UK care industry in “serious position,” says Bupa CEO
The CEO of Bupa, Stuart Fletcher, spoke of his concern for the UK care industry, after the latest half-year results revealed 10% fall in UK profits, despite a 7% rise in global revenue at constant exchange rates. Half year sales to 30 June, 2015 came to £4,916m, up 7% on the first half of 2014. Taken at actual exchange rates, sales increased by 3%.
Underlying profit in the UK fell to £55m for the half year, on sales of £1,375m.
“The whole industry is in a very serious position,” Fletcher told Healthcare Europa in a wide-ranging interview.
“The funding shortfall is now at around £1.1bn, according to research by Lang & Buisson, up from around £850m at the end of 2012.”
On top of this deterioration, Fletcher says the government’s switch to a mandatory national living wage is unhelpful.
“The increase is a significant issue.”
“Local authority need to cover the additional costs and both local and central government levels need to be joined up.”
Recent acquisition, Richmond Care Villages, continues to expand with two new developments in Witney, Oxfordshire, and Aston-on-Trent, Derbyshire.
Richmond is a private pay model, however, with an array of care levels including assisted living.
In the insurance market, the number of holders of personal packages is at a ten year low, the government has increased insurance premium tax by 50% to 9.5% and healthcare costs remain significantly higher than most European markets.
“It is a fact that the individual insurance market is proving challenging,” said Fletcher.
This is the backdrop to the group’s new insurance offering, Bupa Fundamental, which is targeting demand for more affordable healthcare insurance products.
Its own research has found that 37% of 32-55 year olds, would be more likely to have PHI if it were more affordable.
“The product covers specific conditions without the same degree of coverage as other PHI policies, and that is how we are able to afford lower, more affordable premiums.”
Revenue was up 3% in its insurance business and patient numbers grew.
Open referral systems, which were first introduced at scale by Bupa, are an effective cost-saving measure, he added.
Margins in corporate health insurance have narrowed, however, and last year Bupa said that hospital prices need to fall by 15% to allow PHI to grow.
We hear that the corporate market is still relatively underdeveloped, and broadening coverage beyond top executives is a potential growth driver.
Fletcher confirmed they were keen on the corporate insurance sector, but argued they had always been strong in this arena.
One example is the recent launch of Bupa Boost, a “digital platform designed for employers to engage their people in their personal health and wellbeing,” which promises to tap into the wellness market and reduce healthcare expenditure.
More acquisitions in Poland
International Development Markets (IDM), which includes Poland, Saudi Arabia, Hong Kong, Thailand and India, saw sales growth of 6% and customer growth of 25%.
Sales reached £270m in this business unit, helped by a return to profits and an increase in customers to 10.5m.
The PHI market is expected to grow by 15% per annum in emerging Asia according to Swiss Re, and 33% growth in patient numbers was recorded in its Saudi Arabian business, Bupa Arabia.
Mandatory health insurance was introduced in the country six years ago fuelling the PHI market.
In Poland, Fletcher batted off reports the corporate subscription market has entered difficulties.
“We have no concerns over the subscription market.”
On the prospect of the government opening up the PHI market with incentives he said “growing PHI has been talked about for the last 2-3 years, with no result, and nothing will happen this side of the election.”
“Very few people have PHI in Poland at the moment, it’s a small market.”
“It is different to what LUX MED is doing, as it is a specialist subscription provider that doesn’t fund treatment at acute care hospitals. But we would be happy for PHI to come in, as we know that market.”
“The ink is still fresh” on the acquisition of Magodent, a set of two oncology hospitals in Warsaw, with 120 beds, and an outpatient clinic, that sees around 60,000 patients a year.
Added to earlier acquisitions in outpatient and diagnostics services, Bupa is rapidly building a national presence across a wide range of sub-sectors.
“We bought LUX MED as a platform asset, and now we are starting to expand the range of our facilities. We are looking at specific sub-sectors and regions, such as cancer and eastern Poland.”
The Polish government has targeted improvements in oncology, due to some of the lowest cancer survival rates in the world.
Mixed bag in Lat-Am and Australia
A number of regulatory changes have also hindered progress in Australia and New Zealand, Bupa’s largest market, where profit fell by 8%.
The presentation acknowledged that “there is margin pressure” across the PHI industry in Australia, but Fletcher said the market performed well.
“There was a profit decline in Australia and the economy is doing badly, but that was down to one-off factors in 2014. Actually we are doing well in that market, and revenue was up 9% including New Zealand.”
Politics presents the main concerns in Spain, where recent elections leave left-wing regional governments, threatening the private healthcare industry.
Although unconsolidated results for the country are not disclosed, Fletcher maintains the market is in good health.
“Spain is doing well: the economy is improving and we are gaining customers and managing costs.”
Bupa acquired the Virgin Del Mar hospital in Sept 2014, and it says it’s investing €7m in infrastructure and new equipment.
Strong growth of 17% was recorded in both profits, sales and customers in this business unit, leading to profits of £57m, sales of £940m and 4.2m customers.
Future expansion
With strong growth of PHI expected in emerging markets, and ongoing regulatory challenges in the established markets of UK and Australia, many will expect a shift in Bupa’s focus.
Fletcher was adamant that this is not the case and it is remains committed to its core markets.
“Customer numbers grew in all our largest markets, so I don’t accept that they are not growth markets. We are absolutely not dependent on emerging markets.”
“Going forward we are interested in the same markets we have said in the past, and we have a level of global expertise that makes us believe we can make a lot happen.”
“We have brought in new distribution channels, such as our partnership with Hang Seng Bank in Hong Kong, and we are keen to explore bank assurances more widely.”
The Bupa Global business unit saw sales fall 6% to £480m, despite profits rising 24% to £51m.
Its syndicated revolving credit facility of £800m has been extended by three years to 2020, strengthening the group’s capital position.
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