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A BUPA product story Edited by the Insidemoneytalk editorial team Mar 12, 2009
Revenues up 39 percent, continued organic growth and integration benefits of recent acquisitions ahead of expectations
Bupa, the international health and care brand, today announced its results for the year to 31 December 2008.
Financial Highlights Revenues from continuing operations up 39 percent to £5.87 billion (organic growth of 9 percent, acquisitions 25 percent, foreign exchange movements 5 percent).
Underlying surplus before taxation up 9 percent to £408.6 million (excluding goodwill impairment and the performance of the alternative asset portfolio).
Surplus before taxation down 53 percent to £187.1 million after goodwill impairments of £116.5 million and losses on the alternative asset portfolio of £97.7 million.
Cash flow from operating activities up 1 percent to £409.6 million.
Operational Highlights: Continued growth in customer numbers, up 32 percent to 10.3 million, including organic growth of 7 percent, and a further 24 million lives served by Health Dialog Integration of recently acquired businesses (MBF, BACA, Health Dialog, Cromwell Hospital) well advanced with synergies ahead of target.
International Insurance now represents 44 percent of Group revenues (FY07: 36 percent) and, excluding acquisitions, grew customer numbers by 12 percent Joint venture with Max India announced in July to take advantage of opportunities presented by growing Indian healthcare market.
Commenting on today's results, Ray King, Bupa's Chief Executive, said: "The Group continued to enjoy good momentum in 2008 with 9 percent organic growth in revenues and 7 percent in customer numbers and a major contribution from new acquisitions.
Underlying surplus has risen by 9 percent, a stronger performance than we had anticipated earlier in 2008.
"The integration of the recent acquisitions is well advanced and we remain confident that these businesses will provide a valuable source of future growth.
"We are not immune from the economic downturn".
"Looking into 2009, I expect trading conditions to weaken.
Nevertheless, I believe that the Group's breadth of activities in terms of geography, sector and focus on health, will help us to weather recession in our key markets.
In this environment, our focus is very much on continuing to offer excellent customer service and tightly managing costs and capital expenditure." Group Overview: In 2008, Bupa continued to build on its brand strength in health and care, grow its market positions in key markets and further improve the quality of service provided to customers.
This is demonstrated clearly by the growth in customer numbers and the improving customer satisfaction statistics.
The Group has been developing its healthcare portfolio through a combination of organic and acquisitive growth and broadened both its geographic footprint and range of activities.
Over half the Group's revenues and 41 percent of surplus is now generated by overseas activities.
Private medical insurance (PMI), care homes and other health services accounted for 78 percent, 15 percent and 7 percent of Group revenues, respectively.
Additions to the business portfolio include the acquisitions of Bupa Aged Care Australasia (BACA - formerly DCA Agedcare Group) care homes in Australia and New Zealand (December 2007), Health Dialog in the U.S.
(January 2008), The Bupa Cromwell Hospital (March 2008) and MBF in Australia (May 2008).
In addition, the recent joint venture with Max India provides the Group with an opportunity to enter the rapidly growing Indian market for private healthcare.
Revenues were up 39 percent as a result of organic growth, acquisitions and foreign exchange movements, which contributed 9 percent, 25 percent and 5 percent, respectively.
Group surplus before taxation from continuing operations was down 53 percent to £187.1 million (2007: £398.0 million).
Underlying surplus was up 9 percent predominantly excluding the impact of goodwill impairment charges and losses on the Group's alternative asset portfolio.
The Group has impaired £116.5m of goodwill capitalised in respect of certain acquisitions to reflect current market conditions or lower than expected performance.
As regards alternative assets, which have lost £97.7 million of value, this is marginally better than market movements.
In late 2008, the Group sold down some of its alternative asset portfolio to reduce investment risk.
Bupa has remained financially disciplined, driving organic growth and delivering operational excellence.
The Group is now focused on integrating its recent acquisitions, delivering their full benefits and driving further organic growth and continued prudent cost, cash and capital management.
Bupa's strong balance sheet and high cash generation allows it to continue investing in the business to deliver on its strategy of long-term growth to help customers lead longer and healthier lives.
UK Insurance: Bupa's UK insurance business, which represents 34 percent of group revenues, incorporates UK Membership, the market leader in private medical insurance; Bupa International, based in Brighton, which provides international health insurance to expatriates and high net worth individuals; Bupa Health Assurance, which delivers insurance protection and products covering life, income protection and critical illness; Bupa Wellness, which offers occupational health services and health assessments; and Bupa Health Dialog (UK), which uses health outcomes to assist in determining the best course of treatment for patients.
During 2008, customer numbers grew organically by 2 percent and revenues increased by 3.6 percent to £1.97 billion.
While surplus fell by 8 percent to £106.5 million, on an underlying basis (excluding the impact of its forced exit from its Irish insurance business and various other one-offs) surplus fell by only 1 percent.
UK Membership grew revenues across both its business-to-business and individual insurance operations and Bupa International delivered a very strong trading performance, growing revenues, profits and member numbers.
Bupa Health Assurance (BHA) experienced 23 percent growth in revenues, benefiting from recent investments in systems and Bupa Wellness also grew revenues by 4 percent in the period.
The Wellness proposition continues to evolve with new concepts trialled in the design of assessment centres, a refresh of the product range, and the development of a free online health check.
Bupa continues to build on its brand strength, strong market position and role as a health care leader, as reflected by improving customer satisfaction rates, with those rating the service 'excellent' or 'very good' growing by 2 percent in both UK Membership and Bupa Wellness (81 percent and 85 percent, respectively) and continued strong feedback for Bupa International at 79 percent.
The implementation of a major new operating system is on track to deliver a significantly enhanced ability to introduce and tailor products to further improve customer service and efficiency.
Bupa Health Dialog (UK) is expected to allow the Group to further improve its coordination with the NHS as the health service seeks to contain costs and improve quality.
International Insurance: Bupa's International Insurance business represents 44 percent of group revenues and provides PMI to more than six million customers via operations in Australia, Spain, Saudi Arabia, Latin America, Scandinavia, Hong Kong and Thailand.
Sanitas, Bupa's Spanish business, also owns and operates hospitals and clinics, mainly for its PMI customers.
Bupa's successful international growth has continued in 2008 with revenue increasing by 71 percent to £2,603.3 million.
Of that increase, organic revenue growth contributed 11 percent, recent acquisitions contributed 48 percent and foreign exchange movements contributed a further 12 percent.
Surplus increased by 6 percent to £126.6 million with underlying surplus up 23 percent to £151.7 million.
Following the merger of Bupa Australia with MBF in 2008, Bupa has become the second largest health insurer in Australia, increasing customer numbers from one million to over three million.
An integrated management team is in place and is focusing on achieving costs savings, which have thus far been ahead of schedule and are ultimately expected to be higher than originally planned.
Even excluding MBF, customer numbers increased by 4.1 percent to nearly 1.1 million.
Customer satisfaction numbers remain very high, with 79 percent rating the service as 'very good' or 'excellent'.
In Spain, Sanitas grew its surplus strongly as a result of good growth in membership (3.6 percent), positive foreign exchange movements and tight cost controls.
The Spanish business continues to differentiate itself through new initiatives such as bringing call centres in-house to improve customer service, further development of loyalty programmes, improved waiting list times and a broader range of e-commerce activities.
Refurbishment of the La Zarzuela hospital in Madrid was completed on time in December 2008 and the construction of a new state-of-the-art hospital in Valencia, which will offer acute and primary care services to over 140,000 people, is on schedule to open in May 2009.
Bupa Middle East also saw exceptional growth in its market share, growing membership by 62 percent following legislation requiring all expatriates to hold private health insurance.
This was underpinned by record customer satisfaction levels of 90 percent (2007: 85 percent).
Care Homes: Bupa Care Homes represents 15 percent of group revenues and is a world-leading care homes operator providing nursing and residential care in over 430 care homes in the UK, Spain, Australia and New Zealand.
Revenues increased by 35 percent to £873.2 million and surplus grew by 7 percent to £123.9 million.
Excluding the acquisition of Bupa Aged Care Australia (BACA), organic growth in revenues was 5 percent driven by an increase in bed capacity coupled with modest rises in fee rates.
Also excluding the acquisition, the surplus decreased on an organic basis by six percent due to a higher depreciation charge following the upward revaluation of care homes in 2007 and higher food and energy costs.
Bupa is seeing the benefits of its continued programme of strategic refurbishments in the strong growth in customer satisfaction rates, with 71 percent of relatives and 72 percent of residents rating the service as 'excellent' or 'very good' (2007: 64 percent and 72 percent, respectively).
Importantly, Bupa's high percentage of freehold properties shelter the Group from the funding issues others in the sector are experiencing.
BACA, which was acquired in 2007, has been fully integrated and is trading in line with expectations, taking advantage of opportunities for expansion where demand is particularly high for nursing home places and high dependency care.
Bupa's Spanish care homes business, Sanitas Residencial, became Spain's second largest provider of long-term care following its 2007 acquisition of Euroresidencias and continued organic expansion in 2008.
Other Health Services Bupa's other health services include Health Dialog, a leading chronic disease management company, The Bupa Cromwell Hospital, a renowned private London hospital, and Bupa Home Healthcare (formerly known as Clinovia), an out-of-hospital care specialist.
Total revenues grew by 148.5 percent to £423.7 million through a combination of the acquisition of Health Dialog and Bupa Cromwell Hospital and strong revenue growth in Bupa Home Healthcare.
The surplus increased by £17.4 million to £22.3 million.
The positive impact of the acquisitions was partially offset by a reduced surplus from Bupa Home Healthcare mainly due to business development costs and lower margins.
Health Dialog delivered a strong performance with the number of lives served up by 15 percent to 24 million, resulting in growth in revenues and profits.
Similarly, The Bupa Cromwell Hospital increased both revenues and profits and will undergo significant investment in the medium term, further developing four specialist areas: oncology, paediatrics, cardiac and orthopaedic care.
In 2008, Bupa Home Healthcare successfully strengthened its relationship with the NHS and won its first major chronic disease management contract.
Outlook Looking into 2009, I expect trading conditions to weaken.
Nevertheless, I believe that the Group's breadth of activities in terms of geography, sector and focus on health, will help us to weather recession in our key markets.
In this environment, our focus is very much on continuing to offer excellent customer service and tightly managing costs and capital expenditure.
We are making good progress on integrating our recent acquisitions for which the strategic rationale remains as strong as ever and which will provide a solid platform for future growth.
At the same time we continue to invest selectively in building our position in key markets which offer good long term growth opportunities.
The Group remains highly cash generative allowing us to continue to invest in developing new infrastructure and capabilities whilst also seeking to reduce indebtedness.
This balanced approach and prudent financial management will position us favourably to take advantage of new opportunities and benefit from the favourable long term trends that underpin our markets.
For further information, please go to Financial information about the BUPA Group.
