurance debtorsIn certain jurisdictions, such as the UK and Spain, where the amount payable under an insurance contract is payable in instalments over the term, a debtor and corresponding unearned premium provision is established at inception for the total premiums receivable over the whole period of cover. Impairment releases in respect of insurance debtors amounting to £2.9m (2016: release of £5.6m) have been recognised in other operating expenses in the Consolidated Income Statement, detailed in Note 2.3.

(c) Reinsurers’ share of insurance provisionsThe 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 18.

(d) Medicare rebateIn 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.

12Assets arising from insurance business

Assets arising from insurance business in briefFinancial assets arising from insurance business, excluding reinsurers’share of insurance provisions, are held at amortised cost. Valuation ofreinsurers’ share of insurance provisions is discussed in Note 18.

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Inventories are stated at the lower of cost and net realisable value. Cost is determined using the fi rst-in fi rst-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 £103.5m (2016: £92.2m). Inventory write-downs of £0.1m (2016: £1.3m) were made during the year. The Group consumed £236.5m (2016: £384.4m) of inventories, which are recognised within other operating expenses in the Consolidated Income Statement.

Note2017

£m2016

£m

Trade receivables – net of impairment losses (a) 236.2 183.6

Service concession receivables (b) 231.8 213.3

Other receivables 171.1 101.3

Prepayments 77.8 59.6

Accrued income 13.5 50.5

Investment receivables and accrued investment income 7.0 5.8

Total trade and other receivables 737.4 614.1

Non-current 124.2 112.5

Current 613.2 501.6

Trade and other receivables are carried at amortised cost net of provisions for impairment losses. Information regarding the ageing of trade and other receivables is shown in Note 24.3.

The fair value of non-current investment receivables and accrued investment income is £6.0m (2016: £5.2m). The carrying values of the other non-current receivable balances are a reasonable approximation of the fair value.

(a) Impairment of fi nancial assetsFinancial assets comprise trade and other receivables and fi nancial investments. Refer to Note 9 for fi nancial investments.

If they are not already held at fair value through profi t or loss, fi nancial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A fi nancial 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 fl ows of that asset.

An impairment loss in respect of a fi nancial investment measured at amortised cost or available for sale is calculated as the diff erence between its amortised cost and the present value of the estimated

future cash fl ows discounted at the eff ective interest rate at the date the investment was made.

Signifi cant fi nancial assets are tested for impairment on an individual basis. The remaining fi nancial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the Consolidated Income Statement. Impairment losses on trade receivables of £9.8m (2016: £5.4m) have been charged to other operating expenses.

(b) Service concession receivablesThe 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 fi nancial asset has been recognised to the extent that Bupa has an unconditional contractual right to receive cash at the direction of the grantor for the construction services and the grantor has little, if any, discretion to avoid payment. This fi nancial asset is carried at amortised cost (with an eff ective interest rate) less impairment losses.

The remaining service concession receivable 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.

13Inventories

Inventories in briefInventories comprise drugs, prostheses, consumables and housing stock utilised in the course of our care, health and dental operations.

14Trade and other receivables

Trade and other receivables in briefTrade and other receivables arise in the ordinary course of business.

Note

Note



2017

£m2016

£m

Cash at bank and in hand 1,042.2 998.7

Short-term deposits 478.9 414.0

Cash and cash equivalents 1,521.1 1,412.7

Bank overdrafts of £1.1m (2016: £nil) that are repayable on demand form part of the Group’s Capital Management Policy (see Note 23). These are reported within Other interest bearing liabilities (Note 17) on the Consolidated Statement of Financial Position, athough are considered as a component of cash and cash equivalents for the purpose of the Consolidated Statement of Cash Flows.

Classifi cation as held for saleAssets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classifi cation as held for sale and subsequent gains or losses on remeasurement are recognised in profi t or loss.

On classifi cation as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated.

Assets and liabilities classifi ed as held for sale

2017

£m2016

£m

Assets held for sale

Property, plant and equipment 75.9 479.0

Investment property 12.5 –

Trade and other receivables 0.6 26.3

Total assets classifi ed as held for sale 89.0 505.3

Liabilities associated with assets held for sale

Trade and other payables (10.7) (45.5)

Total liabilities classifi ed as held for sale (10.7) (45.5)

Net assets classifi ed as held for sale 78.3 459.8

Net assets classifi ed as held for sale as at 31 December 2016 related to a number of homes in the UK Care Services business and a UK offi ce building.

In the UK, the sale of the offi ce building and the majority of the care homes was completed in 2017. In addition, the sale of a portfolio of care homes to Advinia Health Care was completed on 14 February 2018, as described in Note 1.7. These care homes remain classifi ed as held for sale at the reporting date. During the period, a total of £97.1m was reported within other income and charges in respect of additional write-downs to refl ect the fi nal sale agreements and additional costs to sell.

A number of care homes, retirement villages and freehold land in the Australia and New Zealand care services businesses were reclassifi ed as held for sale as at 31 December 2017 along with certain related assets and liabilities, as active plans to sell were in place. Freehold land and buildings and investment property were revalued immediately prior to the transfer to held for sale.

15Cash and cash equivalents

Cash and cash equivalents in briefCash 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 aresubject to an insignifi cant risk of change in value.

16Assets and liabilities held for sale

Assets and liabilities held for sale in briefNon-current assets or disposal groups comprising assets andliabilities are classifi ed 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

Note


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Subordinated liabilitiesSubordinated liabilities are stated at amortised cost using the eff 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 fi xed interest rate of the bonds are recognised in the Consolidated Income Statement as an eff ective fair value hedge of this exposure.

The interest expense on the bonds is recognised as a fi nancial expense.

The Group has issued 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 liabilitiesOther interest bearing liabilities consist of senior unsecured bonds, secured loans, bank and other loans and fi nance 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 diff erence between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an eff ective interest basis. The carrying value of senior unsecured bonds are adjusted for the gain or loss on hedged risk; changes in the fair value of derivatives that mitigate interest rate risk resulting from the fi xed interest rate of the bond is recognised in the Consolidated Income Statement as an eff ective fair value hedge of this exposure.

The interest expense on the bond is recognised as a fi nancial expense.

The Group has issued £300.0m senior unsecured bonds with a corresponding fair value hedge. The amortised cost of these borrowings is adjusted for the fair value of the risk being hedged.

Note2017

£m2016

£m

Subordinated liabilities

Callable subordinated perpetual guaranteed bonds 335.9 335.9

Fair value adjustment in respect of hedged interest rate risk 35.5 50.9

Callable subordinated perpetual guaranteed bonds at carrying value (a) 371.4 386.8

5.0% subordinated unguaranteed bonds due 2023 and 2026 (b) 896.9 899.3

Other subordinated debt (c) 34.9 30.6

Total subordinated liabilities 1,303.2 1,316.7

Other interest bearing liabilities

Senior unsecured bonds (d) 697.5 400.4

Bank loans and overdrafts (e) 466.1 192.7

Finance lease liabilities (f) 6.5 11.8

Total interest bearing liabilities 1,170.1 604.9

Total borrowings 2,473.3 1,921.6

Non-current 2,117.5 1,824.8

Current 355.8 96.8

2017Subordinated

liabilities£m

2016Subordinated

liabilities£m

2017Other

interest bearing

liabilities£m

2016Other

interest bearing

liabilities£m

2017Total

£m

2016Total

£m

At beginning of the year (1,316.7) (919.4) (604.9) (1,154.7) (1,921.6) (2,074.1)

Business combinations – – (272.7) – (272.7) –

Net repayments/(proceeds) 2.6 (385.0) (289.5) 581.2 (286.9) 196.2

Interest payments 53.7 47.4 30.1 45.5 83.8 92.9

Accrued interest and amortisation (56.7) (51.5) (30.3) (27.9) (87.0) (79.4)

Foreign exchange adjustments and other (1.5) (8.6) (4.7) (49.0) (6.2) (57.6)

Fair value adjustment in respect of hedged risk 15.4 0.4 1.9 – 17.3 0.4

At end of year (1,303.2) (1,316.7) (1,170.1) (604.9) (2,473.3) (1,921.6)

17Borrowings

Borrowings in briefThe Group has various sources of funding including subordinated bonds, senior unsecured bonds and loans.

Note



(a) Callable subordinated perpetual guaranteed bondsIn 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 fi xed 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, including accrued interest, is £371.4m (2016: £386.8m). 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) 5% subordinated unguaranteed bonds due 2023 and 2026On 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.

(c) Other subordinated debtSubordinated debt of €39.3m 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.

(d) Senior unsecured bondsOn 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 S.A., now Bupa Chile, issued UF1.6m (Unidad de Fomento – an infl ation-linked currency commonly used in Chile) of infl ation-linked senior unsecured bonds which mature on 30 June 2033.

On 5 April 2017, Bupa Finance plc issued £300.0m of senior unsecured bonds, which mature on 5 April 2024. Interest is payable on the bonds at 2.0% per annum. The total hedged fair value of the £300.0m senior unsecured bonds, including accrued interest, is £296.3m. 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.

(e) Bank loans and bank overdraftBank loans are £466.1m (2016: £192.7m), this includes a tri syndicated loan held in Especializada y Primaria L’Horta-Manises S.A.U. of £25.2m (2016: £26.8m) and a portfolio of loans held in Bupa Chile totalling £148.1m (2016: £146.8m).

Bupa maintains a £800.0m revolving credit facility which was extended for a further year in June 2017 and now matures in August 2022. The facility was drawn down by £226.0m (2016: undrawn) at 31 December 2017 including £6.4m of outstanding letters of credit used for general business purposes.

Drawings under the £800.0m facility are guaranteed by the Company. 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 fi xed rate.

In January 2017, Bupa Finance plc signed a £650.0m committed facility to ensure suffi cient funding would be made available to complete the acquisition of Oasis Dental Care. This was drawn down by £48.6m at 31 December 2017 and repaid in full on 17 January 2018.

(f) Obligations under fi nance leasesFuture minimum payments under fi nance leases are as follows:

2017Future

minimum lease

payments£m

2017Present value

of minimum lease

payments£m

2016Future

minimum lease

payments£m

2016Present value

of minimum lease

payments£m

Payable within one year 2.5 2.3 5.9 5.4

Payable after one year but within fi ve years 3.6 3.6 6.0 5.4

Payable after fi ve years 0.9 0.6 1.3 1.0

Total gross payments 7.0 13.2

Less: fi nance charges included above (0.5) (1.4)

Total payments net of fi nance charges 6.5 6.5 11.8 11.8

Secured loansDuring 2016 the secured loans were repaid early. 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 fi xed interests of 6.3% and 7.5% respectively. The loan notes were secured by fi xed and fl oating 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.


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Fair value of fi nancial liabilitiesThe fair value of a fi nancial liability is defi ned as the amount for which a fi nancial 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 fl ows

– Senior unsecured bonds – quoted price

– Secured loans – quoted price.

The fair values of quoted liabilities in active markets are based on current off er prices. The fair values of fi nancial 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 fl ow analysis.

Financial liabilities are categorised into a three-level hierarchy, a description of the diff erent levels is detailed in Note 9 along with the market interest rates used to discount fi nancial liabilities, where the fair value cannot otherwise be found from quoted market values.

An analysis of borrowings by valuation method is as follows:

2017 2016

Level 1£m

Level 2£m

Total£m

Level 1£m

Level 2£m

Total£m

Subordinated liabilities 1,415.8 34.9 1,450.7 1,312.9 46.1 1,359.0

Senior unsecured bonds 678.6 54.4 733.0 377.2 59.3 436.5

Bank loans – 466.1 466.1 – 192.7 192.7

Finance lease liabilities – 6.5 6.5 – 11.8 11.8

Total 2,094.4 561.9 2,656.3 1,690.1 309.9 2,000.0

Currently the Group does not have any level three fi nancial liabilities.

18.1 Provisions under insurance contracts issuedUnearned premiumsThe 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 diff erent from a calculation based on the pattern of incidence of risk.

Provision for claimsThe gross provision for claims represents the estimated liability arising from claims episodes in current and preceding fi nancial 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 Consolidated Income Statement in the fi nancial 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 confi dence 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 confi dence.

Provision is made for unexpired risks when unearned premiums, net of associated acquisition costs, are insuffi 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.

18Provisions and other liabilities under insurance contracts issued

Provisions and other liabilities under insurance contracts issued in briefThe 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



2017 2016 (restated)1

Gross£m

Reinsurance£m

Net£m

Gross£m

Reinsurance£m

Net£m

General insurance business

Provisions for unearned premiums 1,728.3 (10.1) 1,718.2 1,705.2 (11.6) 1,693.6

Provisions for claims 877.4 (7.2) 870.2 888.6 (6.6) 882.0

Long-term business

Provisions for life insurance benefi ts 30.9 (0.9) 30.0 33.9 (1.1) 32.8

Total insurance provisions 2,636.6 (18.2) 2,618.4 2,627.7 (19.3) 2,608.4

Non-current 30.9 (0.9) 30.0 33.9 (1.1) 32.8

Current 2,605.7 (17.3) 2,588.4 2,593.8 (18.2) 2,575.6

Total insurance provisions 2,636.6 (18.2) 2,618.4 2,627.7 (19.3) 2,608.4

(a) Analysis of movements in provisions for unearned premiums

At beginning of year 1,705.2 (11.6) 1,693.6 1,570.4 (3.0) 1,567.4

Premiums deferred 8,990.6 (58.4) 8,932.2 8,058.1 (57.3) 8,000.8

Deferred premiums released to income (8,940.7) 60.9 (8,879.8) (8,044.5) 51.9 (7,992.6)

Disposal of subsidiary company (31.2) – (31.2) – – –

Transfers – – – (0.2) (4.2) (4.4)

Foreign exchange 4.4 (1.0) 3.4 121.4 1.0 122.4

At end of year 1,728.3 (10.1) 1,718.2 1,705.2 (11.6) 1,693.6

(b) Analysis of movements in provisions for claims

At beginning of year 888.6 (6.6) 882.0 657.1 (0.9) 656.2

Additions through business combinations – – – 16.2 – 16.2

Cash paid to settle claims (7,179.9) 44.2 (7,135.7) (6,269.4) 44.9 (6,224.5)

Decrease for prior years’ claims (5.3) (0.5) (5.8) (3.5) – (3.5)

Increase for current year claims 7,264.7 (43.6) 7,221.1 6,400.0 (42.4) 6,357.6

Risk Equalisation Special Account levy (75.0) – (75.0) (65.2) – (65.2)

Disposal of subsidiary (5.4) – (5.4) – – –

Transfers 1.0 (1.0) – 42.4 (8.0) 34.4

Foreign exchange (11.3) 0.3 (11.0) 111.0 (0.2) 110.8

At end of year 877.4 (7.2) 870.2 888.6 (6.6) 882.0



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Assumptions for general insurance businessThe 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 outfl ows 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 refl ects the level of this uncertainty.

Claims development patterns are analysed in each of the Group’s insurance entities. Where distinct sub-portfolios with diff 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 defi ned by product line, risk profi le, 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 infl ation and currency eff ects, for which appropriate adjustments to assumptions and methods are made.

While there is some diversity in the development profi le 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 benefi t is claimed. Medical expenses claims are, typically, substantially fully settled within just a few months. Claims management practices such as preauthorisation of the claim with the insurer, electronic claims settlement and eff ective network provider arrangements can reduce the development period to four to six months.

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 of reasonably possible variations:

Increase in

claimsIncrease in expenses

2017

Change in variable % 5.0 10.0

Reduction in profi t net of reinsurance before taxation £m 68.9 15.9

2016

Change in variable % 5.0 10.0

Reduction in profi t net of reinsurance before taxation £m 67.1 19.3

These variances would reduce the amount of profi t that would otherwise emerge in subsequent periods. Since premium provisions include profi t 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 testsLiability adequacy tests are performed for Bupa’s insurance entities. For short-duration contracts, a premium defi ciency 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 defi ciency would be immediately recognised in the Consolidated Income Statement.

18.2 Other liabilities under insurance contracts issuedOther liabilities under insurance contracts issued consist of payables to insurance creditors other than policyholders.

2017

£m2016

£m

Reinsurers’ deposits 5.7 5.7

Reinsurance payables 60.7 26.7

Commissions payable 16.0 13.8

Other insurance payables 34.1 96.8

Total other liabilities under insurance contracts issued 116.5 143.0



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 outfl ow of resources is probable and where the payments can be reliably estimated. If the eff ect is material, provisions are determined by discounting the estimated future payments at a pre-taxation rate that refl ects current market assessments of the time value of money and, where appropriate, the risks specifi c 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 diff er from the amount recorded.

Long service and annual

leave£m

Contingent consideration

£m

Customer remediation

and legal provisions

£m

Insurance provisions

£m

Unoccupied property

£m

Regulatory provisions

£mOther

£mTotal

£m

At beginning of year (restated)1 61.1 17.9 5.9 10.2 1.8 0.1 10.4 107.4

Acquisitions through business combinations – 16.7 – – 1.2 – 5.9 23.8

Charge for year 54.2 0.4 4.3 4.2 – 4.5 9.9 77.5

Released in year (0.8) (3.8) (2.1) – (0.4) (3.2) (1.9) (12.2)

Utilised in year – cash (46.3) (7.9) (0.7) (4.2) (0.9) (1.4) (1.2) (62.6)

Transfer to assets and liabilities held for sale (0.8) – – – – – – (0.8)

Foreign exchange (1.5) – – – – – 0.1 (1.4)

Total provisions for liabilities and charges 65.9 23.3 7.4 10.2 1.7 – 23.2 131.7

Non-current 18.1 6.2 2.4 8.5 1.6 – 12.6 49.4

Current 47.8 17.1 5.0 1.7 0.1 – 10.6 82.3


Long service and annual leaveThe 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 outfl ows 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 outfl ows as well as around the amount of future outfl ows due to wage infl ation.

Provisions for contingent considerationContingent consideration is a fi nancial liability largely related to earn-out payable on acquisitions of dental practices in Australia and the UK. In Australia, the provision relates to contingent payments to practice principals. In the UK, the contingent 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 Consolidated Income Statement.

19Provisions for liabilities and charges

Provisions for liabilities and charges in briefA provision is recognised when the Group is expected to make futurepayments as a result of a past event.

Note


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Customer remediation and legal provisionsCustomer 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 provisionsThe 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 outfl ows relating to this provision are dependent on the frequency and value of claims submitted as well as the excess amount specifi ed within individual policies with insurers. The fund is actuarially assessed twice a year to ensure that the provision is adequate.

Unoccupied propertyIn 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 fi ve years. The future net outfl ows are uncertain and are aff ected by the Group’s ability to sub-let unoccupied property.

Regulatory provisionsRegulatory 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.

OtherOther provisions include amounts relating to payments under legislation and restructuring costs.

Note2017

£m

2016 (restated)1

£m

Accruals 512.0 471.1

Accommodation bond liabilities (a) 616.9 558.5

Trade payables 185.1 134.6

Other payables 480.0 428.5

Deferred income (b) 88.2 71.9

Social security and other taxes 47.8 32.8

Total trade and other payables 1,930.0 1,697.4

Non-current 31.9 24.3

Current 1,898.1 1,673.1


Trade and other payables (excluding deferred income) are carried at amortised cost.

The fair value of other payables and accruals are £479.7m (2016: £424.1m) and £511.9m (2016: £470.0m) respectively. The carrying value of the other trade and other payables is a reasonable approximation of the fair value. Information regarding the maturity of trade payables, other payables, accommodation bond liabilities and accruals is shown in Note 24.4.

(a) Accommodation bond liabilitiesAccommodation 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.

(b) Deferred incomeDeferred income relates primarily to care home government funding received in advance. The liability is released and recognised as revenue as the services are provided and the performance obligations are satisfi ed.

20Trade and other payables

Trade and other payables in briefTrade and other payables arise in the ordinary course of business.

Note



(i) Consolidation of entities in which the Group holds less than 50%Eurocredit Investment Fund 1 plcEurocredit 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.

(ii) Subsidiary signifi cant restrictionsThere are no signifi cant 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)The Group has no subsidiaries whose non-controlling interest is material on the basis of their share of equity or profi t or loss.

a) 2017 acquisitionsBusiness combinations are accounted for using the acquisition method. Identifi able 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 identifi cation 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 identifi cation 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 identifi able 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 in the year ended 31 December 2017, the most signifi cant being Oasis Dental Care and Valdeluz S.A.

Date of

acquisitionPercentage of holdings

UK

Oasis Dental Care 27 February 2017 100.0%

Dental centres – various Various 100.0%


Valdeluz S.A. 6 March 2017 100.0%

Torrejón1 28 December 2017 3.2%

1. Increased shareholding from 60.0% to 63.2%.

21Non-controlling interests

Non-controlling interests in briefAdditional information is provided for entities which are consolidated where the Group does not hold a 100% interest.

22Business combinations and disposals

Business combinations and disposals in briefA business combination refers to the acquisition of a controllinginterest in a business, which is further defi ned as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing economic benefi ts to the owners. A disposal refers to the sale of a subsidiary.

Note

Note


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Oasis Dental Care Other

Fair value £m

Intangible assets 281.6 81.0

Property, plant and equipment 62.2 6.4

Inventories 5.2 0.6

Trade and other receivables 19.0 5.5

Cash and cash equivalents 13.4 3.9

Other interest bearing liabilities (272.2) (0.5)

Provisions for liabilities and charges (16.7) –

Deferred taxation liabilities (34.2) (20.1)

Trade and other payables (27.1) (7.1)

Current taxation liabilities (0.8) (1.2)

30.4 68.5

Net assets acquired 30.4 68.5

Goodwill 558.4 37.8

Acquisition of non-controlling interests in subsidiary company – 0.4

Consideration 588.8 106.7

Consideration satisfi ed by:

Cash 588.8 97.3

Deferred consideration – 9.4

Total consideration paid 588.8 106.7

Purchase consideration settled in cash 588.8 97.3

Cash acquired on acquisition (13.4) (3.9)

Net cash outfl ow on acquisition 575.4 93.4

Settlement of deferred consideration – –

Net cash outfl ow associated with acquisitions 575.4 93.4

On 9 February 2017, the Group completed the purchase of 100% of the issued share capital of Oasis Dental Care, for an enterprise value of £861.0m, including cash consideration of £588.8m and post-acquisition settlement of bank debt of £272.2m, following regulatory referral from the European Commission to the UK Competition and Markets Authority (CMA). The CMA revoked its enforcement order on 27 February 2017 and this has been determined as the IFRS accounting acquisition date. The acquisition plays a signifi cant part in Bupa’s strategy to off er customers high-quality dental services across the UK.

The purchase price allocation exercise for Oasis Dental Care has identifi ed intangible assets of £281.6m, representing customer relationships (£277.2m), brand (£2.3m) and software (£2.1m) with useful lives of between three and 20 years. Goodwill of £558.4m is not deductible for tax purposes and represents the future growth that is expected to be achieved through the development of Bupa’s dental insurance business and cross-selling opportunities between the two diff erent customer bases.

Revenue of £305.7m and profi t before taxation of £7.1m has been recognised for the period since the acquisition date.

Since acquisition, Oasis Dental Care has acquired 48 dental centres, for a total consideration of £77.2m, of which £9.4m was deferred, resulting in goodwill of £23.8m.

On 6 March 2017, the Group acquired fi ve Valdeluz Group care homes, for a total consideration of £24.1m (€27.9m). The purchase price allocation exercise has identifi ed intangible assets of £16.3m, representing rental contracts (£14.9m), client relationships (£1.0m) and public administration contracts (£0.4m) with a useful life of between four and eight years. Goodwill of £11.6m primarily represents expected synergies.

Revenue of £12.6m (€14.4m) and profi t before taxation of £0.1m (€0.1m) has been recognised for the period since the acquisition date.

If the transaction date of the businesses acquired during the year had been 1 January 2017, revenue of £12,306.8m and profi t before taxation of £624.1m would have been recorded by the Group for the period ended 31 December 2017.

During the period, other minor acquisitions generated £2.0m goodwill. Additional shares were purchased in Torrejón, resulting in the Group owning 63.2% (2016: 60.0%).

Acquisition transaction costs expensed in the period ended 31 December 2017, within other operating expenses, total £11.4m (of which £11.3m relates to Oasis Dental Care and subsequent dental acquisitions, £0.1m to Valdeluz).



b) 2016 acquisitionsRefer to the fi nancial statements for the year ended 31 December 2016 for details of the acquisitions made during 2016.

The most signifi cant acquisition in 2016 was Care Plus on 22 December 2016. Since acquisition, the purchase price allocation exercise has been fi nalised, resulting in the separate recognition of acquired intangible assets from goodwill. Intangible assets of £43.4m represent customer relationships (£29.1m), IT software (£6.9m), brand and trademarks (£5.8m) and a non-compete agreement (£1.6m). Goodwill of £30.4m represents the premium paid to acquire the established dental and health insurance businesses as well as small occupational health, travel insurance and clinics businesses and other intangibles that do not meet the recognition criteria of IAS 38.

Comparative balance sheet information for 2016 year end has been restated accordingly.

Care Plus

Provisional fair value

£mAdjustment

£mFair value

£m

Intangible assets 0.3 43.4 43.7

Property, plant and equipment 2.5 – 2.5

Financial investments 41.0 – 41.0

Trade and other receivables 3.0 – 3.0

Assets arising from insurance business 0.5 – 0.5

Restricted assets 0.3 – 0.3

Deferred taxation assets 0.8 (0.1) 0.7

Current taxation assets – 0.3 0.3

Cash and cash equivalents 1.0 – 1.0

Provisions under insurance contracts issued (17.3) 0.9 (16.4)

Provisions for liabilities and charges (0.6) – (0.6)

Trade and other payables (14.9) 0.2 (14.7)

16.6 44.7 61.3

Net assets acquired 16.6 44.7 61.3

Goodwill 74.4 (44.0) 30.4

Consideration 91.0 0.7 91.7

Consideration satisfi ed by:

Cash 91.0 – 91.0

Deferred consideration – 0.7 0.7

Total consideration paid 91.0 0.7 91.7

Purchase consideration settled in cash 91.0 – 91.0

Cash acquired on acquisition (1.0) – (1.0)

Net cash outfl ow on acquisition 90.0 – 90.0

c) 2017 disposalsOn 25 July 2017, Bupa Thailand was sold for cash proceeds of £55.5m, realising a net gain on disposal of £36.4m taking into account £19.0m net assets divested, £4.5m transaction costs and £4.4m cumulative foreign exchange gains recycled to the Consolidated Income Statement on disposal.

d) 2016 disposalsRefer to the fi nancial statements for the year ended 31 December 2016 for details of the disposals made during 2016, the most signifi cant being the sale of Bupa Home Healthcare on 1 July 2016 for £27.7m.


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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 suffi cient capital resources to meet any minimum capital requirement required by the local regulators. In addition, the Group and regulated entities maintain a buff 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 quarterly 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, of £7,258.0m together with eligible subordinated debt. The Group has £330.0m of callable subordinated perpetual guaranteed bonds, a £500.0m unguaranteed subordinated bond which matures on 25 April 2023 and a £400.0m unguaranteed subordinated bond which matures on 8 December 2026. These bond issues are accounted for as liabilities in the IFRS-based fi nancial statements, but are treated as 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 suffi 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 specifi ed 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 Specifi c Parameter (USP) which refl ects Bupa’s own loss experience.

At least annually, the Group carries out an Economic Capital Assessment (ECA) in which it makes its own quantifi cation of how much capital is required to support its risks. The ECA is used to assess how well the Standard Formula SCR refl ects the Group’s actual risk profi le.

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 2017, Bupa’s eligible Own Funds, determined in accordance with the Solvency II valuation rules, were £3.7bn1 (2016: £4.2bn), which was in excess of the Group estimated SCR of £2.1bn1 (2016: £2.1bn). This represented a solvency coverage ratio of 180%1 (2016: 204%).

1. The Solvency II Capital Position (Own Funds and Solvency Capital Requirement) and related disclosures are estimated values and unaudited.

23Capital management

Capital management in briefBupa 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 suffi cient capital toprotect the interests of its customers, investors, regulators andtrading partners while deploying capital effi ciently and managingrisk to enable Bupa to continue to deliver its purpose in a sustainable manner. All profi ts are therefore reinvested to develop the Group’s business for the benefi t of current and future customers.

Note



Bupa operates a ‘three lines of defence’ approach to the governance of risk management.

1. Business management and employees are responsible for the identifi cation and assessment of risks and controls.

2. Risk, compliance and clinical governance 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 eff ectiveness of internal controls.

The operations of the risk management framework and current principal risks of the Group and how they are mitigated are described on pages 25-30.

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 recommends changes to the management of insurance and investment risks.

The Group has exposure to a number of risks associated with its insurance business and from its use of fi nancial instruments. 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:

– Insurance risk

– Market risk

– Credit risk

– Liquidity risk

24.1 Insurance riskInsurance risk in briefInsurance risk only aff ects the insurance entities in the Group. It consists of underwriting and pricing risks which relate to inadequate tariff s of insurance products as well as reserving risk which relates to the potential inadequacy of claims provisions.

(i) Underwriting riskUnderwriting 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) and the management of claims (claims risk) for insurance policies underwritten by the Group.

(ii) Pricing riskPricing risk relates to the setting of adequate premium rates taking into consideration the volume and characteristics of the insurance policies issued. External infl uences on pricing risk include (but are not limited to) competitors’ pricing and product design initiatives, and regulatory environments. The level of infl uence from these external factors can vary signifi cantly between regions and largely depend on the maturity of health insurance markets and the role of the regulator. 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 are eff ective risk mitigations.

In every general insurer in the Group, the dominant product or policy category is an annually renewable health insurance contract. This permits insurance premium rate revisions to respond quickly to changes in customer risk profi les, claims experience and market considerations.

The ability to review premium rates is a signifi cant mitigant to pricing risk. The Group does not underwrite material general insurance business that commits it to cover risks at premiums fi xed beyond a 12-month period from inception or renewal.

(iii) Claims riskClaims risk is the risk of claims exceeding the amounts assumed in the premium rates. This can be driven by an adverse fl uctuation in the amount and incidence of claims incurred and external factors such as medical infl ation.

Claims risk is managed and controlled by means of pre-authorisation of claims, outpatient benefi t limits, the use of consultant networks and agreed networks of hospitals and charges. Specifi c claims management processes vary across the Group depending on local requirements, market environment and practice.

Adverse claims experience, for example, which is caused by external factors such as medical infl ation, will aff ect cash fl ows after the date of the fi nancial statements. Recent adverse claims experience is refl ected in these fi nancial statements in claims paid and in the movement in the claims provisions.

Generally, the Group’s health insurance contracts provide for the reimbursement of incurred medical expenses, typically in-hospital for treatment related to acute, rather than chronic, medical conditions. The contracts do not provide for capital sums or indemnifi ed amounts. Therefore claims experience is underpinned by prevailing rates of illness events giving rise to hospitalisations. Claims risk is generally mitigated by insurers having processes to ensure that both the treatments and the resulting reimbursements are appropriate.

24Risk management

Risk management in briefThe Bupa Risk Committee has responsibility to the Board for the oversight of risk. It recommends to the Board a risk appetite that refl ects Bupa’s purpose and expresses the degree of risk Bupa should accept in delivering on its strategy.

Note


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(iv) Reserving riskReserving risk is the risk that provisions made for claims prove to be insuffi cient in light of later events and claims experience. There is a relatively low exposure to reserving risk compared with 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 signifi cant. 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. The small provisions that relate to longer than one year can be calculated with reasonable confi dence.

(v) Other risks related to underwriting health insurance businessClaims 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 outfl ows of health insurance premium liabilities are largely unaff ected by changes in interest rates. However, changes to infl ationary factors such as wage infl ation and medical cost infl ation aff ect the value of future claims outfl ows.

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 signifi cant concentration of insurance risk for the following reasons:

– broad geographical diversity across several markets – across the UK, Spain, Australia, Latin America, the Middle East and Hong Kong

– product diversity between domestic and expatriate, and individual and corporate health insurance

– a variety of claims type exposures across diverse medical providers: consultants, clinics, individual hospitals and hospital groups.

The Group as a whole, and its principal general insurance entities, are well diversifi ed in respect of insurance risk. Only in selected circumstances does the Group use reinsurance. The reinsurance used does not give rise to a material counterparty default credit risk exposure for the Group. Restrictions are in place on the credit quality and amount of reinsurance ceded to individual counterparties.

(vi) Catastrophe riskA 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 for such claims. Risks are further reduced by excess of loss cover by Bupa and external providers. Bupa’s Centre Actuarial function oversees and implements strategic improvements to ensure overall adequacy of these arrangements.

24.2 Market riskMarket risk in briefMarket risk is the risk of adverse fi nancial impact due to changes in fair values or future cash fl ows of fi nancial instruments from fl uctuations in interest rates, foreign exchange rates, commodity prices, credit spreads and equity prices. The focus of the Group’s long-term fi nancial strategy is to facilitate growth without undue balance sheet risk.

In order to reduce the risk of assets being insuffi cient to meet future policyholder obligations, the Group actively manages assets using an approach that balances duration, quality, diversifi cation, liquidity and investment return.

Where the Group has 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 £404.0m at 31 December 2017 (2016: £390.4m). The one-year VaR measured at a 95% confi dence level attributable to the portfolio is £50.8m at 31 December 2017 (2016: £45.3m).

24.2.1 Foreign exchange riskThe 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 fl ows and realised profi ts may be impacted by movements in foreign exchange rates. The latter arises from translating the fi nancial statements of a foreign operation into the Group’s functional currency.

The results and fi nancial 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

– income and expenses at average rates for the period.

All foreign exchange diff erences arising on translation are recognised initially in the Consolidated Statement of Comprehensive Income, and only in the Consolidated Income Statement in the period in which the entity is eventually disposed.

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 fi nancial assets or liabilities, when it is presented in fi nancial income or fi nancial expense as appropriate.



Non-monetary assets and liabilities denominated in a foreign currency at historical cost are translated using the exchange rate at the date of the transaction; therefore no exchange diff erences arise.

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 diff erences that arise on retranslation are recognised in operating expenses.

Transactional exposures arise primarily in International Markets businesses as a result of diff erences between the currency of local revenues and claims. The currency exposures are deemed to be acceptable but are kept under review by management.

The following signifi cant exchange rates applied during the year:

Average rate Closing rate

2017 2016 2017 2016

Australian dollar 1.6807 1.8234 1.7312 1.7106

Brazilian real 4.1148 4.7365 4.4794 4.0165

Chilean peso 835.9026 916.9790 832.2579 826.5939

Danish krone 8.4902 9.1092 8.3740 8.7032

Euro 1.1414 1.2234 1.1249 1.1703

Hong Kong dollar 10.0432 10.5167 10.5655 9.5722

New Zealand dollar 1.8135 1.9473 1.9062 1.7786

Polish zloty 4.8591 5.3394 4.6972 5.1584

Thai baht 43.6927 47.8002 44.0535 44.2258

US dollar 1.2887 1.3547 1.3524 1.2345

Foreign exchange hedging activitiesThe Group manages its exposure to foreign exchange risk by entering into hedging transactions using derivative fi nancial instruments. The Group applies fair value, cash fl ow 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 hedgesWhere a derivative fi nancial instrument hedges the change in fair value of a recognised asset or liability or an unrecognised fi rm commitment, any gain or loss on remeasurement of the hedging instrument at fair value is recognised in the Consolidated Income Statement. The hedged item is fair valued for the hedged risk with any adjustment being recognised in the Consolidated Income Statement.

(b) Cash fl ow hedgesWhere a derivative fi nancial instrument hedges the change in cash fl ows related to a recognised asset or liability, a fi rm commitment or a highly probable forecast transaction, it is accounted for as a cash fl ow hedge.

The eff ectiveness of a cash fl ow hedge is the degree to which the cash fl ows attributable to a hedged risk are off set by changes in the cash fl ows of the hedging instrument. The eff 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 fi nancial asset or liability which impacts the Consolidated Income Statement. The ineff ective portion of the gain or loss is recognised in the Consolidated Income Statement.

If the hedged cash fl ow is no longer expected to take place, all deferred gains and losses are released to the Consolidated 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 2017, foreign currency forward contracts of USD244.0m (£189.3m) were entered to hedge the cash outfl ows in relation to the acquisition of an additional 8% of Bupa Arabia shares.

In 2016, a foreign currency forward contract of BRL452.0m (£102.8m) was entered to hedge the cash outfl ows in relation to the acquisition of Care Plus, acquired in December 2016.

At 31 December 2017, the cash fl ow hedge reserve amounts to £22.2m (2016: £14.7m).

Net investment hedgingThe 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 fl uctuations 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 fl oor to specify a range in which a foreign currency rate will fl uctuate. The instrument insulates the buyer against the risk of a signifi cant weakening of a foreign currency rate, but limits the benefi t of a strengthening of that foreign currency rate. Collar options are only exercised, at specifi ed 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 eff ective hedge, is recognised in the Consolidated Statement of 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.

The Group hedges signifi cant exposures in order to manage translation risk and reduce the Solvency II foreign currency risk charge.

The total carrying amount of the net investment hedging instruments at 31 December 2017 was a net asset of £2.5m (2016: net liability of £4.9m).


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Eff ect of foreign exchange hedging transactionsThe impact of net investment currency hedging activity is set out below. The ineff ective portion of all hedges recognised in the Consolidated Income Statement was £nil (2016: £nil).

Losses included in other comprehensive income are:

Currency contracts

2017£m

2016£m

Australian dollar 5.6 (12.2)

Danish krone – (27.5)

Euro (16.2) (47.0)

New Zealand dollar 3.2 –

Other 0.8 –

Total (6.6) (86.7)

In the consolidated fi nancial statements, where a loan between Group entities results in an exchange gain or loss, then it is recognised in the Consolidated 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, New Zealand dollar, Polish zloty, Chilean peso, Hong Kong dollar, US dollar, Brazilian real, Danish krone and Singapore dollar.

Currency exposures as at 31 December are as follows:

Net currency exposure

£m

Currency contracts

£m

Net currency exposure including

hedges£m

2017

Australian dollar 2,807.4 (498.0) 2,309.4

Euro 796.6 (632.2) 164.4

New Zealand dollar 499.8 (45.6) 454.2

Polish zloty 488.9 (7.0) 481.9

Chilean peso 452.5 – 452.5

Hong Kong dollar 322.5 25.7 348.2

US dollar 196.7 (177.8) 18.9

Brazilian real 100.8 3.6 104.4

Danish krone 45.5 (5.9) 39.6

Singapore dollar 31.1 27.9 59.0

Other 5.2 2.5 7.7

Total foreign denominated net assets 5,747.0 (1,306.8) 4,440.2

Percentage of Group net assets 78.9% 60.9%

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%

The impact of a hypothetical strengthening/weakening of sterling against the currencies below, with all other variables constant, would have increased/(decreased) equity and profi t by the amounts shown below. This table considers both translation and transaction risk.

Strengthening 10% Weakening 10%

(Losses)/gains

included in Consolidated

Income Statement

£m

Losses included in

Equity£m

Gains/(losses)

included in Consolidated

Income Statement

£m

Gains included in

Equity£m

2017

Australian dollar (26.1) (209.9) 31.9 256.6

Euro (13.6) (14.9) 16.6 18.3

New Zealand dollar (1.6) (41.3) 1.9 50.5

Polish zloty (0.3) (43.8) 0.4 53.5

Chilean peso 0.9 (41.1) (1.2) 50.3

Hong Kong dollar (1.1) (31.7) 1.4 38.7

US dollar (1.6) (1.7) 2.0 2.1

Brazilian real (1.3) (9.5) 1.6 11.6

Danish krone (1.5) (3.6) 1.8 4.4

Singapore dollar 0.1 (5.4) (0.1) 6.6

Other 0.6 (10.0) (0.7) 12.2

Total sensitivity (45.5) (412.9) 55.6 504.8

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) (44.7) 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



24.2.2 Interest rate riskInterest rate risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates.

The Group is exposed to interest rate risk arising from fl uctuations in market rates. This aff ects the return on variable rate assets, the cost of variable rate liabilities and the balance sheet value of its investment in fi xed rate bonds. Variable rate assets represent a natural hedge for variable rate liabilities.

The net balance on which the Group is exposed as at 31 December 2017 was £2,112.9m (2016: £1,860.7m). The rate at which maturing deposits are reinvested represents a signifi cant potential risk to the Group, in currencies such as sterling and Australian dollar where the Group has a signifi cant variable rate net asset exposure.

The Group has also used interest rate swaps to manage interest rate exposure whereby the requirement to settle interest at fi xed rates has been swapped for variable rates. This increases the ability to match variable rate assets with variable rate liabilities.

The anticipated repayment profi le of interest bearing fi nancial liabilities is as follows:

Variable

£mFixed

£mTotal

£m

2017

2018 (339.1) (16.7) (355.8)

2019 (5.1) (2.6) (7.7)

2020 (371.2) (2.2) (373.4)

2021 (7.4) (349.6) (357.0)

2022 (44.9) 0.2 (44.7)

2023-2027 (330.4) (927.2) (1,257.6)

After 2027 (43.3) (33.8) (77.1)

Total (1,141.4) (1,331.9) (2,473.3)

2016 (restated)1

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) (348.2) (354.9)

2021-2026 (54.3) (923.3) (977.6)

After 2026 (28.9) (39.6) (68.5)

Total (532.7) (1,388.9) (1,921.6)

1. Repayment profi le corrected for 2016.

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 profi t by £3.0m (2016: £2.4m). The impact of a fall of 100 bps in interest rates, on an annualised basis, would have the inverse eff ect. This calculation is based on the assumption that all other variables, in particular foreign exchange rates, remain constant.

Interest rate hedging activitiesThe Group applies fair value hedges and cash fl ow hedges to hedge its exposure to interest rate risk.

(i) Fair value hedgesInterest rate swaps totalling £330.0m have been entered into, to swap the fi xed rate coupon on the £330.0m callable subordinated perpetual guaranteed bond to a variable rate. In March 2017, additional interest rate swaps totalling £300.0m were entered into, to swap the fi xed rate coupon on the £300.0m senior unsecured bonds to a variable rate. These interest rate swaps are designated as fair value hedges of the underlying interest rate risk on the debt. In the year ended 31 December 2017, the fair value movement in the bond attributable to the hedged risk amounted to £17.2m gain (2016: £0.4m gain). The fair value movement on the interest rate swaps amount to £17.2m loss (2016: £0.4m loss).

(ii) Cash fl ow hedgesDuring 2009, interest rate swaps were designated to hedge the variability of cash fl ows associated with £25.2m (€28.4m) (2016: £26.7m (€31.3m)) of variable rate debt in Especializada y Primaria L’Horta Manises, which matures on 30 December 2018. The swaps currently cover 70.0% of the variable rate loan principal balance outstanding at the balance sheet date. At 31 December 2017, the fair value of the interest rate swap liability was £0.9m (€1.0m) (2016: £1.8m (€2.1m)). During 2017, a gain of £0.9m (€1.0m) (2016: £0.5m (€0.8m)) was recognised through other comprehensive income.

Within the Bupa Chile business, cross-currency swaps have been designated to hedge the variability of cash fl ows associated with £17.2m (CLP14.3bn) (2016: £31.8m (CLP26.3bn)) of variable rate debt maturing June 2018. The interest payments have been swapped from variable rate CLP to fi xed rate UF (Unidad de Fomento – an infl ation-linked currency commonly used in Chile). At 31 December 2017, the fair value of the interest rate swap liability was £4.5m (CLP3.8bn) (2016: £8.6m (CLP7.1bn)). During 2017, a gain of £4.2m (CLP3.5bn) (2016: gain of £1.0m (gain CLP1.3bn)) was recognised through other comprehensive income.


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24.3 Credit riskCredit risk in briefCredit risk is the risk that those that are in debt to the Group default on their obligation. Examples of credit risk would be non-payment of a trade receivable or a corporate bond failing to repay the capital sum and related interest.

Investment exposure with external counterparties is managed by ensuring that there is a suffi cient spread of investments and that all cash and investment counterparties are rated at least A by two of the three key rating agencies used by the Group (unless specifi cally approved by the Corporate Finance Executive Committee, for example as a result of local regulatory requirements).

The investment profi le (including fi nancial investments, restricted assets and cash and cash equivalents) at 31 December is as follows:

2017

£m2016

£m

Investment grade counterparties 3,517.9 3,336.9

Non-investment grade counterparties 306.4 308.4

Total 3,824.3 3,645.3

Investment grade counterparties include restricted assets of £76.3m (2016: £60.0m). Non-investment grade counterparties are those rated below BBB-/Baa3, and mainly comprise corporate bonds, government bonds and pooled investment funds of £271.7m (2016: £224.3m), and cash and cash equivalents of £34.7m (2016: £84.1m).

Information regarding the ageing and impairment of fi nancial 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

£mImpairment

£m

Total carrying

value in the Consolidated Statement of

Financial Position

£m

2017

Debt securities and other loans 1,056.1 – – – – – 1,056.1

Pooled investment funds 276.8 – – – – – 276.8

Deposits with credit institutions 894.1 – – – – – 894.1

Reinsurers’ share of insurance provisions 18.2 – – – – – 18.2

Insurance debtors1 962.2 82.9 19.9 17.2 27.6 (14.9) 1,094.9

Investment receivables and accrued investment income 7.0 – – – – – 7.0

Trade and other receivables2 361.7 117.4 19.0 42.4 125.2 (26.6) 639.1

Total fi nancial and insurance assets 3,576.1 200.3 38.9 59.6 152.8 (41.5) 3,986.2

2016

Debt securities and other loans 847.1 – – – – – 847.1

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 debtors1 870.8 140.0 14.1 34.5 – (17.5) 1,041.9

Investment receivables and accrued investment income 0.3 – – – 5.5 – 5.8

Trade and other receivables2 279.9 68.1 11.3 63.1 96.4 (20.4) 498.2

Total fi nancial and insurance assets 3,342.7 208.1 25.4 97.6 101.9 (37.9) 3,737.8

1. Comprises insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries detailed in Note 12.

2. Comprises trade receivables, other receivables and service concession receivables detailed in Note 14.

The carrying amount of fi nancial and insurance assets of £3,986.2m (2016: £3,737.8m) and cash and cash equivalents and restricted assets of £1,597.4m (2016: £1,472.7m) included on the Consolidated Statement of Financial Position represents the maximum credit exposure.

The movement in the allowance for impairment in respect of fi nancial and insurance assets during the year was as follows:

2017

£m2016

£m

At beginning of year 37.9 33.5

Impairment loss recognised 10.0 5.9

Additions through business combinations 0.2 1.4

Disposals through business combinations – (0.9)

Bad debt provision released in year (6.7) (7.5)

Foreign exchange 0.1 5.5


The Group believes no impairment allowance is necessary in respect of fi nancial assets not past due.

The Group considers notifi ed disputes, signifi cant changes in the counterparty’s fi nancial 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 £76.3m (2016: £60.0m) of cash held in restricted access deposits.



Off setting fi nancial assets and fi nancial liabilitiesThe following fi nancial assets and liabilities are subject to off setting, enforceable master netting arrangements and similar agreements:

Gross amounts of recognised

fi nancial assets/

liabilities£m


fi nancial liabilities set

off in the Consolidated Statement of

Financial Position

£m

Net amounts of fi nancial

assets/liabilities

presented in the

Consolidated Statement of

Financial Position

£m

Related amounts not set off in the Consolidated

Statement of Financial Position

Net amount£m

Financial instruments

£m

Cash collateral received

£m

As at 31 December 2017

Derivative fi nancial assets 47.4 – 47.4 9.6 3.3 34.5

Derivative fi nancial liabilities (19.2) – (19.2) (9.6) (3.9) (5.7)

Cash and cash equivalents 1,690.3 (169.2) 1,521.1 – – 1,521.1

Trade and other receivables 737.4 – 737.4 – 3.9 733.5

Trade and other payables (1,930.0) – (1,930.0) – (3.3) (1,926.7)

Total 525.9 (169.2) 356.7 – – 356.7


fi nancial assets/

liabilities£m


fi nancial liabilities set

off in the Consolidated Statement of

Financial Position

£m

Net amounts of fi nancial

assets/liabilities

presented in the

Consolidated Statement of

Financial Position

£m

Related amounts not set off in the Consolidated Statement

of Financial Position

Net amount£m

Financial instruments

£m

Cash collateral received

£m

As at 31 December 2016

Derivative fi nancial assets 60.3 – 60.3 2.5 – 57.8

Derivative fi nancial liabilities (22.0) – (22.0) (2.5) – (19.5)

Cash and cash equivalents 1,581.7 (169.0) 1,412.7 – – 1,412.7

Trade and other receivables 614.1 – 614.1 – – 614.1

Trade and other payables (1,697.4) – (1,697.4) – – (1,697.4)

Total 536.7 (169.0) 367.7 – – 367.7

The Group also mitigates credit risk in derivative contracts by entering into collateral agreements where appropriate. The amount of collateral received or posted is shown in the table above.

For the fi nancial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement between the Group and the counterparty allows for net settlement of the relevant fi nancial assets and liabilities where both elect to settle on net basis. In the absence of such an election, fi nancial assets and liabilities will be settled on a gross basis; however, each party to the master netting agreement or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party.


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24.4 Liquidity riskLiquidity risk in briefLiquidity risk is the risk that the Group will not have available funds to meet its liabilities when they fall due.

The Group’s main source of short-term funding is via an £800.0m revolving credit facility which was drawn down by £226.0m (2016: undrawn) at 31 December 2017, including £6.4m of outstanding letters of credit for general business purposes. This facility matures in 2022.

The Group monitors funding risk as well as compliance with existing fi nancial covenants within the banking arrangements. There were no concerns regarding bank covenant coverage in 2017 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 Bupa Risk Committee as well as adhering to liquidity parameters for the Group’s regulated entities. Regular stress testing is conducted to assess liquidity risk.

The contractual maturities of fi nancial 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

payables1

£m

Derivative liabilities

£mTotal

£m

2017

2018 (65.2) (365.6) (2,605.8) (116.5) (1,771.3) (15.0) (4,939.4)

2019 (65.2) (30.7) (30.8) – (12.0) – (138.7)

2020 (395.2) (28.1) – – (5.2) – (428.5)

2021 (45.0) (371.5) – – (1.2) – (417.7)

2022 (92.3) (17.7) – – (1.2) – (111.2)

2023-2027 (992.5) (365.8) – – (2.4) (4.2) (1,364.9)

After 2027 – (80.9) – – (0.7) – (81.6)

Total (1,655.4) (1,260.3) (2,636.6) (116.5) (1,794.0) (19.2) (7,482.0)

Carrying value in the Consolidated Statement of Financial Position (1,303.2) (1,170.1) (2,636.6) (116.5) (1,794.0) (19.2) (7,039.6)

2016

2017 (65.2) (45.2) (2,594.8) (143.0) (1,569.9) (11.6) (4,429.7)

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 Consolidated Statement of Financial Position (1,316.7) (604.9) (2,628.7) (143.0) (1,593.0) (22.0) (6,308.3)

1. Comprises trade payables, other payables, accommodation bond liabilities and accruals detailed in Note 20.

The total liability is split by remaining duration in proportion to the cash fl ows expected to arise during that period. Interest payments are included in the cash fl ows for subordinated liabilities and other interest-bearing liabilities.



Maturity profi le of fi nancial assetsThe maturity profi le of fi nancial 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, other loans

and unlisted equities

£m

Pooled investment

funds£m

Total£m

2017

2018 1,521.1 751.1 116.2 226.5 40.0 2,654.9

2019 – 110.9 46.2 179.9 58.5 395.5

2020 – 28.9 23.3 150.8 2.1 205.1

2021 – – 0.8 75.8 1.5 78.1

2022 – – 1.0 122.3 3.0 126.3

2023-2027 – 3.2 29.3 11.3 134.8 178.6

After 2027 – – 29.5 43.2 36.9 109.6

Total 1,521.1 894.1 246.3 809.8 276.8 3,748.1

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


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All transactions with related parties are conducted on an arm’s-length basis.

Where the Company enters into fi nancial 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 defi ned by IAS 24 Related Party Disclosures, other than those disclosed in this note.

(i) Transactions with key management personnelThe key management personnel are the Group’s Executive and Non-Executive Directors and the Chief Executive Offi cers of the Group’s Market Units. No Director had any material interest in any contracts with Group companies at 31 December 2017 (2016: £nil) or at any time during the year. The remuneration of the Group’s Executive and Non-Executive Directors is disclosed on pages 58-62.

The total remuneration of the Market Unit Chief Executive Offi cers is as follows:

2017

£m2016

£m

Short-term employee benefi ts 3.6 4.1

Long Term Incentive Plan awards 1.0 2.0

Post-employment benefi ts 0.2 0.8

Total 4.8 6.9

The total remuneration of key management personnel is included in staff costs (see Note 2.3).

(ii) Transactions in relation to the non-registered pension arrangementsThe 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 7), maturing after 2022. These unfunded benefi ts 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 £43.1m (2016: £55.8m) of cash deposits (see Note 8). The decrease in the charge of £12.7m during the year mainly refl ects the crystallisation of benefi ts of £9.9m, with the remainder mainly due to changes in market conditions and underlying actuarial assumptions.

25Related party transactions

Related party transactions in briefThese are transactions between the Group and related individuals or entities by nature of infl uence or control. The Group has suchrelationships with its key management personnel, equity accountedinvestments and associated pension arrangements. The disclosure of transactions with these parties in this Note enables readers to form a view about the impact of related party relationships on the Group.

Note



(i) Operating leasesThe total value of future non-cancellable operating lease rentals is payable as follows:

2017

£m

2016 (restated)1

£m

Less than one year 173.0 145.1

Between one and fi ve years 487.4 399.8

More than fi ve years 545.8 528.2

Total operating leases 1,206.2 1,073.1

1. Following a review of operating lease commitments, a correction has been made to the prior year numbers of £80.7m.

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 (2016: £0.7m) are expected to be received during the next fi nancial year. The Group has an unoccupied property provision of £1.7m (2016: £1.8m) in respect of these leases (see Note 19). The Group leases out some of its investment properties as a lessor (see Note 5 for details).

(ii) Capital commitmentsCapital expenditure for the Group contracted at 31 December 2017 but for which no provision has been made in the fi nancial statements, amounted to £208.1m (2016: £128.7m), related to aged care facility and retirement village project commitments in the Australia and New Zealand Market Unit and a commercial building in the UK Market Unit. £100.2m (2016: £109.7m) related to property, plant and equipment, £103.5m (2016: £19.0m) related to investment property and £4.4m (2016: £nil) related to intangible capital expenditure.

(iii) Contingent assets and contingent liabilitiesThe Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, disputes, regulatory compliance (including data protection) and interpretation of tax law. The Australian businesses currently have contingent liabilities arising in the ordinary course of business due to unresolved issues associated with the application of Australian tax law in relation to cross border transactions and operations. While the issues are ongoing and the future outcomes remain uncertain, the Group considers the positions it has adopted are in accordance with the tax law and intends to defend its position with respect to these matters. It is not considered that the ultimate outcome of any contingent liabilities will have a signifi cant adverse impact on the fi nancial condition of the Group.

26Commitments and contingencies

Commitments and contingencies in briefA commitment is future expenditure that is committed to as at31 December 2017. 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


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Financial Statements of the Company

Statement of Financial Positionas at 31 December 2017

Note2017

£m2016

£m

Intangible assets A 43.6 27.8

Property, plant and equipment B 18.7 21.1

Investment in subsidiary companies C 200.1 200.1

Investment property D 0.1 0.1

Post-employment benefi t assets E 572.6 474.0

Trade and other receivables F 136.7 93.5

Current taxation assets 0.2 0.2

Cash and cash equivalents 16.2 3.7

Total assets 988.2 820.5

Post-employment benefi t net liabilities E (55.6) (64.6)

Provisions for liabilities and charges G (17.0) (13.8)

Deferred taxation liabilities H (78.8) (59.0)

Trade and other payables I (175.0) (98.4)

Total liabilities (326.4) (235.8)


Equity

Income and expenditure reserve 661.4 584.3

Foreign exchange translation reserve 0.4 0.4

Total equity 661.8 584.7

Approved by the Board of Directors and signed on its behalf on 7 March 2018 by

Lord Leitch Joy LintonChairman Chief Financial Offi cer

Notes A-L form the associated notes to the Company fi nancial statements.

The Company accounting policies are aligned with those of the Group, described in Notes 1-26.

Financial Statements of the Company continued


Income Statement and Statement of Comprehensive Incomefor the year ended 31 December 2017The profi t for the fi nancial year recorded within the accounts of the Company, The British United Provident Association Limited (Bupa), is £3.9m (2016: £58.1m). 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 1,613 (2016: 1,689).

Statement of Cash Flowsfor the year ended 31 December 2017

Note2017

£m2016

£m

Operating activities

(Loss)/profi t before taxation expense (16.7) 40.1

Adjustments for:

Net fi nancial expense 0.2 0.4

Depreciation, amortisation and impairment 13.1 16.8

Other non-cash items – 1.1

Changes in working capital and provisions:

Changes in net pension asset/liability E (19.5) (56.0)

Increase in provisions for liabilities and charges 4.8 1.8

(Increase)/decrease in trade and other receivables F (43.4) 1.9

Increase in trade and other payables 100.7 19.8

Cash generated from operations 39.2 25.9

Cash fl ows from investing activities

Purchase of intangible assets A (29.0) (21.6)

Proceeds from sale of intangible assets A 5.9 –

Purchase of property, plant and equipment B (4.5) (8.7)

Proceeds from sale of property, plant and equipment B 1.1 –

Net cash used in investing activities (26.5) (30.3)

Cash fl ow from fi nancing activities

Interest paid (0.2) (0.4)

Net cash used in fi nancing activities (0.2) (0.4)

Net increase/(decrease) in cash and cash equivalents 12.5 (4.8)

Cash and cash equivalents at beginning of year 3.7 8.5

Cash and cash equivalents at end of year 16.2 3.7




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Statement of Changes in Equityfor the year ended 31 December 2017

Note

Income and expenditure

reserve£m

Foreign exchange

translation reserve

£m

Total equity

£m

2017

At beginning of year 584.3 0.4 584.7

Profi t for the fi nancial year 3.9 – 3.9

Other comprehensive (expense)/income:

Remeasurement gain on pension scheme E 88.1 – 88.1

Taxation charge on income and expenses recognised directly in other comprehensive income H (14.9) – (14.9)

Other comprehensive income for the year, net of taxation 73.2 – 73.2

Total comprehensive income for the year 77.1 – 77.1

At end of year 661.4 0.4 661.8

2016

At beginning of year 528.1 0.4 528.5

Profi t for the fi nancial year 58.1 – 58.1

Other comprehensive (expense)/income:

Remeasurement loss on pension scheme E (3.7) – (3.7)

Taxation charge on income and expenses recognised directly in other comprehensive income H 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





Intangible assets – Computer software

2017

£m2016

£m

Cost


Additions 29.0 21.6





Amortisation for year 7.3 9.2

Impairment loss – 1.8



Net book value at end of year 43.6 27.8

Net book value at beginning of year 27.8 29.8

AIntangible assets

Intangible assets in briefIntangible assets are the non-physical assets held by the Companyand consist of computer software only.

Note


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Property, plant and equipment2017 2016

Leasehold property

£mEquipment

£mTotal

£m

Leasehold property

£mEquipment

£mTotal

£m

Cost or valuation

At beginning of year 19.0 51.3 70.3 19.0 54.1 73.1

Additions – 4.5 4.5 – 8.7 8.7

Disposals – (0.8) (0.8) – (11.5) (11.5)

Other – (1.1) (1.1) – – –

At the end of the year 19.0 53.9 72.9 19.0 51.3 70.3

Depreciation and impairment loss

At beginning of year 13.4 35.8 49.2 12.1 35.9 48.0

Depreciation charge for year 1.0 4.8 5.8 1.3 4.5 5.8

Disposals – (0.8) (0.8) – (4.6) (4.6)

At the end of the year 14.4 39.8 54.2 13.4 35.8 49.2

Net book value at end of year 4.6 14.1 18.7 5.6 15.5 21.1

Net book value at beginning of year 5.6 15.5 21.1 6.9 18.1 25.0

The Company had no fi nance leased properties in the current or prior year.

Carrying value of investment in subsidiariesInvestments 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 2017, the Company held investments in subsidiaries of £200.1m (2016: £200.1m).

In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associated undertakings and signifi cant holdings in undertakings other than subsidiary undertakings, the registered addresses and the eff ective percentage of equity owned, as at 31 December 2017, is disclosed after the Company fi nancial statements.

BProperty, plant and equipment

Property, plant and equipment in briefProperty, plant and equipment are the physical assets utilised by the Company to carry out business activities and generate revenuesand profi ts. The majority of the assets held relate to offi ce buildings, IT and other offi ce equipment.

CInvestment in subsidiaries

Investment in subsidiaries in briefA list of all investments in subsidiaries held by the Company is disclosed after the Company fi nancial statements.

Note

Note



There is currently one offi ce building recognised as an investment property at £0.1m (2016: £0.1m).

The defi ned benefi t scheme is The Bupa Pension Scheme which was closed to new entrants from 1 October 2002. The principal defi ned 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 benefi t scheme described in Note 7. The actuarial assumptions underlying the valuation of obligations are detailed in Note 7.2.

(i) Assets and liabilities of schemesThe assets and liabilities in respect of the defi ned benefi t funded pension scheme, unfunded pension scheme and post-retirement medical benefi t scheme are as follows:

Note

Pension scheme

Post-retirement benefi t scheme

Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

Present value of funded obligations (ii) (1,599.0) (1,662.6) – – (1,599.0) (1,662.6)

Fair value of scheme assets (iii) 2,170.8 2,136.6 – – 2,170.8 2,136.6

Net assets of funded schemes 571.8 474.0 – – 571.8 474.0

Present value of unfunded obligations (ii) (44.7) (54.0) (10.1) (10.6) (54.8) (64.6)

Net recognised assets/(liabilities) 527.1 420.0 (10.1) (10.6) 517.0 409.4

Represented on the Statement of Financial Position as:


Net liabilities (55.6) (64.6)

Net recognised assets 517.0 409.4

(ii) Present value of the schemes’ obligationsThe movement in the present value of schemes’ obligations are:

Pension scheme


Total

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

At beginning of year 1,716.6 1,305.0 10.6 8.5 1,727.2 1,313.5

Current service cost 10.5 7.6 – – 10.5 7.6

Past service costs – 0.7 – – – 0.7

Interest on obligations 45.3 50.7 0.3 0.3 45.6 51.0

Contributions by employees – 0.1 – – – 0.1

Losses arising from changes to fi nancial assumptions 36.8 418.4 0.1 1.4 36.9 419.8

(Gains)/losses arising from changes to experience assumptions (27.7) (24.4) (0.1) 1.1 (27.8) (23.3)

Gains arising from changes to demographic assumptions (58.6) – (0.2) – (58.8) –

Benefi ts paid (79.2) (52.9) (0.6) (0.7) (79.8) (53.6)

Group transfer – 11.4 – – – 11.4

At end of year 1,643.7 1,716.6 10.1 10.6 1,653.8 1,727.2

DInvestment properties

Investment properties in briefInvestment properties are physical assets that are not occupied by the Company and are leased to third parties to generate rental income.

EPost-employment benefi ts

Post-employment benefi ts in briefThe Company operates a defi ned benefi t and a defi ned contribution pension scheme for the benefi t of employees and Directors, in addition to an unfunded and post-retirement medical benefi t scheme.

Note

Note


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(iii) Fair value of funded scheme’s assets:The movement in the fair value of the funded scheme’s assets are:

2017

£m2016

£m

At beginning of year 2,136.6 1,670.6

Interest income 56.9 65.4

Return on assets excluding interest income 38.4 392.8

Contributions by employer 7.3 48.4

Contributions by employees – 0.1

Administrative expenses (1.6) (1.7)

Benefi ts paid (66.8) (50.3)

Group transfer – 11.3

At end of year 2,170.8 2,136.6

The market value of the assets of the funded scheme is as follows:2017

£m2016

£m

Debt instruments 521.8 494.2

Government bonds 832.2 801.6

Corporate bonds 761.0 753.7

Cash/Other assets 26.2 53.5

Diversifi ed growth funds 8.6 8.8

Equities 21.0 24.8

Total market value of the assets of the funded scheme 2,170.8 2,136.6

All assets have a quoted market price.

(iv) Amounts recognised in the Income StatementThe amounts charged/(credited) to other operating expenses for the year are:

2017

£m2016

£m

Current service cost 10.4 7.6

Past service costs – 0.7

Net interest on defi ned benefi t liability/asset (11.3) (14.4)

Administrative expenses 1.6 1.6

Total amount charged/(credited) to the Income Statement 0.7 (4.5)

(v) Amounts recognised directly in other comprehensive incomeThe amounts (credited)/charged directly to equity are:

2017

£m2016

£m

Actual return less return on assets included within the Income Statement (38.4) (392.8)

Loss arising from changes to fi nancial assumptions 36.9 419.8

Gain arising from changes to experience assumptions (27.8) (23.3)

Gain arising from changes to demographic assumptions (58.8) –

Total remeasurement (gains credited)/losses charged directly to equity (88.1) 3.7

The cumulative amount of actuarial gains recognised directly in equity is £87.5m as at 31 December 2017 (2016: £0.6m loss).



2017

£m2016

£m

Amounts owed by subsidiary companies 101.9 78.1

Other receivables 21.1 2.9

Prepayments 13.7 12.5

Total trade and other receivables 136.7 93.5

Non-current 1.7 0.3

Current 135.0 93.2

Provisions for liabilities and charges

Insurance

£m

Unoccupied property

£mOther

£mTotal

£m

At beginning of year 10.3 0.8 2.7 13.8

Charge for year 4.2 – 4.1 8.3

Released in year – (0.4) (0.3) (0.7)

Utilised in year – cash (4.3) – (0.1) (4.4)

At end of year 10.2 0.4 6.4 17.0

Non-current 8.5 0.4 0.3 9.2

Current 1.7 – 6.1 7.8

Total provisions for liabilities and charges 10.2 0.4 6.4 17.0

FTrade and other receivables

Trade and other receivables in briefTrade and other receivables are carried at amortised cost less impairment losses.

GProvisions for liabilities and charges

Provisions for liabilities and charges in briefProvisions for liabilities and charges are those not related to insurancecontracts issued that require settlement in the future as a result of a past event.

Note

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Recognised deferred taxation assets and liabilitiesDeferred taxation assets and liabilities are attributable to the following:

Assets

Liabilities

Net

2017£m

2016£m

2017£m

2016£m

2017£m

2016£m

Accelerated capital allowances 4.7 5.5 – – 4.7 5.5

Post-employment benefi t asset/(liability) – – (87.8) (69.6) (87.8) (69.6)

Revaluation of properties to fair value – 0.1 – – – 0.1

Employee benefi ts (other than post-employment) 3.8 4.0 – – 3.8 4.0

Provisions 0.3 0.7 – – 0.3 0.7

Other 0.2 0.3 – – 0.2 0.3

Net deferred taxation asset/(liability) 9.0 10.6 (87.8) (69.6) (78.8) (59.0)

Recognised deferred taxation assetsDeferred taxation assets relating to the carry forward of employee benefi ts, other provisions, unused taxation losses and other deferred taxation assets are recognised to the extent that it is probable that future taxable profi ts will be available against which the deferred taxation assets can be utilised.

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

2017

Accelerated capital allowances 5.5 (0.8) – 4.7

Post-employment benefi t asset/(liability) (69.6) (3.3) (14.9) (87.8)

Revaluation of properties to fair value 0.1 (0.1) – –

Employee benefi ts (other than post-employment) 4.0 (0.2) – 3.8

Provisions 0.7 (0.4) – 0.3

Other 0.3 (0.1) – 0.2

Total (59.0) (4.9) (14.9) (78.8)

2016

Accelerated capital allowances 2.5 3.0 – 5.5

Post-employment benefi t asset/(liability) (64.5) (6.9) 1.8 (69.6)

Revaluation of properties to fair value 0.2 (0.1) – 0.1

Employee benefi ts (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)

HDeferred taxation assets and liabilities

Deferred taxation assets and liabilities in briefDeferred tax is an adjustment to recognise the diff erences between the carrying amounts of assets and liabilities for fi nancial reporting and the amounts used for taxation purposes.

Note



2017

£m2016

£m

Amounts owed to subsidiary companies 95.6 23.2

Other payables 5.2 6.3

Accruals 74.2 68.9

Total trade and other payables 175.0 98.4

Non-current 7.3 7.8

Current 167.7 90.6

The Group’s risk management strategy is outlined in detail within Note 24.

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 £37.4m (2016: £6.7m). The Company believes amounts owed to it by subsidiary companies carry no credit risk.

Liquidity risk The contractual maturity of fi nancial liabilities, held by the Company, fall due within one year.

ITrade and other payables

Trade and other payables in briefTrade and other payables are carried at amortised cost.

JRisk management

Risk management in briefThe Board is responsible for identifying, evaluating and managingrisks faced by the Company and considers the acceptable level ofrisk, the likelihood of these risks materialising, how to reduce the risk and the cost of operating particular controls relative to the benefi t from managing the related risks.

Note

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The Company has a related party relationship with its key management personnel and with its subsidiary companies (refer to Related Undertakings on pages 146-154).

(i) Transactions with key management personnelThe key management personnel for the Company are the same as for the Group. These transactions are disclosed in Note 25.

The total remuneration of key management personnel is included in staff costs (see Note 2.3).

(ii) Transactions in relation to the non-registered pension arrangementsThese transactions are disclosed in Note 25.

(iii) Transactions and balances with subsidiary companiesTransactions during the year

Balance at 31 December

2017£m

2016£m

2017£m

2016£m

Income statement

Management charges received 243.5 228.1

Interest expense – (0.1)

Income received 2.3 2.4

Expenses paid (including rental expense £6.2m (2016: £6.0m) (7.3) (7.7)

Dividends received 88.9 147.6

Statement of fi nancial position

Amounts owed by subsidiary companies 23.5 36.6 101.6 78.1

Amounts owed to subsidiary companies (72.4) (3.1) (95.3) (22.9)

Loans to subsidiary companies 0.3 – 0.3 –

Loans from subsidiary companies – – (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) CommitmentsCapital expenditure for the Company contracted as at 31 December 2017 but for which no provision has been made in the fi nancial statements amounted to £4.4m (2016: £38.0m).

(ii) Operating leasesThe Company has £45.0m of operating lease obligations (2016: £51.9m).

(iii) Contingent assets and liabilitiesThe 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. The revolving credit facility was drawn down by £226.0m at 31 December 2017 (2016: £nil), including £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.

KRelated party transactions

Related party transactions in briefThese are transactions between the Company and related individuals or entities by nature of infl uence or control. The Company has such relationships with its subsidiaries, key management personnel andassociated 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.

LCommitments and contingencies

Commitments and contingencies in briefA commitment is future expenditure that is committed to as at 31 December 2017. These commitments primarily consist ofcontracted capital expenditure.

Contingent liabilities include bank loan and bond issue guarantees.

Note

Note


In accordance with Section 409 of the Companies Act 2006 and Schedule 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, a full list of related undertakings, registered offi ce address and the percentage of each share class owned as at 31 December 2017 are disclosed below.

The related undertakings listed below are 100% indirectly held by the Company, unless otherwise stated.

United KingdomName of undertaking Share class held

Registered at 1 Angel Court, London EC2R 7HJ

Andrew Greenwood Ltd £1.00 Ordinary shares

ANS 2003 Limited £0.01 Ordinary shares

ANS Limited £0.10 Ordinary shares

Aqua Dental Spa Limited £1.00 Ordinary shares

Bede Village Management Limited £1.00 Ordinary shares

Belmont Care Limited £0.50 Ordinary shares

BHS (Holdings) 2006 Limited £1.00 Ordinary shares

Bridge Health Investments Limited £1.00 Ordinary shares

Bupa Care Homes (AKW) Limited £1.00 Ordinary shares

Bupa Care Homes (ANS) Limited £1.00 Ordinary shares

£1.00 Special Share

Bupa Care Homes (Bedfordshire) Limited £1.00 Ordinary shares

Bupa Care Homes (BNH) Limited £1.00 Ordinary shares

Bupa Care Homes (BNHP) Limited £1.00 Ordinary shares

Bupa Care Homes (CFCHomes) Limited £1.00 Ordinary shares

Bupa Care Homes (CFG) plc1 £0.25 Ordinary shares

Bupa Care Homes (CFHCare) Limited €0.000001 Redeemable Preference shares

£1.00 Ordinary shares

Bupa Care Homes (Developments) Limited £1.00 Ordinary shares

Bupa Care Homes (GL) Limited £1.00 Ordinary shares

Bupa Care Homes (HH Bradford) Limited £1.00 Ordinary shares

Bupa Care Homes (HH Hull) Limited £1.00 Ordinary shares

Bupa Care Homes (HH Leeds) Limited £1.00 Ordinary shares

Bupa Care Homes (HH Northumberland) Limited £1.00 Ordinary shares

Bupa Care Homes (HH Scunthorpe) Limited £1.00 Ordinary shares

Bupa Care Homes (HH) Limited £1.00 Ordinary shares

Bupa Care Homes (Holdings) Limited £1.00 Ordinary shares

Bupa Care Homes (Partnerships) Limited £1.00 Ordinary shares

Bupa Care Homes (PT Lindsay Prop) Limited £1.00 Ordinary shares

Bupa Care Homes (PT Lindsay) Limited £1.00 Ordinary shares

Bupa Care Homes (PT Links Prop) Limited £1.00 Ordinary shares

Bupa Care Homes (PT Links) Limited £1.00 Ordinary shares

Bupa Care Homes (PT) Limited £1.00 Ordinary shares

Bupa Care Homes Investments (Holdings) Limited £1.00 Ordinary shares

Bupa Care Homes Investments Limited2 £1.00 Ordinary shares

Bupa Care Services Limited £0.20 Ordinary shares

Bupa Dental Services Limited £1.00 Ordinary shares

Bupa Europe Investments Limited £1.00 Ordinary shares

Bupa Europe Limited £1.00 Ordinary shares

Bupa Finance plc3 £1.00 Ordinary shares

Bupa Financial Investments Limited £1.00 Ordinary shares

Bupa Global Holdings Limited £1.00 Ordinary shares

€0.01 Ordinary shares

€1.00 Ordinary shares

Bupa Health at Work Limited £1.00 Ordinary shares

Bupa Healthcare Services Limited £1.00 Ordinary shares

Name of undertaking Share class held

Bupa Insurance Limited £1.00 Ordinary shares

Bupa Insurance Services Limited £1.00 Ordinary shares

Bupa International Markets Limited £1.00 Ordinary shares

Bupa Investments Limited £1.00 Ordinary shares

Bupa Investments Overseas Limited £1.00 Ordinary shares

AUD1.00 Redeemable Preference shares

CLP1.00 Redeemable Preference shares

€1.00 Redeemable Preference shares

PLN1.00 Redeemable Preference shares

USD1.00 Redeemable Preference shares

Bupa Limited £1.00 Ordinary shares

Bupa Occupational Health Limited £1.00 Ordinary shares

Bupa Pension Scheme Trustees Limited £1.00 Ordinary shares

Bupa Secretaries Limited £1.00 Ordinary shares

Bupa Trustees Limited £1.00 Ordinary shares

Bupa Wellness Group Limited £0.01 Ordinary shares

Calverguild Limited £1.00 Ordinary shares

Cranbrook Dental Practice Limited £1.00 Ordinary shares

David Row Limited £1.00 Ordinary shares

Ebbgate Nursing Homes (London) Limited £1.00 Ordinary-A shares

Ebbgate Nursing Homes Limited £1.00 Ordinary shares

Goldsborough Estates Limited £1.00 Ordinary shares

Health Dialog UK Limited £1.00 Ordinary shares

In Store Dental Limited £1.00 Ordinary shares

K R Postlethwaite Ltd £1.00 Ordinary shares

Lab 53 Limited £1.00 Ordinary shares

Occupational Health Care Limited £1.00 Ordinary shares

£1.00 Redeemable Preference shares

Paul Coulthard Ltd £1.00 Ordinary shares

Perlan Limited £1.00 Ordinary shares

Personal Eff ectiveness Centre Limited £1.00 Ordinary shares

Plainprime Limited £1.00 Ordinary shares

Richmond Care Villages (Property) Limited £1.00 Ordinary shares

Richmond Care Villages Holdings Limited £1.00 Ordinary shares

Richmond Coventry Limited £1.00 Ordinary shares

Richmond Letcombe Limited £1.00 Ordinary shares

Richmond Nantwich Developments Limited £1.00 Ordinary shares

Richmond Nantwich Limited £1.00 Ordinary shares

Richmond Nantwich Properties Limited £1.00 Ordinary shares

Richmond Northampton Limited £1.00 Ordinary shares

Richmond Northampton Management Limited £1.00 Ordinary shares

Richmond Painswick Management Company Limited £1.00 Ordinary shares

Richmond Villages Operations Limited £1.00 Ordinary shares

Stephen E B Jones Ltd £1.00 Ordinary shares

Store Dental Care Limited £1.00 Ordinary shares

The Smile Centres Limited £1.00 Ordinary shares

Ultimate Smile Spa Ltd £1.00 Ordinary shares

Watertight Investments Limited £1.00 Ordinary shares

1. 0.000001% held directly by the Company.2. Sold out of Group with eff ect from 14 February 2018.3. Held directly by the Company.

Related Undertakings

United Kingdom (continued)


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Registered at Bupa Dental Care, Vantage Offi ce Park, Old Gloucester Road, Hambrook, Bristol, BS16 1GW, United Kingdom

A4 Health Group Limited £1.00 Ordinary shares

Aesthetic Dental Laboratory Limited £1.00 Ordinary shares

Apex Dental Care Limited £1.00 Ordinary shares

Apex Holding Limited £1.00 Ordinary shares

Avsan Cove Limited £1.00 Ordinary shares

Avsan Dental Edinburgh Limited £1.00 Ordinary shares

Avsan Ferryburn Limited £1.00 Ordinary shares

Avsan Fife Limited £1.00 Ordinary shares

Avsan Fleet Limited £1.00 Ordinary shares

Avsan Gloucester Limited £1.00 Ordinary shares

Avsan Halstead Limited £1.00 Ordinary shares

Avsan Holdings Limited £1.00 Ordinary shares

Avsan Knebworth Limited £1.00 Ordinary shares

Avsan Kseat Limited £1.00 Ordinary shares

Avsan Queenscross Limited £1.00 Ordinary shares

Avsan Queensroad Limited £1.00 Ordinary shares

Avsan Visage Limited £1.00 Ordinary shares

BASDAC (2011) LLP Partnership Capital

Be White Ltd £1.00 Ordinary shares

Caring Dentistry Ltd £1.00 Ordinary shares

Ceracryl Laboratories Limited £1.00 Ordinary shares

Cheshire Cat Orthodontics Limited £1.00 Ordinary shares

Clive Zane Limited £1.00 Ordinary shares

Colchester Dental Referral Centre Limited £1.00 Ordinary shares

Creative Designs Dental Laboratory Limited £1.00 Ordinary shares

Croft Dental Care Limited £1.00 Ordinary shares

Den Dental Group Practice LLP Partnership Capital

Dencraft (South Yorkshire) Limited £1.00 Ordinary shares

Dentalign Colwyn Bay Ltd £1.00 Ordinary shares

£1.00 Redeemable Preference shares

Dentalign Eastbourne Ltd £1.00 Ordinary shares

Dentalign Orthodontics Limited £1.00 Ordinary shares

Dentalign Orthodontics LLP Partnership Capital

Dentalign Wrexham Ltd £1.00 Ordinary shares

Derwent House Orthodontics Limited £1.00 A Ordinary shares

Devon Smiles Limited £1.00 Ordinary shares

Deysbrook Dental Surgery Limited £1.00 Ordinary shares

Dr J.D. Hull & Associates (Physiotherapy & Osteopathy) Ltd £1.00 Ordinary shares

Duke Street Capital Oasis Acquisitions Limited £0.01 Ordinary shares

Duke Street Capital Oasis Midco Limited £0.01 Ordinary shares

Duke Street Capital Oasis Orthodontics Holdings Limited £0.01 Ordinary shares

£0.01 Preference shares

Duke Street Capital Oasis Orthodontics Limited £0.01 Ordinary shares

Eckington Dental Practice Limited £1.00 Ordinary shares

Eurodontic Limited £1.00 Ordinary shares £1.00 Ordinary shares

FACE (Facial Aesthetic Centres of Excellence) Limited £1.00 Ordinary shares

Fairfi eld Dental Surgery Limited £1.00 Ordinary shares

G & M Moynes Ltd £1.00 Ordinary shares

Goodteeth Dental Surgeries Limited £1.00 Ordinary shares

Grosvenor Orthodontic Clinic (Beckenham) Limited £1.00 Ordinary shares

Harbour Way Surgery Limited £1.00 A Ordinary shares


Highland Dental Care Limited £1.00 Ordinary shares

Highwoods and St Johns Limited £1.00 Ordinary shares

J A Jordan & Associates Limited £1.00 Ordinary shares

J.J. Thompson (Orthodontic Appliances) Limited £1.00 Ordinary shares

James Taylor and Partners Limited £1.00 Ordinary shares

JDH Holdings Limited £0.10 Ordinary shares

Kidson Orthodontics Limited £1.00 Ordinary shares

Lawrence Street Dental Practice Limited £1.00 Ordinary shares

Linden Dental Centre Limited £1.00 Ordinary shares

Mark Fazakerley (VHO) Limited £1.00 Ordinary shares

Milehouse Dental Care Limited £1.00 Ordinary shares

Mojo-D Limited £1.00 Ordinary shares

Nadir Khan Surgical Limited £1.00 Ordinary A shares

Nigel Reynolds Limited £1.00 Ordinary shares

North Devon Orthodontic Centre Limited £1.00 Ordinary shares

Oasis Dental Care (Central) Holdings Limited £1.00 Ordinary shares

Oasis Dental Care (Central) Limited £1.00 Ordinary shares

Oasis Dental Care (Southern) Holdings Limited £1.00 Ordinary A shares

£1.00 Ordinary B shares

£0.10 Ordinary C shares

£0.10 Ordinary D shares

£0.10 Ordinary E shares

£0.10 B Ordinary shares

Oasis Dental Care (Southern) Limited £1.00 Ordinary shares

Oasis Dental Care Limited £1.00 Ordinary shares

Oasis Healthcare Bidco Limited £1.00 Ordinary shares

Oasis Healthcare International Limited £0.01 A Ordinary shares


£0.01 Deferred shares


Oasis Healthcare Limited £0.01 Ordinary shares

Oasis Healthcare Midco 1 Limited £1.00 Ordinary shares

Oasis Healthcare Midco 2 Limited £1.00 Ordinary shares

Oral Hygiene Innovations Limited £1.00 Ordinary shares

Oral Implantology Limited £1.00 Ordinary shares

Ortho 2008 Limited £1.00 Ordinary shares

Orthoscene Limited £1.00 Ordinary shares

Oswestry Dental Laboratory Limited £1.00 Ordinary shares

Pembury TM Limited £1.00 Ordinary shares

Peter Baldwin (VHO) Limited £1.00 Ordinary shares

Priors Croft Dental Practice Limited £1.00 Ordinary shares

Quantum Ortho Limited £1.00 Ordinary shares

Quest Dental Care LLP Partnership Capital

Richley Dental Ceramics Limited £1.00 Ordinary shares

Rise Park Dental Practice Limited £0.10 Ordinary A shares

£0.10 Ordinary B shares

Roberts-Harry Clinic Ltd £1.00 Ordinary shares

Smile Dental Care Ltd £1.00 Ordinary shares

Smile Lincs Limited £1.00 Ordinary shares

Steeple Grange Smiles Limited £1.00 Ordinary shares

Stop the Clock Dental Care Limited £1.00 Ordinary shares

Synergy Ceramics Ltd £1.00 Ordinary shares

TC Patel Limited £1.00 Ordinary shares

United Kingdom (continued) United Kingdom (continued)



TDK Dental Limited £0.50 Ordinary A shares

The Adams and Lee Dental Practice Ltd £1.00 Ordinary shares

The Exeter Dental Centre Limited £1.00 Ordinary shares

The Oasis Healthcare Group Limited £0.01 A Ordinary shares


£0.0125 C Ordinary shares


The Tutbury Dental Practice Limited £1.00 Ordinary shares

Total Orthodontics Limited £1.00 Ordinary shares

Victoria Reese Dental Practice Limited £1.00 Ordinary shares

Windmill Dental Surgery Limited £1.00 Ordinary shares

Windslade Limited £1.00 Ordinary shares

Winning Smiles (Gillingham) Limited £1.00 Ordinary shares

Wylde Green Orthodontics LLP Partnership Capital

Xeon Smiles UK Limited £1.00 Ordinary shares

Registered at 13 Queens Road, Aberdeen, Aberdeenshire, AB15 4YL, United Kingdom

Hillington Park Dental Practice Limited £1.00 Ordinary shares

MFM Community Limited £1.00 Ordinary shares

Registered at Bridge House, Outwood Lane, Horsforth, Leeds, LS18 4UP, England

Bupa Care Homes Group Limited (in liquiditation) £1.00 Ordinary shares

Registered at Cromwell Hospital, Cromwell Road, London, SW5 0TU

Cromwell Health Group Limited £1.00 A Ordinary shares

Medical Services International Limited £1.00 Ordinary shares

Registered at Oasis Support Centre, Vantage Offi ce Park, Old Gloucester Road, Hambrook, Bristol, BS16 1GW, United Kingdom

J & M Dental Care Ltd £1.00 Ordinary shares

Metrodental Limited £1.00 Ordinary shares

Tidge and Lou Limited £1.00 Ordinary shares

Wylye Valley Dentistry Limited £1.00 Ordinary shares

Registered at Pinsent Masons LLP, 13 Queens Road, Aberdeen, AB15 4YL, United Kingdom

Christopher F. Staff ord Holdings Limited £1.00 Ordinary shares

Partick Dental Ltd. £0.01 Ordinary shares

Registered at 39 Victoria Road, Glasgow, G78 1NQ

Bupa Care Homes (Carrick) Limited £1.00 Ordinary shares

Registered at Mind your Business (Ni) Ltd, 1 Elmfi eld Avenue, Warrenpoint, Newry, County Down, BT34 3HQ, Northern Ireland

Blueapple Dental and Implant Team Limited £1.00 Ordinary shares

Cranmore Excellence in Dentistry Limited £1.00 Ordinary shares

DE (Belmont Road) Ltd £1.00 Ordinary shares

Smiles Dental Practices North Limited £1.00 Ordinary shares

AustraliaName of undertaking Share class held

Registered at Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia

Australia Fair Dental Care Pty Ltd AUD Ordinary shares

Bupa Aged Care Australasia Pty Limited AUD Ordinary shares

AUD Preference shares

Bupa Aged Care Australia Holdings Pty Ltd AUD Ordinary shares

Bupa Aged Care Australia Pty Ltd AUD Ordinary shares

Bupa Aged Care Holdings Pty Ltd AUD Ordinary shares

Bupa Aged Care Property No.2 Trust AUD1.00 Units

Bupa Aged Care Property No.3 Trust AUD1.00 Units

Bupa Aged Care Property No.3A Trust AUD1.00 Units


Bupa Aged Care Property Trust AUD1.040422 Units

AUD1.00 Units

AUD1.178896 Units

Bupa ANZ Finance Pty Ltd AUD1.00 Ordinary shares

Bupa ANZ Group Pty Ltd AUD Ordinary shares

Bupa ANZ Healthcare Holdings Pty Ltd AUD Ordinary shares

Bupa ANZ Insurance Pty Ltd AUD A Preference shares

AUD Ordinary shares

Bupa ANZ Property 1 and 2 Limited AUD Ordinary shares

Bupa ANZ Property 3 and 3A Pty Ltd AUD Ordinary shares

Bupa Dental Corporation Limited AUD Ordinary shares

Bupa Disability Services Pty Ltd AUD1.00 Ordinary shares

Bupa Foundation (Australia) Limited Limited by Guarantee

Bupa Health Services Pty Ltd AUD Ordinary shares

Bupa HI Holdings Pty Ltd AUD Ordinary shares

Bupa HI Pty Ltd AUD Ordinary shares

Bupa Holdings Limited Partnership A Capital

B Capital

Bupa Innovations (ANZ) Pty Ltd AUD1.00 Ordinary shares

Bupa Medical (GP) Pty Ltd AUD Ordinary shares

Bupa Medical Services Pty Limited AUD Ordinary shares

Bupa Optical Pty Ltd AUD Ordinary shares

Bupa Telehealth Pty Ltd AUD Ordinary shares

Bupa Wellness Pty Limited AUD Ordinary shares

DC Holdings WA Pty Ltd AUD Ordinary shares

Dental Care Network Pty Ltd AUD Ordinary shares

Dental Corporation Australia Fair Pty Ltd AUD Ordinary shares

Dental Corporation Cox Pty Ltd AUD Ordinary shares

Dental Corporation Gerber Pty Ltd AUD Ordinary shares

Dental Corporation Holdings Limited AUD Ordinary shares

Dental Corporation Levas Pty.Ltd. AUD Ordinary shares

Dental Corporation Petrie Pty.Ltd. AUD Ordinary shares

Dental Corporation Pty Ltd AUD Ordinary shares

Dr Chris Hardwicke Pty.Ltd. AUD Ordinary shares

Gerber Dental Group Pty Ltd AUD Ordinary shares

Larry Benge Pty Limited AUD Ordinary shares

Scott Petrie (Dental) Pty Ltd AUD Ordinary shares

AUD Class E shares

AUD Class F shares

BermudaName of undertaking Share class held

Registered at Crawford House, 4th Floor, 50 Cedar Avenue, Hamilton, HM11, Bermuda

Amedex Insurance Company (Bermuda) Limited BMD1.00 Ordinary shares

BoliviaName of undertaking Share class held

Registered at Guapomo Street 2005, Spazio Building, 1st Floor, Offi ces 201-202-2013, Santa Cruz de la Sierra, Bolivia

Bupa Insurance (Bolivia) S.A BOB100.00 Ordinary shares

Related Undertakings continued

United Kingdom (continued) Australia (continued)


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BrazilName of undertaking Share class held

Registered at Av. Sagitário, 138, 19º andar –, (conjuntos 1905, 1906, 1907, 1908, 1913, 1914) e 20º andar, Condomínio Alpha Square Torre 2, The City, Alphaville, Barueri, SP, Brazil

Bupa Do Brasil Saúde Ltda BRL1.00 Quota shares

Care Plus Medicina Assistencial Ltda BRL1.00 Quota shares

Care Plus Negócios Em Saúde Ltda BRL1.00 Quota shares

Service Care Participações e Negócios S.A. BRL Common shares

BRL Preference shares

Registered at Av. das Nações Unidas, 12,901, Unidade 901, Torre Oeste, Bloco C, Centro Empresarial Nações Unidas, Brooklin Paulista, São Paulo, SP, Brazil

Personal System Serviços Médicos e Odontológicos Ltda BRL1.00 Quotas

British Virgin IslandsName of undertaking Share class held

Registered at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands

Altai Investments Limited HKD1.00 Ordinary shares

Berkshire Group Limited USD1.00 Ordinary shares

Registered at PO Box 957, Off shore Incorporations, Centre, Road Town, Tortola, British Virgin Islands

Dynamic People Group Limited USD1.00 Ordinary shares

ChileName of undertaking Share class held

Registered at Av. Departamental N° 01455, Comuna La Florida, Region Metropolitana, Chile

Inmobiliaria Y Constructora CBS S.A. CLP Ordinary shares

Registered at Cerro Colorado N° 5420, Piso 11, Comuna Las Condes, Region Metropolitana, Chile

Bupa Chile S.A. CLP Ordinary shares

Grupo Bupa Sanitas Chile Uno, SpA CLP 1,000.00 Ordinary shares

Inversiones Clinicas CBS S.A. CLP Ordinary shares

Registered at Isabel La Católica N° 4139, Comuna Las Condes, Region Metropolitana, Chile

Bupa Servicios Clínicos S.A. CLP Ordinary shares

Servicios De Personal Clinico CBS Dos S.A. CLP Ordinary shares

Registered at Rivas N°694, Comuna San Joaquin, Region Metropolitana, Chile

Bupa Inversiones Latam S.A. CLP Ordinary shares

ChinaName of undertaking Share class held

Registered at Room 1005, 10th Floor, No. 69, Dongfang Road, Pudong New Area, Shanghai, China

Bupa Consulting (Beijing) Co. Ltd. HKD1.00 Ordinary shares

Registered at Unit 03, 13/F, No.604 RenMin North Road, Yuexiu District, Guangzhou, China

Guangzhou Bupa Hospital Management Company Limited

CNY1.00 Ordinary shares

Registered at Unit 305A-305, 3/F, GT Land Autumn Plaza, No.11, 13 ZhuJiang East Road, ZhuJiang New Town, Tianhe District, Guangdong Province, China

Guangzhou Bupa Quality HealthCare General Outpatient Department Company Limited

CNY1.00 Ordinary shares

DenmarkName of undertaking Share class held

Registered at Palaegade 8, 1261 Copenhagen K, Denmark

Bupa Denmark Services A/S DKK100.00 Ordinary shares

Dominican RepublicName of undertaking Share class held

Registered at Av. Gustavo Melia Ricart, No. 81, Terre Profesional Biltmore II, Suite 1007, Piantini, Santo Domingo, Dominican Republic

Amedex Medical Group, S.R.L. DOP1,000.00 Quota shares

Registered at Av. Winston Churchill, corner with Rafael Augusto Sanchez, Plaza Acropolis, Apt. P2-D, Santo Domingo, Dominican Republic

Bupa Dominicana, S.A. DOP1,000.00 Ordinary shares

EcuadorName of undertaking Share class held

Registered at Av. Republica de El Salvador N34-229, 4th Floor, Quito, Ecuador

Bupa Ecuador S.A. Compania de Seguros1 USD1.00 Capital Stock

EgyptName of undertaking Share class held

Registered at Building 55, Street 18, Maadi, Cairo, Egypt

Bupa Egypt Insurance Bupa Global S.A.E. EGP10.00 Ordinary shares

Bupa Egypt Services LLC EGP100.00 Ordinary shares

GilbraltarName of undertaking Share class held

Registered at 5-9 Main Street, Gibraltar

Bupa Malta Investments No. 1 Limited £1.00 Ordinary shares

Bupa Malta Investments No. 2 Limited £1.00 Ordinary shares

GuatemalaName of undertaking Share class held

Registered at Quinta avenida número cinco guión cincuenta y cinco, Zona catorce de esta ciudad, Edifi cio Europlaza World Business Center, Torre III, undécimo nivel, área corporativa número un mil, Guatemala

Bupa Guatemala, Compania de Seguros, S.A. GTQ1.00 Ordinary shares

GuernseyName of undertaking Share class held

Registered at 1st & 2nd Floors, Elizabeth House, Les Ruettes Brayes, St Peter Port, Guernsey GY1 1EW, Channel Islands

Bupa Guernsey No 2 Limited £1.00 Ordinary shares

Registered at PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, Channel Islands

Bupa Holdings (Guernsey) Limited £1.00 Ordinary shares

Bupa LeaseCo Holdings Limited £1.00 Ordinary shares

Bupa LeaseCo (Guernsey) Limited £1.00 Ordinary shares

UK Care No. 1 Limited £1.00 Ordinary shares

JerseyName of undertaking Share class held

Registered at 13 Castle Street, St Helier, JE4 5UT, Jersey

Bupa Holdings (Jersey) Limited NZD Ordinary shares

1. 0.000025% held by nominee.



Hong KongName of undertaking Share class held

Registered at 3rd Floor, SkylineTower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong

Allied Medical Practices Guild Limited HKD1.00 Ordinary shares

Case Specialist Limited HKD1.00 Ordinary shares

DB Health Services Limited HKD1.00 Ordinary shares

Great Option Limited HKD1.00 Ordinary shares

Jadeast Limited HKD1.00 Ordinary shares

Jadefairs International Limited HKD1.00 Ordinary shares

Jadison Investment Limited HKD1.00 Ordinary shares

Jadway International Limited HKD1.00 Ordinary shares

Marvellous Way Limited HKD1.00 Ordinary shares

Megafaith International Limited HKD1.00 Ordinary shares

Quality HealthCare Dental Services Limited HKD1.00 Ordinary shares

Quality HealthCare Medical Centre Limited HKD100.00 Ordinary shares

Quality HealthCare Medical Services Limited HKD1.00 Ordinary shares

Quality HealthCare Nursing Agency Limited HKD10.00 Ordinary shares

Quality HealthCare Physiotherapy Services Limited HKD1.00 Ordinary shares

Quality HealthCare Professional Services Limited HKD1.00 Ordinary shares

Quality HealthCare Psychological Services Limited HKD1.00 Ordinary shares

Quality Healthcare TPA Services Limited HKD1.00 Ordinary shares

Registered at 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong

Bupa (Asia) Limited HKD10.00 Ordinary shares

Bupa International Limited1 HKD1.00 Ordinary shares

Bupa Limited HKD1.00 Ordinary shares

MacauName of undertaking Share class held

Registered at Rua De Xangai No. 175 Edif., Associacao Comercial De Macau, 11 Andar, K, Macau

Quality EAP (Macau) Limited MOP1.00 Ordinary shares

Quality Healthcare Medical Services (Macau) Limited MOP1.00 Ordinary shares

MexicoName of undertaking Share class held

Registered at Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion, C.P. 11000, Mexico City

Bupa Mexico, Compania de Seguros, S.A. de C.V. MXN1,000.00 Capital Stock Series E (fi xed) shares

MXN1,000.00 Capital Stock Series M (variable) shares

Bupa Servicios Administrativos de Salud, S. de R.L. de C.V. US$1.00 Ordinary shares

Bupa Servicios de Evaluacion Medica, S. de R.L. de C.V. US$1.00 Ordinary shares

Bupa Servicios Ejecutivos de Salud, S. de R.L. de C.V. US$1.00 Ordinary shares

NetherlandsName of undertaking Share class held

Registered at Oslo 1, 2293 LD Barendrecht, Netherlands

Bupa Holdings Overseas Cooperatief B.A. (in liquidation) € Membership shares

Registered at Atrium Building, 8th Floor, Strawinskylaan 3127, 1077 ZX, Amsterdam, Netherlands

BI Healthcare Holdings BV €0.0001 Ordinary shares

1. 0.000001% held directly by the Company.

New ZealandName of undertaking Share class held

Registered at Bupa House, Level 2, 109 Carlton Gore Road, Newmarket, Auckland, 1023, New Zealand

Bupa Care Services NZ Limited NZD Ordinary shares

Bupa Retirement Villages Limited NZD Ordinary shares

Registered at Level 4, 1 Walton Leigh Avenue, Porirua, 5022, New Zealand

Dental Corporation (NZ) Limited NZD1.00 Ordinary shares

PanamaName of undertaking Share class held

Registered at Prime Time Tower, Floor 25, Offi ce 25 b La Rotonda Ave, Costa del Este, Panama

Bupa Panama S.A. US$1,000.00 Ordinary shares

PeruName of undertaking Share class held

Registered at Av. Guardia Civil N° 664, Comuna San Isidro, Region Lima, Peru

Integramedica Peru S.A.C. PEN Ordinary shares

PolandName of undertaking Share class held

Registered at 35-068 Rzeszow, Stanislawa Jablonskiego, 2/4 Street, Poland

Medicor Sp. z.o.o. PLN1,000.00 Ordinary shares

Registered at Czapliniecka 93/95, 97-400, Belchatow, Poland

Megamed Sp. z.o.o. PLN1,000.00 Ordinary shares

Registered at Grunwaldzka 16/18 Street, 60-780, Poznan, Poland

Diagnostic – Med. Centrum Diagnostyki Radiologicznej Sp. z.o.o.

PLN500.00 Ordinary shares

Registered at Kuznicka 1 Street, 72-010, Police, Poland

Medika Uslugi Medyczne Sp. z.o.o. PLN50.00 Ordinary shares

Registered at ul. Elblaska 135, 80-718, Gdansk, Poland

Centrum Opieki Medycznej Comed Sp. z.o.o. PLN500.00 Ordinary shares

Registered at ul. Gen. Augusta Emila Fieldorfa “Nila” 40, Warszawa, 04-125, Poland

Magodent Sp. z.o.o. PLN50.00 Ordinary shares

Registered at ul. Postepu 21 C Street, 02-676, Warsaw, Poland

Elba 1 Sp. z.o.o. PLN50.00 Ordinary shares

Elblaska Sp. z.o.o. PLN50.00 Ordinary shares

Centrum Medyczne Diagnostyka Sp. z.o.o. PLN100.00 Ordinary shares

Lux Med Lodz Sp. z.o.o. (in liquidation) PLN50.00 Ordinary shares

LUX MED Sp. z.o.o. PLN500.00 Ordinary shares

LUX-MED Investment S.A. PLN50.00 Series A shares

PLN50.00 Series B shares

PLN50.00 Series C shares

Registered at ul. Stefana Batorego 17/19, 87-100 Torun, Poland

Tomograf Sp. z.o.o. PLN500.00 Ordinary shares


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ents

Repubic of IrelandName of undertaking Share class held

Registered at Saint Martins House, Waterloo Road, Ballsbridge, Dublin 4, D04E5W7

Hugh Bradley Limited €1.00 Ordinary shares

Oasis Healthcare Holdings Ireland Limited €1.00 Ordinary shares

Xeon Dental Services Limited €0.01 Ordinary shares

Saint Kitts and NevisName of undertaking Share class held

Registered at Amory Building, Victoria Road, Basseterre, St. Kitts, Saint Kitts and Nevis

Amedex Services Ltd. (St Kitts) USD1.00 Capital Stock

SingaporeName of undertaking Share class held

Registered at 600, North Bridge Road, #05-01 Parkview Square, 188778, Singapore

Bupa Singapore Holdings Pte Ltd SGD Ordinary shares

SpainName of undertaking Share class held

Registered at Calle Ribera Del Loira, 52, 28042, Madrid, Spain

Clinica Londres, S.L. €10.00 Ordinary shares

Elegimosalud S.L.U. €1.00 Ordinary shares

Fundacion Sanitas1 €1.00 Contribution shares

Grupo Bupa Sanitas S.L.U. €100.00 Ordinary shares

Sanitas Emision S.L.U. €1.00 Ordinary shares

Sanitas Holding, S.L.U. €1.00 Ordinary shares

Sanitas Mayores S.L. €651.28 Ordinary shares

Sanitas Nuevos Negocios S.L.U. €1.00 Ordinary shares

Sanitas S.L. de Diversifi cacion S.U. €6.02 Ordinary shares

Sanitas, S.A. de Hospitales S.U. €6.01 Ordinary shares

Valdeluz S.A. €5.00 Ordinary shares

Spain (continued)Name of undertaking Share class held

Registered at c/ Eguskiaguirre no.8, 48902, Baracaldo, Bilbao, Spain

Sanitas Mayores Pais Vasco S.A. €120.00 Ordinary shares

Registered at Calle Clara del Rey, número 36, Madrid, Spain

Proxxima Soria, S.L. €1.00 Ordinary shares

Registered at Calle Fermín Caballero, número 91, Locales 5 a 8, Madrid, Spain

Proxxima Care, S.L. €1.00 Ordinary shares

Registered at Avda Marcelo Celayeta, 144 – Pamplona (31014), Spain

Sanitas Mayores Navarra S.L. €60.10 Ordinary shares

Registered at Avenida Generalitat Valenciana no 50, Valencia, Spain

Especializada y Primaria L’Horta-Manises, S.A.U. €1.00 Ordinary shares

SwedenName of undertaking Share class held

Registered at Box 27093, 102 51, Stockholm, Sweden

LMG Forsakrings AB €1,000.00 Ordinary shares

United Arab EmiratesName of undertaking Share class held

Registered at Unit C1204, Level 12, Burj Daman, DIFC, PO Box 507019, Dubai, United Arab Emirates

Bupa Global Middle East (DIFC) Limited US$1.00 Ordinary shares

United StatesName of undertaking Share class held

Registered at 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States

Bupa Insurance Company USD1.25 Capital Stock

Bupa Investment Corporation, Inc. USD1.00 Capital Stock

Bupa U.S. Holdings, Inc. USD0.01 Common Stock

Bupa Worldwide Corporation USD5.00 Capital Stock

U.S.A. Medical Services Corporation USD5.00 Capital Stock

1. The Sanitas Foundation.

The related undertakings listed below are eff ectively held less than 100% by the Group. Actual % holdings are disclosed.

United KingdomName of undertaking Registered offi ce address Share class held % held

Bupa CSH Limited 1 Angel Court, London, EC2R 7HJ, United Kingdom £1.00 Ordinary-A shares 100.00

Fulford Grange Medical Centre Limited 1 Angel Court, London, EC2R 7HJ, United Kingdom £1.00 A Ordinary shares 100.00

Healthbox Europe 1 LP Ground Floor, Bury House, 31 Bury Street, London, EC3A 5AR, United Kingdom Partnership Capital 37.04

Healthcode Limited Swan Court, Waterman’s Business Park, Kingsbury Crescent, Staines, Surrey, England, TW18 3BA, United Kingdom

£1.00 E Ordinary shares 20.00

£1.00 A Ordinary shares 100.00



AustraliaName of undertaking Registered offi ce address Share class held % held

Mobile Dental Pty Ltd Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia AUD Ordinary shares 49.00

SmartGenRx Pty Limited Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia AUD Ordinary-A shares 50.00

AUD Ordinary-B shares 38.78

Whitecoat Holdings Pty Ltd Level 3, 60-62 Clarence Street, Sydney NSW 2000, Australia AUD Ordinary shares 20.00

Whitecoat Operating Pty Ltd Level 3, 60-62 Clarence Street, Sydney NSW 2000, Australia AUD Ordinary shares 100.00

BahrainName of undertaking Registered offi ce address Share class held % held

Bupa Middle East Holdings Two W.L.L. Flat 41, Building No. 962, Road 1812, Block 318, Manama/Al Hoora, Bahrain BHD50.00 Ordinary shares 50.00

ChileName of undertaking Registered offi ce address Share class held % held

Bupa Compania de Seguros de Vida S.A. Cerro El Plomo N° 6000, Ofi cina 201 y 202, Comuna Las Condes, Region Metropolitana, Chile

CLP Ordinary shares 100.00

Bupa Servicios de Salud SpA Coyancura N° 2270, Ofi cina 910, Comuna Providencia, Region Metropolitana, Chile


Corporacion Medica de Arica S.A. Dr. Juan Noe N° 1370, Comuna Arica, Region Arica y Parinacota, Chile CLP Ordinary shares 68.97

Centro De Diagostico Avanzado San Jose S.A. Augusto D’halmar N° 1369, Comuna Arica, Region Arica y Parinacota, Chile CLP Ordinary shares 100.00

Centro De Imagenes Medicas Avanzadas San Jose S.A.

Pedro Aguirre Cerda N° 843, Comuna Arica, Region Arica y Parinacota, Chile CLP Ordinary shares 70.00

Clinica Renaca S.A. Anabaena N° 336, Comuna Viña del Mar, Region Valparaiso, Chile CLP Ordinary shares 100.00

Desarrollo E Inversiones Medicas S.A. Anabaena N° 336, Comuna Viña del Mar, Region Valparaiso, Chile CLP Ordinary shares 95.75

Promotora De Salud S.A. Anabaena N° 336, Comuna Viña del Mar, Region Valparaiso, Chile CLP Ordinary shares 67.03

Sociedad Medica Imageneologia Clinica Renaca Limitada

Anabaena N° 336, Comuna Viña del Mar, Region Valparaiso, Chile CLP Social Rights shares 80.00

Isapre Cruz Blanca S.A. Cerro Colorado N° 5420, Piso 4,5,7, Comuna Las Condes, Region Metropolitana, Chile


Examenes De Laboratorio S.A. Av Libertador Bernardo O’Higgins N° 654, Comuna Santiago, Region Metropolitana, Chile


Integramedica S.A. Av Libertador Bernardo O’Higgins N° 654, Comuna Santiago, Region Metropolitana, Chile


Centro Medico Antofagasta S.A. Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile


Inmobiliaria Centro Medico Antofagasta S.A. Manuel Antonio Matta N° 1868, Comuna Antofagasta, Region Antofagasta, Chile


Inmobiliaria Somequi S.A. Manuel Antonio Matta N° 1868, Comuna Antofagasta, Region Antofagasta, Chile


Inversiones Clinicas Pukara S.A. Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile


Servicios Y Abastecimiento A Clinicas S.A. Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile


Sociedad De Resonancia Magnetica Del Norte S.A. Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile


Sociedad Instituto De Cardiologia Del Norte Limitada

Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile

CLP Social Rights shares 50.00

Sociedad De Inversiones Pacasbra S.A. Dr. Juan Noe N° 1370, Comuna Arica, Region Arica y Parinacota, Chile CLP Ordinary shares 100.00

Sociedad Medico Quirurgica De Antofagasta S.A. Baquedano N° 298, Comuna Antofagasta, Region Antofagasta, Chile CLP Ordinary shares 100.00

Sonorad I S.A. Las Bellotas N° 200, Comuna Providencia, Region Metropolitana, Chile CLP Ordinary shares 100.00

Sonorad II S.A. Av. Vicuña Mackenna N° 7255, Comuna La Florida, Region Metropolitana, Chile CLP Ordinary shares 100.00

Recaumed S.A. Bernarda Morin N° 495, Comuna Providencia, Region Metropolitana, Chile CLP Ordinary shares 58.40


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ents

DenmarkName of undertaking Registered offi ce address Share class held % held

Forsikringens DataCenter A/S1 Lautrupvang 3A, DK-2750 Ballerup, Denmark DKK1.00 Ordinary shares 33.33

Hong KongName of undertaking Registered offi ce address Share class held % held

Alpha Medical MRI (TST) Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong

HKD10,000.00 Ordinary shares

65.00

Central Medical Diagnostic Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong

HKD1.00 Ordinary shares 70.00

Central MRI Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong


Central PET/CT Scan Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong


IndiaName of undertaking Registered offi ce address Share class held % held

Max Bupa Health Insurance Company Limited2 Max House, 1, Dr Jha Marg, Okhla, New Delhi, 110020, India INR10.00 Ordinary shares 49.00

PeruName of undertaking Registered offi ce address Share class held % held

MediPeru S.A.C. Av. Guardia Civil N° 664, Comuna San Isidro, Region Lima, Peru PEN Ordinary shares 99.97

Anglolab S.A. Av. Guardia Civil N° 664, Comuna San Isidro, Region Lima, Peru PEN Ordinary-A shares 100.00

PolandName of undertaking Registered offi ce address Share class held % held

Centrum Diagnostyki Obrazowej Sp. z.o.o.3 Broniewskiego 89 Street, 01-876, Warsaw, Poland PLN50.00 Ordinary shares 100.00

Centrum Edukacji Medycznej CEMED Sp. z.o.o. (in liquidation)

Broniewskiego 89 Street, 01-876, Warsaw, Poland PLN7,000.00 Ordinary shares

100.00

Centrum Edukacyjne Medycyny Sportowej Sp. z.o.o.

Marszalkowska 99 A lok. 5B Street, 00-693, Warsaw, Poland PLN50.00 Ordinary shares 50.00

Endoterapia PFG Sp. z.o.o. Al. Niepodleglosci 18, 02-653, Warsaw, Poland PLN50.00 Ordinary shares 40.00

Lux Med Tabita Sp. z.o.o. ul. Dluga 43, 05-510 Konstancin Jeziorna, Poland PLN100.00 Ordinary shares 88.00

Niepubliczny Zaklad Opieki Zdrowotnej Przychodnia Lekarska “POGORZE” Sp. z.o.o.

Porebskiego 9 Street, 81-185, Gdynia, Poland PLN200.00 Ordinary shares

88.15

Pory 78 Sp. z.o.o. Pory 78 Street, 02-757 Warsaw, Poland PLN100.00 Ordinary shares 100.00

Sport Medica S.A. Pory 78 Street, 02-757 Warsaw, Poland PLN100.00 Ordinary shares 100.00

PLN1.00 Ordinary-A shares 100.00

PLN1.00 Ordinary-B shares 100.00

PLN1.00 Ordinary-C shares 100.00

PLN1.00 Ordinary-D shares 100.00

PLN1.00 Ordinary-E shares 100.00

PLN1.00 Ordinary-F shares 100.00

PLN1.00 Ordinary-I shares 100.00

Saudi ArabiaName of undertaking Registered offi ce address Share class held % held

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

SAR10.00 Ordinary shares 34.25

Nazer Bupa Medical Equipment Company Limited Prince Sultan St, Al Mohammediyah Dist., PO Box 260, Jeddah, 21411,Saudi Arabia

SAR1,000.00 Ordinary shares

50.00

1. Sold out of Group on 3 January 2018.2. Part held by nominee.3. Entered liquidation on 16 January 2018.



SpainName of undertaking Registered offi ce address Share class held % held

Sanitas S.A. de Seguros Calle Ribera Del Loira, 52, 28042, Madrid, Spain €0.68 Ordinary shares 99.91

Torrejon Salud, S.A. Calle Mateo Inurria 1, Urb. Soto de Henares, 28850- Torrejón de Ardoz, Madrid, Spain

€1,000 Ordinary shares 63.20

United StatesName of undertaking Registered offi ce address Share class held % held

Highway to Health, Inc. One Radnor Corporate Center, Suite 100, Radnor, PA 19087, United States US$0.01 Ordinary shares 49.00

HTH Re, Ltd One Radnor Corporate Center, Suite 100, Radnor, PA 19087, United States US$1.00 Ordinary shares 100.00

HTH Worldwide, LLC One Radnor Corporate Center, Suite 100, Radnor, PA 19087, United States US$1.00 Ordinary shares 100.00

Worldwide Insurance Services, LLC One Radnor Corporate Center, Suite 100, Radnor, PA 19087, United States US$1.00 Ordinary shares 100.00


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Five-year fi nancial summary in briefThe fi ve-year fi nancial summary provides a fi ve-year time summary in order to better understand trends.

2017

£m

2016 (restated)1

£m2015

£m2014

£m2013

£m

Revenue – segmental analysis

Australia and New Zealand 4,926.6 4,360.6 3,648.4 3,759.6 3,791.8

UK 2,807.2 2,785.9 2,857.8 2,711.2 2,573.5

Europe and Latin America 2,869.0 2,474.7 2,027.4 2,036.3 1,497.2

International Markets 1,647.1 1,427.8 1,295.7 1,271.6 1,196.6

Net reclassifi cations to other expenses or fi nancial income and expenses (1.1) (1.1) (0.9) (0.9) (0.4)

Consolidated total revenues 12,248.8 11,047.9 9,828.4 9,777.8 9,058.7

Claims and expenses

Operating expenses (including claims) (11,505.1) (10,436.3) (9,250.1) (9,143.9) (8,497.8)

Impairment of goodwill (0.5) – (114.1) – (20.7)

Impairment of other intangible assets arising on business combinations (16.0) (20.7) – (0.7) (12.8)

Other income and charges (99.3) (38.9) (40.6) 12.9 (7.1)

Total claims and expenses (11,620.9) (10,495.9) (9,404.8) (9,131.7) (8,538.4)

Profi t before fi nancial income and expenses 627.9 552.0 423.6 646.1 520.3

Financial income and expenses (7.6) (29.1) (49.3) (36.9) (5.9)

Profi t before taxation expense 620.3 522.9 374.3 609.2 514.4

Taxation expense (134.4) (136.1) (96.0) (86.4) (103.0)

Profi t for the fi nancial year 485.9 386.8 278.3 522.8 411.4

Attributable to:

Bupa 482.0 381.6 278.3 515.7 405.6

Non-controlling interests 3.9 5.2 – 7.1 5.8

Profi t for the fi nancial year 485.9 386.8 278.3 522.8 411.4

Equity

Property revaluation reserve 796.1 706.1 632.3 707.9 700.2

Income and expense reserve 5,882.2 5,229.8 4,797.9 4,590.7 3,940.6

Cash fl ow hedge reserve 22.2 14.7 20.8 20.0 25.0

Foreign exchange translation reserve 557.5 595.3 (96.9) 71.4 182.8

Equity attributable to Bupa 7,258.0 6,545.9 5,354.1 5,390.0 4,848.6

Equity attributable to non-controlling interests 30.3 30.7 69.5 78.4 22.2

Total equity 7,288.3 6,576.6 5,423.6 5,468.4 4,870.8

1. Restatement following fi nalisation of the purchase price allocation exercise for Care Plus. See Note 22 for further details.

Five-year fi nancial summary


International Financial Reporting Standards relevant to Bupa

International Financial Reporting Standards (IFRS)IFRS 3 Business CombinationsIFRS 4 Insurance ContractsIFRS 5 Non-Current Assets Held for Sale and Discontinued

OperationsIFRS 7 Financial Instruments: DisclosuresIFRS 8 Operating SegmentsIFRS 10 Consolidated Financial StatementsIFRS 11 Joint ArrangementsIFRS 12 Disclosure of Interests in Other EntitiesIFRS 13 Fair Value Measurement

International Accounting Standards (IAS)IAS 1 Presentation of Financial StatementsIAS 2 InventoriesIAS 7 Cash Flow StatementsIAS 8 Accounting Policies, Changes in Accounting Estimates

and ErrorsIAS 10 Events After the Reporting DateIAS 12 Income TaxesIAS 16 Property, Plant and EquipmentIAS 17 LeasesIAS 18 RevenueIAS 19 Employee Benefi tsIAS 20 Accounting for Government Grants and Disclosure

of Government AssistanceIAS 21 The Eff ects of Changes in Foreign Exchange RatesIAS 23 Borrowing CostsIAS 24 Related Party DisclosuresIAS 27 Consolidated and Separate Financial StatementsIAS 28 Investments in AssociatesIAS 32 Financial Instruments: PresentationIAS 36 Impairment of AssetsIAS 37 Provisions, Contingent Liabilities and Contingent AssetsIAS 38 Intangible AssetsIAS 39 Financial Instruments: Recognition and MeasurementIAS 40 Investment Property

InterpretationsIFRIC 4 Determining Whether an Arrangement Contains a LeaseIFRIC 9 Reassessment of Embedded DerivativesIFRIC 12 Service Concession ArrangementsIFRIC 14 The Limit on a Defi ned Benefi t Asset, Minimum Funding

Requirements and their InteractionIFRIC 16 Hedges of a Net Investment in a Foreign OperationIFRIC 18 Transfer of Assets from CustomersIFRIC 21 LeviesIFRIC 22 Foreign Currency Transactions and Advanced ConsiderationSIC 15 Operating Leases – IncentivesSIC 27 Evaluating the Substance of Transactions Involving the

Legal Form of a LeaseSIC 29 Service Concession Arrangements: DisclosuresSIC 32 Intangible Assets – Website Costs

Designed and produced by: Friend www.friendstudio.com

Print: Pureprint Group

This report has been printed on Edixion Challenger Off set which is FSC® certifi ed and made from 100% Elemental Chlorine Free (ECF) pulp. The mill and the printer are both certifi ed to ISO 14001 environmental management system and registered to EMAS the eco management Audit Scheme. The report was printed using vegetable-based inks by a CarbonNeutral® printer.

Cover photo Our cover photo was taken at Bupa Dental Bourke Street clinic in Melbourne, Australia. In 2017, we continued to grow our global dental business with the acquisition of Oasis Dental Care making us the leading private provider of dental care in the UK. We are one of the largest dental providers worldwide with operations across the UK, Australia, Spain, Poland, Chile and Hong Kong.

Registered offi ce

Bupa House1 Angel CourtLondon EC2R 7HJ

For further copies of this [email protected]

Corporate aff [email protected]

The British United Provident Association Limited is a company limited by guarantee.

Registered in England No. 432511.

‘Bupa’ and our logo (as displayed on this page) are registered trade marks of The British United Provident Association Limited.

bupa: an international healthcare company - annual report...

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