ANNUAL REPORT 2012 LONGER, HEALTHIER, HAPPIER LIVES

Transcription

1 ANNUAL REPORT LONGER, HEALTHIER, HAPPIER LIVES

2 HIGHLIGHTS GROUP REVENUES (UP 4%) 8.4bn GROUP underlying PROFIT BEFORE TAx (UP 8%) 604.0m Underlying profit is defined in the Financial review on page 19 REVENUES BY MARket unit profit/(loss) BY MARket unit 43% 30% 14% 3% 10% 43% 30% 14% 3% 10% 48% 48% 19% 19% 19% 19% (2%) (2%) 16% 16% Australia and New Zealand United Kingdom Spain and Latin America Domestic International Development Markets International PMI See the full segmental results on page 69 TOTAL CuSTOMER NUMBERS (up 9%) (11.8m) (10.8m) PROGRESS TOWARds OUR WELL WORLD GOALS Keeping people well By 2015, we will have enabled 60 million people to make positive changes to be healthier and happier and to help protect the environment. 18 million Supporting a healthy planet By 2015, we will have reduced our absolute carbon footprint by 20%. 4.8% Read more about Bupa s Well World at bupa.com/wellworld Cover image: Jon Sinclair and family walking in Albert Park, Melbourne, where they took part in the Memory Walk organised by Bupa in partnership with Alzheimer s Australia. Jon is a resident of Bupa s Windsor Care Home in Melbourne.

3 Bupa annual report 1 Our purpose longer, healthier, happier lives drives everything we do. Our new strategic vision defines how we will bring that purpose to benefit more people around the world. During, we developed a new vision for Bupa in 2020 that will enable us to reach millions more people. In it, we have set out our focus on being a healthcare partner to millions more people around the world, on delivering extraordinary business performance, and on being an organisation where people love to work. Find out more on page 8 To deliver our vision and bring us closer to our customers, we reorganised our business in. Now operating as Market Units, we are better positioned to serve our customers as their healthcare partner. Find out more on page 9 Our Well World goals to have enabled 60m people be healthier and to reduce our carbon footprint by 20%, both by 2015 are integral to our business, which is why our Well World data is integrated throughout this report. Our Annual Report and Accounts are also available online, where you can access even more information on Bupa. Go to annualreport.bupa.com Stuart Fletcher Chief Executive Officer Strategic Report Introduction 1 Bupa at a glance 2 Our business model 3 Chairman s statement 4 Chief Executive Officer s statement 7 Longer, healthier, happier lives: Geoff s story 12 Gita s story 14 Sue s story 16 Financial review 18 Market Unit reports: Australia and New Zealand 22 United Kingdom 24 Spain and Latin 26 America Domestic International 28 Development Markets International PMI 30 Our people 32 Risks and uncertainties 34 Governance report Chairman s introduction 38 to Governance The Board of Directors 40 Governance leadership 42 Effectiveness 44 Engagement 45 Audit Committee report 46 Risk Committee report 48 Nomination & Governance 49 Committee report Medical Advisory Panel 50 Remuneration Committee report 52 Remuneration report 54 Report of the Board of Directors 59 Statement of Directors 60 responsibilities Strategic report GoverNANCE REPorT View our Annual Report and Accounts online For video and other additional information, go to annualreport.bupa.com FinanciaL StateMENTS Independent auditors report 62 Financial statements 63 Five year financial summary 123 International Financial 124 Reporting Standards relevant to Bupa FINANCIAL STATEMENTs

4 2 Bupa annual report STRATEGIC REPORT Bupa AT A GLANCE Our 11.8 million customers live in over 190 countries. Our services include health insurance and other funding products, hospitals and primary care centres, chronic disease management, home healthcare, dental centres, prevention and workplace health, and care services, including residential and nursing homes and retirement villages. Our business is managed in five Market Units. International PMI Bupa International Bupa Latin America Total customers: 0.7m Total employees: 1,600 United Kingdom Bupa Health and Wellbeing Bupa Care Services UK Bupa Home Healthcare Bupa Cromwell Hospital Total customers: 2.8m Total employees: 31,700 International DevELoPMENT MarKETS Bupa Arabia Max Bupa, India Bupa Hong Kong Bupa China Bupa Thailand Health Dialog, USA New Market Development Total customers: 2.2m Total employees: 800 Total CUSTomers 11.8m Total EMPLoyees 54,000 Total countries 190 Spain ANd LATIN AmerICA domestic Sanitas Seguros Sanitas Hospitales and New Services Sanitas Dental Sanitas Residencial Latin America Domestic Development Total customers: 2.6m Total employees: 8,400 Australia and New ZEALANd Bupa Australia Bupa Care Services Australia Bupa Care Services New Zealand Total customers: 3.5m Total employees: 10,400 Market Unit customers or employees Total customers or employees

5 Bupa annual report STRATEGIC REPORT 3 OUR BUSINESS MODEL Bupa is a global healthcare company. We fund and provide quality healthcare around the world in a range of settings, including clinics, dental centres, hospitals and care homes. Our services span complex acute care to preventative wellbeing and we engage millions of people in their health, providing them with trusted information and advice. Our business model is shaped by our commitment to serve customers as their healthcare partner. We are focused on creating personcentred health systems that deliver the right intervention in the right place at the right time. We are committed to meeting customers needs across life stages. As an expert in funding and in providing healthcare, we are able to deliver high quality patient care while managing costs, essential to keeping high quality care accessible. OUR BUSINESS model FUND HIGH QUALITY, AFFORDABLE HEALTHCARE ENGAGE PEOPLE AND SUPPORT BEHAVIOUR CHANGE Longer, healthier, happier lives Funding healthcare Through insurance, subscriptions and other funding solutions, we fund healthcare on behalf of our 11.8m customers across the globe. We have a network of 7,500 hospitals and clinics and more than 200,000 medical providers worldwide. We partner with healthcare professionals to help us deliver the right treatment to patients and to design patient-centred care pathways. PROVIDE HIGH QUALITY, AFFORDABLE HEALTHCARE Providing healthcare We deliver healthcare to customers in our own hospitals, clinics, dental centres and primary care centres, and in a range of other settings. Our chronic disease management services help individuals make and sustain lifestyle changes to manage their condition and improve their health. We also provide treatment to patients at home, which can improve patient experience while also reducing costs. Bupa is a leader in care services, providing nursing and residential care to over 30,000 residents in the UK, Spain, Australia and New Zealand. Our dementia expertise is world-leading. We are setting best practice in personcentred care, including through our dementia care nursing training. ENGAGING PEoPLE ANd SUPPorTING BEhaviour change Our services also include preventative healthcare, including identifying high risk groups and providing support and advice to improve their health. We reach out beyond our customers to provide health information, advice and support to people across the world. This includes our online resources which were accessed by 12m people in. In, our Global Challenge helped 97,000 people to get walking, a simple way to improve health. Under our Well World goals, we will have enabled 60 million people to make positive changes to be healthier and happier by We will also reduce our carbon footprint by 20% by We fund Foundations in Australia, Spain and the UK which provide grants for healthcare research. Our total charitable donations in, including to our Foundations, was 4.1m. An INTEGrated MODEL While we adapt our business model to reflect individual markets needs and opportunities, we believe that an integrated approach combining healthcare funding and provision offers significant advantages to customers. It brings better oversight of the patient journey and this helps us to make better healthcare more accessible and affordable. This has been demonstrated in our work in Valencia, Spain on behalf of the Valencian regional government. Find out more on page 6 Strategic report

6 4 Bupa annual report STRATEGIC REPORT Chairman s STATEMENT was a year of considerable change for Bupa, and at the same time we also reaffirmed our enduring purpose. In the year, pressure on healthcare spending and on provision models remained intense. We also saw trends in health further converge across developed and developing economies. I am more convinced than ever that our status without shareholders and therefore free to reinvest profits into more and better healthcare is critical to the relationship we have with our customers and business partners. Having no shareholders, we are held to account by independent Association Members, who receive no financial benefit from Bupa. They are committed to seeing us discharge our purpose effectively. Our status is of particular value when trust in other organisations has been questioned and eroded. People are looking for new models and changed cultures for value creation in society as well as a different kind of accountability. Lord Leitch Chairman As a Board, we welcomed Stuart Fletcher as he took the role of Chief Executive Officer. Along with his Executive Team, he undertook extensive work in developing a vision for Bupa s future. We now have a clear definition of how we will pursue our purpose longer, healthier, happier lives to benefit many more people across the world. To position us better to deliver our vision, we reorganised the business around Market Units, bringing us closer to our customers. We also welcomed a new Chief Financial Officer, Evelyn Bourke, to the Board. On governance, the Board made a series of changes to strengthen our oversight of the business. Following a review, we separated our Audit, Risk & Compliance Committee in two. We implemented an enhanced Corporate Governance Statement, which includes more disclosures. The Remuneration Committee also undertook a review with support from external advisors. Combined, these and other actions further strengthen Bupa s governance and transparency, both of which are essential to safeguarding trust in our organisation. Board highlights from Stuart Fletcher and Evelyn Bourke joined the Board as CEO and CFO respectively. New to Bupa, they bring with them rich experience and expertise. They underwent a detailed induction programme, including one-to-one meetings, site visits and detailed briefings on Bupa s performance and history. To strengthen our governance and oversight, we split our Audit, Risk & Compliance Committee in two. The Audit Committee now focuses on financial statements, and the effectiveness of internal controls systems and of auditors; the Risk Committee focuses on risk appetite, risk management and compliance. Succession planning was a key theme for, with three Board members nearing the end of their term. Retirement dates have been phased to ensure an orderly succession. The Remuneration Committee undertook a review with external support to benchmark its activities and developed an action plan. We adopted a new Corporate Governance Statement with the aim of increasing the disclosure of our governance arrangements and the workings of each of the Board s Committees. Read more in Governance on page 38

7 Bupa annual report STRATEGIC REPORT 5 These are areas where I believe Bupa s model has a lot to offer. Bupa is at an inflection point in terms of the healthcare services that people need and in Bupa s development in meeting those needs. The Board is excited about the impact the new vision Bupa 2020 will have, and the step change in delivery it signifies. Our MarKETPLACE Bupa serves customers living in almost every country around the world. Across markets, we are seeing a number of key trends that drive individuals healthcare needs. They are shaping our marketplace today and will see it radically transform over time. Converging global health risks Health risks are converging across the world and across economies, underpinned by common risk factors, principally an unhealthy diet and physical inactivity. Changes to lifestyles and diets as societies industrialise have significant implications on populations health. Globally, the number of individuals with diabetes is projected to rise to 552m by 2030, or 10% of the world s adult population, 80% of which will be in developing countries. 2 Latin America, the Middle East and sub-saharan Africa are predicted to see a near tripling of ischemic heart disease and stroke mortality over the next two decades. 3 In 2008, cancer accounted for the deaths of 7.6m people 13% of all deaths worldwide. More than 30% of these could be prevented, mainly by reducing tobacco usage, but also through a healthy diet and lifestyle and moderating the consumption of alcohol. 4 Growing global middle class As well as this convergence in health risks, we are seeing a growth in middle classes in developing economies and an associated trend of urbanisation, which itself can be a driver for behaviours which negatively impact health. More people than ever now live in cities and by 2050, around two thirds of the world s population is expected to be urban. 5 Projected rises IN noncommunicable diseases Diabetes 2 371m 552m Dementia m 65.7m global deaths CAUSEd Cancer 4 7.6m 13.1m Heart disease m 23.3m Current 2030 Strategic report The impact is immense. By 2030, it is estimated that chronic diseases will cost US$47trn and will represent a developmental as well as health challenge. 1 Middle class consumers have increased expectations of the services they want, including from healthcare, as they become more aware of their needs and their ability to afford choice. Urbanisation and health The number of people living in cities is set to rise to 5bn worldwide by This growth will largely be unplanned. People who move to cities increase their chance of developing chronic conditions, such as diabetes, through greater exposure to risk factors including greater use of motor transport, too little physical activity and unhealthy diets, as well as increased exposure to greenhouse gas emissions. Read more in Bupa s Win-Win report on bupa.com/wellworld Ageing and ageless societies The global population is ageing sharply. The percentage of those aged above 60 years at the turn of the millennium was around 10% this is projected to rise to 20% by This phenomenon is not confined to developed economies, with many developing economies being only a few decades behind as birth rates decrease and life expectancy increases. This demographic shift represents both the success of, and a challenge to, healthcare systems. The critical challenge it presents is the increase in the number of people living with dementia. By 2050, more than 115m people across the world are projected to have the condition, raising massive challenges in care, treatment and cost. 7 A key trend that we are seeing associated with the ageing population is that people are thinking more about the kind of old age they want. In reality, they want to be ageless they want to keep well and they want to preserve the independence and lifestyle they enjoyed while younger. There is a growing need for care solutions that preserve individuals independence. Chronic diseases represent a developmental, as well as health, challenge. 1 The Global Burden of Noncommunicable Diseases, World Economic Forum,. 2 Atlas 5th Edition, International Diabetes Federation, Update. data. 3 The Global Burden of Chronic Diseases: Overcoming impediments to prevention and control, Derek Yach,. 4 Cancer Factsheet, World Health Organization, data. 5 World Urbanization Prospectus: The Revision, United Nations,. 6 World Population Ageing , United Nations, Dementia: A public health priority, World Health Organization, data. 8 Cardiovascular Conditions Factsheet, World Health Organization, data.

8 6 Bupa annual report STRATEGIC REPORT CHAIRMAN S STATEMENT continued Shifting the value from CUre to prevention IN valencia, SPAIN In Spain, Bupa s Manises hospital covers 14 towns and a population of 195,000 people in Valencia, on behalf of the region s government. We also manage 20 primary health centres and two speciality centres. As well as providing world class, innovative hospital care, Sanitas works with the local population to keep them well and diagnose and treat conditions early. This can reduce the likelihood of health issues becoming critical and improve health outcomes. For example, we have improved our performance in controlling the risk factors for cardiovascular conditions, compared to. Changing family structures The impact of ageing populations, combined with increased expectations around lifestyle and independence, is exacerbated by changes in family structures. At a time when growing numbers need support, family support is declining. This is not just for the elderly but also for those with chronic conditions or disabilities. These factors are creating a need for alternative care solutions. Price sensitivity Increasingly, consumers only want to pay for services that are relevant to them. This desire for more personalised services is linked to a focus on seeing value for money. New technologies contribute to this growing expectation as individuals have ever greater power to access the information and services they want. Environmentalism and sustainability Finally, consumers want to make sustainable choices. There is a much greater understanding that lifestyle impacts the environment and that this, in turn, impacts health and wellbeing from water use to food scarcity to air pollution. Consumers increasingly want to know that the products and services they use are economically and environmentally sustainable and do not adversely impact on health. A shift in value for healthcare One consequence of these trends is a shift from treatment to prevention. We are beginning to see health systems assessing healthcare risk and aligning incentives to produce the best outcomes at an affordable price. In Spain, for example, we have seen the effective operation of an innovative Public-Private Partnership (PPP) in Valencia which has moved health management from the public to the private sector. The Valencian government has reformed the funding and provision of care and Bupa is at the heart of this partnership. With the increased prevalence of chronic diseases, managing health risk involves helping individuals to take steps to reduce their risk indicators namely to be healthier. While breakthroughs in areas like robotic surgery get headlines, in many countries 70% of healthcare costs are driven by chronic disease and the most important levers to improve outcomes and reduce costs are not necessarily clinically sophisticated. 9 They can, however, be challenging to deliver as they require individuals to make and sustain significant lifestyle changes. Implications for Bupa The challenge to deliver better health to more people has never been greater. In each of these areas, we see huge potential for our business to deliver the services that individuals need in a way that they want at a price they can afford, be that directly, through their employer or via government. The great risk, which is not confined to Bupa but extends across healthcare, is that a broad spectrum of quality care ultimately becomes unaffordable. We are addressing this challenge head on, as can be seen in the strategic vision Stuart sets out for the business. I believe that our potential to make a significant difference to millions of people s lives across the world has never been greater and our focus never sharper. Board news I want to take this opportunity to thank the Board for the past twelve months particularly for their energy and passion in a year of huge change. Particular thanks go to Baroness Bottomley, whose six year tenure on our Board concludes in April She has been a great source of wisdom and her contribution to this business has been invaluable. Finally, I want to thank our people. There is a shared value of care for customers, their families and each other and I regularly see our people going well beyond what is expected and required. This commitment is what makes Bupa extraordinary. I m very proud of what we have achieved together and excited about what is ahead. Lord Leitch Chairman 9 The almanac of chronic disease, Partnership to Fight Chronic Disease, 2009.

9 Bupa annual report STRATEGIC REPORT 7 CHIEF EXECUTIVE officer S STATEMENT We launched a new strategic vision, Bupa 2020, accelerating our pace of growth and delivery. In the year, we delivered strong growth, with revenues up 4% and underlying profit up 8%, maintaining our record of year-on-year growth since the start of the global downturn. We also announced our intention to acquire Innovative Care s care homes. Now completed, the deal added more than 1,100 beds and made us Australia s largest private care services provider. Organic growth in our development markets continued apace, with Bupa Mexico, one of our health insurance operations, driving good growth in customer numbers as a result of opening six new sales offices and launching new products. We also accelerated our plans to make quality healthcare more affordable and accessible, and ensure health insurance delivers tangible value for money. In the UK, we provided detailed evidence to the Competition Commission to call for remedies that deliver greater competition, efficiency and transparency in the private healthcare provision market. There are no easy solutions, but a lack of competition between hospitals and information on quality of care is pushing up the cost of insurance premiums, which continue to rise at unsustainable levels. Strategic report Stuart Fletcher Chief Executive Officer Bupa s performance in was particularly strong given the economic conditions in a number of our markets, especially in Europe. We created new, innovative, lower cost products for corporate customers, for the self-employed and for individuals. Our international private medical insurance business developed products that are more flexible and tailored to the needs of the individual. In Australia we supported families and niche groups with specialist services and advice. We expanded dental provision in Spain and the UK and are currently in negotiations with the shareholders of Dental Corporation, Australia and New Zealand s largest dental business, to purchase the business s 190 clinics. The transaction is subject to the majority of shareholders voting in favour of a scheme of arrangement. Also in Australia and New Zealand, we extended our retail offering with two new dental centres providing eye care, health screenings and nutrition and wellbeing advice. New care homes were opened or acquired across the two countries adding 640 beds. Also in the UK, we made changes to address excessive claims inflation driven both by private hospital and consultant fees and practices. The changes, while not always popular, are necessary to ensure more UK customers are able to access affordable, high quality private healthcare. There is still much to do but we have created a foundation to turn this market around. We grew our business in ways that, we believe, allow us to deliver quality health outcomes. In Spain, our integrated health funding and provision model continued to provide differentiation in the market, enabling growth. This model, based on quality of health outcomes, is, we believe, a good model for the future of sustainable quality healthcare. We acquired the remaining 40% share in our Public-Private Partnership (PPP) in Valencia and purchased a 50% stake in Torrejón Hospital in Madrid, our second PPP. The business performed very well despite a challenging economic environment. In December, we announced our intention to acquire LUX MED, Poland s largest private healthcare company. Subject to regulatory approval, LUX MED will make Bupa the largest company in Poland s private healthcare funding and provision markets, adding 1m new customers.

10 8 Bupa annual report STRATEGIC REPORT CHIEF EXECUTIVE OFFICER S STATEMENT continued In health funding, LUX MED is Poland s market leader in medical subscriptions. In provision, it has a national network of outpatient clinics and diagnostic centres, as well as a day hospital and a large nursing and residential care home. Its model aligns with Bupa s ambition to see greater integration between healthcare funding and provision. We are in a good position to grow our business in 2013 through a combination of organic growth, acquisition and partnership. Difficult economic conditions will continue in Europe but increasing consumer expectations, Bupa 2020 A HEALTHCARE PARTNER TO HEALTHCARE AFFORDABLE AND ACCESSIBLE OBSESSIVE ABOUT MAKING QUALITY ACCESS TO ADVICE AND CARE MILLIONS MORE PEOPLE THAT S RIGHT FOR ME Longer, healthier, happier lives AROUND THE WORLD BUSINESS TACKLING THE TOUGHEST CHALLENGES EXTRAORDINARY PERFORMANCE ageing populations, rising levels of chronic disease, and new treatments will continue to fuel demand for healthcare and drive our growth. Around the world, our combination of healthcare funding and provision expertise, our integrated model, and our international operations will continue to differentiate us. A NEw vision for BUPA In, the newly created Bupa Executive Team focused on creating an ambitious vision for what Bupa will look like in The development of Bupa 2020 was a major area of work. This new strategic vision sets our direction and focus for the next decade. Bupa is a great company with a rich heritage. As CEO, I see my role as providing the leadership that will enable us to realise Bupa s full potential; in essence, to fulfil our distinctive and inspiring purpose longer, healthier, happier lives. An important enabler of our delivery of that potential is our status, which was a great attraction for me when deciding to join Bupa. It maximises the degree to which we can pursue growth opportunities for the benefit of customers and society more broadly. LOVE WORKING IN HEALTHCARE MAKING A DIFFERENCE AT BUPA PEOPLE As an executive team, in asking ourselves how Bupa will better fulfil its purpose, we challenged ourselves to identify how to accelerate our growth to reach millions more people in more places to more effect. We also asked how we will make our purpose count in the eyes of customers, healthcare systems and the communities within which we operate, and with our own people, the ingredient which truly makes Bupa special. We believe that the conclusions we reached are exciting and motivating for all our stakeholders around the world. The key elements of Bupa 2020 are summarised here: We will deliver our purpose through being a healthcare partner to millions more people around the world. We intend millions more customers will enjoy better health because of Bupa. To achieve this goal, trust is essential, and we intend our customers to trust us and recommend us unreservedly. We will also engage tens of millions more people around the world in their health and wellbeing. Under our Well World sustainability agenda, we have committed to helping 60m people make positive changes to be healthier and happier by We will reach millions more people as we deliver extraordinary business performance. We will build on our success to deliver strong and sustainable revenue and profit growth, which will ultimately provide the means for us to reach more people and better fulfil our purpose. To support our efforts, we will be financially disciplined and ensure we invest to create long-term economic value. As we can have a big impact on the world s health, we are also committed

11 Bupa annual report STRATEGIC REPORT 9 As an executive team, we asked ourselves to identify how to accelerate our growth to reach millions more people in more places to more effect in essence, to fulfil our distinctive and inspiring purpose. Strategic report to having a positive impact on the environment as we believe that good health and the environment are interdependent. We remain committed to our Well World goal of reducing our carbon footprint by 20% by We will excel when our people love working at Bupa. We will cultivate an extraordinary culture and organisation. And we will practise what we preach, which means Bupa employees being healthier as a result of working at Bupa, as well as making a big impact in their communities. We believe that when we do these things, we will make a difference that matters to people our customers, our employees and well beyond. We will be giving more people access to advice and care that is right for them as an individual. We will be trusted by our customers to be there for them when they need it, providing support through their lives. I am inspired by the many stories of customers who, at very difficult times during their lives, have found Bupa s support invaluable, and appreciate that they were cared for as an individual rather than as a medical condition. Our aim is to do more of this for more people. While support is most acutely valued when a person is facing a life-threatening illness or a debilitating condition, we will go beyond these boundaries to help more people take steps to improve their overall health and quality of life, and reduce their risk of developing serious conditions such as diabetes, cancer or heart disease. We will partner with the best to be the best at providing advice and care that is world-leading, innovative and, above all, effective. We will be obsessive about making quality healthcare affordable and accessible. As an executive team, and throughout the business, we are utterly committed to tackling rising healthcare costs while ensuring better health outcomes. Affordability is essential for good healthcare to be accessible, and it is fundamental to our commitment to democratise good healthcare. Among Bupa s 54,000 people, we have considerable and world-leading healthcare expertise. We will harness this knowledge to greater effect for customers and their communities, through taking a greater role in shaping patients healthcare journey and by working with health systems to shape health policy in the interests of communities. Increasingly, we are seeing the powerful benefits of integrated healthcare funding, commissioning and provision. Patients report higher levels of satisfaction and we can deliver it at lower cost. We believe greater integration will be key to giving more people access to quality healthcare. We will tackle the toughest challenges in healthcare and make a difference. Good health is essential to happy families, to thriving communities, to efficient economies. The challenges to securing good healthcare are immense. As populations age, more and more people are expected to live with dementia and require support to maintain their quality of life. Bupa is already a global leader in dementia care and we have leading experts who have been helping us to set new standards in person-centred care for older people for many years. We will stand up for the frail and elderly in our society to protect their interests and safeguard their wellbeing and dignity. ReorGANISING our BUSINESS to deliver BUPA 2020 Until October, the business was organised in a number of divisions, each run from the UK. To bring us closer to our customers, we restructured the divisions into Market Units Australia and New Zealand, UK, Spain and Latin America Domestic, International Development Markets, and International Private Medical Insurance. Market Units are now the operating units through which we run our business. Within these are business structures which allow us to focus on specific opportunities in the market. While each market is now run locally and has greater autonomy, the executive team takes accountability for the whole of Bupa and ensures we work together across the business to realise our Bupa 2020 intentions. We believe integrated healthcare delivers better outcomes at lower cost and will be key to giving more people access to quality healthcare.

12 10 Bupa annual report STRATEGIC REPORT CHIEF EXECUTIVE OFFICER S STATEMENT continued By 2030, deaths due to noncommunicable diseases are projected to rise substantially and will be the most common cause of death. We will use our expertise to help individuals take steps to reduce their risk of developing a chronic condition, starting with diabetes and cardiovascular disease. We will also help people who have a condition to manage their health, reduce their risk factors and improve their quality of life. Changing behaviour, and sustaining that change, is rarely sophisticated but it is always difficult. We will partner with Bupa s founding principle back in 1947 was to prevent, relieve and cure sickness and ill health of every kind. Today, these areas remain essential as we pursue our purpose Longer, healthier, happier lives. leading experts and advocacy groups to gather together expertise and bring about change at system level and with individuals. Cancer remains the condition most feared across the world by individuals, and is a leading cause of death worldwide. We will take a truly holistic approach to cancer from prevention and treatment, to surviving well and dying with dignity. We are committed to partnering with people and their families through this very difficult illness to give them greater control and improve outcomes. This is a big vision. It builds on what has made Bupa successful so far and it is underpinned by our heritage, history and capabilities but it is a major stepchange in our ambitions and defines much more clearly and precisely what we are committed to becoming and what we are aiming for to colleagues, customers, partners and healthcare systems. It also fully aligns our Well World sustainability agenda keeping people well and supporting a healthy planet with Bupa s strategic vision. We are still in the early stages of this new phase in our development. Starting in 2013, we will be tracking our progress against a scorecard and we will report on the progress we are making in our 2013 Annual Report and Accounts. The challenges we have set ourselves are immense, but in the year I have been at Bupa, the appetite, ambition and passion that I find in my colleagues has fuelled the vision we have developed together and I am excited by the potential that I see around me to make an enduring difference. Realising that potential and bringing it to life I see as my purpose as leader of this business. Reflecting on the past year, the scale and pace of change that we have embraced together has been remarkable. There is huge ambition and we are already starting to see the impact on our results. I thank every single one of our 54,000 people for their commitment and dedication. They make Bupa special. I also want to take this opportunity to thank my Bupa Executive Team colleagues, each of whom share with me the vision for Bupa and a passion to create a truly extraordinary organisation. This past year has genuinely exceeded my expectations and it is an absolute privilege to, with them, lead Bupa to reach more people with our purpose of longer, healthier, happier lives. Stuart Fletcher Chief Executive Officer A Shared vision for the FUTUre Discussions about our strategic vision were initiated in the Bupa Executive Team in April. We then shared those discussions with the Board in June, where our conclusions were tested and further developed. Having finalised our Bupa 2020 work in September, we took the vision to 200 of our most senior managers in a workshop, where we shared the vision and strategic goals and how together we would each take accountability for inspiring, engaging and energising our people to deliver them. We are now engaging people at all levels of the business to have them contribute to how we will together fulfil our purpose and make a huge impact on the health and wellbeing of millions of people around the world.

13 Bupa annual report STRATEGIC REPORT 11 BUPA EXECUTIVE TEAM The Bupa Executive Team takes collective responsibility for Bupa s purpose and for Bupa This means working across accountabilities and addressing challenges together so that Bupa is better able to serve more people. Stuart Fletcher Chief Executive Officer Evelyn Bourke Chief Financial Officer Dean Holden Managing Director, Australia and New Zealand Richard Bowden Managing Director, United Kingdom Strategic report Iñaki Ereño Managing Director, Spain and Latin America Domestic Alison Platt Managing Director, International Development Markets Robert Lang Managing Director, International PMI Denise Collis Chief People Officer Yasmin Jetha Chief Information Officer Paul Zollinger-Read Chief Medical Officer We announced the appointment of Theresa Heggie to the Bupa Executive Team as Chief Marketing and Strategy Officer on 8 March Steve John Corporate Affairs Director Nicholas Beazley Company Secretary OUR VISION WILL ACCELERATE OUR GrowTH TO REACH MORE PEOPLE IN MORE PLACES TO MORE EFFECT. Read about what we are already doing to realise our ambitions and reach more people with our purpose longer, healthier, happier lives.

14 12 Bupa annual report STRATEGIC REPORT Access to advice and care that s right for me Making and sustaining positive lifestyle changes is difficult. With soaring rates of chronic disease, we believe that helping people adopt a healthier lifestyle is the single most effective way we will help people live longer, healthier, happier lives. In Australia, our Integrated Osteoarthritis Management Programme is helping customers to improve their health by providing them with a tailored programme that helps increase their mobility, manage pain, lose weight and improve fitness. It is designed to be simple, home-based and flexible. Geoff started the programme on the recommendation of his orthopaedic surgeon. Weighing 110kg, the pressure on his knees was a major cause of pain. Through the programme, Geoff lost 23kg, saw his knee pain significantly reduce and has taken up running.

15 Bupa annual report 13 STRATEGIC REPORT 97,000 PEOPLE across THE WORLD TOOK part in Bupa S GLOBAL CHALLenge on WALKing. Strategic report Walking is the most accessible form of activity for all ages and abilities. Walking an extra 15 minutes a day can extend a person s life by up to three years. Source: Get Walking, Keep Walking, Bupa & C3 12m PEOPLE across THE WORLD accessed our HEALTHcare INFORMation ONLINE IN. In addition, 530,000 downloaded our healthy apps, which help people take simple steps to be healthier and reduce their risk of developing a chronic condition, such as diabetes or heart disease. 883,000 PEOPLE WE HELPED TO BE HEALTHier THrougH our COMMunitY partnerships. Geoff Russell Integrated Osteoarthritis Management Programme customer Initiatives ranged from providing health risk assessments to shoppers in malls with Diabetes UK, to encouraging commuters to walk to work with the Pedestrian Council of Australia. 1.1m PEOPLE WE health coached IN. Health coaching helps people improve their health and reduce the risk of developing chronic conditions.

16 14 Bupa annual report STRATEGIC REPORT Obsessive about making quality healthcare affordable and accessible Access to healthcare services is severely limited for many millions of people. In rural India, many families live below the poverty line and diseases of poverty, such as pneumonia and diarrhoea, are leading causes of death for children in the country. Bupa is working with Bihar s regional government to implement Rastriya Swasthya Bima Yogna (RSBY), or National Health Insurance Programme. Funded by the government, the scheme provides low cost health insurance to families living below the poverty line. Families are recruited via community road shows, with up to 3,000 people joining the scheme daily. This initiative is transformational. It is also a first step. Utilising the experience gained from RSBY, Bupa is developing new micro health schemes that can be taken to scale in India and beyond.

17 Bupa annual report STRATEGIC REPORT 15 25% LOWER cost per patient AT our ManiSES HOSpitaL COMpareD WITH OTHER public HOSpitaLS in THE region. Strategic report 90% of patients treated would recommend the hospital and, compared to all Spanish public hospitals, patients rate nearly all medical areas as above average. 800 HOSPITAL QUALITY ASSESSMentS completed IN INDIA. We have been working with our network of provider hospitals in India since 2010, undertaking quality assessments and providing advice on how to raise standards and improve the quality of care to patients. 696,000 PEOPLE JoineD THE RSBY SCHEME ESTABLISHED BY Bupa in. The scheme gives families access to in-patient treatment in private and public hospitals. Gita Devi Community leader, Phulpras Block of Madhubani District, Bihar, India 12.5% LOWER HOSpitaLISation rate. Health Dialog s shared decision making programme delivered significantly lower hospitalisation rates as well as 5.3% lower healthcare costs compared with usual levels of support. This is another way we are making quality healthcare more accessible.

18 16 Bupa annual report Strategic STRATEGIC report REPORT Tackling the toughest challenges in healthcare making a difference At Bupa, we will focus on where we believe we can make the greatest difference in cancer care, diabetes, heart disease and dementia. For cancer care, this means taking a truly holistic approach and caring for the whole person from swift diagnosis to leading treatment and care. Our approach made all the difference to Sue. Diagnosed with advanced facial skin cancer, Sue decided to opt for radical surgery. Although this meant removing a quarter of her face, she knew this surgery would give her the best chances of survival. Sue then had facial reconstruction surgery by a leading specialist. Bupa was by her side all the way. Today, her scarring is hardly noticeable.

19 Bupa annual report 17 STRATEGIC REPORT 75,000 health assessments provided in Bupa wellness centres. In addition, over 85,000 individuals completed online risk assessments which help people learn more about their body and reduce their risk of developing conditions such as Type 2 Diabetes. Strategic report 7,500 UK BUPA care HOME STAFF who received SpeciaLIST person FIRST, DEMentia SeconD training. Pioneered by Bupa s Prof Graham Stokes with the University of Bradford, the programme is helping care home staff provide leading person-centred care to our residents. 5,000 AUStraLian customers treated BY THE genesis Heart care network in. Sue McIntosh-Gibbs Bupa UK customer and cancer survivor Bupa has a partnership with the Genesis network of cardiologists to provide quality, evidence-based care to customers with heart disease as well as support to help them understand their condition, treatment and care options. 450,000 patients treated in our hospitals in. Among these were cancer patients receiving care in our Oncology Advice and Care Units in Spain. The units combine the most advanced treatment with emotional support for the patient and their family.

20 18 Bupa annual report STRATEGIC REPORT FINANCIAL REVIEW Strong international performance in has driven good growth in revenue and underlying profit. We are laying the foundations for Bupa 2020 with prudent management of our balance sheet and finances, along with increased investment. REVENUE BY MARKET UNIT 43% 30% 14% 3% 10% 43% 30% 14% 3% 10% 43% PROFIT/(LOSS) BY 30% MARKET UNIT 48% 14% 19% 3% 10% 19% (2%) 16% 48% 19% 19% (2%) 16% Evelyn Bourke Chief Financial Officer We have delivered a good set of financial results in, with strong international growth. Revenues were 4% ahead of last year and underlying profit before tax was up 8%. These results were delivered against a backdrop of continuing economic and regulatory pressures in Europe, as well as a continued decline in the UK health insurance market that has been evident for a number of years. also marked the start of a journey for Bupa. We set ourselves an ambitious vision for 2020, a key component of which is delivering strong and sustainable revenue and profit growth and ensuring our investments create long-term economic value. Through extraordinary business performance, we will have the resources to become a healthcare partner to millions more people around the world. We have started to make progress towards achieving our vision. In, we invested in new and existing businesses, with capital investment up 16% to 246.5m. Our people also secured five significant acquisitions; two completed in ; one completed in early 2013; and 48% 19% 30% 19% (2%) 24% 22% 16% 18% Number of CUSToMErs 6% BY MARKET UNIT 30% 24% 22% 18% 6% 30% 24% 22% 18% 6% Australia and New Zealand United Kingdom Spain and Latin America Domestic International Development Markets International PMI Summary of results Total revenues 8, ,018.1 Underlying profit before tax Non-underlying items (20.4) (339.0) Profit before taxation Taxation (134.9) (84.1) Profit for the year

21 Bupa annual report STRATEGIC REPORT 19 the remaining two are expected to complete in Q2 in 2013, subject to regulatory approval. During the year we successfully renegotiated a five year 800m committed bank facility. With our ownership structure, the availability of this facility is important in supporting our ambitious growth targets. In addition, robust cash flow from our operations and prudent management of our strong balance sheet has contributed to Bupa maintaining a low leverage and a solid credit rating. This will support our future ambitions. OperATING results Our continuous product and service innovation and our strong focus on being a healthcare partner has grown our customer base by 9% to 11.8m. On the back of this customer growth, revenues increased 4% to 8.4bn. This increase was driven by our Australian, Spanish and International PMI Market Units. 70% of Bupa s revenues now come from international operations and this will continue to grow as we expand our global footprint. underlying profit BEFore TAX 604.0m 604.0m 559.0m m m m Underlying profit before tax increased by 8% to 604.0m with reported profit before tax up 165% to 583.6m. An enhanced focus on operational efficiencies, combined with our growth in customers has delivered strong profit performances in our Australian, Spanish and International PMI businesses. This has enabled us to reinvest into our businesses through the development of new products tailored to our customers changing needs and investment in the quality and capacity of our care home portfolio. Such investment contributes Our strong focus on being a healthcare partner has grown our customer base by 9% to 11.8m. to our vision of making quality healthcare affordable and accessible for even more people around the world. We also had strong growth in our Asian and Middle East insurance businesses, with Bupa s healthcare expertise a key differentiator in these markets. Sustained weak economic conditions adversely impacted profits from our UK business. In this market, we are actively managing the rising costs of healthcare, looking at ways to combat lower consumer confidence and identifying efficiencies in a customer centric manner to offset the impact of real term declines in fees from local authorities. Health Dialog also faced continuing challenges from the changing USA healthcare landscape. The business is better placed to deliver on opportunities in 2013, following restructuring in. non-underlying profit ITEMS For underlying profit, to reflect the trading performance of the business in a consistent manner, we adjust profit before tax for impairment and amortisation of intangible assets arising on business combinations, net revaluation and impairment charges on property, gains or losses on return seeking assets, foreign exchange, profit or loss on sale of business and one-off items. was impacted by the significant impairments on our Health Dialog business and the impairment of the MBF brand, following the transition to the Bupa brand in Australia. In, the launch of Bupa 2020 and the associated reorganisation of our business resulted in some one-off costs being incurred. Find out more on page 9 Strategic report GROUP revenue 8.4bn 8.4bn 8.0bn bn bn bn Non-underlying profit ITEMS Restructuring costs 23.2 Impairment of intangible assets arising on business combinations Amortisation of intangible assets arising on business combinations Net property revaluation and impairment charge Gains on return seeking assets, net of hedging (26.1) (6.6) Other (8.6) (6.3) Total

22 20 Bupa annual report STRATEGIC REPORT FINANCIAL REVIEW CONTINUED Solvency II In, the FSA acknowledged a delay to the implementation of Solvency II and set out a new planning horizon of 31 December Two years ago, we set up a programme to assist all our businesses with the implementation of Solvency II. This activity has now been transitioned into business-as-usual activities in a disciplined and controlled way. From January 2013, Bupa s state of readiness for Solvency II will be regularly assessed by our Solvency II Committee. BALANCE sheet, FUNding ANd solvency We seek to manage our business within financial ratios that support a solid investment grade credit rating, providing a secure platform for our sustainable growth ambitions. Our principal debt ratings relate to Bupa Finance plc s senior unsecured bond. During the year, Fitch and Moody s both reaffirmed their ratings in relation to this debt at A- (stable) and Baa2 (stable) respectively. Leverage reduced to 19% following the repayment of short-term borrowings in. We continuously monitor the solvency position of our regulated companies and for the group as a whole. We maintained strong solvency headroom throughout. Cash FLow We generated 742.9m in operating cash flows, up 44% and the fourth consecutive year in which we have delivered operating cash flows in excess of 500m. The significant uplift in cash generated was in part due to the advance payment of premiums in Australia as a result of regulatory changes on 1 July. Excluding the impact of this, the robust performance has contributed to a solid foundation to grow our business in a sustainable manner. We invested 246.5m in capital expenditure, continued to repay interest bearing liabilities and held the rest in cash and lower risk assets such as corporate bond funds. CONCLUSION Bupa delivered good results in despite some significant challenges in our European markets. We remain cautious about the economic outlook although we are confident that Bupa will continue to deliver growth in We have worked hard during to make sure we are in a strong financial position to take advantage of future growth opportunities, which will contribute to our ambition of positively impacting millions more lives. We will maintain a strong focus on delivering sustainable growth to support Bupa s purpose of longer, healthier, happier lives. Evelyn Bourke Chief Financial Officer Bupa is in a strong financial position to take advantage of future growth opportunities. NOTES Financial income and expenditure Net financial income increased to 54.8m (up 167%), primarily due to the strong performance on the return seeking asset portfolio (up 19.5m to 26.1m). Tax Bupa s taxation expense represents a headline rate of 23.1%, which is lower than the UK corporation tax rate as a result of prior period tax credits. The Budget statement in December announced that the UK corporation tax rate will reduce to 21% by Cash and other financial assets Totalled 3,559.9m (up 14%). Our exposure to Eurozone bank deposits has been reduced over the course of as part of our ongoing risk management. Foreign exchange Approximately 65% (down 1%) of net assets are denominated in foreign currencies, primarily Australian Dollars and Euros. Aside from operating cash flows, Bupa s main source of liquidity comes from the 800m committed bank facility, which remains almost entirely undrawn.