BUPF.L Regulatory News (BUPF)

CONTINUED GLOBAL GROWTH

HIGHLIGHTS

o Revenue £4.9bn, up 7% at constant exchange rates (CER)1; up 3% at actual exchange rates (AER)

o Underlying profit2 before taxation £295.3m up 3% at CER (2014 HY: £285.4m); steady at AER (2014 HY: £296.1m)

o Statutory profit before taxation £297.5m down 3% at AER (2014 HY: £305.2m)

o 25.3m customers, up 14%, including 5.4m from joint ventures and associates (2014 HY: 22.2m, 2014 FY: 28.7m)

o Net cash flow from operations of £480.2m down 16% at AER (2014 HY: £572.4m)

Performance overview:

We've made steady progress in the first half of 2015, despite a challenging backdrop, delivering revenue and underlying profit growth at CER and maintaining strong market positions underpinned by a robust balance sheet. This demonstrates the benefit of our diverse footprint spanning multiple geographies across health insurance and healthcare provision. Looking forward, while market conditions remain challenging in a number of our markets, our customer focus, international scale, market leading positions, and strong financial management mean we are positioned to deliver continued revenue and profit growth.

Market Unit performance

o Revenue growth in our largest Market Units: Australia and New Zealand (up 9%); the UK (up 3%); and Spain and Latin America (up 17%). Underlying profits are down in Australia and New Zealand (down 7%) due to a non-recurring benefit in 2014, following a change in regulatory requirements, and in the UK (down 6%) reflecting market challenges. We continue to focus on improving customer experience and are working to address increasing affordability pressures.

o Revenue growth of 6% in International Development Markets (IDM), with particular strength in Poland and Hong Kong. We are seeing strong sales growth across the Market Unit's insurance businesses, and are benefiting from our distribution partnerships.

o In Bupa Global, following our 2014 decision to exit non-strategic geographies and re-price a number of loss-making corporate accounts, underlying profit increased 25% despite the decline in revenue of 6%.

Operational highlights

o Bupa Chile integration completed.

o Launched new tiered international health insurance products in the UK, Hong Kong, Mexico and Chile.

o Ten-year distribution agreement with Hang Seng Bank in Hong Kong performing well.

o Launched Bupa Boost in the UK, a digital platform designed for employers to engage their people in their personal health and wellbeing.

o Expansion in dental with 12 new centres in Australia, six in the UK, and three in Spain, bringing our total to 426 globally.

o Preparation for Solvency II is well underway and demonstrates that Bupa will be well capitalised under the new regime.

o In July we acquired Magodent, a specialist oncology provider in Poland that will strengthen LUX MED's ability to offer end-to-end cancer care.

Financial position

o Bupa as a whole, which includes Bupa Finance plc and its subsidiaries, has maintained a strong capital position with 321% coverage of Insurance Groups Directive (IGD) capital requirement (FY 2014: 319%).

o Leverage ratio steady at 28.8% in the first half of the year (2014 FY 28.5%, HY 31.9%).

o Key credit ratings maintained with Fitch (A-) and Moody's (Baa2) relating to senior debt issued by Bupa Finance plc.

o Statutory profit has been adversely affected by foreign exchange losses primarily on the retranslation of our US dollar liabilities as a result of the strengthening of the dollar against sterling.

o Net cash generated from operating activities of £480.2m remains strong; £92.2m reduction reflects non-recurrence of significant receipts in the first half of 2014, lower cash flows in the first half of 2015 following re-pricing in Bupa Global of a number of loss-making accounts and adverse foreign exchange impacts.

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 'Bupa Finance'). The immediate and ultimate parent company of Bupa Finance plc is The British United Provident Association Limited, which is also the ultimate parent company of Bupa as a whole.

Approximately 72% of revenue is from health insurance, with the balance coming from healthcare provision. This includes our 15 hospitals, 318 clinics, 445 care homes and 32 retirement villages, 426 dental centres, and 32 optical outlets.

We have 29 million3 customers in 190 countries in 2014. Bupa Finance reinvests its profits to fulfil Bupa's purpose.

MANAGEMENT REVIEW - CONTINUED GROWTH STRENGTHENING OUR POSITION AS A GLOBAL HEALTH AND CARE COMPANY

We have made steady progress in the first half with revenue up 7% at CER at £4.9bn and underlying profit at £295.3m, up 3% at CER despite challenging market conditions in Australia, the UK and Spain. Statutory profit is down 3% at AER primarily driven by the impact of foreign exchange movements.4

We are investing in the fundamentals to build our platform for growth including improving operating effectiveness, managing costs, and building sales capabilities and distribution partnerships. Bupa Aged Care Australia is seeing increased efficiency from its investment in a repeatable model across its care homes. We are experiencing increased sales in the UK corporate and SME health insurance sectors. Profit growth in Spain and Latin America is largely driven by a reduction in operating costs in Sanitas health insurance. In IDM and Bupa Global, we are expanding the reach of our products through new distribution channels. As a result of our strong focus on reducing costs in Bupa Global, operating expenses have reduced year on year, notwithstanding our investment in organisational change and operational effectiveness.

We remain focused on innovation and delivering improved customer experience. So far this year, we have launched:

o Our new tiered international health insurance products to individuals in the UK, Mexico, Hong Kong and Chile, allowing customers to tailor their level of cover to their healthcare needs, providing greater simplicity and control;

o An expansion of Bupa Medical Visa Services to include medicals for Australians travelling to Canada or New Zealand;

o Bupa Boost, a digital platform for UK employers to engage their entire workforces in health and wellbeing;

o Bupa Fundamental Health Insurance, a new entry-level insurance product for the UK, to meet demand for more affordable health insurance5;

o Sanitas Global Care, a worldwide insurance product aimed exclusively at companies in Spain;

o Sanitas Profesionales, offering both complete and customised cover for Spanish entrepreneurs and the self-employed;

o A series of fee-for-service clinics under the Profemed brand, in Poland, offering a range of services including sports and rehabilitation services, dental treatment and aesthetic medicine.

Delivering in a challenging operating environment

The operating environment remains challenging in many of our markets, but we continue to grow and maintain our strong market positions.

The Australian economy is growing more slowly than historically, with consumer confidence down. We are seeing increasing downgrades and discontinuances in health insurance as affordability pressures increase, price comparators who are focused on budget offerings extend their influence, the cost of care increases and competition intensifies, driving margin pressure across the industry. Despite this, we have maintained market share in our health insurance business.

While the UK health insurance market has seen an overall decline over the last decade, we are starting to see signs of growth in the corporate and SME segments. We continue to work across the sector to reform and improve affordability for customers with our drive to reduce healthcare costs, including those charged by private hospitals, a major part of total costs. The increase in Insurance Premium Tax (IPT) from November though, will add further pressure to the affordability of health insurance.

Economic conditions continue to improve in Spain and, although still a challenging environment, the economy has outperformed GDP growth forecasts and unemployment rates have fallen. However the Spanish health insurance market had relatively low growth rates compared to historic levels while seeing significant price competition. Recent political changes have introduced some uncertainty in working with government, particularly affecting public-private partnerships (PPPs).

We are seeing regulatory reform in a number of our markets, including Poland, Hong Kong, Saudi Arabia, Chile and Thailand with growing government recognition of the need to meet the changing healthcare demands of populations, while also funding the needs of their ageing societies.

International private medical insurance remains a growth area with over 232m international migrants in the world today6, assignments abroad expected to double over the decade7 and an increasing number of globally-minded and mobile individuals. We anticipate these trends will drive demand for corporate and individual international private health insurance.

In aged care, public funding pressures in the UK mean that local authority fees for care services are often below the true cost of delivering care and this is compounded by the impact of inflation on operating costs. The cost of delivering care in the UK will also be adversely impacted by the recently announced move to a National Living Wage for people aged 25 and over from next year and fees from local authorities will need to increase to cover this additional cost. In New Zealand, government health policies encouraging care at home have led to lower care home occupancy across the sector. In Australia, we are mitigating the effect of the removal of dementia and payroll tax supplements implemented from 1 January 2015.

Outlook

Looking forward, while we anticipate market conditions will remain challenging particularly in Australia, the UK, and Spain, we are confident that our international scale and market leading positions, supported by our robust balance sheet, mean we are positioned for continued revenue and profit growth.

MARKET UNIT OVERVIEWS

Australia and New Zealand

Australia and New Zealand generated good revenue growth during the period, up 9% in a challenging and competitive market. This was driven by health insurance which accounts for over 80% of revenue in the Market Unit. We are seeing sector-wide increases in downgrades and discontinuances in health insurance due to affordability pressures, resulting in margin pressure across the industry. Underlying profit declined by 7% at CER; in 2014, profit benefited from a change in regulation which enabled us to reassess the amount of money held as a risk margin against the provision for claims.

We focused on improving customer experience including developing our digital capabilities and attracting a wider section of Australia's growing multicultural population, where we see significant opportunities for the health insurance business. In care services, we are mitigating the effect of the removal of dementia and payroll tax supplements implemented earlier this year in Australia, while in New Zealand, government health policies encouraging care at home have led to lower care home occupancy across the sector.

We continue to expand our provision businesses, acquiring 12 dental practices and fully re-branding four clinics as Bupa Dental. We opened five Bupa Optical stores and two new care homes in Australia. We are also planning to open additional GP clinics in the second half of 2015. In New Zealand, we opened two new care homes and expanded a number of sites. Bupa Medical Visa Services expanded to include medical assessments in Australia for visa applicants to Canada and New Zealand. During the first half of the year, we launched Bupa Hearing in three of our retail stores in Melbourne, a pilot aimed at supporting customers dealing with hearing loss.

UK

Revenue in the UK has been steady over the first half of 2015, with growth across all businesses. Despite continued challenges in the market, there has been growth in insurance customer numbers. Revenue is up 3%, driven by growth in SME and corporate health insurance products, partially offset by the continuing market decline in individual health insurance sales. Home Healthcare contract wins and growth from dental centres acquired in 2014 also made a positive contribution. Underlying profit was down with growth in home healthcare and care services offset by narrowing margins in corporate health insurance, due to lower prices and slightly higher than expected claims costs, and increased costs in staff and equipment to support growth in our clinics. Profit growth in care services benefited from Richmond Care Villages, however, local authority fee levels remain a significant issue in light of inflationary pressures on care costs. This situation will be impacted further by the recently announced move to a National Living Wage for people aged 25 and over from next year and fees from local authorities will need to increase to cover this additional cost.

We continue to adapt to meet customers' changing needs and to help meet some of the UK's biggest healthcare challenges. This includes looking for ways to improve affordability across the private health sector for the benefit of customers, but the announcement of the rise in IPT will increase the pressure on premiums. We continue to call for the sector to work together for fundamental reform, and we are seeking significant price reductions from major hospital providers for the benefit of our customers. We are expanding our dental services, investing nearly £7m in three new dental centres in Bristol, London and Essex, and acquiring an additional three new centres in London and Kent, taking our UK total to 39. Our new £3.0m flagship health and dental centre in Canary Wharf opened in August. As part of our commitment to providing even better services for older people, we have completed 19 care home refurbishments so far in 2015, with seven more underway, and plan to start up to 15 more before the end of the year. We are also constructing two new Richmond Care Villages (Witney, Oxfordshire and Aston-on-Trent, Derbyshire) with strong initial sale levels.

Spain and Latin America Domestic

In Spain and Latin America Domestic, performance was resilient, with strong growth in revenue, customers and profit. Revenue growth was largely driven by the full six month contribution from Bupa Chile8 and the Virgen Del Mar Hospital9, supported by growth in Sanitas Dental. We maintained high occupancy levels in Sanitas Residencial, up 2.8% on HY 2014 as we realised the benefits of our focus on sales to the private market. Our strong focus on operational efficiency has led to a reduction in costs which, together with lower claims in Sanitas health insurance, has driven profit growth.

In Sanitas Residencial, we expanded our pioneering day care centre service, opening three new centres that offer non-residential services for older people, including therapies, rehabilitation, and leisure activities. We have also created a new family assistance service to address some of the main concerns of our hospital patients, helping them to run their daily lives and supporting their families with housework, school runs, childcare, and home delivery of medicines. This allows our patients to focus on their recovery, knowing that their families are cared for.

In Chile, we continued construction of Clίnica Bupa Santiago, our new flagship hospital. This has a planned capacity of 460 beds, more than double our current capacity in Chile. We also launched Salud Global, the first tiered range of international private medical insurance products in the Chilean market, in conjunction with the Bupa Global Market Unit.

International Development Markets

Our IDM businesses performed well, increasing revenue, customers and underlying profit as we continued to develop our businesses in key growth markets. Revenue growth was primarily driven by Hong Kong and Poland, partly offset by the absence of our Health Dialog business, which was sold in March last year. Excluding the disposal of Health Dialog, we saw double digit revenue growth of 11% at AER. Revenue growth including revenue from our associate and joint venture was 21%10. Insurance customers increased by 28%, reflecting strong sales growth across IDM's health insurance businesses. We saw particularly strong growth in our Saudi Arabian associate business, Bupa Arabia, where customer numbers grew 33%, with growth in all segments: corporate, SME, and individual/family. Underlying profit growth was largely driven by a substantial performance in Bupa Arabia and the positive impact on earnings from the sale of the US operations of Health Dialog.

In Poland, we acquired Medicor, a medical company operating four health clinics in Rzeszów, the biggest city in southeastern Poland and TK-MEDYK, a diagnostic imaging company with an MRI centre in Opole, extending our geographic footprint. In July we completed the purchase of Magodent, a leading Warsaw-based oncology provider with two hospitals and an outpatient clinic. The acquisition complements LUX MED's existing capabilities and puts us in a strong position to deliver the type of coordinated oncology care which we know makes a difference to outcomes for people living with cancer.

In Hong Kong, we introduced Bupa Health Plus, a more flexible and affordable product that customers can tailor to their individual needs. We are also finalising our application with the Indian authorities to increase Bupa's shareholding in our joint venture Max Bupa, following the change to Foreign Direct Investment rules earlier this year.

Bupa Global

Underlying profit for Bupa Global, our international health insurance business, was up 25% due to the re-pricing of a number of loss-making corporate accounts, our 2014 decision to exit non-strategic markets and a continued focus on improving operational effectiveness and cost efficiencies. This was undertaken at a time of sustained investment in organisational change as we continued to regionalise our operations. The impact of exiting non-strategic markets, and a challenging period for new sales in certain segments, has contributed to revenue decline, despite strong renewals across all markets and segments in the first half of the year. Customer numbers have remained stable year on year, supported by growth in Hong Kong, where our health insurance products launched to Hang Seng Bank's customers in 2014 are performing well.

Bupa Global and Blue Cross Blue Shield Association11 entered into a strategic global partnership in early 2014, creating the largest combined healthcare provider network ever formed in the IPMI market. The new global provider network became available in January 2015 through co-branded products sold outside of the US12 to new Bupa Global customers, as well as existing customers transitioning to co-branded products throughout 2015.

In addition to launching our new tiered international health insurance products in the UK, Hong Kong, Mexico and Chile, we continue to regionalise our operations. Bupa Global Greater China is now established with customer and broker contacts migrated to the region and new sales, partnership and servicing capability in place. Bupa Global Middle East is evolving with a new local executive team in place as we look to build our position in the region.

Bupa Finance

Bupa Finance is organised across five Market Units, as follows:

Australia and New Zealand

· Bupa Health Insurance, a leading health insurance provider in Australia, which also offers health insurance for overseas workers and visitors

· Bupa Health Services, our health provision business, which comprises Bupa Dental Corporation, Bupa Optical, Bupa Medical Visa Services, Bupa Health Dialog and Bupa Medical GP Clinics

· Bupa Aged Care Australia, the largest privately-owned residential aged care provider, caring for almost 10,000 residents each year across 67 homes

· Bupa Care Services New Zealand, a leading aged care provider, caring for around 25,000 people a year in 60 homes, 27 retirement villages, seven rehabilitation sites and through its personal medical alarm network

UK

· Bupa Health Funding, offering health insurance and health funding products

· Bupa Care Services, caring for around 40,000 people each year in 280 homes

· Bupa Health Clinics, wellness centres, clinics, occupational health services and dental clinics

· Bupa Home Healthcare, providing out-of-hospital healthcare services to around 35,500 patients

· Bupa Cromwell Hospital, complex care hospital in London, providing care for insured, self-pay and international patients

Spain and Latin America 

· Sanitas Seguros, the second largest health insurance provider in Spain

· Sanitas Hospitales and New Services, four private hospitals, 20 private medical clinics, 19 health and wellbeing centres and two public-private partnerships (PPPs) in Spain

· Sanitas Dental, dental insurance services through 176 centres (111 owned and 65 franchises) and third-party networks in Spain

· Sanitas Residencial, caring for around 8,000 people every year in 40 care homes and three day care centres in Spain

· Bupa Chile, a leading health insurer and provider with three hospitals and 30 medical clinics, recently expanded provision operations to Peru (formerly Cruz Blanca Salud, acquired in February 2014)

International Development Markets (IDM)

· Bupa Arabia, an associate company in which Bupa has a 26.25% stake, and the largest health insurance business in Saudi Arabia

· LUX MED, the largest private healthcare business in Poland operating in health funding and provision

· Max Bupa, a 26:74 joint venture between Bupa and Max India Limited, offering private medical insurance

· Bupa Hong Kong, a leading specialist private health insurer in Hong Kong

· Quality HealthCare, a leading private clinic network in Hong Kong

· Bupa Thailand, a leading specialist health insurer

· Bupa China, our representative office in China

Bupa Global

International health insurance, travel insurance and medical assistance provided worldwide to individuals, small businesses and global corporate customers. Three operating units:

· Bupa Global North America, responsible for Bupa's (49%) investment in Highway to Health, Inc. in the US and the strategic global partnership with the Blue Cross and Blue Shield® (BCBS) system, the largest US-based health insurance group

· Bupa Global Latin America, the largest provider of international health insurance in Latin America

· Bupa Global Business Unit, oversees new regional operations in Greater China and the Middle East, as well as Africa, South East Asia and Europe

FINANCIAL REVIEW

Summary of results

Bupa Finance's statutory profit before taxation was £297.5m (HY 2014: £305.2m), with underlying profit before taxation of £295.3m (HY 2014: £296.1m) at AER. Profit exceeds that of Bupa as a whole as there are expenses incurred by the ultimate parent which are not included within Bupa Finance.

Revenue growth was achieved in all Markets Units except for Bupa Global, although underlying profit was steady at AER, driven by a number of factors. The strengthening of sterling against our major trading currencies had a significant impact, and challenging trading conditions in Australia and the UK resulted in lower profit margins. Profit for the first half of 2014 included a non-recurring benefit following a change in regulatory requirements in Australia. At CER, underlying profit increased by 3%. Statutory profit before taxation decreased by 3% at AER, reflecting lower underlying profit and net contribution of non-underlying items in 2015.

Non-underlying profit items

To reflect the trading performance of the business in a consistent manner, we adjust profit before taxation for amortisation and impairment of intangible assets arising on business combinations, impairment of goodwill, net property revaluation gains and losses, realised and unrealised foreign exchange gains and losses, gains or losses on return-seeking assets, profits and losses on sale of businesses and fixed assets, restructuring costs and transaction costs of acquisitions and disposals as follows:

1 Deferred consideration on 2007 disposal of Bupa Ireland Limited received in 2015 and sale of Health Dialog in 2014

2 Other includes central non-underlying costs, including £4.0m of foreign exchange gains

Non-underlying items for 2015 had a lower net contribution than in 2014, despite deferred consideration on Bupa Ireland Limited (£24.1m). This reflects foreign exchange losses (£13.3m), largely due to the US dollar strengthening against sterling in 2015 compared with a £7.2m gain in 2014 and 2014 profit on disposal of Health Dialog (£11.7m).

Financial income and expense

Net financial expense for the six months to 30 June 2015 was £18.2m (HY 2014: £12.3m), including £25.0m of net expense in underlying profit (HY 2014: £25.0m) and gains on return-seeking assets of £6.8m within the non-underlying items (HY 2014: £12.7m). The increased net expense is mainly due to a decline in interest income as a result of falling interest rates in Australia, lower gains in the UK return seeking asset portfolio and additional charges for a full period of expenses relating to the £350.0m bond issue (issued in June 2014) and Bupa Chile (acquired in February 2014). This has been partially offset by lower costs incurred up until June 2015 on the £800.0m revolving credit facility.

Taxation

Bupa Finance's effective tax rate for the period is 19.8% (HY 2014: 20.0%), which is lower than the UK corporation tax rate of 20% mainly due to tax credits recognised in the period partially offset by Bupa Finance's profits arising in jurisdictions with a higher rate of corporate income tax. Bupa Finance's effective rate of 19.8% is higher than the 2014 full year effective tax rate of 14.5% mainly due to the release of prior year tax provisions and recognition of tax credits in 2014.

Balance sheet, funding and solvency

Adverse movements in foreign exchange rates, primarily Australian dollar and euro against sterling, have reduced the net assets of Bupa Finance due to retranslation of our foreign subsidiaries into sterling.

The principal debt ratings relate to senior debt issued by the company. There have been no changes to the ratings during the period: the company is currently rated A- (stable) and Baa2 (stable) by Fitch and Moody's respectively.

Leverage at the half year was 28.8% (FY 2014: 28.5%). While borrowings have remained broadly unchanged, a decrease in net assets driven by adverse foreign exchange movements has led to a slight increase in leverage.

Bupa Finance's £800.0m bank facility was undrawn at 30 June 2015, with the exception of £6.4m of outstanding letters of credit required for general business purposes. Bupa Finance has recently extended this facility from 2017 to 2020, with the option of extending this further to 2022. This further enhances Bupa Finance's short-term liquidity position.

Cash and other financial assets are held principally to meet the liabilities and solvency requirements of Bupa Finance's regulated insurance entities. Cash and other financial investments as at 30 June 2015 totalled £3,359.5m (FY 2014: £3,449.6m). The portfolio remains conservative, with a large proportion being invested in highly-rated bank deposits and liquidity funds.

The total investment portfolio, including return seeking assets, produced an average return of 1.8% in the period (HY 2014: 2.4%). Security of the overall portfolio remains a key priority and prudent investment will continue: 91% of Bupa Finance's portfolio is held in counterparties rated A-/ A3 or higher.

As part of Bupa, solvency is monitored on an ongoing basis and the solvency headroom position for Bupa remained strong in the first half of 2015. Preparation for Solvency II is well underway and demonstrates that Bupa will be well capitalised under the new rules.

Cash flow

Note:

1 Capital expenditure includes the purchase of property, plant and equipment, intangibles and investment properties

Net cash generated from operating activities remains strong but has reduced by £92.2m compared to the particularly high level of cash generated in the first half of 2014. This reflects the non-recurrence of significant receipts in the first half of 2014 from local government and the public sector. It also reflects lower cash flows in the first half of 2015 in Bupa Global following the re-pricing of a number of loss-making accounts, and the impact of the weakening Australian dollar and euro on Market Unit foreign currency operating cash flows.

Cash used in investing activities has increased by £28.7m compared to the first half of 2014. The reduction in acquisition expenditure was more than offset by an increase in the cash invested in longer term deposits to achieve a better rate of return, and an increase in capital expenditure in UK care homes. We also received £24.1m in the period related to deferred consideration from the 2007 disposal of Bupa Ireland Limited.

Cash flows from financing activities have decreased by £166.9m compared to the equivalent period in 2014. The variance is due to debt restructuring in June 2014, where £350.0m was raised through a senior unsecured bond issue, a withdrawal of an additional £145.0m on the £800.0m revolving debt facility, and repayment of the balance on the £300.0m revolving loan facility. In the current period there have been no significant changes in borrowings. Financing cash flows primarily comprised of £47.4m of interest payments made during the current period, offset by £29.4m receipts from hedging activities.

We have maintained a strong cash position throughout the period whilst investing surplus cash into longer term deposits to achieve a better rate of return.

BUSINESS RISKS AND UNCERTAINTIES

The principal risks and uncertainties faced by Bupa Finance are set out in the Risks and Uncertainties section of the Bupa Finance plc Directors' Report and Financial Statements 2014.

Bupa maintains a well established process for identifying and managing all business risks, including all aspects of operational risk, such as conduct or cyber security risk, and clinical risk and we consider all of Bupa Finance's inherent risks as part of this process. This also includes effective oversight of the risks associated with the change programmes underpinning Bupa Finance's strategy.

Economic conditions may impact Bupa Finance's trading performance in Bupa Finance's insurance and care services businesses, reducing demand for insurance and constraining public support for healthcare services. In many markets in which Bupa Finance operates, the decisions of governments and regulators on issues such as tax relief and the pricing and regulation of health insurance, as well as care services fees and referrals continue to present a risk to some Bupa Finance's businesses. For example, in the UK, the recent Budget presented plans to increase the National Minimum Wage and introduce a National Living Wage in 2016. These changes, if implemented, are expected to put pressure on the cost of care within our UK care homes and fees from local authorities will have to increase to cover this additional cost. The Chancellor also announced that insurance premium tax will increase, impacting the affordability of all insurance products, including health insurance. To mitigate this risk, our businesses continue to develop differentiated products and services, focus on customer retention and continue to control costs carefully. 

Like most organisations, Bupa Finance faces competition in its insurance and care services businesses, which can affect customer growth and retention and erode margins. A lack of competition among hospitals and other suppliers can also lead to higher claims costs for insurance businesses.

A full copy of the Half Year Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at:

http://www.morningstar.co.uk/uk/NSM

Enquiries:

Tracey Crosier

020 7656 2310