INVESTING IN STRENGTH AND DEPTH IN OUR KEY MARKETS

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1 : Half year statement for the six months to 30 June 2017 INVESTING IN STRENGTH AND DEPTH IN OUR KEY MARKETS HIGHLIGHTS: Revenue 6.1bn up 4% at constant exchange rates (CER) 1 ( HY: 5.9bn); up 15% at actual exchange rates ( HY: 5.3bn AER) Statutory profit before taxation 280.8m up 51% at AER ( HY: 185.7m) Underlying profit 2 before taxation 380.7m up 12% at CER and 25% at AER Net cash generated from operating activities is 577.3m up 6% at AER ( HY: 547.0m) Solvency II capital coverage ratio 3 of 160% ( FY: 204%) Performance overview Over the past six months, the Group grew revenue by 4% and underlying profit 12% a good result given challenging market conditions. Our largest Market Units Australia and New Zealand, the UK and Europe and Latin America have delivered good revenue and profit growth. The performance of our International Markets Market Unit was impacted by further profit decline in its Bupa Global business, as signalled in March in our Directors Report for the year ended 31 December. In the first half of 2017, we continued to invest in customer service, digital capability and in the strength and depth of our key market positions. In the UK, our purchase of Oasis Dental Care completed in February, making Bupa a major dental provider with and the integration is progressing well. In June, we increased our stake in our Bupa Arabia associate business by 8% to 34.25%. As a result of these investments, Bupa s Solvency II capital coverage stands at 160% and its balance sheet remains strong. On 25 July 2017, we announced the divestment of Bupa Thailand as part of our strategy of focusing investment in our key markets. As this transaction completed in the second half of our financial calendar, the financial effect will be reflected in our Full Year results. Looking to the second half of the year, we believe market conditions will remain testing with volatile political and economic environments in our key markets. We are committed to ensuring we deliver sustainable business performance and operational excellence, through focus and financial discipline. Market Unit performance: Australia and New Zealand: revenue up 5%; underlying profit up 4%. UK: revenue down 7% mainly driven by disposal of Bupa Home Healthcare (BHH) in July ; underlying profit up 22%. Europe and Latin America: revenue up 8%; underlying profit up 27%. International Markets 4 : revenue up 15%; underlying profit down 21%, driven by Bupa Global. 1 Constant Exchange Rates (CER) are used to aid comparison. All figures presented are CER unless otherwise stated. We use CER to compare trading performance in a consistent manner to the prior year. We have therefore translated our results using 2017 average foreign exchange rates. Due to our geographically diverse portfolio, the impacts of foreign exchange rates fluctuate year-on-year. 2 Underlying profit is based on profit before taxation expense adjusted to reflect trading performance only (for further details of non-underlying profit items, see the Financial Review). Total Group underlying profit includes central expenses and net interest margin not allocated to Market Units. 3 The HY 2017 Solvency II capital coverage ratio is an estimated value. 4 While revenues from our associate and joint venture businesses are excluded from our reported figures, customer numbers and the appropriate share of profit from these businesses are included in our reported numbers. 1

2 Operational highlights: Australian health insurance business remains the number one provider in a highly competitive market. Completed the purchase of Oasis Dental Care in February in the UK, with integration on track. Increased stake in Bupa Arabia from 26.25% to 34.25% in June. Care Plus integration is on track, following completion of the acquisition of the Brazilian company in December. Bupa Thailand assets are held for sale, with divestment announced on 25 July Continued investment in digital capabilities across the Group. Financial position: Statutory profit before taxation up 51%. Solvency II capital coverage of 160% at half year 2017 (FY : 204%) following investment in Oasis Dental Care and Bupa Arabia. Leverage ratio up to 31.4%. Bupa Finance plc s senior debt ratings A- stable (Fitch) and Baa1 stable (Moody s). Net cash generated from operating activities reflects the foreign exchange movements which, together with our financial discipline, results in a 6% increase. Enquiries: Media Sally Pain, Samantha Lo Blanco (Corporate Affairs): +44 (0) Investors Gareth Evans (Treasury): +44 (0) About Bupa Finance plc Bupa Finance plc (the Company) is a company incorporated in England and Wales. The condensed consolidated half year financial statements comprise the financial results and position of the Company and its subsidiary companies (together referred to as the Group). The immediate and ultimate parent of the Company is The British United Provident Association Limited (the Parent), which is also the ultimate parent company of the Bupa Group (Bupa). Bupa's purpose is helping people live longer, healthier, happier lives. The Parent s status, as a company limited by guarantee with no shareholders, enables the Group to make our customers our focus, reinvesting our profits to provide more and better healthcare for current and future customers. Bupa employs over 86,000 people 5, principally in the UK, Australia, Spain, Poland, Hong Kong, Chile, Brazil, Saudi Arabia, India, New Zealand and the US. Around 70% of our revenue is from health insurance, with the rest from health and care provision. We fund healthcare around the world and run clinics, dental centres, hospitals, care homes and retirement villages in a number of countries. For more information on Bupa, visit 5 Employee numbers as at 31 December. 2

3 Management review One year on from the introduction of our refreshed strategic framework, we have made good progress on the three key pillars Customer, People and Performance. We are focused on strengthening the core of our business, investing to continuously improve customer experience and service in our Market Units, enabled through our people and investment in digital. Risk management, compliance and privacy remain high on Bupa s agenda to ensure Bupa upholds the high standards our customers and regulators expect. In July, we took prompt steps to manage a Bupa Global customer data loss incident, including informing affected customers and introducing additional security checks. We continue to review information security and data protection controls across our business. Over the past six months, the Group grew revenue by 4% and underlying profit 12% a good result given local market conditions. Our largest Market Units Australia and New Zealand, the UK and Europe and Latin America have delivered good revenue and profit growth. The performance of International Markets has been impacted by a further profit decline in Bupa Global, as signalled in March in our Directors Report for the year ended 31 December. Health insurance is the largest business line for Bupa, with around 70% of revenue coming from this part of the business. In Australia and New Zealand, we grew revenue 5% and underlying profit by 4% in a challenging and competitive market environment. Despite slower overall market growth, our Australian health insurance business remains the country s leading provider, serving four million customers. In the UK, revenue is down 7% year-on-year reflecting the sale of Bupa Home Healthcare (BHH) to Celesio in while underlying profit has grown by 22%. The recent increases in Insurance Premium Tax (IPT) continue to impact affordability and revenue in the UK health insurance market. Our purchase of Oasis Dental Care completed in February, transforming our dental presence, with Bupa now a major provider serving over two million dental patients with around 420 practices. Bupa and Oasis have a shared commitment to putting patients first and we are pleased to have the Oasis team now part of the Bupa family. Our Europe and Latin America Market Unit delivered good growth, with revenue up 8% and underlying profit up 27%. Sanitas Seguros, our private medical insurance (PMI) business in Spain, has delivered through a combination of stronger partnership sales and improved customer retention. In Bupa Chile, growth has been driven by the higher premiums per member in Isapre. In International Markets, as signalled in our Directors Report for the year ended 31 December, Bupa Global continues to show the impacts of our decision to exit non-strategic markets. There has been a shift in customer mix towards corporate customers, which has resulted in higher loss ratios. We have a performance improvement programme underway to strengthen our distribution capabilities, improve customer engagement and enhance our product and service offering. We increased our stake in Bupa Arabia from 26.25% to 34.25% in June, acquiring a portion of Nazer Group s stake in the company. In late December we announced the completion of the acquisition of Care Plus, one of Brazil s leading health insurers, which serves more than 400 companies, with around 100,000 customers. The integration into Bupa is on track. On 25 July 2017, we announced the divestment of Bupa Thailand as part of our strategy of focusing investment in our key markets. As this transaction completed in the second half of our financial calendar, the financial effect will be reflected in our 2017 Full Year results. Digital remains a priority in our agenda to enhance customer experience. We are investing in the underlying systems and infrastructure right across our business, as well as digital products and services. In May, we 3

4 launched Blue Table, an accelerator programme inviting startups and small businesses to partner with us to develop new, innovative ways of delivering high quality health and care services in the digital age. Bupa made two appointments to its Executive Team. In June 2017, Nigel Sullivan, formerly Group HR Director for TalkTalk, joined Bupa as Chief People Officer. On 27 July 2017, Bupa announced that Sim Preston, former Group COO at AIA, will be joining Bupa as CEO International Markets from 1 October. Outlook: Looking ahead, we believe conditions will remain testing in our key markets for the remainder of We continue to navigate our way through changing and volatile political and economic environments, including plans for the UK s withdrawal from the European Union. We remain focused on enhancing customer experience and ensuring high standards of quality, efficiency, safety, privacy and compliance across all of Bupa, to enable strong and sustainable business performance. MARKET UNIT PERFORMANCE Australia and New Zealand: Revenue Underlying profit HY ,439.3m 175.6m HY 2,331.9m 169.5m % growth 5% 4% In the first half of 2017, Australia and New Zealand generated steady revenue and profit growth in a challenging and competitive healthcare environment. The result was driven mainly by our health insurance business which is Australia s largest health fund. This has been achieved despite slower overall growth in the health insurance market, which is facing significant pressure due to consumer affordability and public policy initiatives. The Australian Government has indicated that addressing health insurance affordability is one of its key priorities in the second half of 2017 and Bupa is actively engaged in those discussions. We are also working with the Government, hospitals, doctors and our networks to tackle rising healthcare costs for our customers, and looking for ways to provide increased value in our products and services. We are working to improve customer experience with an emphasis on digital. In Health Insurance, this has included introducing enhanced real-time payment systems, improved complaint handling, digitised benefits statements and streamlining customer application processes. Our Aged Care Australia business, which now comprises 71 homes, has had a challenging first half of the year as it manages changes to the Government s recently altered Aged Care Funding Instrument. This change has reduced sector funding for residents with complex needs, and is negatively impacting overall revenue and profitability. Occupancy rates for the first half of the year were at 96.5%. Our New Zealand aged care business performed well in the first six months of the year. We opened one new care village and are taking a leading role in dementia awareness and care, partnering with Government and industry to create a dementia-inclusive community in Rotorua. Occupancy rates for the first half of the year were at 90.4%. There has been growth in our Health Services business, particularly through our 227 dental practices. We now operate 38 optical stores in Australia and we are expanding our Bupa Hearing audiology business. In May, Australia s Department of Immigration and Border Protection (DIBP) extended the Bupa Medical Visa Services partnership for a further two years to 30 June The business operates medical centres around Australia to provide immigration health examinations to around 250,000 Australian visa applicants. 4

5 UK: Revenue Underlying profit HY ,369.6m 89.7m HY 1,479.1m 73.5m % (decline)/growth (7%) 22% Our UK business has delivered good performance in the first half of 2017, despite ongoing challenges in the market. Revenue is down 7% year-on-year reflecting the sale of Bupa Home Healthcare (BHH) to Celesio in while underlying profit has grown by 22%. The UK health insurance market remains challenging in the face of recent increases in Insurance Premium Tax (IPT) which is continuing to impact affordability. Revenue remains steady, driven largely by the resilience of the small medium enterprise (SME) and corporate segments while the individual paid segment continues to decline. We have focused on developing improved care pathways and ensuring better healthcare cost management, which have delivered better claims performance year-on-year. Our focus on digital enhancements has delivered encouraging results in the first half of the year. We ve seen an increasing number of customers using our online tool to book health assessments, GP, musculoskeletal and dermatology appointments in our health clinics. In February, we completed our acquisition of Oasis Dental Care. This has enabled us to deepen and strengthen our market position, making Bupa a major dental provider in the UK, serving over two million dental patients with around 420 practices. The acquisition of Oasis provides us with a strong, well-established and well-run platform to provide dental care to NHS patients and we are committed to serving both NHS and private dental patients. We are pleased to have the Oasis team on board and have set about the process of integrating our businesses to establish Bupa Dental UK as a cohesive team. We will be announcing our new brand shortly and want to ensure customers continue to receive the very best care both brands are known for, and maintain our high customer satisfaction scores. Within Care Services our occupancy is now 85.2% and improved fee rates have had a positive impact on the business performance. We received our first outstanding care home rating from the Care Quality Commission for Eglantine Villa. We remain absolutely committed to providing all our residents with high quality care in safe and supportive environments. Since the start of the year we have refurbished 12 of our homes and are currently refurbishing 10 more. In addition to this, we have completed construction of Richmond Village in Witney and a further two villages and four care homes are under construction. We continue to make significant upgrades to the facilities at the Cromwell Hospital and believe these enhancements will ensure we are well placed to deliver sustained growth in this business line. We are committed to upholding the high standards our customers and regulators expect, which is why risk management and compliance remain high on the agenda of our UK businesses. Europe and Latin America: Revenue Underlying profit HY ,407.4m 100.3m HY 1,306.1m 79.2m % growth 8% 27% In Europe and Latin America, we delivered good growth across our businesses leading to revenue being up 8% and underlying profit up 27%. 5

6 Sanitas Seguros, our PMI business in Spain, has delivered strong performance in the first six months of This has been driven by a combination of enhanced sales due to our partnerships with SantaLucía and BBVA and our work on improving customer satisfaction, which has led to reduced lapses. We have also launched a number of successful digital products, designed for small medium enterprises, with significantly improved customer experience. Sanitas Hospitales delivered a solid performance. We are proud of our clinical excellence agenda and have achieved the +500 EFQM 6 Global Excellence certificate at our hospital in Manises (our public private partnership hospital in Valencia). Sanitas Hospitales is enhancing its digital capability, particularly with the acquisition of Healthia in February, a startup business which specialises in sports medicine services. Our Sanitas Dental business has delivered a good performance driven by the contribution of our dental insurance product and strong activity levels in our dental centres. Sanitas Mayores, our Spanish aged care business, has expanded through the acquisition of five Valdeluz Group care homes in Madrid. We now care for nearly 6,000 residents in 45 care homes and three day care centres in Spain. We have introduced new digital tools such as the Sanitas Mayores App, designed for families of care home residents enabling them to have day-to-day contact. Occupancy rates are around 95%. Bupa Chile has grown revenue this year, despite challenging market and political conditions. This is mainly driven by the higher premiums per member in Isapre and higher activity in both inpatient and outpatient businesses. The construction of Clínica Bupa Santiago is well advanced and the hospital is expected to be operational in In Poland, our LUX MED business has delivered good growth in revenue, primarily due to a good performance in our ambulatory business. Ambulatory revenues were driven by demand for our core subscription product, supported by a strong fee-for-service revenue stream. We have expanded our provision services, with the opening of a new oncology hospital in Warsaw in April. The Magodent oncology hospital has 178 beds and 38 chemotherapy chairs and provides patients with comprehensive diagnostics and treatment. International Markets: Revenue Underlying profit HY m 39.8m HY 751.1m 50.4m % growth/(decline) 15% (21%) In International Markets, while revenue grew 15%, underlying profit was down 21% predominantly due to challenges in Bupa Global. As signalled in our Directors Report for the year ended 31 December, Bupa Global continues to be impacted, in part, by our decision to exit non-strategic markets. There has been a shift in customer mix towards corporate customers, which has resulted in higher loss ratios. We have a performance improvement programme underway to strengthen our distribution capabilities, improve customer engagement and enhance our product and service offering. The acquisition of Care Plus in Brazil in late has had a positive impact on performance, with the integration into Bupa on track. In July, we took prompt steps to manage a Bupa Global customer data loss incident. We continue to review information security and data protection controls across our business. In June, we increased our stake in Bupa Arabia, our associate business in the Kingdom of Saudi Arabia (KSA), by 8% from 26.25% to 34.25% by acquiring a portion of Nazer Group s stake in the company. Bupa Arabia continues to deliver good customer and revenue growth 7 despite less favourable economic conditions and is now the largest health insurance provider in the KSA in terms of revenues, with over three million customers. 6 European Foundation of Quality Management. 7 While revenues from our associate and joint venture are excluded from our reported figures, customer numbers and the appropriate share of profit from these businesses are included in our reported numbers. 6

7 Despite a competitive market environment, the performance of Bupa Hong Kong is good, largely due to stronger renewals and improvements to the pricing of group schemes. We have also made a number of operational improvements, investing in IT and digital systems, risk and compliance frameworks, and customer service processes. Quality HealthCare has delivered good performance and continues to expand, with three new facilities opened. In India, our associate business MaxBupa, in which we hold a 49% stake, ended their financial year (31 March) with good growth in customers and revenues. The business recently signed a new bancassurance partnership with South Indian Bank and announced a three-way partnership for the creation of an integrated health and wellness ecosystem with GOQii, a fitness technology player, and Swiss Re. On 25 July 2017, we announced the divestment of Bupa Thailand. As this transaction completed in the second half of our financial calendar, the financial effect will be reflected in our 2017 Full Year results. FINANCIAL REVIEW We track performance against a number of key performance indicators which are aligned to our strategic vision. Against a difficult economic environment in the first half of 2017, we have deepened and strengthened our market positions in the core markets in which we operate. This investment in future growth has led to a reduction in Bupa s Solvency II coverage ratio at the half year while its balance sheet remains strong. In the period, revenue grew by 4% to 6.1bn (HY : 5.9bn) at constant exchange rates (CER) and we generated a statutory profit of 280.8m (HY : 185.7m AER). Underlying profit has grown by 12% to 380.7m (HY : 341.0m CER) as a result of growth in all our Market Units with the exception of International Markets, which continues to be impacted by challenges of Bupa Global s performance. Revenue is up 4% while underlying profit is up 10% at CER on a like-for-like basis when excluding our recent acquisitions (Oasis Dental Care and Care Plus) and the disposal of Bupa Home Healthcare in July. In February 2017, we completed the purchase of Oasis Dental Care while in June 2017 we increased our shareholding in Bupa Arabia by 8% to 34.25%. We have continued to invest in our digital and technological resources to improve the customer experience, drive future growth, strengthen risk management and compliance capabilities and drive out more efficiencies. Summary of results Revenue 6.1bn Statutory profit before taxation 280.8m +4% CER (: 5.9bn) + 15% AER (: 5.3bn) + 51% AER (: 185.7m) Net cash generated from operating activities 577.3m Underlying profit m + 6% AER (: 547.0m) + 12% CER (: 341.0m) + 25% AER (: 303.8m) Bupa Finance plc senior debt rating Fitch A- Moody s Baa1 (stable outlook) (stable outlook) 8 To derive underlying profit, profit before taxation is adjusted for amortisation of intangible assets arising on business combinations, net property revaluation gains or losses, realised and unrealised foreign exchange gains and losses, gains or losses on return seeking assets, profits or losses on the sale of businesses and fixed assets, transactions costs on acquisitions and disposals, and restructuring costs. 7

8 Growth in underlying profit is underpinned by strong performances from Europe and Latin America; in particular Sanitas Seguros. In the UK, the Oasis Dental Care acquisition contributes to the positive variance, in addition to improved fee rates in Care Services, partly offset by an increase in operating expenses as a result of investing in compliance and risk management capabilities in our Health Insurance business. Growth in our Australia and New Zealand Market Unit is driven by Health Insurance which continues to be Australia s largest Health Insurer. In International Markets, while revenue grew 15%, underlying profit declined 21%, predominantly driven by challenges of Bupa Global s performance. Bupa Global continues to be impacted in part by our decision to exit non-strategic markets which led to high lapses in the period, and a lower rate of growth in some of Bupa Global s other market segments. We have also seen a change in customer mix with growth primarily in corporate customers, leading to overall higher loss ratios. Revenue in International Markets is benefiting from the acquisition of Care Plus in Brazil in late. Health insurance, which is our largest line of business, continues to perform well despite difficult trading conditions. Customer numbers have increased across all Market Units, with the exception of the UK where the market remains challenging in the face of recent increases in Insurance Premium Tax (IPT) which continue to impact affordability. We are continuing to invest in compliance and risk management capabilities, as upholding the highest standards is a key operating principle of our refreshed strategic framework. Our Australian Health Insurance business remains the country s leading provider, with 1% growth in customer numbers compared to the same period last year, despite slower overall growth in the market. Sanitas Seguros, our PMI business in Spain, has delivered growth driven by stronger partnership sales and increased focus on improving customer satisfaction, which has led to lower lapses. Bupa Chile, which is part of Europe and Latin America, has grown this year driven by higher premiums per member in Isapre. As mentioned earlier, and as anticipated in our Directors Report for the year ended 31 December in March, challenges in Bupa Global s performance more than offset growth in International Market s other health insurance businesses. Management is focused on improving performance by strengthening our distribution capabilities, improving customer engagement and enhancing our product and services. Our statutory profit before taxation of 280.8m (HY : 185.7m) is up 51% at actual exchange rates (AER). This reflects the good trading performance in our Market Units in the first six months of 2017 coupled with favourable foreign exchange movements, while our result was negatively impacted by a loss on the early redemption of the secured loan notes. This is partly offset by net property revaluations and foreign exchange losses, as well as higher amortisation of intangible assets. Our geographically diverse portfolio makes our results subject to fluctuations in foreign exchange rates. Compared to the same period in, sterling has declined against our major operational currencies, which has had a positive impact on the translation of results from our non-sterling operations. In particular, the continued impact of uncertainty due to the UK s decision to leave the European Union has had a significant effect on the average exchange rates between the two periods. Net cash generated from operating activities reflects these favourable foreign exchange movements which, together with our strong financial discipline, result in an increase in cash flows from operating activities of 6% to 577.3m (HY : 547.0m). Currency HY 2017 HY Change % AUD average rate % AUD closing rate % EUR average rate % EUR closing rate % USD average rate % USD closing rate % After the impact of foreign exchange is considered, notably a strengthening of the Euro, US dollar and Australian dollar compared with sterling, underlying profit increased 25% at AER. 8

9 Summary of results (AER) Six months ended 30 June Total revenues 6, ,299.9 Underlying profit before taxation Non-underlying items (99.9) (118.1) Profit before taxation m m In the first six months of 2017 we have undertaken a number of key transactions in line with our strategic framework. In February we completed the purchase of Oasis Dental Care in the UK, and also increased our shareholding in Bupa Arabia by 8% (to 34.25%) in June. In the UK we continue to actively manage our Care Services portfolio, which resulted in a number of homes being identified for sale at year end and again at the 2017 half year. On 25 July we announced that we completed the disposal of our Thai insurance business. Strong financial management has allowed us to support these transactions. Bupa s estimated Solvency II surplus of 1.3bn (FY : 2.1bn), represented a coverage ratio of 160% (FY : 204%). The decrease in the coverage ratio reflects the investment in Oasis Dental Care and the additional 8% shareholding in Bupa Arabia, as Bupa proactively increased the ratio ahead of year end, by issuing tier 2 subordinated debt, in preparation for subsequent investment in growth. Our leverage ratio has increased to 31.4% compared to 23.7% at 31 December, driven by increased borrowings as a result of the aforementioned transactions. Non-underlying profit items In order to reflect trading performance in a consistent manner year-on-year, a number of non-trading items that limit comparability are removed from our reported profit to arrive at underlying profit. These items are presented in the table below: Six months ended 30 June (AER) 2017 m Amortisation of intangible assets arising on business combinations (32.7) (22.9) m Net losses on disposal of businesses and transaction costs on business combinations (9.1) (2.6) Net property revaluation (losses)/gains (42.4) 3.6 Realised and unrealised foreign exchange losses (26.9) (0.8) Other Market Unit and central non-underlying items 0.3 (0.8) Early termination of secured loan notes - (112.3) Gains on return seeking assets, net of hedging Total non-underlying profit items (99.9) (118.1) Following the reclassification of a number of UK care homes as assets held for sale, a 49.2m adjustment was recognised within net property revaluation losses in 2017, including expected sales costs. Realised and unrealised foreign exchange losses were 26.9m compared to 0.8m at half year. The variance is mostly attributable to foreign exchange losses on monetary assets in Bupa Global (denominated in USD), as a result of the appreciation of the GBP (closing rate as at December versus June 2017), when compared to the depreciation of GBP in the same period last year (closing rate as at December 2015 versus June ). The gains on return seeking assets were 10.9m (HY : 17.7m), driven by our corporate bond and emerging market debt exposure. In 2017 we continue to actively manage the portfolio, consistent with our investment risk appetite and in line with our views of prospective asset class returns. To provide further period-on-period context, in there was a net loss of 112.3m on the redemption of the secured loan notes (HY 2017: nil). 9

10 Taxation Our effective tax rate for the period was 25.6% (HY : 25.3%), which is higher than the weighted average UK corporation tax rate of 19.25%, mainly due to impairments (which do not qualify for taxation relief) and profits arising in jurisdictions with a higher rate of corporate income tax. Funding We manage our funding prudently to secure a sustainable platform for our continued growth. A key element of our funding policy is to target an A-/A3 senior debt rating for the Company, the main issuer of Bupa s debt. There has been no change to the ratings since 31 December : the Company is currently rated A- (stable) and Baa1 (stable) by Fitch and Moody s respectively. On 17 January 2017, the Company entered into a 650m acquisition financing facility to part fund the purchase of Oasis Dental Care. Further drawings were also made under the existing 800m revolving credit facility to fund the acquisition. A new 300m, senior, unsecured bond was issued in April, the proceeds of which were used to partially repay the acquisition financing. In June, approximately 195m of the 800m revolving credit facility was drawn down and used to fund the increased shareholding in Bupa Arabia. At 30 June 2017, 395m was drawn under the 800m facility, including outstanding letters of credit of 6.4m, and 353.2m under the acquisition facility. We also took the opportunity in the period to extend the final maturity of the 800m revolving credit facility by a further year. It is now due to mature in August We focus on managing our leverage in line with our rating target. Leverage at the half year was 31.4% (FY : 23.7%). This increase is largely due to additional borrowings as a result of the acquisition of Oasis Dental Care as well as the increased shareholding in Bupa Arabia. Coverage of financial covenants remains considerably within levels required by Bupa s bank facilities. Cash flow Net cash generated from operating activities for the six months to 30 June 2017 has increased by 30.3m compared to the same period in to 577.3m. This reflects a combination of favourable FX movements and increased customer premium prepayments in Australia and New Zealand and improved working capital movements in the UK. Net cash used in investing activities has increased by 950.2m compared to half year, which reflects our significant investment in the last six months. The increased outflow is driven by the acquisition of Oasis Dental Care for 575.4m (net of cash acquired). Bupa s purchase of five new care homes in Madrid and the additional 8% shareholding in Bupa Arabia, which took place in June this year, also contribute. Movements in financial investments and deposits with credit institutions reflect expected net purchases in the first six months of the year, whereas the first half of focused on sales of financial investments to make cash available to repay interest bearing liabilities. Cash inflows from financing activities in the first half of 2017 have increased by 1,101.7m compared to half year. This is a result of entering into a 650m acquisition financing facility to part fund the purchase of Oasis Dental Care, the issuance of a senior unsecured bond of 300m on 5 April 2017, as well as one off repayment of the secured loan notes in. The Group have maintained a solid cash position throughout the period increasing 17% to 1,649.0m from the year end. Cash and cash equivalents, in addition to the Group s financial investments and longer term deposits, continue to be managed conservatively, in line with a clearly articulated risk appetite. The Group actively manages counterparty exposures and cash is only invested with counterparties rated A/A2 or higher, unless approved by the relevant investment committee of Bupa. 10

11 Solvency Bupa s estimated Solvency II surplus capital as at 30 June 2017 was 1.3bn, compared to 2.1bn at 31 December. This represents a solvency coverage ratio of 160% ( FY: 204%). Bupa proactively increased the ratio ahead of year end, by issuing tier 2 subordinated debt, in preparation for investment in growth in As expected, the purchase of Oasis Dental Care in February and an additional shareholding in Bupa Arabia has reduced Bupa s coverage ratio at June Outlook Against the backdrop of challenging market conditions and uncertain economic outlook, we are committed to growth in our core markets along with having a strong and resilient balance sheet and solvency coverage ratio for Bupa. At the same time, we are focused on improving Bupa Global s performance and continue to integrate businesses such as Oasis Dental Care and Care Plus. The investment in digital and technology will continue not only to respond to needs of the customer but also to generate synergies within the business. Overall, we are committed to strong and sustainable business performance achieved through focus, financial discipline and operational excellence. Business risks The principal risks faced by the Group are set out in the Principal risks and uncertainties section of the Group Directors Report and Financial Statements. There have been no significant changes to the nature of the risks mitigated through holding economic capital. The most significant of these quantifiable risks facing the Group remain property risk and insurance risk, reflecting the significant property portfolio, mainly care homes, owned by the Group and the potential volatility of insurance claims. Movements in property markets aside, exposure to investment market fluctuations is relatively low as the Group s bond portfolio is small in relation to its other financial assets and is of investment grade. The most significant risks currently facing the Group have not changed materially since December. Bupa has an established enterprise wide process for identifying and managing all business risks, including all aspects of operational risk, including conduct, information security, and clinical risk. Economic and geo-political conditions are evolving in the markets in which the Group operates and could impact our business model. These include structural market changes (e.g. political change, medical inflation, minimum wage increases) and economic volatility. We continually review our strategy and processes to ensure that they are flexible enough to take account of changing external conditions. A year on from the UK s EU referendum and following the recent UK general election, the Group continues to see a strengthening across all our key financial metrics due to the weakening of sterling. Weaker sterling leads to higher statutory profit and cash flows. Liquidity remains strong and the investment portfolio is largely cashbased and low risk. The formal process for the UK leaving the EU was triggered by the UK Government at the end of March Negotiations between the UK Government and remaining EU27 started in June, with much uncertainty surrounding limitations of movement of people and workers, regulation of financial services (passporting) and the wider impact on the UK economy. There will be operational, commercial and legal impacts for Bupa from the UK s eventual exit from the EU and we are working through and contingency planning for those implications. Like most organisations, the Group faces competition in its insurance, provision and care services businesses, which can affect customer acquisition and retention and erode margins. A lack of competition among hospitals 11

12 and other suppliers can also lead to higher claims costs for insurance businesses. The regulatory focus applied to the Group and other companies operating within the same markets continues to increase. The new EU General Data Protection Regulation will come into force in May 2018 and we are focused on ensuring that our data protection controls across our business meet the needs of our customers and regulators locally and globally. In continuing to monitor and manage all of our risks, we seek to ensure that we are meeting the evolving expectations of our customers, investors and regulators. 12

13 BUPA AROUND THE WORLD Bupa is organised across four Market Units: Australia and New Zealand Bupa Health Insurance, the leading health insurance provider in Australia with more than four million customers, which also offers health insurance for overseas workers and visitors. Bupa Health Services, a health provision business which comprises Bupa Dental, Bupa Optical, Bupa Medical Visa Services and Bupa Medical GP Clinics. Bupa Aged Care Australia, one of the largest privately-owned residential aged care providers, caring for nearly 7,000 residents across 71 homes. Bupa New Zealand, a leading aged care provider caring for over 4,000 people in 61 homes, 34 retirement villages, seven rehabilitation sites and a medical alarm network. UK Bupa UK Insurance, the leading health insurer with 2.3 million customers. Bupa Care Services, caring for over 17,000 people in 270 homes, 28 retirement villages, seven Richmond Villages and 21 Goldsborough Estates retirement and assisted-living properties. Bupa Dental UK, the purchase of Oasis Dental Care completed in February 2017 and we now operate around 420 practices, with over two million dental patients. Bupa Cromwell Hospital, a complex care hospital in London providing care for insured, self-pay, NHS and international patients. Bupa Health Services, health clinics and wellness centres. Europe and Latin America Sanitas Seguros, the second largest health insurance provider in Spain with 1.7 million customers. (Including traditional PMI and Oral Health Insurance). Sanitas Hospitales and New Services, four private hospitals, 34 private medical clinics and two public- private partnership hospitals in Spain. Sanitas Dental, dental insurance and provision through 183 centres and third-party networks in Spain. Sanitas Mayores, caring for nearly 6,000 people in 45 care homes and three day care centres in Spain. LUX MED, the largest private healthcare business in Poland with eight hospitals and 194 private clinics. Bupa Chile, a leading health insurer and provider with three hospitals and 38 medical clinics. International Markets 9 Bupa Global, serves 1.5 million international health insurance (IPMI) customers and also administers travel insurance and medical assistance for individuals, small businesses and corporate customers. Bupa Arabia, an associate business, in which Bupa has a 34.25% stake; the largest health insurance business in Saudi Arabia. Max Bupa, an associate business in India, in which Bupa holds a 49% stake; a leading private health insurer. Bupa Hong Kong, a leading private health insurer in Hong Kong. Quality HealthCare, the leading private clinic network in Hong Kong. Bupa China, our representative office in China. 9 On 27 July 2017, Bupa announced the divestment of its Bupa Thailand business to Aetna. 13

14 (Company No ) Condensed consolidated half year financial statements (unaudited) Six months ended 30 June

15 Condensed Consolidated Income Statement (unaudited) For six months ended 30 June 2017 For six months ended 30 June For year ended 31 December Note m m m Revenues Gross insurance premiums 4, , ,044.3 Premiums ceded to reinsurers (31.5) (25.4) (53.9) Net insurance premiums earned 4, , ,990.4 Revenues from insurance service contracts Care, health and other revenues 1, , ,038.8 Total revenues 2 6, , ,047.9 Claims and expenses Insurance claims incurred (3,588.4) (2,994.2) (6,332.9) Reinsurers' share of claims incurred Net insurance claims incurred (3,565.6) (2,974.2) (6,290.0) Share of post-taxation results of equity accounted investments Other operating expenses (2,182.7) (2,041.9) (4,091.1) Other income and charges 3 (52.7) (5.4) (38.0) Total claims and expenses (5,789.6) (5,013.5) (10,388.8) Profit before financial income and expense Financial income and expense Financial income Financial expense (46.8) (206.9) (240.8) Net financial expense 4 (8.1) (100.7) (28.7) Profit before taxation expense Taxation expense 5 (72.0) (47.1) (153.9) Profit for the financial period Attributable to: Bupa Finance plc Non-controlling interests Profit for the financial period The above Condensed Consolidated Income Statement should be read in conjunction with the accompanying notes. 15

16 Condensed Consolidated Statement of Comprehensive Income (unaudited) For six months ended 30 June 2017 For six months ended 30 June For year ended 31 December m m m Profit for the financial period Other comprehensive income/(expense) Items that will not be reclassified to the Income Statement Remeasurement losses on pension schemes - (0.7) (10.9) Unrealised gains/(losses) on revaluation of property 4.9 (2.0) 63.5 Taxation (expense)/credit on income and expenses recognised directly in other comprehensive income (1.1) (0.6) 11.5 Items that may be reclassified subsequently to the Income Statement Foreign exchange translation differences on goodwill Other foreign exchange translation differences Net loss on hedge of net investment in overseas subsidiary companies (15.1) (62.8) (86.7) Change in fair value of underlying derivative of cash flow hedge Reclassification of foreign exchange translation differences to profit or loss on disposal of subsidiary Unrealised gains/(losses) on available-for-sale assets (0.2) Taxation expense on income and expenses recognised directly in other comprehensive income (0.1) (0.1) (0.2) Total other comprehensive income Comprehensive income for the period ,246.6 Attributable to: Bupa Finance plc ,227.6 Non-controlling interests Comprehensive income for the period ,246.6 The above Condensed Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 16

17 Condensed Consolidated Statement of Financial Position (unaudited) as at 30 June 2017 At 30 June 2017 At 31 December (restated 1,2 ) At 30 June (restated 1 ) Note m m m Intangible assets 9 4, , ,167.8 Property, plant and equipment 10 2, , ,051.7 Investment property Equity accounted investments 13e Post employment benefit net assets Restricted assets Financial investments 15 2, , ,216.8 Derivative assets Deferred taxation assets Assets arising from insurance business 6 1, , ,543.5 Inventories Trade and other receivables Cash and cash equivalents 7 1, , ,365.9 Assets held for sale Total assets 15, , ,930.1 Subordinated liabilities 16 (1,321.1) (1,316.7) (936.4) Other interest bearing liabilities 16 (1,627.2) (604.9) (1,051.2) Post employment benefit net liabilities 12 (18.8) (19.0) (8.2) Provisions under insurance contracts issued 11 (3,379.7) (2,627.7) (3,113.1) Derivative liabilities (32.4) (22.0) (76.7) Provisions for liabilities and charges (121.9) (93.9) (103.8) Deferred taxation liabilities (200.9) (168.7) (184.2) Trade and other payables (1,746.1) (1,700.2) (1,553.9) Other liabilities under insurance contracts issued (199.4) (143.0) (153.1) Current taxation liabilities (67.5) (54.7) (33.0) Liabilities directly associated with assets held for sale 14 (91.0) (45.5) - Total liabilities (8,806.0) (6,796.2) (7,213.6) Net assets 6, , ,716.5 Equity Called up share capital Property revaluation reserve Income and expenditure reserve and other reserves 4, , ,401.4 Cash flow hedge reserve Foreign exchange translation reserve Equity attributable to Bupa Finance plc 6, , ,687.9 Equity attributable to non-controlling interests Total equity 6, , , Please refer to Note 1.1 Basis of preparation for details of the change to a liquidity presentation. 2 Restatement following finalisation of the purchase price allocation exercise for Care Plus. See Note 13 for further detail. The above Condensed Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 17

18 Condensed Consolidated Statement of Cash Flows (unaudited) Operating activities For six months ended 30 June 2017 For six months ended 30 June For year ended 31 December Note m m m Profit before taxation expense Adjustments for: Net financial expense Depreciation, amortisation and impairment Other non-cash items Changes in working capital and provisions: Increase in provisions and other liabilities under insurance contracts issued Increase in assets under insurance business (567.0) (470.7) (50.0) Change in net pension asset/liability (0.2) (0.2) (0.2) Increase in trade and other receivables, and other assets (58.4) (37.6) (28.5) (Decrease)/increase in trade and other payables, and other liabilities (12.4) (50.9) 92.3 Cash generated from operations ,150.8 Income taxation paid (70.6) (62.6) (142.0) (Increase)/decrease in cash held in restricted assets 8 (11.5) 8.3 (3.8) Net cash generated from operating activities ,005.0 Cash flow from investing activities Acquisition of subsidiary companies, net of cash acquired 13 (616.8) (23.1) (127.5) Increase in equity accounted investments (197.1) (21.5) (31.8) Acquisition of non-controlling interests in subsidiary companies - (93.9) (95.1) Disposal of equity accounted investments Dividends received from associates Disposal of subsidiary companies net of cash disposed of Purchase of intangible assets 9 (36.0) (20.3) (81.5) Purchase of property, plant and equipment (170.5) (123.0) (345.6) Proceeds from sale of property, plant and equipment Purchase of investment property (14.7) (16.2) (37.7) Disposal of investment property Net purchase of financial investments, excluding deposits with credit institutions (31.0) (64.7) (142.7) Net withdrawal from deposits with credit institutions Interest received Net cash used in investing activities (1,015.8) (65.6) (272.1) Cash flow from financing activities Proceeds from issue of interest bearing liabilities and drawdowns on other borrowings 1, Repayment of interest bearing liabilities and other borrowings (380.3) (456.4) (903.8) Interest paid (41.6) (53.3) (100.9) Receipts from/(payments for) hedging instruments 5.5 (24.4) (77.7) Dividends paid (33.9) (53.6) (147.6) Dividends paid to non-controlling interests (3.6) (1.9) (2.1) Net cash generated from/(used in) financing activities (423.4) (676.1) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period 1, , ,185.6 Effect of exchange rate changes Cash and cash equivalents at end of period 1 7, 14 1, , , Cash and cash equivalents includes 28.7m of assets held for sale (: nil). The above Condensed Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 18