new annual report and accounts 2009 - bupa · 2017. 9. 22. · uk and north america 2,131.4 emeala...

Bupa an

nual repo

rt and ac

co

un

ts 2009

The British United Provident Association Limited is a company limited by guarantee. Registered in England No. 432511

© Bupa ™® ‘Bupa’ and the Heartbeat logo are registered service marks

The world of Bupa

Registered office Bupa House

15–19 Bloomsbury Way London WC1A 2BA

For further copies of this document020 7656 2300

Press office020 7656 2454

www.bupa.com

RA / 2009

Financial health

protection

Care homes Health information

Travel insurance

Home healthcare

International health

insurance

Health coaching

Private health

insurance

Health assessments

Helping people live

longer, healthier, happier lives

annual report and accounts 2009

Designed, edited and produced by Wardourwww.wardour.co.uk

Printed in the UK by Royle Print Ltd, Environmental Management System ISO 14001 accredited and Forest Stewardship Council (FSC) chain of custody certified.

This report is printed utilising vegetable based inks on Revive 50:50 offset which is produced with 50% recycled fibre from pre-consumer sources, together with 50% TCF (Totally Chlorine Free) fibre from well-managed forests independently certified according to the rules of the Forest Stewardship Council.

ConTenTs

Business review 1 2009 Group highlights 2 Where we operate 4 Bupa facts and figures 5 Chairman’s statement 6 Chief Executive’s review

Case studies 8 Leading: Sanitas 9 Ethical: The Ecuador Challenge 10 Enabling: Bupa Home Healthcare 11 Dedicated: Bupa Latin America 12 Accountable: Health Dialog 13 Caring: Bupa Health and Wellbeing UK 14 Special: Bupa Australia 15 Respectful: Bupa Care Services

16 UK and North America 18 Europe, Middle East, Africa and Latin America 20 Asia Pacific 22 Care Services 24 Finance Director’s report 28 Business risks and uncertainties 31 Corporate responsibility

Governance 33 Report of the Board of Directors 34 Directors and advisers 36 Corporate governance statement 39 Remuneration report 42 Statement of Directors’ responsibilities

Financial statements 44 Independent auditors’ report 46 Financial statements118 Five year financial summary120 International Financial Reporting

Standards relevant to Bupa

In the face of a challenging global economy, Bupa’s performance in 2009 showed the strength of our trusted brands and excellent market positions in healthcare. Ray King, Chief Executive

Care Services 926.3

Asia Pacific 2,122.8

UK and North America 2,131.4

EMEALA 1,760.4

Care Services 133.7

Asia Pacific 99.6

UK and North America 16.8

EMEALA 157.7

Bupa annual report and accounts 2009 1

Business review

Governan

ceFinan

cial statements

2009 Bupa Group hiGhliGhts

2007 surplus includes £815.6m profit from disposal on the sale of the hospitals business

Group revenues

Group underlying surplus before taxation

Equity attributable to Bupa

+17% to

+4% to

+10% to

£6.94bn

£3.95bn Throughout the annual report and accounts: Underlying surplus before taxation expense excludes non-recurring items (mainly adjustments relating to Bupa Ireland, amortisation of other intangible assets arising on business combinations, impairment of goodwill and other intangible assets, profit / (loss) on sale of businesses and assets, the impact of property revaluations, realised and unrealised foreign exchange gains and losses and the absolute return on return seeking assets).

Organic growth in revenues and surplus excludes the impact of foreign exchange movements and acquisitions and disposals.

* Surplus by segment refers to surplus for reportable segment.

£428.2m0 300 600 900 1200 1500

0 300 600 900 1200 1500

‘05 357

‘06 331

‘07 1,258

‘08 192

‘09 417

£m

‘05 1,703

‘06 1,917

‘07 3,347

‘08 3,588

‘09 3,949

£m

0 500 1000 1500 2000 2500 3000 3500 4000

‘05 3,879

‘06 3,827 +421

‘07 4,250 +295

‘08 5,924

‘09 6,941

£m

0 1000 2000 3000 4000 5000 6000 7000 8000

Surplus before taxUnderlying surplus before taxation

Continuing Discontinued

Revenues by segment (£m)

Surplus by segment (£m)*

2 Bupa annual report and accounts 2009

Bupa’s uKNa division incorporates:

Bupa health and Wellbeing uK which includes:

UK health insurance, the UK’s leading provider of private medical insurance (PMI);

Bupa Health Assurance which offers insurance protection products covering life, income protection and critical illness;

Bupa Wellness, which provides occupational health services and health assessments; and

health Dialog, a US based leading provider of healthcare analytics and decision support;

Bupa home healthcare, supports the NHS by providing out-of-hospital care;

the Bupa Cromwell hospital, a private London hospital.

In 2009, the businesses proactively managed the impact of the economic downturn. The UK insurance business implemented a new operating system and Health Dialog responded to lower than expected revenues by cutting costs to preserve profitability. Growth in revenues was 3%, with surplus decreasing 72% due to increased claims costs and difficult economic conditions which led to rising unemployment.

• Insurance customer numbers down 5% to 3.5 million

• Surplus down £44.0m to £16.8m. (The 2008 surplus included one off provision releases in respect of Bupa Ireland of £21.0m)

• Health Dialog lives served 19.5 million (2008: 23.8 million)

• Employee satisfaction of 72% (2008: 74%)

Bupa’s EMEala division provides PMI to 3.2 million customers, via operations in the UK, Spain, Saudi Arabia, Latin America and Scandinavia and incorporates the following businesses:

sanitas, Bupa’s Spanish business, provides services that cover many aspects of customers’ healthcare needs: its offerings include health insurance, hospitals, clinics and wellbeing services for the public and private sectors;

Bupa international, the world’s largest provider of expatriate health insurance. Based in the UK, US, Latin America and Denmark, it supplies individual and group medical cover to customers in more than 190 countries;

An associate share of Bupaarabia (26.25%), Saudi Arabia’s first specialised insurer offering cover to SMEs and families.

The businesses within the EMEALA division maintained leading market positions and delivered a 14% increase in surplus despite a deteriorating financial climate, particularly in Spain.

• Insurance customer numbers up 7% to 3.2 million

• Surplus up 14% to £157.7m• Employee satisfaction

of 75% (2008: 75%)

NoRth amERica

latiN amERica

Map key Health insurance International health insurance Healthcare provision Healthcare analytics

and decision support Care Services Representative office Joint venture - Max Bupa

uK aND North aMEriCa (uKNa)

revenues up 3% to

EuropE, MiDDlE East, afriCa aND latiN aMEriCa (EMEala)

revenues up 12% to

WhErE WE opEratE

Bupa is an international healthcare company with significant operations in Europe, Asia Pacific and North America.

£2,131.4m £1,760.4m


Business review

Governan

ceFinan

cial statements

Bupa’s asia pacific division provides private health insurance to more than 3.5 million customers in Australia, Hong Kong and Thailand.

Bupa australia incorporates the recently acquired MBF business and provides PMI together with smaller businesses in travel, home, car and life insurance and financial services.

The hong Kong and thailand businesses are health insurers in their respective countries.

The Asia Pacific division delivered an excellent performance, as it strengthened and broadened its healthcare offering. Following the acquisition of MBF in Australia in May 2008, growth in revenue and surplus was 52% and 57% respectively. Excluding the impact of acquisitions and foreign exchange, organic growth in revenue and surplus was 8% and 12% respectively.

• Insurance customers up 2% to 3.5 million

• Surplus up 57% to £99.6m• Employee satisfaction

of 78% (2008: 76%)

Bupa’s Care services division is a world leading care homes operator incorporating the following businesses:

Care services uK provides nursing and residential care in 303 care homes across the UK;

Care services australia provides residential care in 48 care homes in Australia;

Care services New Zealand provides aged care through retirement villages and care homes and provides telecare services via a personal medical alarm network;

sanitas residencial, provides residential care in 40 care homes in Spain.

The Care Services division delivered robust results in 2009 despite the challenging economy. Although resident numbers fell slightly compared to 2008, the business achieved revenue growth of 4%. Effective control of staff costs helped mitigate the full impact of lower occupancy and above inflation utility costs, resulting in surplus growth of 1%.

• Available beds at year end 32,771 (2008: 32,577)

• Occupancy rate 88% (2008: 89%)

• Staff numbers at year end 36,928 (2008: 36,645)

• Employee satisfaction of 78% (2008: 77%)

ScaNdiNavia

SpaiN

uk

thailaNd

iNdia

Saudi aRaBia

hoNG koNG

chiNa

auStRalia

NEw zEalaNd

asia paCifiC

revenues up 52% to

CarE sErviCEs

revenues up 4% to

£2,122.8m £926.3m


Nearly

52,000employees

Established in

1947

62years of growth and innovation

57%of Bupa’s revenues

come from outside the UK

Bupa has over

10 million customers in more than

190 countriesworldwide

Bupa faCts aND fiGurEs


Business review

Governan

ceFinan

cial statements

Professor Sir John Tooke, in addition to being a Non-Executive member of the Board, is also chairman of our Medical Advisory Panel. Sir John is currently Vice Provost (Health) of University College London, and Head of UCL’s Medical School.

Lawrence Churchill has over 20 years’ experience at board level in the insurance industry, having previously been Chief Executive at Zurich Financial Services UK, and Chairman of Unum, the European arm of the world’s largest disability insurer. He is currently Chairman of the Pension Protection Fund and Chair of the NEST Corporation, a trust based occupational pension scheme, set up under the Pensions Act 2008. In addition to his board role, Lawrence is a member of Bupa’s Audit Committee.

Without question, our success is the result of the skills and dedication of our people. We have a highly skilled and experienced management team that has proven itself over many years and particularly during the recession. Ray King and his senior team have been supported by all of our people around the world and I thank them for their hard work and resilience in such demanding economic circumstances.

You will see a number of moving and inspiring stories on the pages of this annual report, which show the commitment of our people and our focus on our customers. The stories also embody our values and once you have read them, I have no doubt you will share my belief that Bupa is special.

Lord LeitchChairman

Chairman’s statement

Our international healthcare expertise, built up over more than 60 years, goes to the heart of what makes Bupa special.

also reveals a growing desire among consumers for expert help to stay healthy throughout each stage of their lives.

Our focus on healthcare also underpins our corporate responsibility agenda. In 2009, our charitable foundations in the UK, Spain and Australia donated over £5m to fund medical research. We also worked closely with Alzheimer’s charities in the UK and Australia to improve understanding of dementia care and supported an Admiral Nursing initiative to build capability in specialist mental health nursing in the UK.

We have always been committed to supporting the communities in which we operate and, in 2009, 120 of our people from across the world worked together to build a health centre in a poverty stricken region of Ecuador. Alongside the significant benefits to the community, the project has helped Bupa build its brand in Latin America.

Our sponsorship of events like the Great Run Series in the UK and the KidFit triathlon in Australia continues to reinforce our focus on wellness for all. In 2009, we also began to work with the sustainable development charity, Forum for the Future, which is helping us move our sustainability agenda forward.

In 2009, Robert Walther and Professor Ed Byrne stepped down as Non-Executive Directors of Bupa. I would like to take this opportunity to thank Robert and Ed for their valuable contribution. We were pleased to welcome to the Board Professor Sir John Tooke and Lawrence Churchill as new directors of Bupa.

Bupa was founded in 1947 with the aim of preventing, relieving and curing sickness and ill health. With no shareholders, we have always operated for the benefit of our customers, reinvesting our surplus to provide increasing numbers of people around the world with choice and control over their healthcare.

Over the last 62 years, we have been on an extraordinary journey of growth and transformation. This journey has seen us enhance our range of products and services from private health insurance to hospitals, workplace health products, health assessments, chronic disease management services and care homes.

Today, we have over 10 million insurance customers in more than 190 countries. We remain very strong in the UK but now over half our annual revenues come from outside the UK. We employ nearly 52,000 people around the globe.

While we take comfort in our good past performance, we know it does not guarantee future success. We are evolving our business to ensure that we can sustain growth for the long-term and are focusing on demonstrating our international healthcare expertise, particularly in ageing, chronic disease and wellbeing, to help enable our customers to make more informed decisions about their health and to deliver commercial benefit right across the Group.

By focusing on ageing, wellness and chronic disease we can draw on our existing expertise and take advantage of key trends within our major markets. These trends include rising obesity rates and ageing populations, which together are fuelling the increasing incidence of chronic disease in most developed countries. Our customer research


Bupa performed well in 2009 in a challenging global economy. This demonstrates the strength of our trusted brands and excellent market positions, as well as the balance of our Group, in terms of geographic spread and range of healthcare services. Our balance sheet and cash flow are also both very strong.

The priorities for the Group in 2009 were customer retention and the integration of recently acquired businesses, while maintaining tight control of costs. We also continued to drive organic growth and importantly, delivered a major operating platform for our UK insurance business.

Group performanceGroup revenues grew organically by 5%. Our underlying surplus before taxation, which we reinvest into our business, was £428.2m, up 4% despite falling interest rates, driven in particular by strong performances from our Asia Pacific and EMEALA divisions. Surplus before taxation increased by 117% to £416.5m and includes a gain from return seeking assets of £52.2m (2008 loss: £97.7m).

Cash generation remained strong, with net cash generated from operating activities after capital expenditure at £522.3m. Total borrowings declined by £367.3m to £1,490.6m, resulting in a reduction in leverage to 27%. Bupa’s balance sheet was further strengthened in July through a £350m long-term debt issue. This followed a credit rating upgrade by Moody’s to A2 in respect of the insurer financial strength rating of Bupa Insurance Limited (our UK health insurance business). This reflects the successful integration of recent acquisitions, our geographic diversification and improvements in our financial leverage.

Our capital expenditure remained strong at £197.1m as we continued to invest in our

ChiEf ExECutivE’s rEviEW

businesses for the benefit of our customers.Our customer base increased by 1% to 10.4 million customers.

Economic developmentsOver the course of 2009, we witnessed varied economic performances in our major markets around the world. The UK was in recession for most of the year with the health insurance sector impacted by rising unemployment levels and higher claims. Conditions are likely to remain soft in the UK for some time until unemployment levels begin to recover. The US gradually began to come out of its severe recession from the summer of 2009, however, unemployment continued to rise, hitting a 25 year high of around 10%. In Spain, the country’s recession bit hard and showed little sign of abating, with unemployment predicted to reach 20% in 2010. However, in Australia, the impact of the economic downturn was less severe with the country avoiding recession. These diverse growth patterns impacted our businesses around the world in very different ways.

uk and North americaIn 2009, the UK and North America division proactively managed the impact of the economic downturn. Overall revenues grew by 3% to £2,131.4m, while surplus decreased to £16.8m due to increased claims costs and rising unemployment.

In the UK, difficult economic conditions and rising unemployment levels impacted the business, with insurance customer numbers falling by 5% mainly due to contracting payrolls. In addition, while the number of claims remained relatively stable during the year, the cost of claims increased, reflecting rising medical inflation. This was particularly the case for cancer care, for which Bupa offers the most extensive cover in the UK, with the cost of treatment for members increasing by almost 40% over the

last five years, driven by new generation cancer drugs.

Against this backdrop, we placed significant emphasis on customer retention and improving service levels as well as extending our networks to improve services for cataract treatment and physiotherapy. The business also secured or extended contracts with a number of multinational companies, which will add approximately 100,000 new customers in 2010. We also continued to grow customer numbers in the insurance protection business.

2009 was also a year of development for our UK insurance business with the launch of a major new operating platform, which will enable the business to transform its operational efficiency, be more responsive to customers, introduce new products more quickly and offer greater customer choice. In addition, we made some organisational changes to improve efficiency and customer service, which will benefit the business in 2010 and beyond.

Health Dialog, a leader in chronic disease management services based in Boston, experienced its first full year as part of the Group, having been acquired in early 2008. Despite US unemployment figures reaching a 25 year high, the business traded well, aided by swift action taken early in the year to reduce costs and improve efficiency. All major accounts were maintained, which is a significant achievement in the context of the marketplace. We also made good progress in taking Health Dialog’s chronic disease management proposition internationally, building on our footholds in the UK and France and taking steps to develop our offer in both Spain and Australia.

EmEalaDespite the deteriorating financial climate, the businesses in the EMEALA division

In the face of a challenging global economy, Bupa’s performance in 2009 showed the strength of our trusted brands and excellent market positions in healthcare.


Business review

Governan

ceFinan

cial statements

maintained leading market positions with 7% customer growth and delivered £1,760.4m revenues, up 12% on last year with surplus increasing by 14% to £157.7m.

Sanitas performed well in the context of a weak Spanish economy, maintaining its 1.5 million customer base by continuing to focus on differentiating its offering through high quality treatment, rapid access, the development of dedicated primary care centres, the extension of its dental network, and significant capital developments in its private hospitals in Madrid.

In addition, in 2009, Sanitas brought its expertise to the public sector by opening, on time and on budget, a new hospital in Manises, Valencia, as part of a 15 year Public Private Partnership with the full provision of acute and primary care services. The hospital and its associated public health centres care for 140,000 people and we expect a further 44,000 to be added in 2010.

Bupa International, a leading international expatriate health insurer, serves more than 800,000 customers in over 190 countries. In 2009, the business introduced an innovative and flexible modular product for the individual market, Bupa Worldwide Health Options, which allows customers to tailor cover to their individual needs.

asia pacificIn the Asia Pacific region, Bupa provides health insurance to over 3.5 million customers. In 2009 the division delivered an excellent performance, with revenue growth of 52% to £2,122.8m and surplus increasing by 57% to £99.6m enhanced by the full year impact of MBF, which was acquired in May 2008.

In Australia, we delivered a very good financial performance and, at the same time, made excellent progress in integrating our two insurance businesses, delivering synergy benefits at a faster rate than anticipated. Throughout the year, high customer satisfaction rates were maintained at 82%.

In India, Max Bupa expects to launch a health insurance business in the first half of 2010. In 2009, our joint venture with the Max Group began the development of a national operating centre and retail branches in several cities, designed and market tested products, agreed contracts with hospitals, and laid the groundwork for the recruitment of sales and customer service staff.

care ServicesBupa Care Services is a world leader in aged care, providing nursing and residential care to almost 29,000 people in the UK, Spain, Australia and New Zealand. In 2009, the division delivered robust results despite the challenging economy. Revenues increased by 4% to £926.3m with surplus up 1% to

£133.7m. Throughout the year, we focused on tight management of costs, such as staff costs and energy costs, and continued to develop services in each of our principal geographies.

During 2009, we invested £72m into developing our homes, adding a total of 415 new beds and opening two new dementia homes in the UK and two new homes in Spain. Additionally, in Australia, we completed a large extension and opened two retirement village developments in New Zealand. In 2010 we plan to increase our number of beds by 565 across the division, with five more homes due for completion and further extensions and village developments in Australia and New Zealand under construction.

In the UK, where over 70% of our residents are financed wholly or partly by local authorities and primary care trusts, we saw public spending on aged care come under increasing pressure. Public sector fee increases remained flat in 2009 on the previous year at around 2.5%. The business continues to press the UK government for more funding for social care and an overhaul of the system.

We are constantly investing in Care Services in order that we meet and exceed best practice standards. Bupa’s investment in quality care was recognised by its high satisfaction ratings. The Care Quality Commission in England found Bupa had the highest ratio, at 86%, of ‘excellent’ or ‘good’ homes of all the large ‘for profit’ providers.

our strategyAs a diverse and international healthcare company, our focus in 2009 has been on putting in place the right strategies, business unit by business unit, to win in the local competitive environment and deliver long-term value. As a Group, we are pursuing three overarching strategic priorities that underpin both specific business unit strategies and the future growth and development of our portfolio:

• We will continue to develop profitable, differentiated products and services that are relevant to a broad customer base across life stages, and that help individuals, companies and governments manage the rising cost of healthcare.

• We will demonstrate our expertise in healthcare, particularly in the areas of ageing, chronic disease and wellbeing, enabling our customers to make more informed health decisions leading to improved health outcomes.

• We will act as “One Bupa” – strengthening and mobilising our worldwide talent pool, and sharing expertise across markets and businesses. Across the Group we are aligned around the shared purpose of “helping people live longer, healthier, happier lives”.

These three priorities leverage our heritage, our distinctive capabilities and our geographic footprint to ensure that we continue to take the Group forward.

We have invested in strengthening our core capabilities across the Group, stepping up our activity on talent and people development and maintaining our commitment to moving our people into new roles internationally to ensure best practice is shared and opportunities are exploited. We have also invested in stimulating collaboration across the Group. Bupa Live, an internal social networking platform, has been launched and is proving effective at connecting our people around the world and helping them to share ideas, which will benefit the business.

the futureHealth insurance take up is related to employment levels and the recovery in jobs is likely to lag behind a pickup in economic growth in many of our markets. We also expect public spending on aged care, particularly in the UK, to tighten further in 2010. We will, therefore, continue to manage our business carefully – controlling costs and focusing capital expenditure on the strongest parts of the business.

We will continue to pursue organic growth opportunities, including developing Health Dialog’s chronic disease management proposition internationally, ensuring the smooth completion of Bupa Australia’s integration process with MBF and investing in the continued development of our care services provision. In the UK, we will focus on reinforcing our position as market leader in health insurance through attractive new customer propositions, while increasing operating efficiency.

The markets in which Bupa operates offer excellent opportunities for long-term growth, driven by customers’ desire to access better healthcare. The global trends of ageing populations, rising affluence, the increasing incidence of chronic disease and advances in medical technology will drive demand for our services. Bupa is well positioned to take advantage of these trends given our geographic breadth, trusted brands and excellent market positions.

We are confident that we are fit for growth as the world economy recovers and remain focused on our objective of helping customers live longer, healthier, happier lives.

Ray kingChief Executive


leading

i was pregnant with my first child, adrien, and it was really important to me that i had as natural a birth as possible. Many of my friends who have children told me that they had been given no say in their labour. as a result they found the whole experience dehumanising and traumatic. i didn’t want this for me – or my baby.

so i was really delighted when i heard that the hospital de Manises was leading the way with a new approach to labour, called the natural birth programme. this programme gave my husband and me an active role in decision making during my pregnancy.

i learnt about relaxation techniques and worked closely with the natural birth team to think through the birth plan i wanted. i was able to talk through my fears and overcome them, knowing i was fully supported at all times by an expert team of doctors and midwives. this gave me peace of mind because as a first time mother i didn’t know what to expect.

i really appreciated the way the hospital encouraged me to involve my family, who were able to accompany me on visits to the hospital. for me, this meant the world because the emotional support provided by my family and the medical team was far more important than any painkiller i could have been offered.

New mother Karina Castillo went through the natural birth programme at the hospital de Manises in valencia, spain.

sanitas opened a state-of-the-art public hospital in Manises, valencia in May 2009. it provides acute and primary care services to over 140,000 people in the Manises region through an innovative public private partnership arrangement with the valencian Government.

“

”


Business review

Governan

ceFinan

cial statements

ethical

i was one of 120 Bupa people picked from across the Company worldwide to travel to Ecuador to build a health and teaching centre in a remote village called Miraflores.

our first job on arrival was to move around 20 tonnes of rubble to clear an area for the centre. that was hard work but we all got stuck in. i was working alongside Bupa employees from the uK, australia, spain and the usa. it was a fantastic experience getting to know them and working together to help improve facilities for the villagers of Miraflores.

in just three months, Bupa volunteers helped to get the health and teaching centre up and running. it’s a real bonus for the community. the people of Miraflores no longer have to rely on a doctor’s visit just six times a year.

previously, most adults used to take their children to work in the fields with them as there were no teaching facilities in the village. Now, these children are able to receive an education and have access to health services that back home are so easy to take for granted. i feel really proud to work for an ethical business and to be part of such an important project.

Kelly Johnstone from Bupa Care services New Zealand took part in Bupa’s Ecuador Challenge in september 2009.

the Ecuador Challenge was part of a range of corporate responsibility activities by Bupa in 2009, including funding medical research through Bupa’s foundations, supporting the communities where the Group operates around the world through staff volunteering and helping charities focused on healthcare.

“

”


enabling

seven years ago, my life caved in overnight. i was just 17 when an abscess in my sinuses burst, damaging my brain stem permanently and leaving me tetraplegic, unable to use my arms or legs.

i stayed in hospital for three years. My family, who lived 90 miles away, would come and visit, but much of the time i spent alone. i began to withdraw into myself and stopped wanting to talk to people.

then, about four years ago, Bupa home healthcare nurses began to care for me. at first, they would just come to visit me in hospital and take me out two or three times a week. Before long, i was discharged from hospital and a team of nine medical professionals from Bupa began to provide me with round the clock care at home. Being back with my family was just brilliant. it felt like gradually my life was returning.

My Bupa team takes care of all my basic medical needs, as well as things like showering, dressing and physiotherapy. But just as important is the nurses’ help with the more social aspects of life – enabling me to lead as normal a life as possible: shopping for clothes and music, going to the cinema or watching football. they really care about helping me live my life to the full. in spite of my disabilities, i can now do many of the things that other 24 year olds do, which seemed impossible just a few years ago.

sean taylor is a Bupa home healthcare customer from Beaminster, England.

Bupa home healthcare is a leader in out-of-hospital care and works with the Nhs to provide over 13,000 patients with specialist care in the comfort of their own homes.

“

”


Business review

Governan

ceFinan

cial statements

as dockmaster for the Bahamas Yacht Club, i regularly collect tourists from staniel Cay airport. one day earlier this year, as i crossed the runway, i was involved in a freak accident: a light aircraft hit my vehicle and i was seriously injured. i broke both my legs, fractured three ribs and lost my left arm, three inches below the elbow.

thanks to my Bupa health insurance, i was airlifted to Jackson Memorial hospital in Miami, and remained there for more than two weeks. i was then transferred to the hospital’s ryder trauma Centre, for physical and occupational therapy.

Bupa’s medical services team was dedicated to seeing me through my treatment. sharon harrington, Director of case management at Bupa latin america in Miami, used to visit me regularly to provide me with help and answer any questions my wife and i had.

Bupa was always there for me. Knowing we were covered for my treatment took the pressure off; sharon took responsibility for all my care and the financial arrangements. i had complete peace of mind, allowing me to focus on my recovery instead of being concerned about medical bills.

Before my accident i had never claimed on my Bupa latin america policy. the expert health and care i received exceeded all my expectations. thanks to the help and dedication of the Bupa teams, i feel like i have got my life back.

Berkie rolle is a Bupa latin america customer in the Bahamas.

Bupa is one of the most experienced providers of health insurance in latin america and the Caribbean. its services include a 24 hour doctor-led helpline and, in the event of a medical emergency, worldwide air ambulance and ground emergency transportation.

dedicated

“

”


accountable

i was diagnosed with type 1 diabetes in 1987 and spent the next 20 years grappling with my condition. i felt in the dark about vital factors that would help me manage my blood sugar levels, such as when to eat, when to exercise and whether to take glucose tablets.

sometimes i guessed right and other times i wasn’t so lucky. When i got it wrong there were severe side effects: when my blood sugar level surged, i became bad tempered and aggravated, while dramatic plunges would affect my sight, speech and could even put me in a diabetic coma.

i felt like i was in the middle of a life and death guessing game. it was a terrifying and lonely existence.

then in 2007, everything changed. i moved insurance plans and was given a health coach called rima Mathewson. rima is a registered nurse, who over the last two years has helped me take control of my blood sugar levels and has provided answers to vital questions about managing my condition.

having a health coach has helped me take control of my diabetes. i feel like i have been empowered through the information and advice rima has given me. i now feel accountable for my own health and am no longer making decisions in the dark. as a result, my blood sugar has dramatically stabilised and my health has improved significantly.

robert sakowich from Massachusetts, usa is a Network health customer who is supported by a health coach from health Dialog.

health Dialog provides care management services, including health coaching, to over 19 million people in the us on behalf of national and regional health plans. in the uK, Bupa health Dialog works with the Nhs to help manage the care of patients with long-term conditions and in spain, health Dialog España is available to 25,000 sanitas customers, Bupa’s spanish based health insurance business.

“

”


Business review

Governan

ceFinan

cial statements

i retired four years ago and now spend my time looking after my two youngest grandchildren: very active five and two year olds.

i started to get back pain about six years ago. it slowly spread to my knees, to the point that i could barely walk. Every step was agony. i tried every treatment i could think of – chiropractic, physiotherapy, painkillers and hydrotherapy. Worst of all, i was not able to sleep because of the pain, which affected me emotionally. i was told the only option left to me was to have both knees replaced. i was very reluctant to take this step, and resigned myself to needing a wheelchair.

i had Bupa health insurance and read an article about the apos treatment in a Bupa newsletter. at the Bupa Wellness Centre in solihull the staff were so caring and understanding – they talked me through my treatment options.

i started apos in May 2009 and i haven’t looked back. i wear specially tailored apos footwear for around an hour and a half a day and they’ve taken my pain away completely. apos has literally transformed my life: i now walk without pain, look after my two grandchildren full time, and even helped my husband redecorate our house!

Christine sargeant is a Bupa health insurance customer from harrow, England.

apos is a unique therapeutic approach that is highly effective at reducing knee, back, hip and ankle pain. it is available to Bupa customers in selected Wellness centres in the uK.

“

”

caring


for many years, i had experienced a pain that ran from my shoulder to my chest, but my doctor told me it was probably just arthritis. i decided to change doctors. Within days my new doctor arranged for me to have an angiogram. i was shocked to be told i had five blocked arteries. several days later i had coronary artery bypass surgery.

a couple of weeks after leaving hospital, i had a call from paul Gloury, a dietician with Bupa australia’s CoaCh scheme. paul told me that, as a Bupa australia customer, i would have access to this special scheme, which helps people manage serious conditions like mine.

paul called me every couple of weeks and talked to me about improving my diet and fitness, so i would be less prone to heart problems.

his regular phone calls gave me the push i needed to keep eating well and exercising. Before my operation and the CoaCh programme, i had a poor diet and did no exercise at all. i was tired all the time and used to feel out of breath when i did any sort of activity – even mowing the lawn.

Now i exercise for an hour every day, and i’ve improved my diet. i’ve lost about 15 kilos and reduced my cholesterol and blood pressure. also, i was on the cusp of diabetes, which has now reversed.

i wouldn’t say i feel 100% yet – it’s probably more like 97 or 98%. i’m pretty happy with that!

Jonah Caruana is a Bupa australia customer from Melbourne, australia.

the Bupa developed ‘Coaching patients on achieving Cardiovascular health’ (CoaCh) programme gives proven health benefits for people who have had a cardiac or stroke related illness.

special

“

”


Business review

Governan

ceFinan

cial statements

When Mum had a stroke nine years ago it rocked our world. Because of her disabilities, it quickly became clear that she needed the expert care provided by a nursing home. Not being able to care for Mum at home was difficult to accept at first, but when she arrived at Bupa’s Brierton lodge care home, we knew immediately that we had made the right decision.

all the staff were special. they were so respectful to our Mum: nothing was too much trouble and they couldn’t have done more to make her feel at home, from cooking meals just the way she liked them, such as fried eggs for breakfast or fig rolls with her cup of tea, to decorating her room to make it feel like home.

the team also made our whole family feel welcome. they even managed to put up with a demanding daughter – me. We knew we could trust Bupa to take the very best care of our Mum.

the last nine years have been a difficult chapter for our family, but the small acts of kindness the team at Brierton lodge showed my Mum on a daily basis, helped her lively, fun personality shine out in spite of her disabilities.

Jacqueline large is the daughter of Margaret, a resident at Bupa’s Brierton lodge nursing centre in hartlepool, England, from 2000 until 2009.

Bupa Care services is an international provider of nursing and residential care, looking after nearly 29,000 older people in the uK, spain, australia and New Zealand.

“

”

respectful


uK aND North aMEriCa

Bupa’s UK and North America division offers services which include health insurance, home healthcare, hospital care, wellbeing services, health analytics and health coaching.

Bupa health and wellbeing uk (Bhw) (Previously UK Membership) Bupa is the UK’s leading health insurer serving the individual, corporate and small business customer segments. It focuses on giving customers choice and control in healthcare through providing attractive products and delivering world class customer service.

As expected, difficult economic conditions and rising unemployment impacted the business, with customer numbers falling by 5% mainly due to contracting payrolls. In addition, whilst the number of claims remained relatively stable, the cost of claims increased, reflecting rising medical inflation. This was particularly the case for cancer care, for which Bupa offers the most extensive cover in the UK, with the cost of treatment increasing by almost 40% over the last five years, driven by a new generation of cancer drugs.

Against this backdrop, significant emphasis has been placed on customer retention and further improving service levels as well as extending our networks to improve services for cataract treatment and physiotherapy. The business has already secured or extended contracts with a number of multinational companies, which will add approximately 100,000 new customers in 2010.

Importantly, BHW successfully launched a major new operating platform which will enable the business to transform its operational efficiency, be more responsive to customers, introduce new products more quickly and offer greater customer choice. These areas will be the focus of attention during 2010.

health dialog lives served

19.5 million(2008: 23.8 million)

Bupa home healthcare patients treated

13,615 (2008: 11,017)

the Bupa cromwell hospital patients treated

9,461 (2008: 10,044)

Results overviewIn 2009, the businesses proactively managed the impact of the economic downturn. The UK insurance business implemented a new operating system, which will transform operational efficiency and enhance the speed and flexibility of new product development, and took action to reduce operating costs. Health Dialog responded to lower than expected revenues by cutting costs in order to preserve profitability. The Bupa Cromwell Hospital continued its programme of capital expenditure to improve its facilities and enhance its patients’ experience. Bupa Home Healthcare focused its efforts on services which provide high levels of differentiation and attractive margins.

Organic growth in revenues were broadly flat, with surplus decreasing substantially due to increased claims costs and the impact of rising unemployment which reduced customer numbers by 5%. In addition, the 2008 result included one off provision releases in relation to Bupa Ireland totalling £21.0m.

Revenues up 3% to £2,131.4m

Revenues £m

‘08 ‘09‘07

‘08 ‘09‘07

‘08* ‘09‘07

2,0

69

.3

2,1

31.4

1,8

07.

5

Surplus down 72% to £16.8m

*2008 surplus included one off provision releases in respect of Bupa Ireland of £21.0m

Surplus £m

‘08 ‘09‘07

‘08 ‘09‘07

‘08* ‘09‘07

60

.8

16.8

91.

7

Insurance customers down 5% to 3.5 million

Insurance customers 000s

‘08 ‘09‘07

‘08 ‘09‘07

‘08* ‘09‘07

3,7

23

3,5

37

3,7

14


Business review

Governan

ceFinan

cial statements

Customer satisfaction remained high, with 78% of customers rating Bupa as ‘very good’ or ‘excellent’, while further improvements in customer service led to a 53% reduction in complaints over the course of the year.

The business received several industry awards in recognition of its customer commitment. These include: Health Insurance Company of the Year and Best Group Private Medical Insurance Provider at the Health Insurance Awards; Healthcare Provider of the Year, at both the Corporate Adviser and Money Marketing Awards; and Best Individual PMI at the Cover Magazine Awards.

BHW’s preventative and wellbeing offerings include occupational health services and health assessments via 47 Bupa health centres. As rising unemployment levels reduced demand for health assessments, the business strengthened its marketing and cut costs, including reducing staffing levels.

BHW’s life, income and critical illness business, Bupa Health Assurance , delivered a solid performance with customers growing 6% and revenue increasing accordingly. In the Group Risk book, favourable claims experience was offset by additional system development costs. The Individual Protection business grew revenues with the strength of its product recognised by an FTAdviser.com service award and five star accreditations for critical illness and income protection from Defaqto, the independent financial services research company.

health dialogHealth Dialog is a US based leading provider of healthcare analytics and decision support services that assist private health plans, public insurers and employers manage the cost and quality of healthcare. It provides analytical services and care management solutions to a range of customers that cover nearly 20 million people within the US and a growing number of customers in overseas markets. Health Dialog has developed tailored client solutions and was recognised by various industry associations throughout the year for its Shared Decision-Making® content products which help individuals make more informed healthcare choices.

Rising job losses in the US, with unemployment hitting a 25 year high, caused the decline in lives served and related decline in organic revenues although all major accounts were maintained. Prompt action to reduce costs resulted in surplus increasing organically year on year.

Health Dialog has also made good progress in taking its disease management proposition to new markets. It joined with Sanitas to offer its services to customers in Spain and continued its partnership with the French Government in diabetes management pilots. Management continues to seek further international opportunities to exploit Health Dialog capabilities, with a particular focus on the UK and Australia.

Bupa home healthcare (Bhh)BHH supports the NHS by providing out-of-hospital care, satisfying both patient preference for home based treatment and supporting growing pressure on public health service budgets.

BHH is increasingly focused on higher growth and higher margin products such as complex care management and home infusion services. BHH secured several major contracts during the year, including being appointed sole supplier of total parenteral nutrition to Great Ormond Street Hospital for Children. BHH experienced good growth in the year with increasing customer numbers, revenues and surplus.

Bupa cromwell hospital (Bch)The Bupa Cromwell Hospital is a leading 128 bed London hospital caring mainly for insured, self-pay and international customers. The hospital, which Bupa acquired in 2008, opened new endoscopy and minor procedure facilities and installed a new biplane angiography suite during the year. The new angio suite represents the first step by the hospital to strengthen its position in four clinical specialities; oncology, paediatric, cardiac and orthopaedic care.

During 2009, organic revenue growth was flat, primarily due to decreasing numbers of international customers visiting the hospital because of fears over swine flu, although recent months have shown positive improvements in occupancy trends. Surplus decreased due mainly to higher staff costs and depreciation from additional capital spending.

outlookThe division delivers offerings that are relevant to the public and private sector, and to both businesses and individuals. All are focused on delivering high quality health solutions for our customers, which help them to manage the cost and quality of healthcare. Although the short-term outlook is likely to remain challenging, due to high unemployment and a tightening in government spending in both the UK and US, Bupa is confident that the action being taken to strengthen the businesses will deliver growth in the medium term. Its businesses are well placed to benefit when economic conditions improve.

Strategy overviewThe UK and North America division is focused on providing quality health solutions tailored to customers needs. Whether that be Health Dialog, helping to manage cost and quality of healthcare within the US or France; BHH, providing oncology treatment in the home; or BHW, offering a portfolio of healthcare products and services, the focus is always consistent with this strategic objective.

In order to ensure that the customer base and surplus grow, each business continues to focus on enhancing its value proposition for customers. This is achieved by continuing to focus on understanding customers better and building propositions that are tailored to their needs and what matters to them. In addition, the division continues its focus on managing escalating costs of healthcare for governments, businesses and individuals.

The division invests in developing new capabilities across all of its businesses and expanding its healthcare offerings internationally through Health Dialog.


EuropE, MiDDlE East, afriCa aND latiN aMEriCa

Bupa’s EMEALA division delivers a portfolio of health insurance products and services across a range of markets.

SanitasSanitas, Bupa’s Spanish business, provides services that cover many aspects of customers’ healthcare needs: its offering includes health insurance, hospitals, clinics and wellbeing services for the public and private sectors.

This broad offering sets it apart from other health insurance companies in the extremely competitive Spanish marketplace. In 2009, it continued to invest, focus on differentiating its offering and raising already high standards of customer service. The business maintained customer numbers and delivered organic growth through the launch of new products, operating cost efficiencies and the commencement of trading at the Manises hospital.

Sanitas opened a new customer contact centre, Sanitas Welcome, completed the refurbishment of its La Zarzuela hospital, one of the leading hospitals in Spain, and constructed a new medical centre in Madrid. The business also piloted Spain’s first wellbeing product, Sanitas Wellbeing, offering customers physiotherapy, nutritional advice and access to a network of exercise facilities. Following the successful pilot, the product will now be rolled out nationwide.

In May 2009, Sanitas opened its state-of-the-art Manises hospital, on time and on budget. The Valencia hospital provides acute and primary care to more than 140,000 local people, as part of a Public Private Partnership with the regional government. From 2010, the hospital’s contract of care is expected to include a further 44,000 residents.

Results overviewIn 2009, the businesses within the EMEALA division maintained leading market positions with 7% customer growth and delivered a 14% increase in surplus despite the deteriorating financial climate, particularly in Spain.

loss ratio

67.9%(2008: 67.7%) Represents the proportion of incurred claims to earned premiums. The lower the ratio, the better the underwriting performance of an insurance business.

Employee satisfaction

75% (2008: 75%) Scores generated by the annual ‘Surveying Our People’ questionnaire.


Surplus up 14% to £157.7m

Insurance customers up 7% to 3.2 million

Revenues £m

Surplus £m

Insurance customers 000s‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

1,5

68

.913

8.5

2,9

67

1,76

0.4

157.

73

,17

0

1,2

07.

910

9.6

2,5

70


Business review

Governan

ceFinan

cial statements

In partnership with Health Dialog, Sanitas launched Sanitas Responde, to provide chronic disease management services to Sanitas customers. The service was initially launched in Madrid, and made available to 25,000 customers. The business intends to expand the programme to cover its entire nationwide membership base.

The quality of Sanitas’ offering received much external commendation. The business was rated the most valued health insurance company in Spain in a MERCO report and the best sector employer by Actualidad Economica magazine.

Bupa internationalBupa International is the world’s largest provider of expatriate health insurance. Based in the UK, US, Latin America and Denmark, it supplies individual and group medical cover to customers in more than 190 countries.

Notwithstanding the challenges in the global economy and the corresponding impact on Bupa’s international customer base, the business had a positive year, and remains the insurer of choice for expatriates. Both organic growth in revenue and surplus increased, despite a 3% decline in customer numbers, reflecting an improvement in margins.

In line with its strong track record for innovation, the business successfully launched a landmark modular product for individual customers, Worldwide Health Options, which allows customers to tailor their own health insurance product from a range of options.

Bupa International was named Best International Medical Insurance Provider for the fourth consecutive year at the UK Health Insurance Awards. Meanwhile, customer satisfaction levels rose, with 81% of those surveyed reporting that service was ‘very good’ or ‘excellent’.

Saudi arabiaBupa Arabia had another very good year, as it continued to benefit from its outstanding service offering and legislation requiring expatriates to hold private health insurance.

Due to the part flotation of Bupa Arabia and the subsequent transfer of the business from Bupa Middle East to Bupa Arabia, Bupa’s economic interest reduced from 50% to 26.25% effective from January 2009. Since then, the Group’s interest has been accounted for as an investment in an associate rather than a subsidiary. The underlying performance of the business has been strong with a 35% increase in membership in the period.

outlookThe challenging economic environment is expected to continue well into 2010. Although some markets are coming out of recession, unemployment is not expected to drop significantly for some time, especially in Spain. This is likely to limit growth in surplus in the near term. The businesses will continue to develop innovative products and give outstanding customer service to provide a foundation for longer term growth.

Strategy overviewAgainst the background of a protracted national recession, Sanitas’ strategy is to reinforce its position in Spain as a healthcare leader by continuing to provide innovative products and services, especially in wellbeing. This strategy includes developing its owned facilities and seeking further opportunities for collaboration with the public health services.

Bupa International aims to capture growth in the international health insurance market by developing its distribution networks, strengthening both direct and indirect channels, and improving retention. It will drive future growth through detailed customer segmentation, enabling tailored service that is attractive to customers.

Bupa Arabia’s focus is to grow faster than the market by delivering the best service in the industry and by capturing growth opportunities in the small and medium sized enterprise sector.


asia paCifiC

Bupa’s Asia Pacific division provides health insurance to more than 3.5 million customers in Australia, Hong Kong and Thailand.

australiaFollowing the MBF acquisition, Bupa is the second largest health insurer in Australia. The business serves customers through the long established MBF, HBA and Mutual Community brands. As well as its core health insurance offering, Bupa Australia also provides travel, home, car and life insurance and financial services.

The business delivered a 2% rise in customer numbers and a very good financial performance at the same time as carrying out intensive integration work. Synergy savings were delivered ahead of target and helped deliver good organic growth in surplus, despite ongoing integration costs.

The integration of the businesses is proceeding smoothly. Common approaches and processes have been developed across the business, including the creation of a common purchasing system, email platform, payroll system and general ledger. Bupa Australia is progressing towards the mid 2010 milestone of having a single operating system and the creation of a single product suite later in the year.

Results overviewThe Asia Pacific division delivered an excellent performance, as it strengthened and broadened its healthcare offering. Following the acquisition of MBF in Australia in May 2008, member numbers increased by 2% in 2009 and organic growth in revenue and surplus was 8% and 12%, respectively.

loss ratio %

84.6%(2008: 83.8%) Represents the proportion of incurred claims to earned premiums. The lower the ratio, the better the underwriting performance of an insurance business. (2009 increase relates to mix effects).

Employee satisfaction %

78% (2008: 76%) Scores generated by the annual ‘Surveying Our People’ questionnaire.


Revenues £m

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

1,39

4.3

2,1

22

.8

56

8.5


Surplus £m

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

63.3

99.

6

42.7

Insurance customers up 2% to 3.5 million

Insurance customers 000s

‘08 ‘09‘07

‘08 ‘09‘07

‘08 ‘09‘07

3,4

35

3,5

13

1,36

5


Business review

Governan

ceFinan

cial statements

Customer focus remained paramount throughout the integration, as indicated by the business receiving its best ever customer satisfaction rating of 82%. Throughout the year, to counter the tightening economy, it successfully stepped up customer retention activity.

Bupa Australia is increasingly working with members to help them develop healthier lifestyles and is partnering with providers to establish and encourage the best way to treat patients. Following a landmark agreement, a nationwide group of heart surgeons has committed to publish patient outcome data, to help improve cardiac care. In addition, the business is working with Health Dialog to introduce its chronic disease management expertise to Australian customers and the public health system. Other initiatives include the roll out of a web based customer wellness programme, and a health programme for corporate clients. Both initiatives aim to partner with customers to help them proactively manage their health.

The business contributed to the debate on the proposal to means test the government’s subsidy of health insurance premiums and on changes to the Medicare Levy Surcharge.

External recognition included the business winning the Australian Human Resources Institute’s Responsible Restructuring award for the execution of its integration efforts. The business also won five gold International Customer Service Professional awards.

hong kong and thailandBupa Hong Kong’s health insurance business delivered a good performance in 2009 with 8% growth in customer numbers, despite the territory’s financial services focused economy being severely hit by the economic downturn. Membership growth was driven by superior customer service and a new advertising campaign, in addition to the launch of a new critical illness product. As a result organic growth was achieved in both revenue and surplus. The business won the ‘Superbrands – Hong Kong’s Choice Award’ for the seventh consecutive year underlying the strength of the Bupa brand.

Bupa Thailand responded to the downturn with the launch of a lower priced, simpler product aimed at the local market. Despite a 1% fall in members as a result of political instability and the impact of the recession, both organic revenue and surplus increased.

indiaMax Bupa expects to launch a health insurance business in India in the first half of 2010, following regulatory approval. In 2009, the joint venture made great progress towards creating a strong product and service proposition for individual customers. By year end it had begun the development of a national operating centre and retail branches in several cities, designed and market tested products, agreed contracts with hospitals, and laid the groundwork for the recruitment of sales and customer service staff.

We expect the business to incur start up losses over the next few years as the business invests in initial infrastructure and marketing.

outlookBupa is well placed to further strengthen its business and continue to grow in the Asia Pacific region. With Australia, its largest market, showing good growth and with huge long-term potential in India, the business is confident of a positive 2010.

Strategy overviewIn 2010, a prime focus for Bupa Australia will be the smooth completion of its integration, including the two major landmarks of one operating platform and one product suite. It aims to become Australia’s favourite healthcare company with a truly unique customer value proposition – enabling customers to maintain high quality, affordable insurance cover and achieve better health outcomes.

Hong Kong will grow through product and service differentiation. The business will continue to position itself as the market health specialist, by investing in its brand, and delivering on initiatives to define itself as a healthcare expert. Thailand’s aim is to become a leader in health insurance by continuing to provide excellent customer service.

In India, Max Bupa aims to become the subcontinent’s most admired health insurance company. The focus will be on achieving scale, supported by a robust service platform, attractive products and high quality customer service.


CarE sErviCEs

Bupa is a world leading care homes operator. It provides nursing and residential care to almost 29,000 residents in over 430 care homes in the UK, Spain, Australia and New Zealand.

The business continued to lead the field in aged care, providing input to governments and organisations in all markets to help shape agendas and long-term policies.

Partnerships have been established with leading dementia organisations in all countries. In dementia care, as elsewhere, the division shared learning and collaborated across its four businesses. Its Dementia Champions training programme, launched in the UK in July 2009 with the Alzheimer’s Society, is being adapted for roll out in Australia, New Zealand and Spain. In addition, an 80 page booklet on dementia care, published in the UK in 2008, has been adapted for the Australian and New Zealand markets and translated into Spanish for distribution in Spain.

The Bupa Foundation worked with the Alzheimer’s Society to launch a £1.5m fund to support international research into dementia. Additionally, Bupa Giving, a fund dedicated to supporting charitable healthcare initiatives, supported a programme with Alzheimer’s Australia to improve dementia care.

Staff development remained a priority and several training initiatives were launched across the division. The award winning UK Personal Best programme was rolled out in Australia, prior to a 2010 launch in New Zealand and Spain.

In 2009, the business carried out an international census of the medical condition of residents across all its care homes. The survey, covering 95% of residents, enables Bupa to continue to take leadership positions on aged care with policymakers, politicians and other key stakeholders. It also assists in continuing to develop a greater

Results overviewThe Care Services division delivered robust results in 2009 despite the challenging economy. It invested across the business: from the infrastructure of its homes to the capabilities of its people. Although resident numbers fell slightly compared to 2008, the business achieved revenue growth of 4%. Effective control of staff costs helped mitigate the full impact of lower occupancy and above inflation increases in utility costs, resulting in organic surplus growth of 1%.

available beds (year end)

32,771(2008: 32,577) Targeted to increase year on year, both organically (from new builds and extensions) and by acquisition.

occupancy

88.3% (2008: 89.4%) Represents the average number of residents as a percentage of average number of available beds. This is used as a key measure of capacity utilisation.

Staff numbers (year end)

36,928 (2008: 36,645) Recruitment and development of staff is consistent with Bupa Care Services being a people focused business, delivering the best quality, individual care. The business achieved 78% in Bupa’s annual employee satisfaction survey.

Revenues up 4% to £926.3m

Revenues £m

‘08 ‘09‘07

‘08 ‘09‘07

89

1.6

92

6.3

66

5.7


Surplus £m

‘08 ‘09‘07

‘08 ‘09‘07

131.

8

133

.7

119

.1


Business review

Governan

ceFinan

cial statements

understanding of the individual needs of residents – so the business is able to provide highly personalised and professional care.

Bupa remained committed to investing in and developing its portfolio of homes. Over £72m was invested in 2009 in building, extending, refurbishing and maintaining homes to provide the best possible environment and care. Four new homes and three extensions were opened, providing 415 new beds and nearly 50 retirement village apartments. A further five new homes are under construction and are due to open in 2010.

The Australian and New Zealand businesses adopted the Bupa brand during 2009.

ukIn the UK, Bupa cares for over 18,000 residents in 303 homes, more than 70% of whom are publicly funded, either wholly or in part.

Public authority funding restrictions, a recession driven slowdown in self-funded admissions and high winter mortality rates resulted in lower occupancy in 2009. Despite this, revenues grew slightly, though above inflation increases in utility costs contributed to a small decline in surplus.

As a recognised authority in social care, Bupa remained closely involved in public policy development. Its director of dementia care sat on the UK Government’s National Dementia Strategy working party, to which Bupa made a full submission. It also participated actively in the UK debate on social care funding and submitted a response to the Government’s green paper.

Bupa’s investment in quality care was recognised by its high satisfaction ratings. The Care Quality Commission found Bupa had the highest ratio of homes rated ‘excellent’ or ‘good’ (86%) of all large corporate providers.

Resident satisfaction levels rose, with residents giving their most positive opinion of Bupa Care Homes since the study began 11 years ago. 73% considered that service was ‘very good’ or ‘excellent’ – up 1% on 2008. A key finding was that 91% of residents believe they are treated as an individual.

Continued workforce investment resulted in the successful renewal of the prestigious Investors in People accreditation, the UK’s leading people management standard.

130 new beds were added from opening new homes. A highlight of the multi-million pound investment programme

was the opening of a purpose built dementia care home in Malvern, Worcestershire. A further home was opened at Stratford-upon-Avon. Further new home developments at Southampton, Ashford and Church Crookham will complete in 2010, increasing the portfolio by 200 beds.

australiaBupa Care Services Australia provides aged care for more than 3,700 residents in 48 homes. In 2009, record occupancy levels of over 95% resulted in organic revenue and surplus growth.

The business, in partnership with Bupa Australia, participated in a consultation process with the National Health and Hospital Reform Commission, to develop recommendations for a long-term aged care reform plan for Australia.

An extension comprising 41 new beds at Banora Point was opened in December and a further extension at Tamworth completed construction and is due to open in 2010.

New zealandBupa Care Services New Zealand delivers care to over 2,700 residents in 45 care homes and retirement villages. It also provides telecare services via a personal medical alarm network. In the care homes business, revenues increased organically, boosted by higher than expected government fee increases and stable occupancy.

Two significant retirement village extensions were opened at Winara and Liston Heights, adding nearly 50 new assisted living apartments.

SpainIn 2009, Sanitas Residencial opened two new homes in Madrid and Salamanca, bringing the total to 40, caring for almost 4,000 residents. A further new home in Madrid completed construction and is due to open early in 2010.

A summer marketing campaign, targeting respite residents proved highly successful in improving and subsequently maintaining overall occupancy. Despite continued recessionary pressures in Spain, revenues and surplus showed modest organic growth.

outlookBupa Care Homes is a very strong business in a high demand sector. Bupa owns the freehold of most of its care homes and as an owner operator with relatively low debt, the business is in a robust position to withstand the current volatile global economy. Its focus on innovation and quality and its leadership in aged care will continue to differentiate the business and foster growth.

Strategy overviewBupa is committed to being a world leader in aged care.

The business maintains its focus on residential aged care and on differentiating itself by specialising in dementia care. It achieves growth by consolidating in existing geographies and by expanding incrementally, while reviewing new markets for potential opportunities. Ongoing operational efficiency and effectiveness and tight cost control remain critical to sustaining surplus growth in a low inflation environment.

The UK business maintains its existing focus on care home operations, resident satisfaction and staffing efficiencies and continues to develop a clear leadership position in dementia care and provide a patient centric and cost effective ‘continuing care’ offer to primary care trusts (as an alternative to in-hospital care).

In Australia, the business concentrates on organic growth through the provision of quality care and a focus on low care and extra services care, which can qualify for accommodation bond payments under current regulations.

The business in New Zealand seeks to increase its ratio of higher dependency beds and introduce additional bed capacity, to meet increasing demand for quality care.

Sanitas Residencial’s strategy is to increase occupancy levels, especially in its immature, newer homes, and to develop staff learning and operational best practice in the existing portfolio.


trading activities In the annual report, we use underlying surplus before taxation expense as our key performance measure when discussing the results of the Group. We believe that this measure provides a meaningful view of the results without distortion from items that impact comparability. The underlying surplus before taxation expense was £428.2m (2008: £413.4m), as shown in the table below. This excludes net gains on return seeking assets of £52.2m (2008 net loss: £97.7m).

Detailed information on the divisional results is contained in pages 16 to 23.

The remaining significant items that comprise statutory surplus before taxation are discussed in the remainder of this report. In addition, we comment on our balance sheet, cash flows and funding position.

2009

£m

2008 (restated)

£m

Growth

%

Surplus before taxation expense 416.5 191.9 117%

Exclude:

Net (gain) / loss on return seeking assets (52.2) 97.7

Impairment of goodwill – 116.5

Impairment of other intangible assets 19.3 24.3

Amortisation of intangible assets arising on business combinations 34.9 25.5

Profit on sale of businesses and assets (20.0) (5.6)

Bupa Ireland risk equalisation provision release – (21.0)

Other items* 29.7 (15.9)

underlying surplus before taxation expense 428.2 413.4 4%

* Other items principally include adjustments relating to realised and unrealised foreign exchange gains and losses and various non-recurring items.

underlying surplus before taxation increased by

4%

fiNaNCE DirECtor’s rEport

Revenue grew by 17% to £6.94bn, driven by a combination of organic growth, favourable foreign exchange movements and the full year effect of recent acquisitions.


Business review

Governan

ceFinan

cial statements

impairment of goodwill and other intangible assets No impairment of goodwill has been recorded in the current year. In 2008, impairment charges of £116.5m were recorded against our care homes businesses in Australia and Spain, as well as our Latin American insurance business based in Miami.

In 2009, we recorded an impairment charge of £11.7m against other intangible assets arising on business combinations in our Spanish care homes business.

other income and chargesFor 2009, other income and charges is comprised primarily of gains on asset sales offset by deficits arising from property revaluations. The most significant gain (£18.3m) was generated by the transfer of the Saudi Arabian insurance business to a newly listed company in which we retain a 26.25% interest.

Revaluations of care homes, hospitals and office buildings reduced other income by £15.7m. We account for these properties at fair value, with changes in valuation recorded in other comprehensive income, unless an asset is valued below historical cost. Where this is the case, the deficit below historical cost is recorded in the income statement. Current year property impairments relate principally to a number of care homes and one of our Spanish hospitals.

Financial income and expensesNet financial income was £48.7m (2008: £40.6m net financial expense). The increase is due principally to rising valuations in the return seeking asset portfolio (£52.2m net gain in 2009 compared to net loss of £97.7m in 2008), partly offset by lower net interest income resulting from falling interest rates.

At 31 December 2009, the return seeking asset portfolio represented 6% of total cash and financial investments (2008: 9%) as we reduced our holdings in a number of funds to minimise future volatility.

During the low interest rate environment of 2009, we actively used our cash generated from operations to pay down bank borrowings. In 2009, excluding net gains/losses on return seeking assets, our net financial expense was £3.5m compared to net financial income of £57.1m in 2008.

taxationThe taxation expense of £115.7m (2008: £79.5m) represents an effective rate of 28% (2008: 41%). The 2008 effective rate was distorted due to impairments of goodwill (£116.5m) and other intangible assets (£6.1m), which does not qualify for taxation relief. Excluding the effects of one off items, the underlying effective taxation rate was 21% (2008: 25%), which is lower than the blended statutory rate by geography of 29%, reflecting taxation savings recognised in the year.

Balance sheetThe post taxation surplus for the financial year was £300.8m (2008: £112.4m). Equity attributable to Bupa increased by £361.6m, an increase of 10%, to £3,949.1m (2008: £3,587.5m) and included unrealised property revaluation losses of £44.9m (2008: £32.1m), foreign exchange gains of £208.7m (2008: £107.8m) and an actuarial loss on the pension schemes of £132.2m (2008: gain of £10.2m).

cash and other financial assetsWe hold cash and other financial assets principally to meet the liabilities and solvency requirements of our regulated insurance subsidiaries. Cash and cash equivalents totalled £1,058.3m (2008: £920.6m) and other financial investments were £1,625.0m (2008: £1,675.9m).

Assets backing life investment contract liabilities relate to investment products sold by our Australian life business. Accounting standards require these financial assets and the related policy holder liabilities to be recorded gross on the balance sheet. These financial assets, which totalled £830.5m at 2009 (2008: £689.1m), consist of high quality investments such as cash, equities, fixed income securities and property trusts. The increase of £141.4m is due to the strengthening of the Australian Dollar during the period and increases in the fair value of the assets, partially offset by net withdrawals by policyholders. A related and substantially matching liability of £832.0m (2008: £679.4m) is shown as life investment contract liabilities, reflecting amounts due to the policyholders.


fiNaNCE DirECtor’s rEportcontinued

interest bearing liabilities At 31 December 2009 Bupa had total interest bearing liabilities of £1,490.6m (2008: £1,857.9m), which consisted primarily of bank borrowings, secured loans and bonds. During the year, the balance decreased as cash generation was used to repay bank borrowings. In addition, Bupa issued £350m of senior, unsecured bonds in 2009, the proceeds of which were used to repay further bank borrowings.

Foreign exchangeApproximately 71% (2008: 79%) of net assets are denominated in foreign currencies. The principal foreign exchange translation exposures arise on the Australian Dollar, the Euro and the US Dollar. Overall, 22% (2008: 16%) of the Group’s net asset exposure was hedged using appropriate foreign currency borrowings and currency forward contracts.

The net increase in the foreign exchange translation reserve was £208.7m (2008: £107.8m) and represents the increase in the value of the underlying net assets of the Group’s overseas subsidiaries, net of hedging. Much of the increase in reserves reflects the appreciation in 2009 of the Australian Dollar against Sterling.

cash flow and financing At 31 December 2009, Bupa had net cash and cash equivalents of £1,026.4m (2008: £875.1m), an increase of 17%. This amount consists of cash and cash equivalents of £1,058.3m less overdrafts and restricted access deposits of £0.7m and £31.2m, respectively.

Cash generation from operating activities for the year was £522.3m (2008: £306.5m), reflecting the underlying trading performance, the inclusion of a full year’s results from MBF, and the benefit of the appreciation of the Australian dollar and Euro against Sterling.

During 2009, £34.9m was utilised from investing activities driven by capital investment of £197.1m (2008: £210.2m), offset by the net liquidation of a number of financial assets.

During the course of the year we repaid £680.7m of bank debt, £350.0m of which was funded by the proceeds of the senior bond issue. The balance, together with interest paid, used £411.8m of cash from financing activities.

The Group’s main source of funding is via a £1.10bn committed bank facility. This facility matures in February 2011 and we expect to put in place new funding arrangements prior to this and will be working towards that objective in 2010. Funding headroom under the Group’s committed facilities increased from £170.0m to £685.7m during the year. The Group Treasury department monitors funding risk as well as compliance with existing financial covenants within banking arrangements.

Group financial strength We maintain a strong balance sheet through rigorous financial planning and a conservative approach to leverage. Our long-term financial strategy is to facilitate growth without undue balance sheet risk.

2009

£m

2008 (restated)

£m

Net cash generated from operating activities 522.3 306.5

Net cash used in investing activities (34.9) (767.1)

Net cash (used in) / generated from financing activities (411.8) 683.6

Net increase in cash and cash equivalents (excluding foreign exchange) 75.6 223.0


Business review

Governan

ceFinan

cial statements

This approach is designed to ensure continued compliance with debt borrowing covenants and with capital solvency requirements in our regulated businesses. Our financial strength is derived from operating cash flows and the benefits of our status as a company without shareholders, which allows all surpluses to be reinvested in the business. During 2009, leverage decreased from 34% to 27% (on a debt /debt + equity basis) as the Group repaid bank debt using cash generated in the period. This level of borrowings is within our Board approved risk appetite and we expect that operational cash flows will be available for further repayment of borrowings in the near future. The solvency positions of our regulated companies and of the Group as a whole are routinely monitored against the requirements of local regulators and of the UK’s Financial Services Authority (FSA).

Balance sheet management Financial risk management is carried out by the Group Treasury department, including all hedging activities. Our aim is to ensure that there is adequate funding to allow the Group to meet its obligations, manage the risks arising from movements in interest rates and foreign currencies and protect our financial assets.

In addition, the Group and each of the regulated companies complied with all externally imposed capital requirements during 2009.

credit ratings We aim to operate within a targeted range for leverage and interest cover ratios designed to support an investment grade rating. These ratios are monitored and reported to the Board on a regular basis, with sensitivity analysis carried out to provide early warning of potential issues.

The Bupa Group as a whole is not rated by any rating agency although individual debt issues and various regulated insurance companies within the Group do have a public rating.

The principal debt ratings relate to the senior, unsecured bonds issued in 2009, secured loans in the care homes business and the callable subordinated perpetual guaranteed bonds.

During the year, the insurance financial strength rating for Bupa Insurance Limited, the principal insurance company in the UK, was upgraded by Moody’s from A3 to A2 with a stable outlook, reflecting progress made on recent integrations, geographical diversity and reduced leverage. The senior, unsecured bonds issued in 2009 were assigned a rating of Baa2 and A- by Moody’s and Fitch respectively.

conclusion We delivered a resilient trading performance in 2009 in a difficult economic environment. Our underlying surplus has increased and we generated strong cash flows from operations. This has allowed us to repay bank borrowings and further strengthen our balance sheet.

thomas SingerGroup Finance Director 8 March 2010


BusiNEss risKs aND uNCErtaiNtiEs

Bupa, like all large, complex companies, has to manage a range of business risks. Outlined below are the Group’s processes for managing risks, its key areas of risk and how it manages them.

Bupa’s risk management processBupa has a well established process for identifying business risks, evaluating controls and establishing and executing action plans. This process, which is based on best practice in risk management, involves the following steps:

• The management teams of each business unit and Group function carry out an annual risk assessment. Each unit identifies those risks that could impact its business objectives and strategic plan.

• The probability and likely impact of each potential risk is evaluated. The management teams consider each identified risk and note the controls in place to prevent the risk or to mitigate the effects should it occur, in order to identify the residual exposure that the risk represents.

• The residual exposure to each risk faced by the business unit or Group function is then assessed and action plans are formulated by each management team to improve controls for those risks where our exposure is above our appetite. The outcome of this process is reviewed by the Audit Committee and reported to the Board.

• Formal reviews of risk assessments and action plans take place at least quarterly. Risk databases are updated to include new risks, actions taken to strengthen controls and any changes to the risk profile. All significant strategic and operational risks identified by the business units are discussed twice a year at the Chief Executive’s Committee. The Audit Committee considers the aggregated risk returns for all business units and Group functions at its meetings.

health and safetyDetails of the measures Bupa has in place to ensure the Group operates to the highest health, safety and clinical standards are included on page 32.

clinical riskBupa is dedicated to ensuring its customers are treated and cared for according to evidence based best practice and high clinical standards.

Bupa aims to follow the highest standards of clinical best practice appropriate to the markets where it operates and adopt a customer centred approach to care. Clinical risk is the businesses’ responsibility and key businesses have a Medical Director, responsible for ensuring clinical quality within the business, with professional accountability to the Group Medical Director. The Board has a Medical Advisory Panel chaired by Professor Sir John Tooke, which advises it on medical issues and brings external perspectives to help develop Bupa’s approach. The panel includes the Group Chief Executive, two Non-Executive Directors, and a number of leading doctors. The Group Medical Director provides a quarterly report on clinical performance to the Medical Advisory Panel and an annual report to the Medical Advisory Panel and the Board; this annual report makes commendations and recommendations for improvements, which are followed up through the year. The Medical Advisory Panel receives and considers updates from the Group Medical Director regarding clinical incidents and the results of clinical audits undertaken across the Bupa Group.

Clinical governance, encompassing both audits and proactive risk management, is integral to encouraging continuous quality improvement and to ensure the standard of clinical services.

insurance riskBupa’s insurance businesses face the risk that unexpected variations in the frequency, size or timing of claims will lead to variations in financial returns. By virtue of being in the healthcare, critical illness, income protection, and life protection insurance business, Bupa is exposed to a number of factors affecting its insurance risk. These include macroeconomic trends, medical inflation, shifts in demographics, changes in population health, developments in healthcare delivery and technology, catastrophes and statistical fluctuation.

The Group manages its insurance risks by the use of advanced analytic models of products, pricing and sectors, controls on underwriting and claims settlement, policy clarity and contract certainty, internal and external actuarial reviews, and the use of reinsurance of long-term insurance policies to transfer risk. A significant mitigating factor is that the vast majority of insurance business is for short-term risks, rather than long-term chronic conditions, enabling regular repricing in the event of changes in claims trends.


Business review

Governan

ceFinan

cial statements

increasing competition in the private medical insurance marketPrivate medical insurance markets are increasingly competitive. A number of new entrants have entered the market in recent years, with many seeking to compete on price and often offering products with more limited benefits.

Bupa keeps its competitive position in each of its markets under continuous scrutiny and regularly reviews strategic and tactical objectives. The Board and senior management monitor performance via key indicators such as trend data, customer satisfaction results and monthly financial results.

provider costsBupa’s insurance customers benefit from services procured from a wide range of providers including hospitals and consultants. In the face of inflationary pressures, there is a risk that increasing provider charges will lead to substantial increases in premium rates and customer dissatisfaction. Bupa’s policy is to work with its providers to maintain and improve quality while containing the cost of procuring medical services. This includes, where possible, the use of contracts, preferred supplier arrangements and case management techniques.

care homes’ income and costsBupa seeks to reinvest its operating surplus in the care for its residents, the training of its staff and the quality of the physical environments. The ability to do this is dependent on achieving sufficient placements and funding from the local government and health authorities who pay the fees for the majority of all care home residents. Recent exacerbated pressures on public finances in each of the four countries in which Bupa operates care homes may result in reduced income for care home operators, from both lower occupancy and reduced fee levels, which in turn may reduce the ability to invest in maintaining and enhancing the quality of the care provision.

With upward pressures on operating costs as a result of increasing employment legislation and care home regulation, it may be difficult to reduce other costs to mitigate the effect of these increases without impinging upon the high standards of care that Bupa provides. Should revenue decrease due to the actions of the placement authorities and costs not fall similarly, there may be a resultant reduction in care home operating margins.

Regulatory environmentBupa serves customers of more than 190 countries and could therefore be affected by changes in financial, clinical and health and safety regulations in a number of countries. This could affect the way it carries out business, and in certain cases might increase costs.

Bupa seeks to operate to the highest regulatory standards and to maintain an awareness of and, where possible, anticipate regulatory change. Bupa’s principal financial regulator is the UK’s Financial Services Authority, with which Bupa senior managers maintain a close working relationship.

Solvency iiBupa supports the introduction of Solvency II, which should help improve the understanding and confidence in capital adequacy across the European insurance sector. However, we are concerned that current guidance contains proposals regarding the capital requirements of health insurers and mixed activity groups which, if enacted, could materially disadvantage Bupa. We are therefore lobbying at both the UK and European levels to bring about further revisions which will, in our opinion, present a fairer view of the relatively lower level of risk within the health insurance sector compared to other classes of insurance. We are also exploring other approaches, such as enhancing the use of internal modelling, to help lessen the impact of regulation on the capital required to support the Group.

In view of the fundamental nature and importance of Solvency II, the Bupa Board has established a dedicated programme to assess the full ramifications of the new regime across all of Bupa’s business activities and to ensure that robust and proportionate solutions are embedded throughout the organisation.

political riskThere is a risk of change to healthcare policy in key markets as a result of political decisions; such change may have favourable or adverse consequences for Bupa. As part of the strategic planning process, Bupa regularly analyses the impact of possible political change on its business model. Bupa seeks to maintain a constructive dialogue with governments in its main areas of operation, promoting the benefits of high quality private healthcare alongside public provision. This risk is also mitigated by the international diversification of Bupa’s operations.

Evolving uk NhSThe evolution of the NHS presents opportunities and risks for Bupa as it engages with the NHS and bids for contracts to provide services to it. Any uncertainties or changes in UK Government procurement policy potentially prejudice the development of new services for the NHS because of the financial and other investment they represent.

Overall, Bupa regards the provision of services to the NHS as a positive development opportunity consistent with its belief in a mixed healthcare economy in which it can leverage its expertise and assets for the benefit of more patients.

Geographical spreadThe international businesses operate in a wide range of locations across the world, many at significant distances from Group head office in London. Geographical diversification provides the benefit of spreading risk by reducing the relative exposure to any single healthcare economy but also represents a risk when operating in new markets with which Bupa is less familiar.

The Board recognises the need to maintain effective central oversight of Bupa’s operations while allowing each business the flexibility to evolve its business model to operate effectively in its local market. Bupa employs the highest quality local management, with strong oversight from Group senior management who are either based in, or regularly visit, overseas business units to monitor performance. The dissemination of best practice, and collaboration among business units, is encouraged through regular business reviews and Bupa’s international executive development programmes.

acquisitionsBupa makes acquisitions where it considers they will enhance its services or geographical spread and increase the value of the business in the long-term. Any major acquisition involves risk until the acquired business is successfully integrated.


Bupa controls acquisition risk by focusing on product and service areas in which it has expertise. It has a defined acquisition methodology and expert staff, and integration programmes are regularly reviewed by senior management.

leadershipAs Bupa changes and grows, it needs to make sure it has the right people to move the Group forward. The Board views the development and training of Bupa’s people, and the recruitment of experienced individuals from outside the Group, as central to the organisation’s future success. Bupa has sound selection, evaluation and reward processes to recruit, recognise and motivate above average performers and has a rigorous annual succession planning process.

management of changeBupa is undertaking a number of change programmes: in 2009 the UK Insurance business introduced a major upgrade to its core operating system and the international and care homes businesses are growing rapidly, partly by acquiring and integrating other businesses such as our insurance business in Australia.

Bupa mitigates the risk inherent in change by having stringent change management procedures. Major project expenditure on new developments is approved by the Board following a rigorous assessment of plans. Professional programme management resources are used and the internal audit function reviews the impact of major changes on Bupa’s operational controls. Progress on key projects is reviewed by the Audit Committee or the Board.

Growing economic weakness in our key marketsAll major markets continue to experience scaled back growth and increasing unemployment. Although Bupa expects this to have an adverse impact on its business, its diversification in terms of geography and sector help to mitigate its exposure in any one area.

pandemic As Bupa is a major healthcare provider, a pandemic such as swine flu could have a significant impact. A pandemic could present Bupa’s care homes and hospitals with major operational difficulties in maintaining an adequate staffing profile and protecting residents and patients, in addition to disrupting normal business activities across the organisation. Bupa has extensive plans in place in the event of an epidemic, such as swine flu, to mitigate as far as possible its impact. Bupa has detailed contingency plans for each location to reduce any disruption to normal business activity.

investment riskThe Group has financial assets, cash and cash equivalents totalling £2.68bn at year end. These are primarily controlled by the Group’s Treasury department in London under the supervision of the Treasury and Investment Committee, chaired by the Group Finance Director, which also includes operational management, an independent director of Bupa Insurance Limited and an external economic consultant.

Most of the investments are held in cash; exposure to individual counterparties is restricted and generally deposits are not held with institutions without two credit ratings of AA-/Aa3 or better by the major credit rating agencies. The Group also invests in return seeking assets within a risk budget framework which measures risk using Value at Risk methodology. At times of market stress or dislocation, the investment techniques employed may become less effective in mitigating adverse investment performance.

Funding riskThe Group supports its current operations and future growth from a combination of internally generated profits and externally raised debt. To ensure appropriate diversification of funding risk, the Group has accessed a variety of debt capital markets to support its growth. These currently include the bank debt market, asset securitisations and the senior and hybrid bond market.

The Group is committed to maintaining an appropriate investment grade rating with major credit rating agencies and closely targets key financial ratios, such as gearing and interest cover. The Group also actively monitors regulatory solvency levels and ensures appropriate headroom.

The Group’s committed bank facility expires in February 2011 and the Group is planning to refinance the facility during the course of the year. Discussions on the re-financing are under way with existing and new banks that have expressed strong interest in participating in the new transaction.

BusiNEss risKs aND uNCErtaiNtiEscontinued


Business review

Governan

ceFinan

cial statements

CorporatE rEspoNsiBilitY

For Bupa, corporate responsibility means using its leadership in healthcare in a way that engages its people, makes sense for the business, is good for society and positive for the environment.

In 2009, Bupa spent £9m on corporate responsibility, which was focused on four key areas aligned to the Group’s business strategy: healthcare, community, the environment and engaging with employees to help them play a key role in delivering Bupa’s corporate responsibility agenda.

healthcareHelping people live longer, healthier and happier lives is at the heart of everything Bupa does and is a key driver of its corporate responsibility activities. In 2009, Bupa’s charitable foundations in the UK, Spain and Australia funded research to help prevent, relieve and cure sickness and ill health.

The Bupa Foundation in the UK awarded £2.6m to medical research projects and in partnership with the Alzheimer’s Society, launched a fund to support international research into dementia.

In Australia, the MBF Foundation awarded £2.2m to initiatives including the development of an electronic outpatient cardiac rehabilitation programme with the Central Queensland University. It also engaged with the Australian Government on the need for a national strategy to address chronic pain, which will culminate in a National Pain Summit in Canberra in March 2010.

The Sanitas Foundation in Spain gave £0.5m towards research into disability and healthy living habits and the impact of new technologies on healthcare. The Foundation also recognised the best medical student and the best performing teaching hospital in Spain.

Additionally, Bupa Giving, a fund dedicated to supporting charitable healthcare initiatives, donated £1.8m in 2009. It supported projects like an Alzheimer’s

Australia programme to improve dementia care through knowledge transfer and collaboration, and an Admiral Nursing initiative to build capability in specialist mental health nursing in the UK.

communityBupa has a long history of community engagement around the world and in 2009 launched a global staff volunteering challenge in Ecuador. The Ecuador Challenge saw 120 Bupa volunteers transform the lives of families in the poverty stricken region of Miraflores in Ecuador, by building a much needed health centre for the community. The project allowed Bupa to use its healthcare leadership credentials to benefit a community in real need of improved healthcare. The project’s future is guaranteed by support from Bupa’s Latin American business.


CorporatE rEspoNsiBilitYcontinued

Aside from the Ecuador Challenge, Bupa continued essential work within the communities where it operates, from teaching UK children the benefits of healthy eating to supporting Australian bushfire victims. In 2009, Bupa supported 8,336 staff in giving more than 81,000 of their working hours to good causes. Bupa also matches the money that its employees raise for charity, and donated £0.5m to charities in 2009 to support its volunteer efforts.

Sponsorship of the Spanish paralympic team and events like KidsFit Triathlons in Australia and the UK’s Great Run series, continue to promote health and wellbeing as well as raising millions of pounds for good causes. In 2009 Bupa’s nominated charity for the Great Run series, Alzheimer’s Society and Alzheimer Scotland, raised over £1.0m.

EnvironmentBupa, whilst in the early stages of its environmental journey, is committed to making a positive impact on the environment for the long-term. The Group spent 2009 ensuring the foundations are in place to deliver its future ambitions.

The Group created a cross business Environmental Steering Committee to ensure a full understanding of Bupa’s impact on the environment. Furthermore, Bupa created individual action plans for each of its businesses across the world.

The amount of carbon dioxide generated by the Group in 2009 was 197,328 tonnes. This is a decrease of 3% compared to 2008 and is primarily related to the introduction of energy efficiency schemes, including a boiler replacement and energy monitoring initiative across Bupa care homes in the UK and solar trials in the New Zealand care homes business.

Bupa also delivered other projects that made a tangible difference to the environment in 2009, such as providing all staff in Bupa Australia with long lasting ‘Keep Cups’ to reduce the use of plastic cups and electricity saving campaigns in Bupa’s UK health insurance business.

Bupa peopleBupa is committed to making every effort to inform, consult and encourage the full involvement of its people on matters concerning them as employees and affecting the Group’s performance. During 2009, the Group continued to focus on health and safety. It reviewed its progress on diversity and continued to prioritise employee engagement and recognise excellence.

health and safetyThe Group continued to focus on health and safety in 2009, conducting a review of its policies in this area and continuing to develop online health and safety training tools. Reportable incidents fell across the Group from 174 in 2008 to 117, while in the UK, the number of reported incidents under the terms of the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations dropped from 139 in 2008 to 109 in 2009. The business also recorded zero staff fatalities in the year.

diversity Bupa’s success is a result of the diverse skills, care and commitment of its people. In 2009, Bupa reviewed its progress on diversity by surveying its people, and while the findings were encouraging, the Group will be looking to do even more to disseminate best practice in 2010 and beyond in order to keep diversity at the core of its business.

The employment of disabled persons is included in Bupa’s commitment to diversity and the recruitment, training, career development and promotion of disabled persons is based on the aptitudes and abilities of the individual. Should employees become disabled during employment, the Group is committed to making every effort to continue their employment and, if necessary, appropriate training would be provided.

Engaging employeesBupa continues to see communication with its employees as a key aspect of its people policies. Information on key business developments, financial performance and employment matters are shared regularly with employees through management channels, the Group internal magazine, ‘Bupa World’, and via internal seminars and podcasts.

In 2009, Bupa also invested in stimulating employee collaboration across the Group. Bupa Live, an internal social networking platform, was launched and is proving effective at connecting Bupa people around the world and helping them to share ideas, which will benefit the business.

During the year, Bupa conducted its annual employee poll, which surveyed the opinions of over 20,000 of its people. The results showed job satisfaction increasing from 79% to 80%, with 85% stating they are proud to work at Bupa.

Recognising excellenceBupa continued to invest in its people and recognise excellence at all levels. More than 1,200 employees considered to have embodied Bupa’s values

received excellence awards. Over 1,200 employees participated in Bupa’s award winning One Life suggestions scheme, which recognises employees who come up with ideas that could improve the way the business works. The Group implemented 16% of ideas which delivered more than £1.9m in tangible financial benefits.

In the UK, Bupa Care Services achieved Investors in People recognition for the fourth time. This programme provides a standard for good business practice in the UK and gives external recognition of Bupa’s good people management practices.

Future ambitionsAs well as aligning corporate responsibility to its business strategy, Bupa has started a piece of work to plan out its future ambitions. Working with the charity, Forum for the Future, Bupa is defining a path that takes its corporate responsibility activities from just philanthropic in focus to core in creating a sustainable, leading business in the future as part of its global brand.

Financial statem

ents


Governan

ceBusin

ess review

rEport of thE BoarD of DirECtors

Biographical details of the two Executive Directors and six Non-Executive Directors who currently hold office are set out on pages 34 and 35.

As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the Directors and certain senior managers, to the extent permitted by law and the Company’s Articles of Association, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities as Directors of the Company or any of its subsidiaries.

Going concernThe Directors confirm that they are satisfied that the Company and the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

policy for paying creditorsIt is Bupa’s policy to pay its providers and other creditors in accordance with agreed terms and conditions. As a holding company, the Company itself has no trade creditors.

disclosure of information to auditors The Directors who held office at the date of approval of this Report of the Board of Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

auditorsIn accordance with Section 485 of the Companies Act 2006, KPMG Audit Plc offers itself for reappointment at the Annual General Meeting as auditors of the Company.

By order of the Board

N t BeazleyCompany Secretary8 March 2010

The Directors of The British United Provident Association Limited (‘Bupa’) present their report and the financial statements for the year ended 31 December 2009.

introductionThe business review on pages 1 to 32, the corporate governance statement on pages 36 to 38 and the remuneration report on pages 39 to 41 all form part of this report. The audited financial statements are presented on pages 44 to 117.

principal activitiesThe principal activities of the Group are the provision of health insurance and health and care facilities and services. The latter includes ownership and management of care homes, hospitals and clinics, health screening, provision of disease management services and occupational and community health services.

Financial resultsThe results of the Group for 2009 are reported on page 46. The surplus for the financial year of £300.8m (2008: £112.4m) has been transferred to equity.

acquisitions and disposalsDetails of the disposals made during the year are shown in note 21. There were no acquisitions made during the year.

charitable and political contributionsDuring 2009, Bupa made charitable donations totalling £6.6m (2008: £5.4m). This included payments to The Bupa Foundation of £2.6m (2008: £2.6m), to the MBF Foundation of £1.5m (2008: £nil), to the Sanitas Foundation of £0.4m (2008: £0.4m) and to UK registered charities of £1.1m (2008: £2.3m), of which £0.6m (2008: £1.9m) was made under the Bupa Giving initiative. The remaining £1.0m (2008: £0.1m) was made to overseas registered charities. No political donations were made.

Employment policiesDetails of Bupa’s employment policies, including policies on equal opportunities for disabled employees, are included in the statement on corporate responsibility on pages 31 to 32.

Board of directorsThe Board is responsible for the good standing of the Company, the management of its assets, including the management of risk, and the strategy for its future development. There are nine Board meetings each year and other meetings are convened as needed.


Executive Directors1. ray King3

age 56. appointed chief Executive in may 2008. previously Group Finance director of Bupa since august 2001. chartered accountant. Former director of Group Finance and control at diageo plc and former Group Finance director of Southern water plc. Former Non-Executive director of Friends provident plc.

2. thomas singerage 46. appointed Group Finance director of Bupa in may 2008. chartered accountant. Former chief operating officer (and prior to that Group Finance director) of william hill plc, Finance director of moss Bros Group plc, management consultant at mckinsey & co and manager at price waterhouse.

independent Non-Executive Directors3. lord leitch2,3

age 62. Joined the Board in may 2005 and appointed chairman in November 2006. deputy chairman of lloyds Banking Group plc and Non-Executive director of paternoster uk limited. chairman of Scottish widows and intrinsic Financial Services ltd. Former chairman and chief Executive of zurich Financial Services uk, ireland, South africa and asia pacific. Former chairman of the life insurance council and the association of British insurers. Former Non-Executive director of united Business media plc. Former chairman of uk Government’s Review of Skills and the National Employment panel. he chairs the Bupa Nomination committee.

4. the rt hon Baroness Bottomley Dl3

age 61. Joined the Board in may 2007. member of the house of lords, chair of Board practice at odgers Berndtson, member of the Supervisory Board akzo Nobel Nv, chancellor of the university of hull, Governor of lSE and trustee of the Economist. Former Secretary of State for health and then National heritage (now culture, media and Sport).

5. peter Cawdron1,2,3

age 66. Joined the Board in may 2007. chartered accountant. chairman of punch taverns plc and Spice plc, Non-Executive director of Johnston press plc and proStrakan Group plc. Former Non-Executive director of the capita Group plc, compass Group plc and Gcap media plc. Former director of Grand metropolitan plc. he chairs the Bupa Remuneration committee. appointed as Bupa’s Senior independent director in January 2009.

DirECtors aND aDvisErs

13 2

8


Financial statem

entsBusin

ess reviewG

overnance

6. lawrence Churchill CBE1

age 63. Joined the Board in July 2009. chairman, pension protection Fund, Senior independent director, Good Energy Group and tunbridge wells Equitable Friendly Society and member, Board for actuarial Standards. Former chief Executive, zurich Financial Services uk and international life. Former chairman and managing director, uNum.

7. George Mitchell CBE1,2,3

age 59. Joined the Board in may 2007. chairman of the malcolm Group and Non-Executive director of intrinsic Financial Services limited. Former director of hBoS plc and former Governor of Bank of Scotland plc. he chairs the Bupa audit committee and Bupa’s Regulated Entities Board.

Medical advisory panelthe principal role of the medical advisory panel is to advise the Board on medical issues affecting any part of the Group. it meets three times a year and monitors Bupa’s clinical and related activities. members of the panel include two Non-Executive directors, Ray king, the chief Executive, and dr vallance-owen, Bupa’s Group medical director. professor Sir John tooke is the chairman. the independent members of the panel are also association members of Bupa. membership of the panel is as follows:

8. professor sir John tookeage 61. Joined the Board in July 2009. consultant physician. vice provost (health), university college london and head of ucl’s School of life and medical Sciences and medical School. immediate past chairman of medical Schools council. chairman of uk healthcare Education advisory Board and member of National institute for health Research advisory Board and health Education National Strategic Exchange. Former dean of peninsula college of medicine and dentistry. he chairs the Bupa medical advisory panel.

secretary9. Nicholas Beazleyage 50. Joined Bupa in 1993. appointed Group Strategy director in July 2000 and company Secretary in June 2005.

presidentsir Bryan Nicholson GBEappointed as Bupa’s honorary life president in 2005. previously served as chairman of Bupa between 1992 and 2001.

professor sir John tooke ma, mSc, Bm, Bch, dm, dSc(oxon), FRcp, FRcpi, FRcGp (hon), Facadmed (hon), FmedSci, chairmanprofessor tar-Ching aw mBBS, mSc, phd, FFom, FRcp, FFphm the rt hon Baroness Bottomley dl, pc, Jp, Ba, mScanthony Clayson FRcS, FRcS orth

ray King BSc, Fca, mctprofessor Martin McKee mSc, md, FmedSci, FRcp, FFphprofessor Michael pringle cBE, FRcGp, FRcp, FmedSciandrew vallance-owen mBa, FRcS Edprofessor Mary Watkins phd, mN, RN, RmN.

member of: 1the audit committee, 2 the Remuneration committee, 3 the Nomination committee.

4

7 6 5

9


CorporatE GovErNaNCE statEMENt

overview of Bupa’s corporate Status and GovernanceBupa is a private company limited by guarantee. As such it has no shareholders and all of its surpluses are reinvested back into the business. Bupa exists for the benefit of its present and future customers.

The oversight normally provided by shareholders is exercised by a body of around 100 distinguished Association Members drawn mainly from business, public life, the medical professions, the charitable sector and academia, all of whom exercise the usual rights of shareholders. Nonetheless, as Bupa is a company limited by guarantee, the Association Members do not have any claim on the assets of the Company and are not entitled to receive a share of profits or dividends.

Bupa is managed in line with the corporate governance, safeguards and commercial principles that would be expected to be found in a listed company as explained below. Bupa’s Board of Directors includes a majority of independent Non-Executive Directors, who currently outnumber Executive Directors by a ratio of three to one. The Non-Executive Directors are eminent people in their own right and normally serve for two three year terms.

The Board has a number of committees, all of which comply with corporate governance principles, including Audit, Nomination and Remuneration Committees and a Medical Advisory Panel, which includes leading independent medical professionals. There is also an Executive Corporate Responsibility Committee, established in 2007, which reports to the Board on a regular basis. The Corporate Responsibility Report can be found on pages 31 to 32.

In addition to the internal systems and controls that apply across the Bupa Group, most of Bupa’s principal trading companies are monitored and supervised by external regulators, including in the UK the Financial Services Authority (FSA) and the Care Quality Commission. Separate regulatory requirements apply to each market in which Bupa operates.

Bupa believes that its corporate status is relevant and particularly important to healthcare and a significant advantage to the Company and its customers. It represents a considerable strength and means that Bupa is operated with customers, both present and future, as its absolute priority.

compliance with the combined codeThe Board continues to support the principles of corporate governance set out in the Combined Code published by the Financial Reporting Council (FRC) in June 2008 and available on the FRC’s website www.frc.org.uk. While not itself a listed company and having regard to its status as a company with no shareholders, Bupa has complied with the provisions set out in section 1 of the Code throughout the year ended 31 December 2009. Code provision D.1.2 relating to the views of major shareholders is not applicable to a company with no share capital.

Board of directorsDetails of the Directors are set out on pages 34 and 35.

The Board of Directors normally meets nine times a year and ad hoc as required. It has adopted a schedule of matters, such as strategy and policy, approval of business plans and significant capital expenditure, acquisitions and disposals, which are required to be brought to it, or its duly authorised committees, for decision or review. Information, in a form and of a quality appropriate to enable them to discharge their duties, is provided to members of the Board in good time, so that they may consider such information and any issues arising.

The Board currently comprises two Executive Directors, the independent Non-Executive Chairman, and five further independent Non-Executive Directors. All Directors are subject to triennial retirement by rotation. All the Non-Executive Directors are considered by the Board to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. The terms and conditions of appointment of Non-Executive Directors are available from the Company Secretary.

The Executive Directors are allowed to take up a Non-Executive Directorship of a significant company where this brings additional value and external perspectives and experiences to Bupa.

The Board has established an evaluation process, led by the Chairman, for the annual evaluation of the performance of the Board, its Committees and the performance of the Chairman. As part of this process, all members of the Board and members of the Audit, Remuneration and Nomination Committees completed questionnaires reviewing the working and effectiveness of the Board and the Committees. The results of the questionnaires were independently collated by the Company Secretary and the performance of the Board and its


Financial statem

entsG

overnance

Business review

workings were fully discussed by the Board. Bupa’s Senior Independent Director led the discussion on the Chairman’s performance without him present. In addition, the Audit Committee has considered and reviewed the findings on the Audit Committee. The results of these exercises showed that the Board, its members and the Committees were found to be working well and effectively and with only minor areas for improvement.

Board committeesMembers of the following committees are disclosed in Directors and Advisers on pages 34 and 35. The terms of reference of Board Committees and the terms and conditions of appointment of Non-Executive Directors are available on Bupa’s website.

audit committeeThe Audit Committee met six times in 2009. It is responsible for the overall monitoring of the Group’s systems of internal controls including risk management processes and compliance activities. The Committee reviews the Annual Risk Assessment carried out across the Group, including management’s action plans to address any significant risks. Quarterly it considers a risk update and details of progress against risk action plans, in addition to reports from the Internal Audit and Compliance functions. The Audit Committee also reviews the findings of the external auditor’s work including the audit of the annual report and accounts. The Audit Committee has discussions with the auditors without management being present.

The Committee comprises three Non-Executive Directors who have broad experience and knowledge of the issues and items covered by the Audit Committee. It is chaired by George Mitchell, who has extensive current financial experience. The Chief Executive and the Group Finance Director also attend meetings by invitation. The external auditors and the Group Head of Internal Audit are also invited to attend all meetings.

Remuneration committeeThe Remuneration Committee met four times during 2009. It determines the detailed terms of service of the Executive Directors and the divisional Managing Directors, including salary, incentives and benefits. The Committee comprises the Chairman and two Non-Executive Directors. It is chaired by Peter Cawdron. The Chief Executive attends meetings by invitation. No Director attends any meeting relating to his or her remuneration. The Remuneration Report can be found on pages 39 to 41.

Nomination committeeThe Nomination Committee met four times in 2009 and selects and proposes to the Board suitable candidates for appointment as Executive and Non-Executive Directors. The Committee engages external search consultants to draw up a shortlist of potential candidates for each Board vacancy and considers the merits of each shortlisted candidate before recommending the preferred candidate to the Board for consideration. It also makes recommendations to the Board for reappointment of Directors, members of Committees and new Association Members. The Committee comprises the Chairman, three other Non-Executive Directors and the Chief Executive; the Chairman chairs the meetings.

attendance at Board and committee meetings

Board ac Rc Nc

Number of meetings held 10 6 4 4

Attendance: Baroness Bottomley1

9

–

2

1

Prof Ed Byrne2 4 2 – –

Peter Cawdron 10 5 4 3

Lawrence Churchill3 6 4 – –

Ray King 10 – – 4

Lord Leitch 10 – 4 4

George Mitchell 10 6 4 4

Tom Singer 10 – – –

Prof Sir John Tooke4 5 – – –

Robert Walther5 5 1 – –

Key: AC Audit Committee RC Remuneration Committee NC Nomination Committee

– Indicates not a member of that committee.1 Baroness Bottomley joined the Nomination Committee and ceased to be a member of the

Remuneration Committee on 1 September 2009.2 Professor Ed Byrne ceased to be a Director and a member of the Audit Committee on 30 June 2009.3 Lawrence Churchill joined the Board and the Audit Committee on 1 July 2009.4 Professor Sir John Tooke joined the Board on 1 July 2009. 5 Robert Walther ceased to be a Director and a member of the Audit Committee on 31 July 2009.

internal control statement The Board of Directors is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, not absolute, assurance against material misstatement or loss.

The Board has established an ongoing process, which is documented in Bupa’s Risk Management Policy, for identifying, evaluating and managing the significant risks faced by the Group. It accords with the guidance set out in Internal Control: Revised Guidance for Directors on the


CorporatE GovErNaNCE statEMENt continued

Combined Code. Further details of Bupa’s risk management process appear on page 28. This process is regularly reviewed by the Audit Committee on behalf of the Board and has been in place for the year ended 31 December 2009 and up to the date of approval of the annual report and accounts. The processes used to review the effectiveness of the system of internal control include the following:

• Bupa has an established internal audit function which acts in accordance with the Institute of Internal Auditors professional standards. The Group Head of Internal Audit attends each Audit Committee meeting and is able to meet privately with the Chairman of the Audit Committee to discuss any areas of concern in respect of audit findings, resources or scope. The effectiveness of the internal audit function is reviewed at each Audit Committee meeting via a set of pre-determined qualitative and quantitative performance measures.

• The work of the internal audit function is focused on areas of highest operational risk. These are identified by the annual risk assessment process and by members of the management executive teams, Executive Directors and heads of central functions through facilitated workshops and one to one interviews. Internal Audit evaluates the adequacy of controls in operation and, where appropriate, agrees action plans with management to strengthen the control environment. Progress made in implementing recommended action plans is then monitored and challenged on an ongoing basis. The internal audit function reports its findings to management and to the Audit Committee.

• In addition to receiving internal audit reports, assurance on the key strategic risks facing the Group is provided to the Board or Audit Committee as appropriate via reports and presentations from either the Managing Directors or from group policy directors.

• In addition to the Audit Committee, other committees, subsidiary boards and advisers to the Board monitor the Group’s significant risks on an ongoing basis and report to the Board as appropriate. These include the boards of key operating subsidiaries, the Group’s Regulated Entities’ Treasury and Investment Committee, the Medical Advisory Panel and sub-committees established to manage specific projects.

• As in any large and diverse organisation, failings or weaknesses in internal control are identified from time to time. In all such instances action plans have

been put in place and actions are taken to remedy any significant weaknesses identified. Significant actions are monitored by the Audit Committee or the Board, as appropriate, to the successful resolution of the control issue. Reports are made quarterly to the Audit Committee on progress in delivering action plans.

• In compliance with Financial Services Authority (FSA) regulations and following an enhanced role for the UK Insurance Regulated Entities’ Board (REB) and the establishment of a Regulated Entities’ Audit Committee, management regularly update the Regulated Entities’ Audit Committee and the REB on issues concerning the UK based insurance companies. Bupa also maintains a regular dialogue with FSA officials during the course of the year.

• During 2009 a Regulated Entities Chief Risk Officer and Head of Risk were appointed. It is anticipated that a Group Chief Risk Officer will be appointed during 2010, facilitating the adoption of a Group wide three lines of defence model in accordance with Solvency II guidance.

• The external auditors are engaged to express an opinion on Bupa’s financial statements, which are prepared from the Group’s accounting records and comply with applicable law and International Financial Reporting Standards as adopted by the EU. They review and test the systems of internal financial control and the data contained in the financial statements to the extent necessary to express their opinion.

independence of the external auditorsThe Audit Committee and the external auditors have policies in place to avoid the possibility that the auditors’ objectivity and independence could be compromised. As part of the Board and Committee’s evaluation of the external auditors, the Directors confirmed that they were satisfied that the external auditors had maintained their independence.

In 2009 an updated policy on the use of external auditors for non-audit services was approved by the Audit Committee. The policy is primarily intended to ensure that Bupa does not engage the audit firm in situations where there could be a conflict of interest. This policy is kept under review.

On the basis of its meetings and other information available, the Audit Committee assesses the ongoing effectiveness of the external audit and recommends to the Board the re-election of the external auditors.


Financial statem

entsG

overnance

Business review

rEMuNEratioN rEport introductionThe Board is committed to achieving best practice in the determination and implementation of Bupa’s remuneration policy. The purpose of this report is to provide information on the policy and practices followed by the Board and Remuneration Committee. This report describes the remuneration and benefit policies of Bupa as they relate to the Directors of the Group. It has been prepared in the format of Schedule 8 to the Accounting Regulations 2008.

members of the Remuneration committeeThe Remuneration Committee is comprised entirely of Non-Executive Directors. The Chairman of the Remuneration Committee is P E B Cawdron and the other members are Lord Leitch and G E Mitchell. The Rt Hon Baroness Bottomley was a member until 1 September 2009.

operation of the Remuneration committee The Remuneration Committee decides remuneration policy and practice relating to Executive Directors and divisional Managing Directors. The Remuneration Committee meets at least three times a year.

The remit of the Remuneration Committee covers all aspects of service contracts including salary, bonuses and the long-term incentive plan (LTIP) as well as pension and benefits.

Element purpose practice

Base salary To attract and retain, reflecting role and contribution

Targeting market median, having regard to individual performance and responsibilities

Annual bonus plan To recognise and reward the achievement of annual objectives

Market median to upper quartile according to performance in the achievement of annual profit plan and key objectives

Long-term incentive plan To attract and retain, while ensuring sound long-term strategy implementation and achievement of objectives

Market median to upper quartile according to performance in the achievement of growth in reserves

Pension and benefits, eg medical benefits, life insurance, car allowance and income protection

To attract and retain by providing security and family protection benefits at a competitive market level

Benefits in alignment with current market practice, value generally linked to service and/or salary

The remuneration of Non-Executive Directors is determined by the Bupa Board as a whole.

Remuneration policyThe aim of the Group’s remuneration policy is to provide total remuneration at a level sufficient to attract and retain key executives and to motivate them to provide strong business performance and excellent customer service.

The policy is intended to deliver a competitive level and mix of remuneration compared with companies of a similar scale and complexity to Bupa, taking into account the significant international element of Bupa’s operations.

In 2009, Bupa continued to benchmark its total remuneration with organisations in the private sector using a comparator group of 15 companies. This group was selected with the assistance of Mercer Ltd (Mercer), who provide advice to the Committee.

The policy is to target base salary at the median of the comparator group, with the potential to achieve total remuneration at or towards the upper quartile for the delivery of outstanding performance in the long-term. This is in line with Bupa’s objectives of achieving stretching performance targets over the medium and long-term.

In summary, elements of executive remuneration are:


rEMuNEratioN rEport continued

Base salaryBase salaries are established by taking account of the market median for comparable roles and aim to reflect the market value for the executive’s core responsibilities. An annual review is conducted and any changes are implemented in April. This is to ensure that salary reflects current market conditions, as well as any changes in the level of accountability and individual performance.

annual bonusThe Chief Executive has a bonus potential of 90% of base salary and the Group Finance Director has the potential to receive a bonus of 75% of base salary. These bonus targets depend on the achievement of the Group’s annual profit plan. In September 2008 it was agreed that with effect from January 2009 85% of bonus potential will be linked to the achievement of the Group’s annual profit plan and the remaining 15% to the delivery of other key objectives.

The annual bonus potential for divisional Managing Directors continues to be linked directly to a combination of Group profit targets, individual divisional targets and delivery of key objectives. These targets are set at the start of the performance year.

long-term incentive plan (ltip)The LTIP is designed to reward senior Bupa Executives for the part they play in achieving the Group’s long-term growth objectives over a number of years. Bupa cannot provide long-term remuneration based on equity plans. The LTIP therefore provides a cash incentive that is broadly reflective of equity based plans in comparable organisations in the private sector.

The LTIP is designed to provide a cash payment subject to the Group achieving pre-determined targets. The LTIP targets are currently based on growth in Group reserves as set out in the three year business plan, which is considered to be the most appropriate measure of Bupa’s financial performance. The targets used are reviewed and approved by the Remuneration Committee and the Board.

At the start of 2009 the Remuneration Committee asked Mercer to undertake a review of the LTIP design and, as a consequence, the following changes were made:

• the LTIP scheme has moved to a three year rolling performance period to better reflect the three year business plan and market practice;

• a three year performance period will start each year and any awards will be paid annually on 1 April in the year after each plan has ended;

• all of the allocated fund, subject to achievement of targets, will be paid at the end of each three year plan, ie the deferral period is removed;

• no interest will accrue at the end of each year;

• the threshold performance level will be 67% of the targeted growth in reserves, and this will provide 30% of the target award with 100% being paid for the complete target being achieved;

• in the event of over-achievement, up to 120% of the award may be earned.

The incentive is calculated on the basis of a notional amount being allocated to the participant’s account on the day each new plan commences. This amount is expressed as a percentage of base salary.

The first three year performance period began on 1 January 2009 and will end on 31 December 2011, with any payments to be made on 1 April 2012.

To ensure the value of the revised LTIP remains broadly the same as before, the following transitional arrangements have been made for employees who were members of the scheme prior to 2009:

• an invitation to join a one off two year plan, which began on 1 January 2009, with any payments to be made on 1 April 2011;

• payment of the deferred element of the 2007/2008 plan, which was due to be paid on 1 April 2011, will be brought forward a year and paid on 1 April 2010.

The Chief Executive has an annual notional allocation to the LTIP of 130% of base salary and the Group Finance Director has an annual notional allocation of 100% of base salary.

Payment is normally only made to executives still in the employment of the Group on the date of payment. However, in the event that an executive leaves the Group, there are some circumstances, such as normal retirement, where a payment may be made.


Financial statem

entsG

overnance

Business review

pensionsThe Chief Executive is a member of The Bupa Pension Scheme and is entitled to a defined benefit pension calculated by reference to final pensionable salary and length of service with 1/30th accrual per annum. The Group Finance Director is entitled to a defined contribution pension in The Bupa Retirement Savings Plan; employer contributions are 30% of pensionable salary. In both cases, pensionable salary is the Executive Director’s basic salary only.

The defined benefit pension is funded up to the Lifetime Allowance (or Personal Lifetime Allowance) through The Bupa Pension Scheme, using a capped salary. The balance of the pension promise is provided through a non-registered arrangement, set out in an individual deed of agreement, which mirrors the terms of The Bupa Pension Scheme. This non-registered scheme is unfunded but the benefits are secured by a charge, in the name of the independent Trustees, over specific Group assets.

other benefitsOther benefits for the Executive Directors include car allowance, fuel benefit, use of a car and driver (for the Chief Executive), private medical benefits for themselves and any partner or dependent children, annual health assessment for them and their partner, life assurance, income protection and 30 days’ annual holiday.

contracts and notice periodsExecutive Directors have a twelve month rolling employment contract with a twelve month notice period which may be payable in lieu.

The Group recognises that its Executive Directors are likely to be invited to become Non-Executive Directors of other companies. Participation in these duties will be to the benefit of Bupa as they can bring value, by way of external perspectives and new experience, to the business. This is on the basis that any appointment is not with a competing organisation and does not give rise to a conflict of interest. Executive Directors are usually permitted subject to approval, to have one Non-Executive Director role and to accept and retain the fee for this Non-Executive Director appointment.

In 2009, R King earned fees amounting to £71,536 as a Non-Executive Director of Friends Provident plc.

Non-Executive directorsNon-Executive Directors are appointed for an initial term of three years, normally with the possibility of a period of extension for one term. See pages 34 to 35 of this report for appointment dates. Non-Executive Directors are paid a fee for their services to the Group. During their time in office, they are also entitled to private medical benefits for themselves and any partner or dependent children and an annual health assessment for themselves and their partner. The Chairman is also entitled to the use of a car and driver. There are no continuing benefits on termination except that of an annual health assessment for those who continue as an Association Member.

Non-Executive Directors are not entitled to participate in any bonus, long-term incentive plan or pension arrangement funded by the Company.

Non-Executive Directors’ fees are reviewed periodically by the Board with the assistance of independent advisers.

advisersThe Committee currently takes advice on remuneration issues from Mercer, which provides market data on levels of executive remuneration and benefits. Mercer and related companies also provide Bupa with employee benefit consulting, risk and insurance broking services and advice. In addition, as an independent insurance intermediary, it advises some of its other clients about Bupa’s services.

Mercer works closely with the Group Human Resources Director to provide advice to the Remuneration Committee on matters of remuneration policy and interpretation of market data.

As Bupa is a company limited by guarantee with no share capital it is not possible to illustrate company performance in terms of shareholder return.

disclosure tables (audited)Further details of each Director’s remuneration and numerical information, which have been audited, is disclosed in note 5 to the financial statements.

peter cawdronChairman of the Remuneration Committee


statEMENt of DirECtors’ rEspoNsiBilitiEs in respect of the annual report and the financial statements

The directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare the Group and the Parent Company financial statements in accordance with IFRS as adopted by the EU and applicable law.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their surplus or deficit for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRS as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors have decided to prepare voluntarily a Directors’ Remuneration Report in accordance with Schedule 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as if those requirements were to apply to the Company. The Directors have also decided to prepare voluntarily a Corporate Governance Statement as if the Company were required to comply with the Listing Rules of the Financial Services Authority in relation to those matters.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Financial statements

contents 44 Independentauditors’report 46 Consolidatedincomestatement 47 Consolidatedstatement ofcomprehensiveincome 48 Consolidatedbalancesheet 49Consolidatedstatementofcashflows 50 Consolidatedstatement

ofchangesinequity 51 Companybalancesheet 52 Companystatementofcashflows 53 Companystatement

ofchangesinequity 54 Accountingpolicies 64 Notestothefinancialstatements 118 Fiveyearfinancialsummary120 InternationalFinancialReporting

StandardsrelevanttoBupa

Bupaannualreportandaccounts2009 43

44 Bupaannualreportandaccounts2009

independent auditors’ report To the members of The British United Provident Association Limited

We have audited the Group and Parent Company financial statements of The British United Provident Association Limited for the year ended 31 December 2009 set out on pages 46 to 117. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In addition to our audit of the financial statements, the Directors have engaged us to audit the information in the Directors’ Remuneration Report that is described as having been audited, which the Directors have decided to prepare (in addition to that required to be prepared) as if the Company were required to comply with the requirements of Schedule 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410).

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and, in respect of the separate opinion in relation to the Directors’ Remuneration Report and reporting on corporate governance, on terms that have been agreed. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and, in respect of the separate opinion in relation to the Directors’ Remuneration Report and reporting on corporate governance, those matters that we have agreed to state to them in our report, and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

RespectiveresponsibilitiesofDirectorsandauditorsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 42, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

ScopeoftheauditofthefinancialstatementsA description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/ apb/scope/UKNP.

OpiniononfinancialstatementsIn our opinion:

• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2009 and of the Group’s surplus for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRS as adopted by the EU;

• the Parent Company financial statements have been properly prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.


Businessreview

Governan

ceFinan

cialstatements

OpiniononothermattersprescribedbytheCompaniesAct2006andunderthetermsofourengagementIn our opinion:

• the part of the Directors’ Remuneration Report which we were engaged to audit has been properly prepared in accordance with Schedule 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as if those requirements were to apply to the Company; and

• the information given in the Report of the Board of Directors for the financial year for which the financial statements are prepared is consistent with the financial statements.

MattersonwhichwearerequiredtoreportbyexceptionWe have nothing to report in respect of the following:

Under the Companies Act 2006 and under the terms of our engagement we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Parent Company financial statements and the part of the Directors’ Remuneration Report which we were engaged to audit are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

In addition to our audit of the financial statements, the Directors have engaged us to review their Corporate Governance Statement as if the Company were required to comply with the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Services Authority in relation to those matters. Under the terms of our engagement we are required to review:

• the Directors’ statement, set out on page 42, in relation to going concern; and

• the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review.

SimonPashby(SeniorStatutoryAuditor)forandonbehalfofKPMGAuditPlc,StatutoryAuditor

Chartered Accountants8 Salisbury SquareLondon EC4Y 8BB8 March 2010


consolidated income statementfor the year ended 31 December 2009

2009 2008 (restated) note £m £m

revenues Grossinsurancepremiums 2 5,443.5 4,536.8Premiumscededtoreinsurers 2 (83.9) (87.1)

Netinsurancepremiumsearned 5,359.6 4,449.7 Revenuesfromlifeinvestmentcontracts 15.4 11.3Revenuesfromservicecontracts 4.3 6.3Care,healthandotherrevenues 1,562.1 1,456.6

total revenues 1,2 6,941.4 5,923.9

claims and expenses Insuranceclaimsincurred 3 (4,222.4) (3,456.3)Reinsurers’shareofclaimsincurred 3 61.8 54.4

Netinsuranceclaimsincurred (4,160.6) (3,401.9)(Increase)/decreaseinfairvalueoflifeinvestmentcontractliabilities 17 (96.6) 93.7Returnonfinancialinvestmentsbackinglifeinvestmentcontractliabilities 17 96.6 (93.7)Shareofpost-taxationresultsofequityaccountedinvestments 14 2.8 (1.0)Otheroperatingexpenses 4 (2,406.5) (2,164.6)Impairmentofgoodwill 11 – (116.5)Impairmentofotherintangibleassetsarisingonbusinesscombinations 11 (11.7) (4.0)Otherincome/(charges) 6 2.4 (3.4)

total claims and expenses (6,573.6) (5,691.4)

surplus before impairment of goodwill, impairment of other intangible assets arising on business combinations, other income / (charges), and financial income and expenses 1 377.1 356.4Impairmentofgoodwill 1 – (116.5)Impairmentofotherintangibleassetsarisingonbusinesscombinations 1 (11.7) (4.0)Otherincome/(charges) 2.4 (3.4)

surplus before financial income and expenses 367.8 232.5

Financial income and expenses Financialincome 7 116.2 65.4Financialexpenses 8 (67.5) (106.0)

48.7 (40.6)

surplus before taxation expense 1 416.5 191.9 taxation expense 9 (115.7) (79.5)

surplus for the financial year 300.8 112.4

attributable to: Bupa 288.9 106.9Minorityequityinterests 11.9 5.5

300.8 112.4

Thenotesonpages64to117formpartofthesefinancialstatements.


Businessreview

Governan

ceFinan

cialstatements

consolidated statement oF comprehensive incomefor the year ended 31 December 2009

2009 2008 (restated) note £m £m Surplusforthefinancialyear 300.8 112.4

other comprehensive (expense) / income Unrealiseddeficitonrevaluationofproperty (44.9) (32.1)Actuarial(loss)/gainonpensionschemes 27 (132.2) 10.2Realisationofforeignexchangeondisposalofoverseassubsidiarycompanies (2.2) –Reversaloffairvalueupliftonderecognitionofavailableforsaleinvestments – (9.9)Shareofretainedsurplusattributabletopreviouslyacquiredinterestinsubsidiarycompany – 6.4Foreignexchangetranslationdifferencesongoodwill 114.8 161.1Otherforeignexchangetranslationdifferences 142.1 106.8Netlossonhedgeofnetinvestmentinoverseassubsidiarycompanies (57.7) (139.3)Changeinfairvalueofunderlyingderivativeofcashflowhedge (2.8) –Netgainonhedgeofacquisitioncostsinoverseassubsidiarycompanies – 35.0Taxationcreditonincomeandexpenserecogniseddirectlyinothercomprehensiveincome 9 52.0 0.5

other comprehensive income for the year, net of taxation 69.1 138.7

total comprehensive income for the year 369.9 251.1

attributable to:Bupa 361.6 240.1Minorityequityinterests 8.3 11.0

total comprehensive income for the year 369.9 251.1



consolidated balance sheetas at 31 December 2009

2009 2008 2007 (restated) (restated) note £m £m £m

non-current assets Intangibleassets 11 2,590.4 2,467.4 1,182.2Property,plantandequipment 12 2,146.8 2,176.3 2,026.9Investmentproperty 13 104.7 87.4 67.2Equityaccountedinvestments 14 38.4 31.4 11.6Financialinvestments 16 541.9 501.4 548.5Assetsarisingfrominsurancebusiness 18 86.9 87.0 90.9Deferredtaxationassets 29 13.2 – 6.3Otherreceivables 19 52.9 90.8 26.8Postemploymentbenefitnetassets 27 25.1 115.0 64.0

5,600.3 5,556.7 4,024.4

current assets Financialinvestments 16 1,083.1 1,174.5 1,489.6Assetsbackinglifeinvestmentcontractliabilities 17 830.5 689.1 –Inventories 20 17.0 12.4 10.3Assetsarisingfrominsurancebusiness 18 833.9 799.0 682.3Tradeandotherreceivables 19 383.0 312.9 210.0Assetsheldforsale 21 – 143.2 –Cashandcashequivalents 22 1,058.3 920.6 650.0

4,205.8 4,051.7 3,042.2

total assets 9,806.1 9,608.4 7,066.6

non-current liabilities Subordinatedliabilities 23 (356.5) (373.7) (333.9)Otherinterestbearingliabilities 24 (1,106.4) (1,431.8) (667.9)Provisionsunderinsurancecontractsissued 25 (93.8) (88.0) (111.3)Postemploymentbenefitnetliabilities 27 (60.9) (50.9) (40.0)Provisionsforliabilitiesandcharges 28 (33.9) (29.0) (19.4)Deferredtaxationliabilities 29 (187.2) (260.7) (201.4)Tradeandotherpayables 30 (52.8) (45.7) (60.8)

(1,891.5) (2,279.8) (1,434.7)

current liabilities Subordinatedliabilities 23 (5.9) (5.9) (5.9)Otherinterestbearingliabilities 24 (21.8) (46.5) (6.6)Provisionsunderinsurancecontractsissued 25 (1,996.3) (1,908.2) (1,549.1)Otherliabilitiesunderinsurancecontractsissued 26 (32.8) (30.4) (19.0)Provisionsforliabilitiesandcharges 28 (25.8) (26.0) (58.8)Lifeinvestmentcontractliabilities 17 (832.0) (679.4) –Currenttaxationliabilities (155.9) (88.5) (97.4)Tradeandotherpayables 30 (858.2) (809.3) (531.2)Liabilitiesassociatedwithassetsheldforsale 21 – (109.9) –

(3,928.7) (3,704.1) (2,268.0)

total liabilities (5,820.2) (5,983.9) (3,702.7)

net assets 3,985.9 3,624.5 3,363.9

equity Propertyrevaluationreserve 596.7 636.5 647.5Incomeandexpenditurereserve 2,989.1 2,795.2 2,684.2Cashflowhedgereserve 29.7 30.9 (1.4)Foreignexchangetranslationreserve 333.6 124.9 17.1

equity attributable to bupa 3,949.1 3,587.5 3,347.4equity attributable to minority equity interests 36.8 37.0 16.5

total equity 3,985.9 3,624.5 3,363.9

ApprovedbytheBoardofDirectorsandsignedonitsbehalfon8March2010by

lord leitch thomas singerChairman GroupFinanceDirector



Businessreview

Governan

ceFinan

cialstatements

consolidated statement oF cash Flowsfor the year ended 31 December 2009

2009 2008 (restated) note £m £m

operating activitiesSurplusbeforetaxationexpense 416.5 191.9Adjustmentsfor: Financialincome 7 (116.2) (65.4)Financialexpenses 8 67.5 106.0Increase/(decrease)infairvalueoflifeinvestmentcontractliabilities 17 96.6 (93.7)Returnonfinancialinvestmentsbackinglifeinvestmentcontractliabilities 17 (96.6) 93.7Netloss/(gain)onforeignexchangetransactions 4 4.8 (13.7)Depreciation 12 99.0 84.8Amortisationandimpairment 11 94.3 196.3Netloss/(gain)ondisposalofproperty,plantandequipment 6 1.9 (5.6)Deficitonrevaluationofproperty 6 15.7 2.9Impairmentofequityaccountedinvestments 14 – 6.1Netlossonsaleofequityaccountedinvestments 6 0.3 –Netgainonsaleofbusiness 6 (20.3) –

operating cash flow before changes in working capital and provisions 563.5 503.3 Changesinworkingcapitalandprovisions: Increaseinprovisionsunderinsurancecontractsissued 59.0 61.7Increaseinotherliabilitiesunderinsurancecontractsissued 3.1 7.7Increase/decreaseinnetpensionasset/liability (32.7) (35.5)Increaseinprovisionsforliabilitiesandcharges 6.7 15.2Increaseinassetsunderinsurancecontractsissued (34.1) (91.7)Increaseintradeandotherreceivables (31.2) (12.3)Increaseininventories (4.7) –Increase/(decrease)intradeandotherpayables 38.9 (13.1)Netwithdrawalsfromlifeinvestmentcontractliabilities 17 (39.7) (52.7)Netproceedsfromsaleoffinancialinvestmentsbackinglifeinvestmentcontractliabilities 56.4 46.7

cash generated from operations 585.2 429.3

Incometaxationpaid (75.2) (102.5)Decrease/(increase)incashheldinrestrictedaccessdeposits 22 12.3 (20.3)

net cash generated from operating activities 522.3 306.5

cash flow from investing activities Acquisitionofsubsidiarycompanies,netofcashacquired 35 – (1,342.8)Acquisitionofjointventuresandassociates 14 (5.5) (21.7)Disposalofsubsidiarycompanies,netofcashdisposedof 21 (25.5) –Disposalofjointventuresandassociates 0.4 –Purchaseofintangibleassets 11 (72.3) (81.2)Purchaseofproperty,plantandequipment (124.8) (129.0)Proceedsfromsaleofproperty,plantandequipment 2.7 6.7Purchaseofinvestmentproperty (4.0) (11.1)Proceedsfromsaleofinvestmentproperty 1.3 –Purchaseoffinancialinvestments,excludingdepositswithcreditinstitutions (1,005.2) (672.6)Proceedsfromsaleoffinancialinvestments,excludingdepositswithcreditinstitutions 817.7 783.6Netwithdrawalfromdepositswithcreditinstitutions 312.0 553.6Interestreceived 68.3 147.4

net cash used in investing activities (34.9) (767.1)

cash flow from financing activities Proceedsfromissueofinterestbearingliabilities 376.1 1,010.1Repaymentofinterestbearingliabilities (680.7) (244.9)Interestpaid (59.1) (96.9)Proceedsfromminorityequityinterestsinsubsidiarycompanyshareissues – 9.6(Paymentsfor)/receiptsfromhedginginstruments (39.6) 5.8Dividendspaidtominorityequityinterests (8.5) (0.1)

net cash (used in) / generated from financing activities (411.8) 683.6

net increase in cash and cash equivalents 75.6 223.0Cashandcashequivalentsatbeginningofyear 875.1 626.3Effectofexchangeratechanges 47.6 86.7Cashandcashequivalentsreclassifiedfrom/(to)assetsheldforsale 28.1 (60.9)

cash and cash equivalents at end of year 22 1,026.4 875.1



consolidated statement oF changes in equityfor the year ended 31 December 2009

income Foreign property and cash flow exchange total minority revaluation expenditure hedge translation attributable equity total reserve reserve reserve reserve to bupa interests equity note £m £m £m £m £m £m £m

2009 Atbeginningofyear(restated) 636.5 2,795.2 30.9 124.9 3,587.5 37.0 3,624.5Retainedsurplusforthefinancialyear – 288.9 – – 288.9 11.9 300.8

other comprehensive income / (expense) Unrealiseddeficitonrevaluationofproperty 12 (44.9) – – – (44.9) – (44.9)Actuariallossonpensionschemes 27 – (132.2) – – (132.2) – (132.2)Realisationofforeignexchangeondisposalofoverseas subsidiarycompanies – – – (2.2) (2.2) – (2.2)Foreignexchangetranslationdifferencesongoodwill – – – 114.8 114.8 – 114.8Otherforeignexchangetranslationdifferences (3.0) – – 147.9 144.9 (2.8) 142.1Netlossonhedgeofnetinvestment inoverseassubsidiarycompanies – – – (57.7) (57.7) – (57.7)Changeinfairvalueofunderlyingderivativeofcashflowhedge – – (1.7) – (1.7) (1.1) (2.8)Taxationcreditonincomeandexpenserecogniseddirectly inothercomprehensiveincome 9 8.7 36.6 0.5 5.9 51.7 0.3 52.0

other comprehensive income / (expense) for the year, net of taxation (39.2) (95.6) (1.2) 208.7 72.7 (3.6) 69.1

Realisedrevaluationsurplusondisposalofsubsidiarycompanies (0.6) 0.6 – – – – –

total comprehensive income / (expense) for the year (39.8) 193.9 (1.2) 208.7 361.6 8.3 369.9

contributions to minority equity interests Dividendspaidtominorityequityinterests – – – – – (8.5) (8.5)

total contributions to minority equity interests for the year – – – – – (8.5) (8.5)

at end of year 596.7 2,989.1 29.7 333.6 3,949.1 36.8 3,985.9

2008 (restated) Atbeginningofyear 647.5 2,683.3 (1.4) 17.0 3,346.4 15.9 3,362.3Prioryearadjustment–IFRIC12 – 0.9 – 0.1 1.0 0.6 1.6

Atbeginningofyear(restated) 647.5 2,684.2 (1.4) 17.1 3,347.4 16.5 3,363.9Retainedsurplusforthefinancialyear – 106.9 – – 106.9 5.5 112.4

other comprehensive income / (expense) Unrealiseddeficitonrevaluationofproperty 12 (32.1) – – – (32.1) – (32.1)Actuarialgainonpensionschemes 27 – 10.2 – – 10.2 – 10.2Reversaloffairvalueupliftonderecognition ofavailableforsaleinvestments – (9.9) – – (9.9) – (9.9)Shareofretainedsurplusattributabletopreviously acquiredinterestinsubsidiarycompany – 6.4 – – 6.4 – 6.4Foreignexchangetranslationdifferencesongoodwill – – – 161.1 161.1 – 161.1Otherforeignexchangetranslationdifferences 11.9 – – 89.4 101.3 5.5 106.8Netlossonhedgeofnetinvestment inoverseassubsidiarycompanies – – – (139.3) (139.3) – (139.3)Netgainonhedgeofacquisitioncosts ofoverseassubsidiarycompanies – – 35.0 – 35.0 – 35.0Taxationcredit/(charge)onincomeandexpenserecognised directlyinothercomprehensiveincome 9 9.2 (2.6) (2.7) (3.4) 0.5 – 0.5

other comprehensive income / (expense) for the year, net of taxation (11.0) 4.1 32.3 107.8 133.2 5.5 138.7

total comprehensive income / (expense) for the year (11.0) 111.0 32.3 107.8 240.1 11.0 251.1

contributions (to) / from minority equity interests Dividendspaidtominorityequityinterests – – – – – (0.1) (0.1)Issueofsharestominorityequityinterests – – – – – 9.6 9.6

total contributions from minority equity interests for the year – – – – – 9.5 9.5

at end of year (restated) 636.5 2,795.2 30.9 124.9 3,587.5 37.0 3,624.5



Businessreview

Governan

ceFinan

cialstatements

company balance sheetas at 31 December 2009

2009 2008 note £m £m

non-current assetsIntangibleassets 11 14.8 12.9Property,plantandequipment 12 12.3 9.7Investmentinsubsidiarycompanies 15 200.1 200.1Otherreceivables 19 244.9 0.3Postemploymentbenefitnetassets 27 24.9 115.0Deferredtaxationassets 29 18.7 11.4

515.7 349.4

current assetsTradeandotherreceivables 19 358.9 247.3Cashandcashequivalents 22 – 4.0

358.9 251.3

total assets 874.6 600.7

non-current liabilitiesPostemploymentbenefitnetliabilities 27 (49.9) (41.8)Provisionsforliabilitiesandcharges 28 (14.4) (15.7)Deferredtaxationliabilities 29 – (20.6)Otherpayables 30 (207.3) (7.4)

(271.6) (85.5)

current liabilitiesOtherinterestbearingliabilities 24 (11.1) –Provisionsforliabilitiesandcharges 28 (4.2) (7.9)Tradeandotherpayables 30 (646.8) (463.2)

(662.1) (471.1)

total liabilities (933.7) (556.6)

net (liabilities) / assets (59.1) 44.1

equityPropertyrevaluationreserve 0.1 0.2Incomeandexpenditurereserve (59.7) 43.0Foreignexchangetranslationreserve 0.5 0.9

total equity (59.1) 44.1

ApprovedbytheBoardofDirectorsandsignedonitsbehalfon8March2010by

lord leitch thomas singerChairman GroupFinanceDirector



company statement oF cash Flowsfor the year ended 31 December 2009

2009 2008 note £m £m

operating activitiesDeficitbeforetaxationexpense (7.2) (33.3)

Adjustmentsfor:Depreciation 12 3.9 4.4Amortisation 11 5.1 5.3Financialincome (6.6) (21.8)Financialexpenses 9.0 33.3

operating cash flow before changes in working capital and provisions 4.2 (12.1)

Changesinworkingcapitalandprovisions:Decrease/increaseinnetpensionasset/liability (31.1) (36.2)(Decrease)/increaseinprovisionsforliabilitiesandcharges (5.0) 0.8(Increase)/decreaseintradeandotherreceivables (348.5) 25.9Increaseintradeandotherpayables 381.4 38.9

cash generated from operations 1.0 17.3

cash flow from investing activitiesPurchaseofintangibleassets (41.5) (44.0)Proceedsfromsaleofintangibleassets 34.5 38.4Purchaseofproperty,plantandequipment (6.8) (3.7)Proceedsfromsaleofproperty,plantandequipment 0.1 0.1Interestreceived 6.6 21.8

net cash (used in) / generated from investing activities (7.1) 12.6

cash flow from financing activitiesInterestpaid (9.0) (33.3)

net cash used in financing activities (9.0) (33.3)

net decrease in cash and cash equivalents (15.1) (3.4)

Cashandcashequivalentsatbeginningofyear 4.0 7.4

cash and cash equivalents at end of year 22 (11.1) 4.0



Businessreview

Governan

ceFinan

cialstatements

company statement oF changes in equity for the year ended 31 December 2009

income Foreign property and exchange revaluation expenditure translation total reserve reserve reserve equity note £m £m £m £m

2009Atbeginningofyear 0.2 43.0 0.9 44.1Retaineddeficitforthefinancialyear – (9.2) – (9.2)

other comprehensive (expense) / income Unrealiseddeficitonrevaluationofproperty (0.2) – – (0.2)Actuariallossonpensionschemes 27 – (129.3) – (129.3)Foreignexchangetranslationdifferences – – (0.4) (0.4)Taxationcreditonincomeandexpensesrecogniseddirectlyinothercomprehensiveincome 29 0.1 35.8 – 35.9

other comprehensive expense for the year, net of taxation (0.1) (93.5) (0.4) (94.0)

total comprehensive expense for the year (0.1) (102.7) (0.4) (103.2)

at end of year 0.1 (59.7) 0.5 (59.1)

2008Atbeginningofyear 0.2 57.3 0.2 57.7Retaineddeficitforthefinancialyear – (29.9) – (29.9)

other comprehensive income / (expense) Actuarialgainonpensionschemes 27 – 21.5 – 21.5Foreignexchangetranslationdifferences – – 0.7 0.7Taxationchargeonincomeandexpensesrecogniseddirectlyinothercomprehensiveincome 29 – (5.9) – (5.9)

other comprehensive income for the year, net of taxation – 15.6 0.7 16.3

total comprehensive (expense) / income for the year – (14.3) 0.7 (13.6)

at end of year 0.2 43.0 0.9 44.1



accounting policies

basis of consolidationTheBritishUnitedProvidentAssociationLimited(‘Bupa’orthe‘Company’),theultimateparententityoftheGroup,isacompanyincorporatedinEnglandandWales.TheCompanyislimitedbyguarantee.Theconsolidatedfinancialstatementsfortheyearended31December2009comprisethoseoftheCompanyanditssubsidiarycompanies(togetherreferredtoasthe‘Group’).

TheGroup’sconsolidatedfinancialstatementsarepreparedunderInternationalFinancialReportingStandardsasadoptedbytheEU(‘IFRS’).TheappropriateprovisionsoftheCompaniesActhavealsobeencompliedwith.

AsummaryofIFRSthatarerelevantfortheGroupareincludedonpage120.

ThefinancialstatementswereapprovedbytheBoardofDirectorson8March2010.TheDirectorshavereviewedandapprovedtheGroup’saccountingpolicies,whicharesetoutbelowandwhichhavebeenappliedconsistentlytoalltheyearspresented,unlessotherwisestated.Forthepurposesofconsolidation,theaccountingpoliciesofsubsidiarycompanieshavebeenalignedwiththoseoftheparentcompany.

statement of complianceBoththeCompanyfinancialstatementsandtheGroupfinancialstatementshavebeenpreparedinaccordancewithIFRSandapprovedbytheDirectors.TheCompanyistakingadvantageoftheexemptioninSection408oftheCompaniesAct2006nottopresentitsindividualincomestatementandrelatednotesthatformapartoftheseapprovedfinancialstatements.

basis of preparationThefinancialstatementsarepreparedonagoingconcernbasis,asdescribedinnote34andunderthehistoricalcostconvention,asmodifiedbytherevaluationofproperty,investmentproperty,financialinvestmentsatfairvaluethroughprofitorloss,availableforsalefinancialinvestments,derivativeinstruments,lifeinvestmentcontractliabilitiesandfinancialinvestmentsbackinglifeinvestmentcontractliabilities.

NewfinancialreportingrequirementsTheGrouphasappliedthefollowingfinancialreportingstandardsforthefirsttimeinpreparingitsfinancialstatementsfortheyearended31December2009.TheimpactontheGroupfinancialstatementsisquantifiedbelow.

IAS1(revised2007)replacesIAS1(revised2003)andiseffectiveforfinancialperiodsbeginningonorafter1January2009.ThisstandardrequirestheGrouptointroducetheconceptof‘totalcomprehensiveincome’,whichrepresentsthechangeinequityduringaperiod.InapplyingthisrevisiontoIAS1,a‘consolidatedstatementofcomprehensiveincome’anda‘consolidatedstatementofchangesinequity’havebeenintroducedasprimarystatementswhichreplacethe‘statementofrecognisedincomeandexpense’andtheequitynoteinthenotestotheaccountsrespectively.Comparativeinformationhasbeenre-presentedsothatitcomplieswiththerevisedstandard.

TheamendmenttoIFRS7introducesathreelevelhierarchyforthefairvaluemeasurementofdisclosuresoffinancialinstruments(iequotedinanactivemarket,observableinputsandunobservableinputs).BusinessesareexemptfromprovidingcomparativeinformationonfirsttimeadoptionoftheamendmentstoIFRS7.

IFRS8isapplicableforfinancialperiodsbeginningonorafter1January2009andrequirestheGrouptoreportinformationaboutitsoperatingsegments,theoperatingresultsofwhichareregularlyreviewedbytheGroup’schiefoperatingdecisionmakersinordertomakedecisionsabouttheallocationofresourcesandtoassessperformance.Thesegmentsreportedinthesegmentalinformationare:UKandNorthAmerica,EMEALA(Europe,MiddleEast,AfricaandLatinAmerica),AsiaPacificandCareServices.

IAS23(amended2007)supersedesIAS23(revised1993)andiseffectiveforfinancialperiodsbeginningonorafter1January2009,makingitmandatorytocapitaliseborrowingcoststhataredirectlyattributabletoaqualifyingassetasdefinedbyIAS23.TheimpactofIAS23isimmaterialtotheGroup’sfinancialstatementsasat1January2009andfortheyearended31December2009.

TheamendmenttoIFRIC9andIAS39clarifiestheaccountingtreatmentofembeddedderivativesforentitiesthatmakeuseofthereclassificationamendmentissuedbytheInternationalAccountingStandardsBoard(IASB)on13October2008.Entitiesarenowpermittedtoreclassifyparticularfinancialinstrumentsoutofthe‘atfairvaluethroughprofitorloss’or‘availableforsale’categoriesinspecificcircumstances.Theamendmentrequiresthatonreclassificationoffinancialassetsoutofthe‘atfairvaluethroughprofitorloss’categoryallembeddedderivativesshouldbere-assessedandifnecessary,separatelyaccountedfor.Therehavebeennoreclassificationsduringtheyearto31December2009andhencethereisnoimpactonthefinancialstatements.

IFRIC12isapplicabletoBupaforthefinancialyearbeginningon1January2010.ItgivesguidanceonhowtoaccountforpublictoprivatesectorconcessionarrangementsandappliestothebuildingoftheManiseshospitalinSpain.BupahaschosentoearlyadoptIFRIC12andthischangeinaccountingpolicyhasbeenappliedretrospectivelyinaccordancewithIAS8.Thefinancialinformationfortheyearsended31December2008and2007hasbeenrestatedaccordingly.

IFRIC13appliestofinancialperiodsbeginningonorafter1January2009.ItrelatestoIAS18andappliestocustomerloyaltyprogrammesusedbyentitiestoprovidecustomerswithincentivestobuygoodsorservicesbygrantingthecustomerawardcreditsuponpurchase,forsubsequentredemptionbythecustomeratafuturedate.Itclarifiestheneedtoallocatetheconsiderationreceivedbetweentheinitialsaleandtheawardcredits,thelatterbeingdeferreduntilthepointofredemption.TheimpactofIFRIC13isnotmaterialfortheyearended31December2009orforprioryears,andthereforethe2008and2007comparativeinformationhasnotbeenrestated.

IFRIC14clarifiestherecognitionofpensionschemesurplusesonthebalancesheetunderIAS19.Itiseffectiveforfinancialperiodsbeginningonorafter1January2009.IFRIC14willhavenoimpactonthesurplusofTheBupaPensionSchemeastheTrusteeshaverevisedthetermsoftheschemetrustdeedtorecognisethatBupahasanunconditionalrighttoarefundofcontributionsshouldtheschemebewoundup.ThePensionsRegulatorhasagreedthisamendment.

FinancialreportingstandardsapplicabletotheGroupforfuturefinancialperiodsThefollowingfinancialreportingstandardshavebeenissuedandadoptedbytheEUbutarenoteffectivefortheyearended31December2009,andhavenotbeenearlyadoptedbyBupa.


Businessreview

Governan

ceFinan

cialstatements

IFRS3(revised)iseffectiveforfinancialperiodsbeginningonorafter1July2009.Therevisedstandardcontinuestoapplytheacquisitionmethodtobusinesscombinations,withsomesignificantchanges.Alltransactioncostsmustbeexpensedthroughtheincomestatement.Allpaymentstopurchaseabusinessaretoberecordedatfairvalueattheacquisitiondate,withcontingentpaymentsclassifiedasdebtandsubsequentlyre-measuredthroughtheincomestatement.Thereisachoiceonatransactionbytransactionbasistomeasurethenon-controllinginteresteitheratfairvalue(‘fullgoodwillmethod’)oratthenon-controllinginterest’sproportionateshareofidentifiablenetassets(‘partialgoodwillmethod’).TheGroupwillapplyIFRS3(revised)prospectivelytoallbusinesscombinationsfrom1January2010.

IAS27(revised)requirestheeffectofalltransactionswithnon-controllingintereststoberecordedinequityifthereisnochangeincontrol.Therefore,thosetransactionswithnon-controllinginterestswillnolongerresultingoodwillnorgainsandlossesintheincomestatement.Wherecontrolislost,anyremaininginterestintheentityisrequiredtobere-measuredtofairvalueandanyresultinggainorlossrecognisedintheincomestatement.Thisstandardiseffectiveforfinancialperiodsbeginningonorafter1July2009,thereforetheGroupwillapplyIAS27(revised)prospectivelytotransactionswithnon-controllinginterestsfrom1January2010.

TheamendmenttoIAS39clarifieshowtheprinciplesthatdeterminewhetherahedgedriskorportionofcashflowsiseligiblefordesignationshouldbeappliedinparticularsituations.Theamendmentprohibitsdesignatinginflationasahedgedcomponentofafixedratedebt.Italsoprohibitsincludingtimevalueintheonesidedhedgedriskwhendesignatingoptionsashedges.Thisamendmentisapplicableforfinancialperiodsbeginningonorafter1July2009,thereforetheGroupwillapplytheamendmenttoIAS39from1January2010.TheGroupiscurrentlyreviewingtheimpactofthisamendmentonitsfinancialstatements.

IFRIC16iseffectiveforfinancialperiodsbeginningonorafter1July2009.TheinterpretationappliestoentitiesthathedgetheforeigncurrencyriskarisingonitsnetinvestmentinforeignoperationsandwishthistoqualifyforhedgeaccountinginaccordancewithIAS39.IFRIC16doesnotpermithedgeaccountingonforeignexchangedifferencesarisingbetweenthefunctionalcurrencyoftheforeignoperationandthepresentationcurrencyoftheparententity’sconsolidatedfinancialstatements.Rather,whenhedginganetinvestmentinaforeignoperation,onlytheforeignexchangedifferencesarisingbetweenthefunctionalcurrencyoftheoperationandthefunctionalcurrencyofanyparententitymayqualifyforhedgeaccounting.Bupahedgesforeigncurrencyriskarisingfromitsnetinvestments,andalreadycomplieswiththeguidanceinIFRIC16,hencetheadoptionofIFRIC16willhavenoimpactontheGroupfinancialstatements.IFRIC18clarifieshowtoaccountforitemsofproperty,plantandequipmentreceivedfromcustomers,orcashthatisreceivedandusedtoacquireorconstructspecificassets.Thisinterpretationisapplicabletosuchassetsthatareusedtoconnectthecustomertoanetworkortoprovideongoingaccesstoasupplyofgoodsorservicesorboth.Itiseffectiveforfinancialperiodsbeginningonorafter1November2009.TheGroupiscurrentlyreviewingtheimpactofthisstandardonitsfinancialstatements.

Restatementof2008financialinformation

AdoptionofIFRIC12TheSanitasbusinesshascontractedtobuildandoperatetheManiseshospitalfortheValenciangovernmentfor15years,overwhichperiodtheValenciangovernmenthasagreedtopaythehospitalaguaranteedpercapitaamountperheadofpopulation.UnderIFRIC12,therevenueearnedoverthelifeofthecontracthastobespreadacrossboththeconstructionphaseandthe15yearphaseofoperation.Thetotalrevenuehasbeenallocatedbetweenthetwophasesinrelationtothecostsandarespectivemarginassociatedwitheachphasebasedontherisksofthedifferentactivitiesineachphase.TheadoptionofIFRIC12hasresultedintherestatementoftheGroupincomestatementandbalancesheetforpriorperiodsasrequiredbyIAS8.Theimpactontheincomestatementfortheyearended31December2008istoincreasecare,healthandotherrevenuesby£58.6m(2007:£14.3m)andincreaseoperatingexpensesby£53.8m(2007:£12.9m),resultinginanetincreasetosurplusbeforetaxationexpenseof£4.8m(2007:£1.4m);theeffectontaxationexpenseforthesameperiodisadeferredtaxationchargeof£1.2m(2007:£0.3m).Theimpactontheshareofsurplusattributabletominorityinterestsfortheyearended31December2008isanincreaseof£1.4m(2007:£0.4m).TheimpactontheGroupbalancesheetasat31December2008istoderecogniseintangibleassetscapitalisedtodateof£11.3m(2007:£7.1m),derecogniseproperty,plantandequipmentcapitalisedtodateof£80.6m(2007:£13.9m),andrecognisethefairvalueofrevenuereceivableof£93.5m(2007:£17.8m)asaserviceconcessionreceivablewithintradeandotherreceivables,andanetdecreasetonon-currentotherpayablesof£6.8m(2007:£5.2m)andanincreasetodeferredtaxationliabilitiesof£1.7m(2007:£0.4m).EquityattributabletoBupa,includingtheimpactofforeignexchange,asat31December2008hasincreasedby£4.0m(2007:£1.0m).Equityattributabletominorityequityinterests,includingtheimpactofforeignexchange,asat31December2008hasincreasedby£2.7m(2007:£0.6m).

FinalisationofaccountingforbusinesscombinationsInaccordancewithIFRS3,theacquisitionaccountingfortheacquisitionsmadein2008,wasfinalisedduringthefinancialyear.Asaresult,the31December2008balancesheethasbeenrestatedtoreflectthefinalfairvalueadjustmentsofMBF(seenote35).

Re-presentationofMBFfinancialinformationThebalancesheetasat31December2008hasbeenre-presentedinrespectofMBF.Are-classificationfromnon-currenttocurrentassetsandliabilitieshasbeenmadeinrespectofthelifeinvestmentbusinesswhichappliestothefollowinglines:assetsbackinglifeinvestmentcontracts(£681.2m),policyholdertaxationattributabletolifeinvestmentcontracts(£7.9m),lifeinvestmentcontractliabilities(£679.4m),tradeandotherpayables(liabilitytoexternalunittrustholders)(£124.0m),andfromdeferredtaxationliabilitiestocurrenttaxationliabilities(£5.8m).Aseparateadjustmenthasbeenmadeinrespectofthevaluationofassetsinthelifebusinessasfollows:adecreaseincurrentfinancialinvestmentsof£49.3m,adecreaseincurrenttradeandotherreceivablesof£10.4m,anincreasetonon-currentotherpayablesof£24.3mandadecreaseincurrenttradeandotherpayablesof£84.0m.Theseadjustmentshavenoimpactontheincomestatementfortheyearended31December2008.


accounting policies continued

AccommodationbondsAccommodationbondsof£139.6m(2007:£99.5m)withinBupaCareServicesAustraliahavebeenre-presentedfromnon-currenttocurrenttradeandotherpayablesasat31December2008.

UnderIAS1(revised),balancesheetsarerequiredtobedisclosedforthebeginningoftheearliestcomparativeperiodwhencomparativedataisrestated.Asaresult,theconsolidatedbalancesheetandrelatednoteshavebeenpresentedinthesefinancialstatementsfortheyearsended31December2007,31December2008and31December2009.

subsidiary companiesSubsidiarycompaniesincludeallentitiesoverwhichtheGrouporCompanyhasthepower,directlyorindirectly,togovernthefinancialandoperatingpoliciessoastoobtainbenefitsfromtheiractivities.

Subsidiarycompaniesareincludedintheconsolidatedfinancialstatementsusingthepurchasemethod,fromthedatethatcontrolcommencesuntilthedatethatcontrolceases.IntraGroupbalancesandanygains,losses,incomeandexpensesarisingfromintraGrouptransactionsareeliminatedinpreparingtheconsolidatedfinancialstatements.

TransactionsbetweenGroupcompaniesareoncommercialterms.

InvestmentsinsubsidiarycompaniesarecarriedatcostlessimpairmentintheCompany’saccounts.Dividendsreceivedfromsubsidiariesarerecognisedintheincomestatement.

equity accounted investments Equityaccountedinvestmentscompriseassociatedcompaniesandjointventures.AssociatedcompaniesincludethoseentitiesinwhichtheGrouphassignificantinfluence,butnocontrol,overthefinancialandoperatingpoliciesoftheentity.JointventuresincludethoseentitiesovertheactivitiesofwhichtheGrouphasjointcontrol,establishedbycontractualagreementandrequiringunanimousconsentforstrategicfinancialandoperatingdecisions.Associatedcompaniesandjointventuresareaccountedforusingtheequitymethodandareinitiallyrecognisedatcost.TheGroup’sinvestmentinequityaccountedinvestmentsincludesgoodwillidentifiedonacquisition,netofanyaccumulatedimpairmentlosses.TheconsolidatedfinancialstatementsincludetheGroup’sshareoftheincomeandexpenses,fromthedatethatsignificantinfluenceorcontrolcommencesorthattheGroupgainssignificantinfluence,untilthedatethatcontrolorsignificantinfluenceceases.

AssociatesandjointventuresarecarriedatcostlessimpairmentintheCompany’saccounts.

Foreign currencyTheconsolidatedfinancialstatementsarepresentedinSterling,whichisthefunctionalandpresentationalcurrencyoftheCompany.

Foreign currency transactionsIntheGroup’ssubsidiarycompanies,transactionsinforeigncurrenciesaretranslatedintothefunctionalcurrencyattheexchangeraterulingatthedateofthetransaction.

Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintothefunctionalcurrencyattheexchangeraterulingatthebalancesheetdate;theresultingforeignexchangegainorlossisrecognisedintheincomestatement.Non-monetaryassetsandliabilitiesdenominatedinaforeigncurrencyathistoricalcostaretranslatedusingtheexchangerateatthedateofthetransaction;noexchangedifferencesthereforearise.Non-monetaryassetsandliabilitiesdenominatedinaforeigncurrencyatfairvaluearetranslatedusingtheexchangeraterulingatthedatethatthefairvaluewasdetermined.

Intheconsolidatedfinancialstatements,wherealoanbetweenGroupentitiesresultsintherecognitionofaforeignexchangegainorloss,theexchangedifferenceisrecognisedinthestatementofcomprehensiveincometotheextentthatitrelatestotheGroup’snetinvestmentinoverseasoperations.

Foreign operationsTheassetsandliabilitiesofforeignoperations,includingassociatedgoodwill,heldinfunctionalcurrenciesotherthanSterlingaretranslatedfromtheirfunctionalcurrencyintoSterlingattheexchangerateatthebalancesheetdate.Incomeandexpensesaretranslatedataverageratesfortheperiod,providedtheaverageapproximatestheratesrulingatthedateofthetransactions.Foreignexchangedifferencesarisingontranslationarerecognisedinitiallyinthestatementofcomprehensiveincome,andonlyintheincomestatementintheperiodinwhichtheentityiseventuallydisposedof.Cumulativetranslationdifferencesforoverseasoperationsweredeemedtobenilat1January2004,thedateoftheGroup’stransitiontoIFRS.

revenuesRevenuesarisefrominsurancecontractsenteredintowithcustomers,careandhealthprovisionservicesrenderedandcontractsrelatingtotheadministrationofclaimsfundsonbehalfofcorporatecustomers.Theaccountingpoliciesrelevanttotheserevenuesaredescribedbelow.

insurance activitiesContractsenteredintobytheGroup’sinsuranceentitiesareclassifiedintothosethatresultinthetransferofsignificantinsurancerisktotheGroupandthosethatdonot.Contractsthatresultinexposuretosignificantinsuranceriskareaccountedforaseithergeneralinsuranceorlong-terminsurancecontractsunderIFRS4.Revenuesfromcontractsthatdonotresultinthetransferofsignificantinsuranceriskareincludedwithinotherrevenues.

UndercurrentIFRSrequirements,insurancecontractliabilitiesaremeasuredusinglocalGenerallyAcceptedAccountingPrinciples(GAAP),aspermittedbyIFRS4.

basis of accounting for general insurance activities

GrossinsurancepremiumsGrossinsurancepremiumsrepresentthepremiumsearnedrelatingtoriskexposureforthereportedfinancialyear.Theycomprisegrosspremiumswritten,adjustedforthechangeinthegrossprovisionforunearnedpremiumsduringthefinancialyear.Theunearnedpremiumprovisionrepresentstheproportionofpremiumswrittenintheyearrelatingtoperiodsofriskinsubsequentfinancialyears.Itiscalculatedonastraightlinebasis,whichisnotmateriallydifferentfromacalculationbasedonthepatternofincidenceofrisk.


Businessreview

Governan

ceFinan

cialstatements

Premiumsareshowngrossofcommissionspayableandnetofinsurancepremiumtaxesthatmayapplyincertainjurisdictions.

PremiumscededtoreinsurersPremiumscededtoreinsurersrepresentreinsurancecontractsenteredintothatrelatetoriskmitigationforthereportedfinancialyear.Thesecomprisewrittenpremiumscededtoreinsurers,adjustedforthereinsurers’shareofthemovementinthegrossprovisionforunearnedpremiums.

IncaseswheretheGroupcedesreinsuranceforthepurposeoflimitingitsnetlosspotential,thearrangementsdonotrelievetheGroupofitsdirectobligationsunderinsurancepolicieswritten.

Premiums,lossesandotheramountsrelatingtoreinsurancetreatiesarerecognisedovertheperiodfrominceptionofatreatytoexpirationoftherelatedbusiness.Theactualprofitorlossisthereforerecognisednotatinceptionbutassuchprofitorlossemerges.Inparticular,anyinitialreinsurancecommissionsreceivedcompensateforacquisitioncosts.

InsuranceclaimsincurredInsuranceclaimsincurredcompriseinsuranceclaimspaidduringtheyeartogetherwithrelatedhandlingcosts,themovementinthegrossprovisionforclaimsintheperiodandtheRiskEqualisationTrustFundlevy/chargeforAustralianhealthinsurancebusiness.

InAustralia,theRiskEqualisationTrustFundchargesalevytoallregisteredprivatehealthinsurersandthenallocatesaproportionofthecostofeligibleclaimsbetweenallfundparticipants.

Thegrossprovisionforclaimsrepresentstheestimatedliabilityarisingfromclaimsepisodesincurrentandprecedingfinancialyearswhichhavenotyetgivenrisetoclaimspaid.Theprovisionincludesanallowanceforclaimmanagementandhandlingexpenses.

Thegrossprovisionforclaimsisestimatedbasedoncurrentinformationandtheultimateliabilitymayvaryasaresultofsubsequentinformationandevents.Adjustmentstotheamountofclaimsprovisionforprioryearsareincludedintheincomestatementinthefinancialyearinwhichthechangeismade.

Provisionismadeforunexpiredriskswheretheclaimsandadministrativeexpenseslikelytoariseaftertheendofthefinancialyear,inrespectofcontractscommencingbeforethatdate,areexpectedtoexceedtherelatedunearnedpremiums,lessrelateddeferredacquisitioncosts.

Themethodsusedandestimatesmadeforclaimsprovisionsarereviewedregularly.

Reinsurers’shareofclaimsincurredReinsurers’shareofclaimsincurredrepresentsrecoveriesfromreinsurersonclaimspaid,adjustedforthereinsurers’shareofthechangeinthegrossprovisionforclaims.Therecoverablesduefromreinsurersareshownwithinassetsarisingfrominsurancebusinessandareassessedforimpairmentateachbalancesheetdate.Impairmentsareaccountedforwithintheincomestatement.

AcquisitioncostsAcquisitioncosts,includedwithinotheroperatingexpenses,representcommissionspayableandotherexpensesrelated

totheacquisitionofinsurancecontractrevenueswrittenduringthefinancialyear.Acquisitioncoststhathavebeenpaidbutnotyetbeenincurredaredeferredtothesubsequentperiodatthepointatwhichtheyarepaid,andrecognisedintheincomestatementintherelevantperiod.

MedicarerebateInAustralia,thegovernmentprovidesarebatetohealthinsurersinrespectofthepremiumspaidforprivatehealthinsurance.Rebatesduefromthegovernmentbutnotreceivedatthebalancesheetdatearerecognisedinassetsarisingfrominsurancebusiness.

basis of accounting for long-term insurance business

RecognitionandmeasurementofcontractsLong-terminsurancecontractsaremeasuredandaccountedforunderexistingpracticesatthelaterofthedateoftransitiontoIFRSorthedateofthebusinesscombination.TheGrouphasadoptedthemodifiedstatutorysolvencybasisofaccountingforlong-terminsurancebusinessintheUK.

NetinsurancepremiumsearnedPremiumsarerecognisedonareceivablebasisexcludinganytaxesorduties.Outwardreinsurancepremiumsarerecognisedonapayablebasis.

IncaseswheretheGroupcedesreinsurance,thearrangementsdonotrelievetheGroupofitsdirectobligationsunderinsurancepolicieswritten.

Reinsurancecontractsrelatingtothelong-termbusinessareaccountedforoverthelifeoftheunderlyingpoliciesusingassumptionsconsistentwiththosefortheunderlyingpolicies.

NetinsuranceclaimsincurredInsuranceclaimsincurredandreinsurers’shareofclaimsincurredareaccountedforasdescribedforthegeneralinsurancebusiness.Deathclaimsareaccountedforonnotificationofdeath.Criticalillnessandincomeprotectionclaimsareaccountedforwhenadmitted.Theamountsrecoverableunderreinsurancecontractsareassessedforimpairmentateachbalancesheetdate.Impairmentsareaccountedforwithintheincomestatement.

Long-termbusinessprovisionsIntheUK,long-termbusinessprovisionsarecalculatedonagrosspremiumvaluationbasis.Theprovisioniscalculatedbysubtractingthepresentvalueoffuturepremiumsfromthepresentvalueoffuturebenefitspayableunderthepolicy.Thegrosspremiummethodmakesexplicitallowanceforfuturepolicymaintenancecostsandtaxes.Theprovisioniscalculatedusingactuarialmethodsthatincludeassumptionssuchasestimatesofmortality,morbidity,investmentperformance,expensesandtaxes.Theseassumptionsarebasedonbestestimatesoffutureexperienceplusmarginsfortheriskofadversedeviation.

InAustralia,long-termbusinessprovisionsarecalculatedonamarginonservicesvaluationbasis.Underthismethodology,plannedprofitmarginsandanestimateoffutureliabilitiesarecalculatedseparatelyforeachrelatedproductgroup,withfuturecashflowsdeterminedusingbestestimateassumptionsanddiscountedtothereportingdate.Theprovisioniscalculatedusingactuarialmethodsthatincludeassumptionssuchasestimatesofmortality,morbidity,interestrates,voluntarydiscontinuancesandexpenses.Theseassumptionsarebasedonbestestimatesoffutureexperience.



AcquisitioncostsAcquisitioncostsareincludedwithinotheroperatingexpenses.IntheUK,thecostsofacquiringnewandrenewallong-termbusinessaredeferredandamortisedinproportiontothemarginsinrespectoftherelatedpoliciesoroverthelifeofthepolicy.Acquisitioncostsarenotdeferredtotheextentthatavailablefuturemarginsarenotexpectedtocoversuchfuturecosts.

InAustralia,acquisitioncostsrepresentthecostsofacquiringnewandrenewalbusiness.Theacquisitioncostsincurredinrelationtolifeinsurancecontractsarecapitalisedinthevaluationofthepolicyliabilities.

LiabilitiesandrelatedassetsunderliabilityadequacytestInsurancecontractprovisionsforlong-terminsurancearetestedforadequacybydiscountingcurrentestimatesofallfuturecontractualcashflowsandcomparingthisamounttothecarryingvalueoftheliabilitynetofdeferredacquisitioncostsandanyotherrelatedintangibleassets.Whereashortfallisidentified,anadditionalprovisionismadeandtheGrouprecognisesthedeficiencyintheincomestatementfortheperiod.

basis of accounting for life investment contractsLifeinvestmentcontractscomprisedepositsheldonbehalfofinvestmentpolicyholdersandincludeinvestmentlinkedcontractswherethebenefitisdirectlylinkedtothemarketvalueoftheinvestmentsheldintheparticularinvestmentlinkedfund.Whiletheunderlyinginvestmentsareregisteredinthenameofthelifeinsurerandtheinvestmentlinkedpolicyholderhasnodirectaccesstothespecificinvestments,thecontractualarrangementsaresuchthattheinvestmentlinkedpolicyholderbearstherisksandrewardsofthefund’sinvestmentperformance.

Netassetsbackinglifeinvestmentcontractliabilitiesincludefinancialinvestments,receivables,deferredtaxationassets,cash,deposits,payables,otherliabilitiesandtaxationliabilities.

Financialinvestmentsbackinglifeinvestmentcontractliabilitiesarevaluedatfairvaluethroughprofitorlossandconsistofinvestmentssuchasequities,fixedincomesecuritiesandpropertytrusts.

Deposits,contributions,surrendersandwithdrawalswhichrelatetolifeinvestmentcontractsaretreatedasmovementsinlifeinvestmentcontractliabilities.

revenues from life investment contractsFeeincomeisderivedfromtheadministrationoflifeinvestmentcontractsandreducesthevalueoftheinvestmentcontractliability.Asinglemanagementfeeisappliedforeachinvestmentoption,whichisbasedonthevalueoftheassetsheldineachinvestmentoption.Thefeeiscalculatedeachtimeaninvestmentoptionisvalued,beforetheunitpriceisdeclared.Managementfeerevenuewithrespecttolifeinvestmentcontractsisrecognisedintheincomestatementonanaccrualsbasis,asservicesareprovided.

revenues from service contractsAnumberofcontractswrittenbytheGroup’sgeneralinsuranceentitiesdonotresultinthetransferofsignificantinsurancerisktotheGroup.Thecontractsmainlyrelatetotheadministrationofclaimsfundsonbehalfofcorporatecustomers.Someofthesecontractscontainfinancialliabilitiesrepresentingdepositsrepayabletothecustomer.Thesearemeasuredatamortised

cost.Revenuesfromservicecontractsrepresentsthesurplusreceivableonsuchcontractsandarerecognisedastheservicesareprovided.

Theclaimsfunddepositheldonbehalfofcustomersisreportedwithinotherpayables,accrualsanddeferredincome.

care, health and other revenuesCare,healthandotherrevenuesrepresentsrevenuesreceivablefromcareandhealthprovisionservicesrendered.

Revenuesarestatednetofvalueaddedtaxationandothersalestaxes,rebatesanddiscounts.RevenuesarerecognisedintheaccountingperiodinwhichtheGroupobtainstherighttoconsiderationinexchangeforitsperformance.

Revenuesassociatedwithserviceconcessionreceivablesincludesrevenuesfromtheconstructionoftheinfrastructureandoperationrevenues.Constructionrevenuesarerecognisedbasedonthestageofcompletionoftheworkperformed.Operationrevenuesarerecognisedintheaccountingperiodinwhichtheservicesareprovided.

Financial income and expensesFinancialincomecomprisesinterestreceivable,realisedgainsandlossesoninvestments,dividendincomeonequityinvestments,changesinthefairvalueofitemsrecognisedatfairvaluethroughprofitorloss,changeinthefairvalueofderivatives,changesinthefairvalueofinvestmentpropertyandforeignexchangegainsandlosses.

Interestincome,exceptinrelationtoassetsclassifiedatfairvaluethroughprofitorloss,isrecognisedintheincomestatementasitaccrues,usingtheeffectiveinterestmethod.

Changesinthevalueoffinancialassetsdesignatedasatfairvaluethroughprofitorlossarerecognisedwithinfinancialincomeasanunrealisedgainorlosswhiletheassetisheld.Uponrealisationoftheseassets,thechangeinfairvaluesinceacquisitionisrecognisedwithinfinancialincomeasarealisedgainorloss.

Financialexpensesincludesinterestpayableonborrowings,calculatedusingtheeffectiveinterestmethod,impairmentlossesonfinancialinvestmentsnotmeasuredatfairvaluethroughprofitorlossandotherfinancialexpenses.

taxationIncometaxationonthesurplusordeficitfortheyearcomprisescurrentanddeferredtaxation.Incometaxationisrecognisedintheincomestatementexcepttotheextentthatitrelatestoitemsrecogniseddirectlyinothercomprehensiveincome,inwhichcaseitisrecogniseddirectlyinothercomprehensiveincome.

Currenttaxationistheexpectedtaxationpayableonthetaxablesurplusfortheyear,usingtaxationratesenactedorsubstantivelyenactedatthebalancesheetdate,andanyadjustmentstotaxationpayableinrespectofpreviousyears.

Deferredtaxationisrecognisedinfullusingthebalancesheetliabilitymethod,providingfortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.Thefollowingtemporarydifferencesarenotrecognised:goodwillnotdeductiblefortaxationpurposesandtheinitialrecognition


Businessreview

Governan

ceFinan

cialstatements

ofanassetorliabilityinatransactionthatisnotabusinesscombinationandwhich,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss.

Theamountofdeferredtaxationrecognisedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities,usingtaxationratesenactedorsubstantivelyenactedatthebalancesheetdate.

Deferredtaxationisrecognisedontemporarydifferencesarisingoninvestmentsinsubsidiarycompanies,exceptwherethetimingofthereversalofthetemporarydifferenceiscontrolledbytheGroupanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.

Adeferredtaxationassetisrecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilised.

DeferredtaxationassetsandliabilitiesareoffsetwhentheyrelatetoincometaxesleviedbythesametaxationauthorityandwhentheGroupcansettleitscurrenttaxationassetsandliabilitiesonanetbasis.

segmental reportingTheGroupdeterminesandpresentsitsreportablesegmentsbasedoninformationthatinternallyisprovidedtotheChiefExecutiveandtheGroupFinanceDirector,whotogetherfulfilthefunctionoftheGroup’schiefoperatingdecisionmaker.

AreportablesegmentisacomponentoftheGroupthatengagesinbusinessactivitiesfromwhichitmayearnrevenuesandincurexpenses,includingintersegmenttransactions.ThereportablesegmentsreflecttheGroup’smainoperatingdivisions.Thedivisionalstructureisdefinedbythedifferentproductsandservicesprovidedbyeachdivisionandthegeographicareasinwhichtheyoperate.DiscretefinancialinformationisavailableforthesesegmentsandisreviewedregularlybytheChiefExecutiveandGroupFinanceDirectortomonitortheresultsofthebusiness,assessperformanceandmakedecisionsabouttheallocationofresources.

SegmentresultsthatarereportedtotheChiefExecutiveandGroupFinanceDirectorincludeitemsdirectlyattributabletoasegmentaswellasthosethatcanbeallocatedonareasonablebasis.Unallocatedresultscomprisemainlyheadofficerevenues,incomeandexpenseswhichcannotbespecificallyallocatedtothereportablesegments.

Non-currentassetsacquiredbythereportablesegments,asreportedtotheChiefOperatingDecisionMaker,isthetotalcostofadditionstointangibleassets,property,plantandequipmentandinvestmentproperty,butexcludesassetsacquiredthroughbusinesscombinationsandotherintangibleassetsarisingonbusinesscombinations.

TheaccountingpoliciesofthereportablesegmentsarethesameasthosefortheGroupasawhole.

Geographicalsegmentsarealsopresented.Segmentrevenuesarebasedonthegeographicalsourceofrevenues;segmentnon-currentassetsarebasedonthegeographicallocationoftheassets.

current / non-current classificationAssetsandliabilitiesareclassifiedascurrentiftheyareexpectedtoberealisedwithintwelvemonthsfromthebalancesheetdate,theprimarypurposeoftheassetorliabilityistobetradedor,forloansandreceivables,wheretheyhaveamaturityoflessthantwelvemonthsfromthebalancesheetdate.Allotherassetsandliabilitiesareclassifiedasnon-current.

intangible assets

GoodwillGoodwillrepresentstheexcessofthecostofabusinesscombination(includingtransactioncosts)overthefairvalueoftheGroup’sshareofidentifiableassets,liabilitiesandcontingentliabilitiesoftheacquiredsubsidiarycompanyorassociatedcompanyatthedateofbusinesscombination.Wheregoodwillcanonlybedeterminedonaprovisionalbasisforafinancialyear,adjustmentsmaybemadetothisbalanceforuptotwelvemonthsfromthedateofbusinesscombination.

Goodwillarisingonbusinesscombinationsiscapitalisedandpresentedaspartofintangibleassetsintheconsolidatedbalancesheet.Goodwillisstatedatcostlessaccumulatedimpairmentlosses.Impairmentreviewsareperformedannually,ormorefrequentlyifthereisanindicationthatthecarryingvaluemaybeimpaired.Impairmentreviewsareperformedattheleveloftherelevantcashgeneratingunit.

AnyexcessoftheGroup’sinterestinthenetfairvalueoftheacquiredidentifiableassets,liabilitiesandcontingentliabilitiesovercostthatarisesonanacquisitionisrecognisedimmediatelyintheincomestatement.

GoodwillarisingonbusinesscombinationsbeforethedateoftransitiontoIFRSandcapitalisedinthebalancesheethas,atthedateoftransition,beenretainedattheamountrecordedpreviouslyunderUKGAAP,subjecttoimpairmenttesting.GoodwillpreviouslywrittenofftoreservesunderUKGAAP(onbusinesscombinationspriorto31December1997)remainseliminatedagainstreservesandisnotincludedincalculatinganysubsequentprofitorlossondisposal.

OtherintangibleassetsIntangibleassets,otherthangoodwill,thatareacquiredseparatelyarestatedatcostlessaccumulatedamortisationandimpairment.Amortisationischargedtotheincomestatementonastraightlinebasisasfollows:

•Computersoftware 2to10years

Intangibleassets,otherthangoodwill,acquiredaspartofabusinesscombinationarecapitalisedatfairvalue.Amortisationischargedtotheincomestatementonastraightlinebasisasfollows:

•Brandandtrademarks 10years•Technologyanddatabases 10years•Distributionnetworks 10to11years•Customerrelationships 10to21years•Presentvalueofacquired

in-forcebusiness 13to20years•Licencestooperatecarehomes termoflicence•Non-competeagreements termofagreement•Leases termoflease


Assetsthataresubjecttoamortisationarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedintheincomestatementtoreducethecarryingamounttotherecoverableamount.Intangibleassetsacquiredaspartofabusinesscombinationdeemedtohaveanindefinitelifearesubjecttoannualimpairmentreviewsandaresubstantiatedasfollows:•Bedlicences:attributedanindefiniteusefullifeduetothe

factthattheselicences,whichareissuedbytheAustraliangovernment,havenoexpirydate.ItiscommonpracticeinAustraliatoattributeanindefinitelifetobedlicences.

•MBFbrand:determineduponacquisitionbyanexternalvaluationexpert,basedupontheexistingawareness,ageandmarketshareoftheMBFbrandinAustraliaandtheretentionratesofbrandnamesinacquisitionsinthesamebusinesssector.

property, plant and equipmentFreeholdandleaseholdpropertiescomprisecarehomes,hospitalsandoffices.Thesepropertiesareshownatfairvaluebasedonperiodic,butatleasttriennial,valuationsperformedbyexternalindependentvaluers,lesssubsequentdepreciationandimpairmentlosses.Thevaluationsareperformedwithsufficientregularitytoensurethatthecarryingvaluedoesnotdiffersignificantlyfromfairvalueatthebalancesheetdate.Directors’valuationsareperformedininterimyearswhereimpairmentindicatorsexist.Fairvalueforcarehomesandhospitalsisconsideredtobeexistingusevalue.Valuationsofofficebuildingsareonamarketvaluebasis.Borrowingcostsrelatingtotheacquisitionorconstructionofqualifyingassetsarecapitalisedaspartofthecostofthatasset.

Equipment(includingleaseholdimprovements)isstatedathistoricalcostlesssubsequentdepreciation.

Gainsandlossesonrevaluationarerecognisedintherevaluationreserve,exceptwhereanassetisrevaluedbelowhistoricalcost,inwhichcasethedeficitisrecognisedintheincomestatement.Wherearevaluationreversesdeficitstakentotheincomestatementinprioryears,thenitiscreditedtotheincomestatement.

depreciationFreeholdlandandassetsunderconstruction,includedwithinfreeholdorleaseholdpropertiesasappropriate,arenotdepreciated.Depreciationonotheritemsofproperty,plantandequipmentiscalculatedusingthestraightlinemethodtoallocatecostorrevaluedamountlessresidualvalueoverestimatedusefullives,asfollows:

•Freeholdbuildings 50years•Leaseholdbuildings shorterofusefullife andleaseterm•Equipment(leasehold shorterofusefullifeimprovements) andleaseterm•Equipment 3to10years Theassets’residualvaluesandusefullivesarereviewed,wheresignificant,ateachbalancesheetdateandadjustedifappropriate.

Impairmentreviewsareundertakenwherethereareindicationsthatcarryingvaluemaynotberecoverable.Animpairmentlossonassetscarriedatcostisrecognisedintheincomestatement

toreducethecarryingvaluetotherecoverableamount.Animpairmentlossonassetscarriedatrevaluedamountisrecognisedintherevaluationreserve,exceptwhereanassetisrevaluedbelowhistoricalcost,inwhichcasethedeficitisrecognisedintheincomestatement.

leased assetsLeasesareclassifiedasfinanceleaseswhenthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.

Assetsobtainedunderfinanceleasesarecapitalisedwithinproperty,plantandequipmentatfairvalueatacquisitionor,iflower,atthepresentvalueoftheminimumleasepaymentsanddepreciatedovertheshorteroftheirusefuleconomiclifeandtheleaseterm.

Obligationsrelatingtofinanceleases,netoffinancechargesinrespectoffutureperiods,areincludedwithinotherinterestbearingliabilities.Theinterestelementoftheobligationisallocatedovertheleasetermtoreflectaconstantrateofinterestontheoutstandingobligation.

Leaseholdland,wherenooptiontoobtaintitleexists,istreatedasanoperatinglease.

Paymentsmadeunderoperatingleasesarerecognisedasprepaymentswithintradeandotherreceivablesandarerecognisedintheincomestatementonastraightlinebasisoverthetermofthelease.

investment propertiesPropertyleasedtothirdpartiesorheldforcapitalappreciationisclassifiedwithininvestmentproperties.Investmentpropertiesarestatedatfairvalue.

Fairvaluesaredeterminedindividually,onabasisappropriatetothepurposeforwhichthepropertyisintendedandwithregardtorecentmarkettransactionsforsimilarpropertiesinthesamelocation.

Inthepresenceofanactivemarketanindependentvaluer,holdingarecognisedandrelevantprofessionalqualificationandwithrecentexperienceinthelocationandcategoryofinvestmentpropertybeingvalued,valuestheportfolioannually.

Intheabsenceofcurrentpricesinanactivemarketthepropertiesarevaluedusingdiscountedcashflowprojectionsbasedonreliableestimatesoffuturecashflows.Discountratesareusedtoreflectcurrentmarketassessmentsoftheuncertaintyintheamountortimingofthecashflows.

Anygainorlossarisingfromachangeinthefairvalueisrecognisedintheincomestatement.

Financial investmentsTheGrouphasclassifieditsfinancialinvestmentsintothefollowingcategories:atfairvaluethroughprofitorloss,availableforsale,heldtomaturityandloansandreceivables.Managementdeterminestheclassificationatinitialrecognition.

Allfinancialinvestmentsareinitiallyrecognisedatfairvalue,whichincludestransactioncostsforfinancialinvestmentsnotclassifiedasatfairvaluethroughprofitorloss.Financialinvestmentsarederecognisedwhentherightstoreceivecashflowsfromthe



Businessreview

Governan

ceFinan

cialstatements

financialinvestmentshaveexpiredorwheretheGrouphastransferredsubstantiallyallrisksandrewardsofownership.

FinancialinvestmentsatfairvaluethroughprofitorlossAninstrumentisclassifiedatfairvaluethroughprofitorlossifitisheldfortradingorisdesignatedassuchuponinitialrecognition.FinancialinstrumentsaredesignatedatfairvaluethroughprofitorlossiftheGroupmanagessuchinvestmentsandmakespurchaseandsaledecisionsbasedontheirfairvalueinaccordancewiththeGroup’sdocumentedriskmanagementorinvestmentstrategy.

Theinvestmentsarecarriedatfairvalue,withgainsandlossesarisingfromchangesinthisvaluerecognisedintheincomestatementintheperiodinwhichtheyarise.Thefairvaluesofquotedinvestmentsinactivemarketsarebasedoncurrentbidprices.Thefairvaluesofunlistedsecurities,andquotedinvestmentsforwhichthereisnoactivemarket,areestablishedusingvaluationtechniquescorroboratedbyindependentthirdparties.Thesemayincludereferencetothecurrentfairvalueofotherinstrumentsthataresubstantiallythesameanddiscountedcashflowanalysis.

Derivativesareheldatfairvaluethroughprofitorlossunlesstheyaredesignatedashedges.Theaccountingpolicyforhedginginstrumentsisdescribedonpage62.

AvailableforsaleAvailableforsalefinancialinvestmentsarethoseintendedtobeheldforanundisclosedperiodoftimewhichmaybesoldinresponsetoliquidityneedsorchangesininterestrates,exchangeratesorequityprices.

Availableforsalefinancialinvestmentsarecarriedatfairvalue,withtheexceptionofinvestmentsinequityinstrumentswherefairvaluecannotbereliablydetermined,whicharecarriedatcost.Fairvaluesaredeterminedinthesamemannerasforinvestmentsatfairvaluethroughprofitorloss.Changesinfairvaluearerecognisedinothercomprehensiveincomewhilstaninvestmentisheld,andaresubsequentlytransferredtotheincomestatementuponsaleorderecognitionoftheinvestment.

HeldtomaturityinvestmentsHeldtomaturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandafixedmaturity.InvestmentsaredesignatedasheldtomaturitywheretheGrouphasapositiveintentionandabilitytoholdinvestmentstomaturity.Heldtomaturityinvestmentsaremeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyimpairmentlosses.

Anydiscountorpremiumonpurchaseisamortisedoverthelifeoftheinvestmentthroughtheincomestatement.Theintentandabilitytoholdtheassettomaturityisassessedateachreportingdate.

LoansandreceivablesLoansandreceivablesarenon-derivativefinancialinvestmentswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.TheyarisewhentheGroupprovidesmoney,goodsorservicesdirectlytoaborrowerorcustomerwithnointentionoftradingthereceivable.Loansarerecognisedwhencashisadvancedtotheborrowers.

Loansandreceivablesarecarriedatamortisedcostcalculatedusingtheeffectiveinterestmethod,lessimpairmentlosses.

SaleandrepurchaseagreementsSecuritiespurchasedundercommitmentstoresell(‘reverserepos’)arenotrecognisedonthebalancesheet,however,theconsiderationpaidisrecognisedasaloanandreceivableinfinancialinvestments.Thedifferencebetweensaleandrepurchasepriceistreatedasinterestandaccruedoverthelifeoftheagreementsusingtheeffectiveinterestmethod.

trade and other receivablesTradeandotherreceivables,includingserviceconcessionreceivablesbutexcludingderivativeassets,arecarriedatamortisedcostlessimpairmentlosses.Derivativeassetsarecarriedatfairvalueasdetailedinthederivativefinancialinstrumentsnote.

impairment of financial assetsFinancialassetscompriseinvestmentproperties,financialinvestmentsandtradeandotherreceivables.Iftheyarenotalreadyheldatfairvalue,financialassetsareassessedateachreportingdatetodeterminewhetherthereisanyobjectiveevidencethattheyareimpaired.Afinancialassetisconsideredimpairedifobjectiveevidenceindicatesthatoneormoreeventsthathaveoccurredsincetheinitialrecognitionoftheassethavehadanegativeimpactontheestimatedfuturecashflowsofthatasset.

Animpairmentlossinrespectofafinancialinvestmentmeasuredatamortisedcostiscalculatedasthedifferencebetweenitscarryingamountandthepresentvalueoftheestimatedfuturecashflowsdiscountedattheeffectiveinterestrateatthedatetheinvestmentwasmade.

Significantfinancialassetsaretestedforimpairmentonanindividualbasis.Theremainingfinancialassetsareassessedcollectivelyingroupsthatsharesimilarcreditriskcharacteristics.Allimpairmentlossesarerecognisedintheincomestatement.

inventoriesInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costisdeterminedusingthefirst-infirst-outmethod,ormethodsthatapproximatethis,andincludescostsincurredinacquiringtheinventoriesandinbringingthemtotheircurrentlocationandcondition.

non-current assets classified as held for sale and discontinued operationsNon-currentassetsordisposalgroupsareclassifiedasheldforsalewheretheircarryingamountwillberecoveredprincipallythroughasaletransactionratherthancontinuinguse,wheresaleishighlyprobableandwheretheassetordisposalgroupisavailableforimmediatesaleinitspresentcondition.

Non-currentassetsanddisposalgroupsheldforsalearerecognisedatthelowerofcarryingamountandfairvaluelesscoststosell.Impairmentlossesarerecognisedintheincomestatement.

AdiscontinuedoperationisacomponentoftheGroup’sbusinessthatrepresentsaseparatemajorlineofbusinessorgeographicalareaofoperationsorisasubsidiarycompanyacquiredexclusivelywithaviewtoresale.Classificationasadiscontinuedoperationoccursupondisposal,abandonmentorwhentheoperationmeetsthecriteriatobeclassifiedasheldforsale,ifearlier.


cash and cash equivalentsCashandcashequivalentscomprisecashbalances,calldepositsandothershort-termhighlyliquidinvestments(includingmoneymarketfunds)withoriginalmaturitiesofthreemonthsorlesswhicharesubjecttoaninsignificantriskofchangeinvalue.BankoverdraftsthatarerepayableondemandandformanintegralpartoftheGroup’scashmanagementareincludedasacomponentofcashandcashequivalentsforthepurposeofthestatementofcashflows.

callable subordinated perpetual guaranteed bondsTheGrouphasissuedcallablesubordinatedperpetualguaranteedbonds.ThetermsofthebondsaresuchthatBupacannotdeferpaymentsofinterestincertainlimitedcircumstances.Thebondsarethereforeclassifiedasfinancialliabilities.Theliabilityisstatedatamortisedcostusingtheeffectiveinterestmethod.Thecarryingvalueisadjustedforthegainorlossonhedgedrisk;changesinthefairvalueofderivativesthatmitigateinterestrateriskresultingfromthefixedinterestrateofthebondsarerecognisedintheincomestatementasaneffectivefairvaluehedgeofthisexposure.Thecouponpayableonthebondsisrecognisedasafinancialexpense.

Thebondshavenosetmaturitydatebutaresubjecttoanincreaseintheinterestpaymentsfrom2020andtheGroupisthereforelikelytorefinancethebondsasaresultofeconomiccompulsion.

other subordinated liabilities and other interest bearing liabilitiesAllinterestbearingliabilitiesarerecognisedinitiallyasproceedsreceivablelessattributabletransactioncosts.Subsequenttoinitialrecognitiontheyarestatedatamortisedcostwithanydifferencebetweencostandredemptionvaluebeingrecognisedintheincomestatementovertheperiodoftheborrowingsonaneffectiveinterestbasis.Theamortisedcostofborrowingswithacorrespondingfairvaluehedgeisadjustedforthefairvalueoftheriskbeinghedged.

offsetting financial instrumentsFinancialinvestmentsandfinancialliabilitiesareoffsetandthenetamountreportedinthebalancesheetwhenthereisalegallyenforceablerighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,orrealisetheassetandsettletheliabilitysimultaneously.

provisions for liabilities and chargesAprovisionisrecognisedinthebalancesheetwhentheGrouphasapresentlegalorconstructiveobligationasaresultofapastevent,anditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Iftheeffectismaterial,provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxationratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.

trade and other payablesTradeandotherpayables,excludingderivativeliabilities,arecarriedatamortisedcost.Derivativeliabilitiesarestatedatfairvalue.

accommodation bond liabilities Accommodationbondsarenon-interestbearingdepositspaidbytheresidentofthecarehomeaspaymentforaplaceinthecarehomefacility.Thesedepositsareliabilitieswhichfalldueandare

payablewhentheresidentleavesthefacility.Thebondsarerecordedatanamountequaltotheproceedsreceived,netofretentionandanyotheramountsdeductedfromthebondattheelectionofthebondholder.

employee post employment benefitsTheGroupoperatesdefinedcontributionanddefinedbenefitpensionschemes,aswellasapostretirementmedicalbenefitscheme.TheGroupmaintainsfundedandunfundedschemes.

DefinedcontributionpensionschemesObligationsforcontributionstodefinedcontributionpensionschemesarerecognisedasanexpenseintheincomestatementasincurred.

DefinedbenefitpostemploymentschemesTheGroup’snetobligationinrespectofdefinedbenefitpensionandpostretirementmedicalschemesiscalculatedseparatelyforeachschemeandrepresentsthepresentvalueofthedefinedbenefitobligationless,forfundedschemes,thefairvalueofschemeassets.Thediscountrateusedistheyieldatthebalancesheetdateonhighqualitycorporatebondsdenominatedinthecurrencyinwhichthebenefitswillbepaid.WhenthecalculationresultsinabenefittotheGroup,therecognisedassetislimitedtothepresentvalueofanyfuturerefundsfromtheschemeorreductionsinfuturecontributionstothescheme,plusthetotalofanyunrecognisedpastservicecosts.

Thechargetotheincomestatementfordefinedbenefitschemesrepresentsthefollowing:currentservicecostcalculatedontheprojectedunitcreditmethod;theexpectedreturnonschemeassets,lesstheinterestcostonschemeliabilities;andgainsandlossesoncurtailments.

Allactuarialgainsandlossesarerecognisedinfullinthestatementofcomprehensiveincomeintheperiodinwhichtheyoccur.

derivative financial instrumentsTheGroupusesderivativefinancialinstrumentstohedgeitsexposuretoforeignexchangeandinterestraterisk.Derivativesthathavebeenpurchasedorissuedaspartofahedgethatsubsequentlydoesnotqualifyforhedgeaccountingareaccountedforasiftheyweretradinginstruments.

Derivativefinancialinstrumentsarerecognisedinitiallyatfairvalue.Subsequenttoinitialrecognition,theyarere-measuredatfairvaluewithintradeandotherreceivables,orwithintradeandotherpayables.

Fairvaluesareobtainedfromexchangequotedpricesand,wherespecificexchangepricesarenotavailable,frommarketobservablepricinginformationincludinginterestrateyieldcurves.Thefairvaluesoffuturesandoptionsareobtainedfromthequotedpricesontherelevantexchange,includingLIFFE.Thevalueofforeignexchangeforwardcontractsisestablishedusinglistedmarketprices.

hedge accountingTheGroupappliesfairvalue,netinvestmentandcashflowhedgeaccounting.TheGroupformallydocumentsthehedgingrelationshipbetweenahedginginstrumentandahedgeditem.Documentationincludestheriskmanagementobjectivesandthestrategyinundertakingthehedgetransaction.



Businessreview

Governan

ceFinan

cialstatements

FairvaluehedgesWhereaderivativefinancialinstrumenthedgesthechangeinfairvalueofarecognisedassetorliabilityoranunrecognisedfirmcommitment,anygainorlossonre-measurementofthehedginginstrumentatfairvalueisrecognisedintheincomestatement.Thehedgeditemisfairvaluedforthehedgedriskwithanyadjustmentbeingrecognisedintheincomestatement.

CashflowhedgesGainsandlossesonderivativefinancialinstrumentsdesignatedasahedgetotheexposureinthevariabilityincashflowsthatareattributedtoarecognisedassetorliability,afirmcommitmentorahighlyprobableforecasttransactionareaccountedforascashflowhedges.

Theeffectivenessofacashflowhedgeisthedegreetowhichthecashflowsattributabletoahedgedriskareoffsetbychangesinthecashflowsofthehedginginstrument.Theeffectiveportionofanygainorlossonthehedginginstrumentisrecogniseddirectlyinothercomprehensiveincomeuntiltheforecasttransactionoccursandresultsintherecognitionofafinancialassetorliabilitywhichimpactstheincomestatement.Theineffectiveportionofthegainorlossisrecognisedintheincomestatement.

Ifthehedgedcashflowisnolongerexpectedtotakeplace,alldeferredgainsandlossesarereleasedtotheincomestatementimmediately.Ifthehedginginstrumentorhedgerelationshipisterminatedbutthehedgedtransactionisstillexpectedtooccur,thecumulativegainorlossatthatpointremainsinothercomprehensiveincomeandisrecognisedinaccordancewiththeabovepolicywhenthetransactionoccurs.

ForeigncurrencyhedgingofnetinvestmentTheGroupapplieshedgeaccountingtoitsforeigncurrencyexposureonanetinvestmentbasis.TheGroupusesforeigncurrencydenominatedborrowingsandforeigncurrencyforwardcontractstohedgenetinvestmentrisk.

Ifanexternalforeigncurrencydenominatedloanisusedasahedge,theportionoftheexchangegainsorlosses,arisingfromtheretranslation,thatisfoundtobeaneffectivehedgeisrecognisedinothercomprehensiveincome.Thesametreatmentisappliedtoboththerealisedandunrealisedexchangegainsandlossesarisingfromforeigncurrencyforwardcontracts.Anyineffectiveportionisrecogniseddirectlyintheincomestatement.Ifanentityissubsequentlysoldorliquidated,anygainsorlossesthathavebeenpreviouslyrecognisedinothercomprehensiveincomearerecognisedintheincomestatement.

accounting estimates and judgementsThepreparationoffinancialstatementsinconformitywithIFRSrequirestheuseofcertainaccountingestimates.ItalsorequiresmanagementtoexerciseitsjudgementinapplyingtheGroup’saccountingpolicies.Theestimatesandassumptionsarebasedonhistoricalexperienceandotherrelatedvariables,updatedtoreflectcurrenttradingperformance.Theestimatesandassumptionsarereviewedonanongoingbasisandareconsideredtobeprudentandappropriatebutactualresultsmaydifferfromtheseestimates.JudgementsmadebymanagementinapplyingtheGroup’saccountingpoliciesthathaveasignificanteffectonthefinancialstatements,andestimateswithasignificantriskofmaterialadjustmentinsubsequentperiods,aredescribedbelow:

Insuranceaccounting:Theestimates,uncertaintiesandjudgementsarisingasaresultoftheGroup’sinsuranceoperationsaredetailedinnote34.

Deferredrevenue:InrespectoftheGroup’srevenueanddeferredrevenueforperformancebasedhealthservicecontracts,estimatesaremadebytheGroupbasedonthemostrecentperformanceevaluationdataavailableattheyearend.Wheretheresultsoffinalperformanceassessmentdifferfromtheestimation,thedifferenceisrecognisedintheperiodinwhichsuchdeterminationismade.

Financialinstruments:TheGroupisexposedtouncertaintyasaresultofexposuretocurrency,credit,liquidityandinterestraterisks.Theserisks,togetherwiththeGroup’sprocedurestomitigateresultinguncertainty,arediscussedinnotes33and34.

Pensionassumptions:Note27detailstheestimationtechniquesinvolvedincalculatingtheGroup’snetpensionassetorliability.

Intangibleassetsarisingonbusinesscombinations:Allidentifiableassetsarisingaspartofabusinesscombinationmustberecognisedatfairvalue.Thecalculationoffairvaluerequirestheuseofestimatesandjudgements,includingmodellingtechniques.Theseassetsaredescribedinnote11.

Goodwillimpairment:Note11containsinformationabouttheassumptionsandestimatesusedtocalculatetheimpairmentofgoodwill.

Propertyvaluations:TheGroup’scarehomeandhospitalpropertiesarevaluedwithregardtotheirtradingpotential.Valuationsareperformedbyindependent,externalvaluerswhoincorporateassumptions.Theprincipalassumptionsrelateto:quantifyingafair,maintainableleveloftradeandprofitability;levelsofcompetition;andassumedabilitytorenewexistinglicences,consents,certificatesorpermits.

Incometaxes:TheGroupissubjecttoincometaxesinnumerousjurisdictions.Therearemanytransactionsandcalculationsforwhichtheultimatetaxationdeterminationisuncertainduringtheordinarycourseofbusiness.Wherethefinaltaxationoutcomeisdifferentfromtheamountthatwasinitiallyrecorded,thedifferenceisrecognisedintheperiodinwhichsuchdeterminationismade.

TheareasofjudgementmadeintheprocessofapplyingtheGroup’saccountingpoliciestocategorisehowtransactionsaredisplayedandthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatementsare:

•establishingwhetherspecialpurposeentitiesarecontrolledbytheGroup;

•determiningthenatureofintangibleassetsarisingonbusinesscombinations;

•determiningthepresenceorabsenceofinsuranceriskincontractsenteredintobytheGroup’sinsuranceentities;

•determiningwhetherasubstantialtransferofrisksandrewardshasoccurredinrelationtoleasedassets;and

•determiningthenecessarytaxationprovisionwheretheeffectoftaxationlawsandregulationsisunclear.


notes to the Financial statementsfor the year ended 31 December 2009

1 segmental information

TheGrouphasfourreportablesegments:•UKandNorthAmerica –BupaHealthandWellbeingUK:provisionofhealthinsurance,lifeassuranceandrelatedproductssoldwithintheUK; –HealthDialog:provisionofcaremanagementandanalyticservices,basedintheUS; –BupaHomeHealthcare:provisionofhomehealthcareproductsandserviceswithintheUK; –TheBupaCromwellHospital:managementandoperationofaprivateLondonhospital,providingmedicalandancillaryservicestopatients;and –BupaHealthDialogUK:provisionofclinicalintelligenceinformationsolutionstotheNHSintheUK.•EMEALA –provisionofhealthinsurance,lifeassuranceandrelatedproductssoldinEurope,MiddleEast,AfricaandLatinAmerica.•AsiaPacific –provisionofhealthinsurance,lifeassurance,lifeinvestmentcontractsandrelatedproductssoldpredominantlyinAustralia,together

withareasofAsia.•CareServices –provisionofnursing,residentialandrespitecarewithintheUK,Spain,AustraliaandNewZealand.

Segmentalperformanceisassessedbasedonsegmentsurplusbeforeshareofpost-taxationresultsofequityaccountedinvestments,amortisationofotherintangibleassetsarisingonbusinesscombinations,impairmentofgoodwill,impairmentofotherintangibleassetsarisingonbusinesscombinations,otherincomeandcharges,financialincomeandexpenses,taxationexpenseandminorityequityinterests.Thetotalsurplusofthereportablesegmentsisreconciledbelowtosurplusbeforetaxationexpenseintheconsolidatedincomestatement.Otherincome/(charges),financialincomeandexpenses,andtaxationexpensearereportedandmonitoredonaGroupbasisandarenotattributabletoindividualsegments.

uK and north america emeala asia pacific care services total

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (restated) (restated) (restated) (restated) (restated) £m £m £m £m £m £m £m £m £m £m

(i) revenuesTotalrevenuesfor reportablesegments 2,133.6 2,071.5 1,765.3 1,573.1 2,122.8 1,394.3 926.6 891.8 6,948.3 5,930.7Intersegmentelimination (2.2) (2.2) (4.9) (4.2) – – (0.3) (0.2) (7.4) (6.6)

external revenues for reportable segments 2,131.4 2,069.3 1,760.4 1,568.9 2,122.8 1,394.3 926.3 891.6 6,940.9 5,924.1 Netreclassificationsto otherexpensesor financialincomeandexpenses (0.1) (3.1)Unallocatedcentralrevenues 0.6 2.9

consolidated total revenues 6,941.4 5,923.9


Businessreview

Governan

ceFinan

cialstatements

1 segmental information continued


2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (restated) (restated) (restated) (restated) (restated) £m £m £m £m £m £m £m £m £m £m

(ii) segment result surplus for reportable segments 16.8 60.8 157.7 138.5 99.6 63.3 133.7 131.8 407.8 394.4Shareofposttaxationresultsof equityaccountedinvestments – (1.8) 4.3 – (1.5) 0.8 – – 2.8 (1.0)Amortisationofotherintangible assetsarisingonbusiness combinations (10.2) (8.7) (5.8) (5.1) (14.4) (8.3) (4.5) (3.4) (34.9) (25.5)

6.6 50.3 156.2 133.4 83.7 55.8 129.2 128.4 375.7 367.9Reclassificationtofinancial incomeandexpenses (6.8) (10.6)Netunallocatedcentral income/(overheads) 8.2 (0.9)

surplus* 377.1 356.4 Impairmentofgoodwill – – – (34.6) – – – (81.9) – (116.5)Impairmentofother intangibleassetsarisingon businesscombinations – (2.2) – – – – (11.7) (1.8) (11.7) (4.0)Otherincome/(charges) 2.4 (3.4)

Surplusbeforefinancialincome andexpenses 367.8 232.5Financialincomeandexpenses 48.7 (40.6)

6.6 48.1 156.2 98.8 83.7 55.8 117.5 44.7

consolidated surplus before taxation expense 416.5 191.9

(iii) other information Amortisationanddepreciationcosts forreportablesegments 58.4 43.5 31.4 26.5 26.6 17.2 57.6 52.5 174.0 139.7Unallocatedamortisation anddepreciationcosts – 0.6

consolidated amortisation and depreciation costs 174.0 140.3

Non-cash(expenses)/income** forreportablesegments (2.0) 66.1 41.0 2.6 (76.8) 33.4 (21.3) (3.9) (59.1) 98.2Unallocatednon-cashexpenses (16.7) (39.9)

consolidated non-cash expenses (75.8) 58.3

*Surplusbeforeimpairmentofgoodwill,impairmentofotherintangibleassetsarisingonbusinesscombinations,otherincome/(charges),andfinancialincome

andexpenses.**Otherthanamortisationanddepreciationcosts.


1 segmental information continued


2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (restated) (restated) (restated) (restated) (restated) note £m £m £m £m £m £m £m £m £m £m

(iv) assets and liabilities Totalassetsforreportablesegments 3,625.2 3,737.7 1,327.1 1,501.1 2,584.2 2,279.8 2,732.6 3,095.310,269.110,613.9Eliminationofinter segmentreceivables (2,624.5) (3,033.1)Unallocatedtotalassets a 2,161.5 2,027.6

Consolidatedtotalassets 9,806.1 9.608.4

Consolidatedtotalliabilities (5,820.2) (5,983.9)

consolidated net assets 3,985.9 3,624.5

(v) non-current assets acquired Non-currentassetsacquiredby reportablesegments 67.4 76.0 35.1 37.1 6.9 10.1 72.6 92.0 182.0 215.2Unallocatednon-current assetsacquired 13.9 9.2

consolidated non-current assets acquired 195.9 224.4

geographic segments uK spain australasia rest of the worldb total

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (restated) (restated) (restated) note £m £m £m £m £m £m £m £m £m £m Consolidatedtotalrevenues 2,953.0 2,846.6 1,116.5 937.9 2,236.7 1,507.2 635.2 632.2 6,941.4 5,923.9

Consolidatednon-currentassets c 354.0 133.5 786.6 1,429.5 2,423.2 2,168.6 1,369.4 1,121.7 4,933.2 4,853.3

notesa.Unallocatedtotalassetsof£2,161.5m(2008:£2,027.6m)consistoffinancialinvestmentsof£1,625.0m(2008:£1,675.9m),equityaccountedinvestments

of£38.4m(2008:£31.4m),pensionassetsheldbythesponsoringemployerof£24.9m(2008:£115.0m)andunallocatedcorporateheadofficeassetsof£473.2m(2008:£205.3m).

b.IncludedwithinRestoftheWorldareoperationsintheUS,Denmark,theMiddleEast,HongKong,Thailand,Egypt,Malta,ChinaandBolivia.c.Consolidatednon-currentassetsexcludefinancialinvestments,assetsarisingfrominsurancebusiness,deferredtaxationassetsandpostemploymentbenefit

netassets.

notes to the Financial statementsfor the year ended 31 December 2009


Businessreview

Governan

ceFinan

cialstatements

2 total revenues

general long-term insurance business total

2009 2008 2009 2008 2009 2008 (restated) £m £m £m £m £m £m

Grosspremiumswritten 5,289.0 4,461.9 170.8 149.9 5,459.8 4,611.8Changeingrossprovisionforunearnedpremiums (13.7) (73.4) (2.6) (1.6) (16.3) (75.0)

gross insurance premiums 5,275.3 4,388.5 168.2 148.3 5,443.5 4,536.8

Grosspremiumswrittencededtoreinsurers (21.2) (24.3) (65.4) (63.4) (86.6) (87.7)Reinsurers’shareofchangeingrossprovisionforunearnedpremiums 1.4 (0.1) 1.3 0.7 2.7 0.6

premiums ceded to reinsurers (19.8) (24.4) (64.1) (62.7) (83.9) (87.1)

net insurance premiums earned 5,255.5 4,364.1 104.1 85.6 5,359.6 4,449.7

revenues from life investment contracts 15.4 11.3 revenues from service contracts 4.3 6.3care, health and other revenues 1,562.1 1,456.6

total revenues 6,941.4 5,923.9

3 net insurance claims incurred

general long-term insurance business total

2009 2008 2009 2008 2009 2008 (restated) (restated) £m £m £m £m £m £m

Insuranceclaimspaid 4,177.2 3,455.0 69.2 61.5 4,246.4 3,516.5Changeingrossprovisionsforclaims 19.0 (26.9) 13.8 4.9 32.8 (22.0)

4,196.2 3,428.1 83.0 66.4 4,279.2 3,494.5RiskEqualisationTrustFundlevy (56.8) (38.2) – – (56.8) (38.2)

insurance claims incurred 4,139.4 3,389.9 83.0 66.4 4,222.4 3,456.3

Recoveriesfromreinsurersonclaimspaid (14.1) (14.7) (41.8) (37.6) (55.9) (52.3)Reinsurers’shareofchangeingrossprovisionsforclaims 0.4 0.1 (6.3) (2.2) (5.9) (2.1)

reinsurers’ share of claims incurred (13.7) (14.6) (48.1) (39.8) (61.8) (54.4)

net insurance claims incurred 4,125.7 3,375.3 34.9 26.6 4,160.6 3,401.9


notes to the Financial statements continuedfor the year ended 31 December 2009

4 other operating expenses 2009 2008 (restated) £m £m

Amortisationofintangibleassetsarisingonbusinesscombinationsandcomputersoftware 75.0 55.5Impairmentofcomputersoftware 7.6 20.3Depreciationexpense 99.0 84.8

Acquisitioncosts Commissionfordirectinsurance 216.4 188.0 Otheracquisitioncostspaid 15.2 21.9 Changesindeferredacquisitioncosts (11.7) (9.4)

Totalacquisitioncosts 219.9 200.5

Costofsales 176.1 161.4Propertycosts 143.8 167.9Marketingcosts 87.6 81.0Medicalsuppliesandfees 130.8 80.6Operatingleaserentals 40.0 26.7

Staffcosts Wagesandsalaries 1,011.1 892.6 Socialsecuritycosts 87.2 79.6 Contributionstodefinedcontributionschemes 18.4 15.8 Otherpensioncosts 12.8 9.5

Netloss/(gain)onforeignexchangetransactions 4.8 (13.7)

Otheroperatingexpenses(includingauditors’remuneration) 292.4 302.1

total other operating expenses 2,406.5 2,164.6

auditors’ remuneration

FeespayabletotheCompany’sauditors,KPMGAuditPlcanditsassociates: StatutoryauditoftheCompany’sconsolidatedannualaccounts 0.6 0.7FeespayabletotheCompany’sauditorsanditsassociatesforotherservices: StatutoryauditoftheCompany’ssubsidiariesandpensionschemeauditspursuanttolegislation 3.2 2.5

TotalauditfeespayabletotheCompany’sauditors,KPMGAuditPlcanditsassociates 3.8 3.2

Feespayabletootherauditors: Auditofoverseassubsidiarycompanies 0.3 0.1

Totalauditfees 4.1 3.3

Otherservicesrelatingtotaxation 0.3 0.4Servicesrelatingtocorporatefinancetransactions – 0.1Allotherservices 1.0 0.4

Totalauditors’remuneration 5.4 4.2

employee numbersTheaveragenumberoffulltimeequivalentemployees,includingExecutiveDirectors,employedbytheGroupduringtheyearwas:

2009 2008 (restated)

Healthinsurance 9,804 9,389Careandhealthprovision 32,094 31,659

41,898 41,048

companyTheaveragenumberoffulltimeequivalentemployees,includingExecutiveDirectors,employedbytheCompanyduringtheyearwas:

Healthinsurance 594 586


Businessreview

Governan

ceFinan

cialstatements

5 directors’ emoluments

(i) directors’ remunerationDirectors’remunerationfortheyearended31December2009wasasfollows: salary / annual fees benefits bonus total

2009 2009 2009 2009 2008 note £ £ £ £ £

executive directorsRKing a 676,115 59,674 617,238 1,353,027 1,223,406TDSinger b 395,445 20,719 304,241 720,405 478,700

1,071,560 80,393 921,479 2,073,432 1,702,106

non-executive directorsLordLeitch(Chairman) 280,000 49,141 – 329,141 298,443TheRtHonBaronessBottomley 54,000 427 – 54,427 51,468PEBCawdron c 68,000 854 – 68,854 62,854LChurchill d 37,364 515 – 37,879 –GEMitchell e 107,250 854 – 108,104 56,437ProfSirJohnTooke f 30,500 412 – 30,912 –

577,114 52,203 – 629,317 469,202

Former directorsEByrne g 30,500 552 – 31,052 40,469RPWalther h 45,750 511 – 46,261 73,187VFGooding – – – –1,474,507ProfOFWJames – – – – 18,628OGNi-Chionna – – – – 57,671

76,250 1,063 – 77,313 1,664,462

1,724,924 133,659 921,479 2,780,0623,835,770

notesa.ThehighestpaidDirectorwasRKing.b.TDSingerwasappointedasGroupFinanceDirectorwitheffectfrom16May2008.c.ThefeesreceivablebyPEBCawdronincludeanamountof£8,000(2008:£2,667)asChairmanoftheRemunerationCommittee.PEBCawdronwas

appointedasSeniorIndependentDirectorwitheffectfrom1January2009andhisfeesincludeanamountof£6,000(2008:£nil)inrespectofthisposition.d.LChurchillwasappointedasaNon-ExecutiveDirectorwitheffectfrom1July2009,andasaNon-ExecutiveDirectorofBupaInsuranceLimitedwitheffectfrom

17September2009.ThefeesreceivablebyLChurchillincludeanamountof£10,364(2008:£nil)asaNon-ExecutiveDirectorofBupaInsuranceLimited.e.GEMitchellservedasChairmanofBupaInsuranceLimitedwitheffectfrom1July2009,forwhichhereceivedafeeof£37,500(2008:£nil).Healsoreceived

afeeof£15,750(2008:£4,500)asChairmanoftheAuditCommittee.f.ProfSirJohnTookewasappointedasaNon-ExecutiveDirectorandasChairmanoftheMedicalAdvisoryPanelwitheffectfrom1July2009.Thefees

receivablebyProfSirJohnTookeincludeanamountof£3,500(2008:£nil)asChairmanoftheMedicalAdvisoryPanel.g.EByrneresignedasaNon-ExecutiveDirectorandasChairmanoftheMedicalAdvisoryPanelwitheffectfrom30June2009.ThefeesreceivedbyEByrne

includeanamountof£3,500(2008:£4,667)asChairmanoftheMedicalAdvisoryPanel.h.RPWaltherresignedasaNon-ExecutiveDirectorandasaNon-ExecutiveDirectorofBupaInsuranceLimitedwitheffectfrom31July2009.Thefeesreceived

byRPWaltherincludeanamountof£14,250(2008:£21,250)asaNon-ExecutiveDirectorofBupaInsuranceLimited.



5 directors’ emoluments continued

(ii) long-term incentive plan (ltip) awards at 31 interest on at 31 payable payable december paid target accrued december april april 2008 in year award balance 2009 2010 2012 note £ £ £ £ £ £ £

payable awardsexecutive directorsRKing 2005/2006plan a 208,356 (208,356) – – – – – 2007/2008plan b 1,267,536 (760,522) – 6,084 513,098 513,098 –

TDSinger 2007/2008plan c 283,364 – – 3,400 286,764 172,058 114,706

Former directorVFGooding 2007/2008plan d 1,537,994 (1,537,994) – – – – –

potential awardsexecutive directorsRKing 2009/2010plan e – – 841,100 – 841,100 – – 2009/2011plan e – – 841,100 – 841,100 – –

TDSinger 2009/2010plan e – – 410,000 – 410,000 – – 2009/2011plan e – – 410,000 – 410,000 – –

notesa.InaccordancewiththerulesoftheLTIP,40%oftheawardearnedunderthe2005/2006planwaspayableinApril2009,60%oftheawardhavingbeenpaid

inApril2007.b.60%oftheawardearnedunderthe2007/2008planwaspayableinApril2009.Theremaining40%oftheawardwillbepayableinApril2010onthe

conditionthattheDirectorisstillemployedbytheCompanyonthepaymentdate.c.Subjecttoperformancecriteriabeingsatisfied,inaccordancewiththerulesofthe2007/2008LTIPregardingjoinersduringaplanperiod,60%oftheaward

earnedunderthisplanwillbecomeeligibleforpaymentinApril2010and40%inApril2012.ThesepaymentswillbemadeprovidedtheDirectorisstillemployedbytheCompanyontherespectivepaymentdates.

d.InaccordancewiththerulesoftheLTIP,asVFGoodingretiredfromtheCompanyon31December2008,100%ofthe2007/2008planwaspayableinApril2009.e.Themaximumpotentialawardis120%ofthetargetaward,andispayableifstretchtargetssetbytheRemunerationCommitteeareachieved.The

2009/2010planperiodendson31December2010andthe2009/2011planperiodendson31December2011.Subjecttotheperformancecriteriabeingsatisfied,theawardwillbecomeeligibleforpaymentinApril2011andApril2012respectively.AnypaymentwillbemadeprovidedtheDirectorisstillemployedbytheCompanyontherespectivepaymentsdates.

AnumberofchangesweremadetotheoperationoftheLTIPin2009andthesearedetailedintheRemunerationReport(seepages39to41).

(iii) directors’ pensionsRKing,whojoinedTheBupaPensionSchemepriortoOctober2002,participatesindefinedbenefitpensionarrangementssponsoredbytheCompany.Theseschemesprovidebenefitsbasedonearningsatornearretirementandarepartfundedandpartunfunded.TheunfundedelementisprovidedforbytheGroup.ThefollowingtableshowsdetailsofRKing’saccruedpensionbenefitsattheendoftheyear:

total accrued total accrued transfer transfer increase in pension at pension at value at value at transfer value 31 december 31 december 31 december 31 december less director’s 2009 2008 2009 2008 contributions note £ £ £ £ £

executive directorRKing a,b 192,409 159,951 4,064,954 3,063,000 983,864

notesa.Theaccruedpensionentitlementshownisthatwhichwouldbepaidannuallyonretirementbasedonservicetotheendoftheyear.Theincreasein

accruedannualpensionduringtheyearforRKing,excludinganyincreaseforinflation,was£24,460.Thetransfervalueoftheseincreases,lessDirector’scontributions,was£498,671.

b.ThetransfervalueshavebeencalculatedbyanindependentactuaryinaccordancewithGuidancenoteelevenissuedbytheInstituteandFacultyofActuaries.

Duringtheyear,theCompanypaidcontributionsof£124,230(2008:£82,000)toTheBupaRetirementSavingsPlan,adefinedcontributionscheme,inrespectofTDSinger.


Businessreview

Governan

ceFinan

cialstatements

6 other income / (charges) 2009 2008 £m £m

Netgainonsaleofbusiness 20.3 –Netlossonsaleofequityaccountedinvestment (0.3) –Deficitonrevaluationofproperty (15.7) (2.9)Net(loss)/gainondisposalofproperty,plantandequipment (1.9) 5.6Impairmentofequityaccountedinvestments – (6.1)

total other income / (charges) 2.4 (3.4)

7 Financial income 2009 2008 £m £m

Interestincome Investmentsdesignatedatfairvaluethroughprofitorloss 3.3 7.8 Loansandreceivables 61.3 142.0 Investmentsheldtomaturity 7.0 3.5Netrealisedgains/(losses)onfinancialinvestmentsdesignatedat fairvaluethroughprofitorloss 14.5 (13.9)Netgainonderecognitionofavailableforsalefinancialinvestment – 4.7Netincrease/(decrease)infairvalue Investmentsdesignatedatfairvaluethroughprofitorloss 41.7 (109.9) Derivatives – 6.2 Investmentproperty (0.5) 1.4Netforeignexchange(loss)/gain (11.1) 23.6

total financial income 116.2 65.4

Nofinancialinvestmentsdesignatedatfairvaluethroughprofitorlossareheldfortrading.

Thenetamountofforeignexchangedifferencesrecognisedinfinancialincomefortheyear,excludingthosearisingonfinancialassetsandfinancialliabilitiesmeasuredatfairvaluethroughprofitorloss,wasagainof£4.6m(2008:lossof£0.5m).

Includedwithinfinancialincomeof£116.2m(2008:£65.4m)isanetgain,afterhedging,ontheGroup’sreturnseekingassetportfolioof£52.2m(2008:netlossof£97.7m).

8 Financial expenses 2009 2008 £m £m

Interestexpenseonfinancialliabilitiesatamortisedcost 66.1 104.7Financechargesinrespectoffinanceleases 0.2 0.2Otherfinancialexpenses 1.2 1.1

total financial expenses 67.5 106.0



9 taxation expense

(i) recognised in the income statement 2009 2008 (restated) £m £m

Currenttaxationexpense/(income) UKtaxationonincomefortheyear 95.4 20.8 Adjustmentsinrespectofpriorperiods (15.6) (14.5)

79.8 6.3

Doubletaxationrelief (14.8) (7.7) Foreigntaxationonincomefortheyear 103.8 79.7 Adjustmentsinrespectofpriorperiods (4.7) 2.0

99.1 81.7

Totalcurrenttaxation 164.1 80.3

Deferredtaxation(income)/expense Originationandreversaloftemporarydifferences (35.5) 3.4 Adjustmentsinrespectofpriorperiods (13.6) (4.9) Changesintaxationrates 0.7 0.7

Totaldeferredtaxation (48.4) (0.8)

taxation expense 115.7 79.5

(ii) reconciliation of effective taxation rate Surplusbeforetaxationexpense 416.5 191.9

TaxationatthedomesticUKcorporationtaxationrateof28.0%(2008:28.5%) 116.6 54.8 Effectof: Differenttaxationratesinforeignjurisdictions (3.7) (1.0) Non-deductibleexpenses 35.8 36.7 Currentincometaxationadjustmentsinrespectofpriorperiods (20.3) (12.5) Deferredtaxationadjustmentsinrespectofpriorperiods (13.6) (4.9) Changesintaxationrate 0.7 0.7 Movementondeferredtaxationassetnotrecognised 0.2 5.7

Taxationexpenseattheeffectivetaxationrateof27.8%(2008:41.4%) 115.7 79.5

(iii) current and deferred taxation recognised directly in other comprehensive income 2009 2008 (restated) taxation taxation before benefit / net of before benefit / net of taxation (expense) taxation taxation (expense) taxation £m £m £m £m £m £m current taxation credit / (charge) in respect of: Actuariallossonpensionschemes (24.5) 6.9 (17.6) – – – Realisationofforeignexchangeondisposalofoverseassubsidiarycompanies (2.2) – (2.2) – – – Reversaloffairvalueupliftonderecognitionofavailableforsaleinvestments – – – (9.9) – (9.9) Shareofretainedsurplusattributabletopreviously acquiredinterestinsubsidiarycompany – – – 6.4 – 6.4 Foreignexchangetranslationdifferencesongoodwill 114.8 – 114.8 161.1 – 161.1 Otherforeignexchangetranslationdifferences 142.1 (0.3) 141.8 106.8 (28.9) 77.9 Netlossonhedgeofnetinvestmentinoverseassubsidiarycompanies (57.7) 6.2 (51.5) (139.3) 25.5 (113.8) Netgainonhedgeofacquisitioncostsinoverseassubsidiarycompanies – – – 35.0 (2.7) 32.3deferred taxation credit / (charge) in respect of: Unrealiseddeficitonrevaluationofproperty (44.9) 8.7 (36.2) (32.1) 9.2 (22.9) Actuarial(loss)/gainonpensionschemes (107.7) 29.7 (78.0) 10.2 (2.6) 7.6 Changeinfairvalueofunderlyingderivativeofcashflowhedge (2.8) 0.8 (2.0) – – –

taxation credit on income / (expense) recognised directly in other comprehensive income 17.1 52.0 69.1 138.2 0.5 138.7


Businessreview

Governan

ceFinan

cialstatements

10 deficit for the financial year attributable to the company

ThedeficitforthefinancialyeardealtwithintheaccountsoftheCompany,TheBritishUnitedProvidentAssociationLimited(Bupa),is£9.2m(2008:£29.9m).InaccordancewiththeexemptiongrantedunderSection408oftheCompaniesAct2006,aseparateincomestatementandstatementofcomprehensiveincomefortheCompanyhavenotbeenpresented.

11 intangible assets group company

computer customer computer goodwill software relationships other total software £m £m £m £m £m £m

2009costAtbeginningofyear(restated) 1,918.3 387.1 270.5 306.5 2,882.4 49.6Additions – 72.2 – 0.1 72.3 41.5Transfertoproperty,plantandequipment – (4.1) – – (4.1) –Disposalsofsubsidiarycompanies (10.5) – – – (10.5) –Disposals – (6.9) – – (6.9) (34.5)Foreignexchange 115.9 (9.5) 20.9 18.6 145.9 –

at end of year 2,023.7 438.8 291.4 325.2 3,079.1 56.6

amortisation and impairment lossAtbeginningofyear(restated) 189.9 165.7 21.7 37.7 415.0 36.7Amortisationforyear – 45.3 18.7 11.0 75.0 5.1Impairmentloss – 7.6 – 11.7 19.3 –Transfertoproperty,plantandequipment – (3.0) – – (3.0) –Disposalsofsubsidiarycompanies (10.5) – – – (10.5) –Disposals – (6.1) – – (6.1) –Foreignexchange 1.1 (2.2) 1.7 (1.6) (1.0) –

at end of year 180.5 207.3 42.1 58.8 488.7 41.8

net book value at end of year 1,843.2 231.5 249.3 266.4 2,590.4 14.8

Netbookvalueatbeginningofyear(restated) 1,728.4 221.4 248.8 268.8 2,467.4 12.9

2008 (restated)costAtbeginningofyear(restated) 914.7 209.1 43.3 194.1 1,361.2 44.0Additionsthroughbusinesscombinations – 29.9 – 1.9 31.8 –Assetsarisingonbusinesscombinations 817.6 44.2 202.7 74.9 1,139.4 –Additions – 81.2 – – 81.2 44.0Transfertoproperty,plantandequipment – (0.2) – – (0.2) –Transfertoassetsheldforsale – (2.9) – – (2.9) –Disposals – (2.5) – – (2.5) (38.4)Foreignexchange 186.0 28.3 24.5 35.6 274.4 –

at end of year (restated) 1,918.3 387.1 270.5 306.5 2,882.4 49.6

amortisation and impairment lossAtbeginningofyear(restated) 48.5 105.5 6.3 18.7 179.0 31.4Amortisationforyear – 34.2 12.7 8.6 55.5 5.3Impairmentloss 116.5 20.3 – 4.0 140.8 –Transfertoproperty,plantandequipment – (0.3) – – (0.3) –Transfertoassetsheldforsale – (1.5) – – (1.5) –Disposals – (2.3) – – (2.3) –Foreignexchange 24.9 9.8 2.7 6.4 43.8 –

at end of year (restated) 189.9 165.7 21.7 37.7 415.0 36.7

net book value at end of year (restated) 1,728.4 221.4 248.8 268.8 2,467.4 12.9

Netbookvalueatbeginningofyear(restated) 866.2 103.6 37.0 175.4 1,182.2 12.6

Theimpairmentofcomputersoftwareof£7.6m(2008:£20.3m)relatestoasoftwareprojectwhichhasbeenterminatedasitwasnolongerdeemedtosatisfytheneedsofthebusiness.Thisimpairmentisattributabletothereportablesegmentsasfollows:UKandNorthAmerica£7.6m(2008:£10.0m),AsiaPacific£nil(2008:£10.3m).



11 intangible assets continued

Intangibleassetsof£2,590.4m(2008:£2,467.4m)includes£556.4m(2008:£568.2m)whichisattributabletootherintangibleassetsarisingonbusinesscombinations(includedwithinComputersoftware,CustomerrelationshipsandOther)asfollows: 2009 2008 (restated) £m £m

Customerrelationships 249.3 248.8Bedlicences(withinBupaCareServicesAustralia) 99.8 86.0Brandandtrademarks 61.2 57.3Licencestooperatecarehomes 55.4 74.4Technologyanddatabases 40.7 50.6Presentvaluationofacquiredin-forcebusiness 20.0 19.1Distributionnetworks 18.0 21.0Leases 11.9 10.7Non-competeagreements 0.1 0.3

556.4 568.2

Brandandtrademarksincludes£51.2m(2008:£44.2m)inrespectoftheMBFbrand,whichcanbeattributedtoMBFPHI£50.5m(2008:£43.6m)andMBFFinancialServices£0.7m(2008:£0.6m).

impairment of other intangible assets arising on business combinationsLicencestooperatecarehomeswereimpairedby£11.7m(2008:£4.0m)intheyearduetopoorgeneraleconomicconditionsandthereductioninthecashflowprojectionsoftheSpanishcarehomes.Adiscountedcashflowmodelwasusedtovaluetheassets.

goodwill provisionally determinedUnderIFRS3,theGrouphastwelvemonthsfromthedateofacquisitiontofinaliseanyacquisitionaccounting.Therehavebeennoacquisitionsduringtheyearto31December2009.FairvalueadjustmentsrelatingtotheacquisitionsofMBF,HealthDialogandTheBupaCromwellHospitalduring2008werefinalisedduringthe2009financialyear,resultinginanincreasetogoodwillof£5.5minrespectofthefairvalueadjustmentsmadetothenetassetsofMBF(seenote35).

impairment testingGoodwillandintangibleassetswithindefiniteusefullivesaretestedatleastannuallyforimpairmentbycomparingthenetcarryingvaluewiththerecoverableamountusingvalueinusecalculations.Inarrivingatthevalueinuseforeachcashgeneratingunit(CGU),keyassumptionshavebeenmaderegardingfutureprojectedcashflows,discountratesandterminalgrowthrates.

ExceptforBupaCareServicesAustralia,cashflowprojectionshavebeenbasedonmanagementoperatingprofitprojectionsforafouryearperiodwhichhavebeenapprovedbytheBoard.CashflowprojectionsforBupaCareServicesAustraliahavebeenbasedonaperiodgreaterthanfouryears.Alongerperiodwasjustifiedinthiscaseduetotheavailabilityofadetailedcashflowprojection.Taxationhasbeenappliedtothepre-taxationmanagementoperatingprofitsbasedonthestatutorytaxationratesinthecountryofoperation.

Futurepost-taxationcashflowshavebeendiscountedatpost-taxationdiscountrates.ThediscountratesusedforthevalueinusecalculationsforeachoftheGroup’sCGUsareanestimateofamarketassessmentofthetimevalueofmoneyandtherisksinherentintherelevantcountrywherethecashflowsaregeneratedandwithintheGroup’sbusinessplans.

Thefollowingtablesummarisesthepre-taxationdiscountratesusedforimpairmenttesting: 2009 2008 % %

MBFPHI 12.4 11.5HealthDialog 12.0 13.0BupaCareServicesAustralia 9.3 9.4BupaAustralia 12.4 10.4BupaCareServicesUK 9.3 9.8BupaCareServicesNewZealand 10.1 12.6Other–rangeofdiscountrates 10.4–12.9 9.4–14.9

Cashflowprojectionsbeyondthefouryearperiodhavebeenextrapolatedbyapplyingaterminalgrowthratebetween1.5%and3.5%(2008:2.0%to3.5%)forallCGUsexceptMBFFinancialServices,forwhichaterminalgrowthrateof5.0%(2008:3.0%)hasbeenapplied.Theseareconservativeestimateswhichdonotexceedthelong-termaveragegrowthratefortherespectiveindustries,countriesormarketsinwhichtheCGUsoperate.

Thevaluesassignedtothekeyassumptionsrepresentmanagement’spastexperienceandassessmentoffuturetrendsintheindustry.


Businessreview

Governan

ceFinan

cialstatements

impairment of goodwill and other intangible assets with indefinite useful livesAt31December2009,therecoverableamountofeachoftheCGUsisdeterminedtobehigherthantheirrespectivecarryingrecoverableamounts,resultingin£nil(2008:£116.5m)impairmenttogoodwillandintangibleassetswithindefiniteusefullives.

In2008,impairmentsweremadetothegoodwillarisingontheacquisitionofBupaCareServicesAustraliaandBupaCareServicesNewZealand(acquiredin2007),of£49.9mand£9.2m,respectively.Whilstthesebusinessesweretradinginlinewithexpectations,theneedforimpairmentstogoodwillaroseduetodiscountratesbeingadverselyaffectedintheeconomicclimateatthetime.Theterminalgrowthrateappliedtotheprojectedcashflowswas3.0%.

Animpairmentwasmadein2008tothegoodwillrelatingtoAmedex(acquiredin2005)of£34.6m.TheperformanceoftheAmedexbusinesshadbeenadverselyimpactedbylowerthanexpectedgrowthinthesaleofPMIproducts.Althoughcashflowswereexpectedtogrowinthemedium-term,animpairmentagainstgoodwillwasappropriatebasedonbusinessperformanceatthetimeanduncertaintyconcerningfuturegrowthprospects.Theterminalgrowthrateappliedtotheprojectedcashflowswas3.0%.

Animpairmentwasmadein2008tothegoodwillrelatingtoSanitasResidencialof£22.8m,reflectingtradingperformancebelowexpectationsandasofteningoftradingconditionsintheSpanishcarehomesector.ThisgoodwillmainlyaroseontheacquisitionofEuroresidenciasGestionSAin2007.Theterminalgrowthrateappliedtotheprojectedcashflowswas2.0%.

At31December2008,therecoverableamountofintangibleassetswithindefiniteusefulliveswasdeterminedtobehigherthantherespectivecarryingamounts,resultinginnoimpairment.

ThefollowingtablesummarisesgoodwillbyCGUasat31December: 2009 2008 (restated) £m £m

MBFPHI 559.1 482.4HealthDialog 313.6 347.2BupaCareServicesAustralia 266.0 229.5BupaAustralia 254.3 219.3BupaCareServicesUK 178.2 178.2TheBupaCromwellHospital 70.0 70.0BupaHomeHealthcare 64.2 64.2BupaInternational 59.3 –BupaCareServicesNewZealand 28.0 25.0SanitasPMI 20.4 22.0MBFFinancialServices 13.8 11.9BupaLatinAmerica 8.5 –IHI – 70.6Other 7.8 8.1

1,843.2 1,728.4

Asat2December2009,thegoodwillallocatedtotheIHICGUhasbeenreallocatedtoBupaInternationalandBupaLatinAmericaduetoaninternalrestructure.Duringtherestructure,thefunctionalcurrencyoftheseelementsoftheIHIbusinesseswaschangedfromDanishKronetoSterlingand,asaresult,thecarryingvalueofthegoodwillrelatingtotheseCGUshasbeenconvertedtoSterling.

sensitivity to changes in key assumptionsAsensitivityanalysishasbeenperformedonthekeyassumptionsusedtodeterminethevalueinuseforeachCGUasat31December2009.

Forgoodwillandintangibleassetswithanindefiniteusefullife,otherthanBupaCareServicesAustraliaandBupaCareServicesNewZealand,managementhasconcludedthatnoreasonablypossiblechangeinkeyassumptionsonwhichithasdeterminedtherecoverableamountswouldcausetheircarryingvaluestoexceedtheirrecoverableamounts.

ItispossiblethatachangeinkeyassumptionscouldcausetheimpairmentofgoodwillforBupaCareServicesAustraliaandBupaCareServicesNewZealandasfollows: decrease in terminal terminal increase in growth growth discount headroom rate rate* rate* £m % % %

BupaCareServicesAustralia 37.4 3.0 0.7 0.5BupaCareServicesNewZealand 13.4 3.0 0.7 0.6

*forrecoverableamounttoequalcarryingamount BothBupaCareServicesAustraliaandBupaCareServicesNewZealandwereimpairedtorecoverableamountsin2008.Sincethen,theyhavebuiltupadditionalheadroom,howevertheyremainsensitivetochangesinassumptions.



12 property, plant and equipment group company Freehold leasehold leasehold property property equipment total property equipment total £m £m £m £m £m £m £m

2009cost or valuationAtbeginningofyear(restated) 1,843.1 146.2 566.0 2,555.3 2.8 33.0 35.8Additions 41.5 8.7 69.4 119.6 2.6 4.2 6.8Reclassifications (9.8) 5.8 4.0 – – – –Transfertoinvestmentproperties (6.4) – – (6.4) – – –Transferfrom/(to)intangibleassets – (0.1) 4.2 4.1 – – –Disposalofsubsidiarycompanies (2.6) (9.1) (1.4) (13.1) – – –Disposals (2.8) (4.1) (12.8) (19.7) – (2.1) (2.1)Revaluations (29.2) (0.6) – (29.8) (0.7) – (0.7)Foreignexchange 32.1 1.7 (5.1) 28.7 – – –

at end of year 1,865.9 148.5 624.3 2,638.7 4.7 35.1 39.8

depreciation and impairment loss Atbeginningofyear 40.4 28.7 309.9 379.0 1.3 24.8 26.1Depreciationchargeforyear 25.6 9.6 63.8 99.0 0.2 3.7 3.9Reclassifications 0.1 (0.1) – – – – –Transferfromintangibleassets – – 3.0 3.0 – – –Disposalofsubsidiarycompanies (0.1) (3.3) (1.3) (4.7) – – –Disposals (0.1) (3.1) (11.9) (15.1) – (2.0) (2.0)Revaluations 31.7 (0.5) – 31.2 (0.5) – (0.5)Foreignexchange 0.8 1.3 (2.6) (0.5) – – –

at end of year 98.4 32.6 360.9 491.9 1.0 26.5 27.5

net book value at end of year 1,767.5 115.9 263.4 2,146.8 3.7 8.6 12.3

Netbookvalueatbeginningofyear(restated) 1,802.7 117.5 256.1 2,176.3 1.5 8.2 9.7

2008 (restated)cost or valuationAtbeginningofyear(restated) 1,749.1 122.3 447.8 2,319.2 2.8 29.4 32.2Additionsthroughbusinesscombinations 5.9 5.6 33.7 45.2 – – –Additions 44.3 12.4 75.4 132.1 – 3.7 3.7Reclassifications (2.6) 4.7 (2.1) – – – –Transfertoinvestmentproperties (1.8) – – (1.8) – – –Transferfromintangibleassets – – 0.2 0.2 – – –Transfertoassetsheldforsale – – (3.4) (3.4) – – –Disposals (0.4) (0.5) (26.5) (27.4) – (0.1) (0.1)Revaluations (23.3) (2.8) – (26.1) – – –Foreignexchange 71.9 4.5 40.9 117.3 – – –

at end of year (restated) 1,843.1 146.2 566.0 2,555.3 2.8 33.0 35.8

depreciation and impairment lossAtbeginningofyear 2.6 23.7 266.0 292.3 1.3 20.4 21.7Depreciationchargeforyear 24.7 7.3 52.8 84.8 – 4.4 4.4Transfertoinvestmentproperties (0.1) – – (0.1) – – –Transferfromintangibleassets – – 0.3 0.3 – – –Transfertoassetsheldforsale – – (1.9) (1.9) – – –Disposals – (0.2) (26.1) (26.3) – – –Revaluations 11.6 (2.7) – 8.9 – – –Foreignexchange 1.6 0.6 18.8 21.0 – – –

at end of year 40.4 28.7 309.9 379.0 1.3 24.8 26.1

net book value at end of year (restated) 1,802.7 117.5 256.1 2,176.3 1.5 8.2 9.7

Netbookvalueatbeginningofyear(restated) 1,746.5 98.6 181.8 2,026.9 1.5 9.0 10.5

Certainproperty,plantandequipmentisheldassecuritisedassetsunderborrowingarrangementsdescribedinnote24.


Businessreview

Governan

ceFinan

cialstatements

12 property, plant and equipment continued

analysis of cost or valuation of the group’s freehold and leasehold properties Freehold leasehold property property £m £m

Valuation—December2009 217.5 30.4Valuation—December2008 152.4 9.7Valuation—December2007 1,165.7 30.8Assetsheldatcost 330.3 77.6

1,865.9 148.5

ThevaluationofpropertieswascarriedoutindependentlybyKnightFrank,CharteredSurveyors,inaccordancewiththeAppraisalandValuationManualissuedbytheRoyalInstituteofCharteredSurveyors(RICS)and,whereimpairmentindicatorsexist,internallyusingDirectorsvaluations.Therevaluationswereeffectiveasof31Decemberintheyearinwhichtheywereundertaken.Thefairvaluesofcorporateusepropertiesweredeterminedmainlybyreferencetoactivemarketprices.Carehomeswerevaluedbasedonvalueinusevaluationtechniques.Theprincipalassumptionsinherentinsuchvaluationsaredescribedonpage63.

A£44.9mrevaluationdeficit(2008:£32.1mdeficit)hasbeenrecognisedinthepropertyrevaluationreserve.In2009anetdeficitof£15.7mbelowhistoricalcostwaschargedtotheincomestatement(2008:£2.9m)(seenote6).Ofthe£60.6mrevaluationdeficit(2008:£35.0m),£19.9m(2008:£11.7m)wasvaluedbyKnightFrankand£40.7m(2008:£23.3m)wasvaluedinternally.

historical cost of the group’s revalued assets 2009 2008 2007 (restated) (restated) £m £m £m

Historicalcostofrevaluedassets 1,385.0 1,329.8 1,187.7Accumulateddepreciationbasedonhistoricalcost (142.3) (119.0) (90.5)

historical cost net book value 1,242.7 1,210.8 1,097.2

depreciationDepreciationchargefortheyearonhistoricalcost 27.7 26.6 23.8

Thehistoricalcostofallproperty,plantandequipmentis£2,009.3m(2008:£1,895.8m,2007:£1,635.7m). amounts included in property, plant and equipment in respect of assets held under finance leases

leasehold property equipment total £m £m £m

net book valueAtendofyear 1.1 3.6 4.7

Atbeginningofyear 1.4 5.0 6.4

depreciationChargeforyear 0.1 1.1 1.2

companyThenetbookvalueoffinanceleasedpropertyheldbytheCompanyat31December2009is£1.1m(2008:£1.4m).Thedepreciationchargefortheyearended31December2009is£0.1m(2008:£0.1m).

property, plant and equipment in the course of construction Recognisedinthecarryingamountoffreeholdpropertyis£19.2m(2008:£17.4m,2007:£15.1m)inrelationtofreeholdpropertyinthecourseofconstruction.



13 investment property

group 2009 2008 £m £m

Atbeginningofyear 87.4 67.2Additions 4.0 11.1(Decrease)/increaseinfairvalue (0.5) 1.4Transferfromproperty,plantandequipment 6.4 1.7Disposals (1.3) –Foreignexchange 8.7 6.0

at end of year 104.7 87.4

Thehistoricalcostofinvestmentpropertyis£92.0m(2008:£74.8m).

Thecarryingvalueofinvestmentpropertiesisthefairvalueoftheproperties.Wherethereisanactivemarketforaproperty,valuationsarecarriedoutannuallybyanexternalvaluer,KnightFrank,CharteredSurveyors.Themostrecentindependentvaluationwaseffectiveasof31December2009.

Wherethereisanabsenceofcurrentpricesinanactivemarketthepropertiesarevaluedusingdiscountedcashflowprojections,supportedbythetermsofanyexistingleaseandothercontractsandwhenpossiblebyexternalevidencesuchascurrentmarketrentsforsimilarpropertiesinthesamelocationandcondition.Thediscountedcashflowprojectionsarereviewedbyanindependentvaluer,Deloitte.Ofthe£104.7m(2008:£87.4m)ofinvestmentpropertiesinthebalancesheetasat31December2009,£13.4m(2008:£17.1m)wasvaluedbyanexternalvaluer,KnightFrank,CharteredSurveyorsand£91.3m(2008:£70.3m)wasvaluedusingdiscountedcashflowprojections.

Investmentpropertiesincludecommercialpropertieswhichareleasedtothirdparties.Theleasescontainaninitialnon-cancellableperiodofbetweenfiveandsevenyears.Subsequentrenewalsarenegotiatedwiththelessee.

companyTheCompanyhasnoinvestmentproperties(2008:£nil).

14 equity accounted investments

group 2009 2008 £m £m

Atbeginningofyear 31.4 11.6Additions 5.5 21.7Additionsthroughbusinesscombinations – 1.1Disposals (0.4) –Impairmentofinvestments – (6.1)Shareofsurplus/(deficit)aftertaxation 2.8 (1.0)Foreignexchange (0.9) 4.1


TheGroup’sprincipalequityaccountedinvestmentsare: share of accounting business issued share principally country of period activity capital operates in incorporation end date

FitbugHoldingsplc(previouslyADDLeisureplc) Retail 23.85% UK EnglandandWales 31JulyADDWellnessHoldingsLimited Retail 50.00% UK EnglandandWales 31JulyBupaArabiaForCooperativeInsuranceCompany Insurance 26.25% SaudiArabia SaudiArabia 31DecemberForsikringsselskaberNesDataCentreA/S Insurance 33.30% Denmark Denmark 31DecemberMutualCommunityGeneralInsurancePtyLimited Insurance 49.00% Australia Australia 31DecemberMAXBupaHealthInsurance Insurance 26.00% India India 31DecemberHealthEyewearPtyLimited Eyewear 50.00% Australia Australia 31JulyIBCAsiaHealthcareLimited Healthcare 26.00% USA CaymanIslands 31December

TheaccountingperiodenddateforFitbugHoldingsplc,ADDWellnessHoldingsLimitedandHealthEyewearPtyLimitedis31July.Inrespectofeachyearended31December,thesecompaniesareincludedbasedonthelatestavailablefinancialstatementsandmanagementaccounts.Allotherequityaccountedinvestmentsareincludedonacoterminousbasis.


Businessreview

Governan

ceFinan

cialstatements

14 equity accounted investments continued

TheGrouphasnotrecognisedlossesrelatingtoFitbugHoldingsplc,ADDWellnessHoldingsLimitedandBupaHealthcareAsiaintheyearof£1.7m(2008:£0.3m)andcumulatively£2.0m(2008:£0.3m),astheseinvestmentshavebeenfullyimpairedandtheshareoflossesexceedstheinterestintheseassociates.

Duringtheyear,theGroupacquireda26.00%investmentinMAXBupaHealthInsurance.ThisisajointventureprovidingahealthinsuranceserviceinIndia.

TheGroup’s50.00%investmentinCoreExerciseClinicsLimitedwasdisposedofduringtheyearforproceedsof£0.1m.

Bupaownsanindirectholdingof61.93%inADDWellnessHoldingsLimitedarisingfromBupa’s23.85%shareinFitbugHoldingsplcandthe50.00%shareheldasajointventure.However,thisdoesnotallowBupatoexertcontrolovertheboardandthereforeBupadoesnot,legallyorpractically,controldecisions.AsaresultADDWellnessHoldingsLimitedistreatedasajointventureintheGroupaccounts.

TheGroup’sshareoftheassets,liabilities,revenueandsurplusasreportedinthemostrecentaccountsoftheindividualequityaccountedinvestments,areasfollows: 2009 2008 £m £m

Assets 96.6 41.3Liabilities (61.7) (8.4)

34.9 32.9

Revenues 81.3 11.2(Deficit)/surplusbeforetaxationexpense (1.2) 0.1

15 investment in subsidiary companies

company £m

at beginning and end of year 200.1

TheprincipalsubsidiarycompaniesoftheCompanyasat31December2009arelistedbelowand,exceptwherestated,areincorporatedinGreatBritain.Subsidiarycompaniesare100%ownedunlessotherwisestated.FulldetailsofallGroupundertakingswillbeannexedtotheCompany’snextannualreturnincompliancewiththeCompaniesAct2006.

health insurance — general business care and health provisionBupaInsuranceLimited BupaCareHomes(CFG)plcSanitas,SAdeSeguros(99%holding) Spain BupaCareHomesGroupLimitedMBFAustraliaPtyLimited Australia BupaCareHomes(BNH)LimitedBupaAsiaPacificPtyLimited Australia BupaCareServicesLimitedBupa(Asia)Limited HongKong BupaCareHomes(CFCHomes)LimitedBupaInsuranceCompany USA BupaCareHomes(CFHCare)Limited BupaCareHomes(GL)Limited health insurance — long-term BupaCareHomes(Partnerships)LimitedBupaHealthAssuranceLimited ANS2003plc BupaHomeHealthcareGroupLimitedFinancial services BupaOccupationalHealthLimited MBFLifeLimited Australia BupaAgedCareAustralasiaPtyLimited Australia BupaHealthcareNewZealandLimited NewZealandinvestment and financing activities EuroresidenciasSolograndeSL SpainBupaFinanceplc* SanitasResidencialSL SpainBupaInvestmentsLimited Sanitas,SAdeHospitales SpainBupaInvestmentsOverseasLimited BupaHealthCareAsiaPteLimited SingaporeBupaTreasuryLimited HealthDialogServicesCorporation USABupaFinancialSecurities(1992)Limited MedicalServicesInternationalLimitedGrupoBupaSanitasSL SpainUKCareNo1Limited Guernsey

*DirectlyownedbytheCompany

AlthoughtheGroupholdsnoneofthevotingpowerofUKCareNo1Limited,ithastherighttoobtainbenefitsorisexposedtorisksrelatingtotheactivitiesofthiscompany.Consequently,theGrouphasincludedtheresultsofthisentityinitsconsolidatedincomestatement.



16 Financial investments

group carrying carrying value cost value cost 2009 2009 2008 2008 (restated) (restated) £m £m £m £m

non-currentDesignatedatfairvaluethroughprofitorloss Debtsecurities—governmentgilts 66.1 64.2 28.8 28.2 Debtsecurities—corporatebonds 122.7 143.7 77.1 121.8 Sharesandothervariableyieldsecurities 0.1 0.1 86.7 106.0Heldtomaturity Mediumtermnotes 122.9 121.8 115.7 114.7

Loansandreceivables Debtsecurities—corporatebonds 65.6 40.2 62.4 40.4 Depositswithcreditinstitutions 164.5 164.5 130.7 130.7

541.9 534.5 501.4 541.8

currentDesignatedatfairvaluethroughprofitorloss Debtsecurities—governmentgilts 87.8 87.9 38.7 36.6 Debtsecurities—corporatebonds – – 5.2 5.9 Sharesandothervariableyieldsecurities 131.3 138.0 131.9 142.5

Heldtomaturity Mediumtermnotes 259.3 257.4 63.6 63.1

Loansandreceivables Reversereposecurities 191.8 191.8 196.7 196.7 Depositswithcreditinstitutions 410.2 410.2 736.7 736.7

Propertytrusts 2.7 2.7 1.7 1.7

1,083.1 1,088.0 1,174.5 1,183.2

total financial investments 1,625.0 1,622.5 1,675.9 1,725.0

Includedwithincurrentfinancialinvestmentsof£1,083.1m(2008:£1,174.5m)is£92.4m(2008:£74.7m),whichsupportstheliabilitytoexternalunittrustholdersintheMBFLifebusiness(disclosedwithintradeandotherpayables).

Asat31December2009,theGroupholdsaportionofitsfinancialinvestmentsinabalancedreturnseekingassetportfolio,ofwhichanimmaterialamountisexposedtosub-primesecuritiesand£nil(2008:£3.1m)isexposedtoAAAratedresidentialmortgagebackedsecurities.

Financialinvestmentscomprise: Fair Fair value cost value cost 2009 2009 2008 2008 (restated) (restated) £m £m £m £m

Listedinvestments 407.9 433.8 281.7 335.0Unlistedinvestments 642.4 614.0 526.8 522.6Depositswithcreditinstitutions 574.7 574.7 867.4 867.4

1,625.0 1,622.5 1,675.9 1,725.0

Themovementinfairvalueattributabletocreditriskonloansandreceivablesifdesignatedatfairvalueisimmaterial.

companyTheCompanyhasnofinancialinvestments(2008:£nil).


Businessreview

Governan

ceFinan

cialstatements

17 life investment contracts

group

assets backing life investment contract liabilities carrying carrying value cost value cost 2009 2009 2008 2008 (restated) (restated) £m £m £m £m

currentFinancialinvestments Designatedatfairvaluethroughprofitorloss Sharesandothervariableyieldsecurities 415.1 511.6 97.8 118.8 Debtsecurities 374.5 369.4 265.9 323.1 Propertytrusts 36.3 48.1 317.5 385.8

Totalfinancialinvestmentsbackinglifeinvestmentcontractliabilities 825.9 929.1 681.2 827.7Netotherassetsbackinglifeinvestmentcontractliabilities 4.6 4.6 7.9 7.9

assets backing life investment contract liabilities 830.5 933.7 689.1 835.6

return on financial investments backing life investment contract liabilities 2009 2008 £m £m

Interestincome Designatedatfairvaluethroughprofitorloss – 0.1Distributionincome 21.8 52.7Netincrease/(decrease)infairvalue Investmentsdesignatedatfairvaluethroughprofitorloss 74.8 (146.5)

total return on financial investments backing life investment contract liabilities 96.6 (93.7)

life investment contract liabilities

currentAtbeginningofyear (679.4) –Additionsthroughbusinesscombinations – (807.3)Net(increase)/decreaseinfairvalue (95.3) 93.7Managementfees 15.4 11.3Depositsreceivedfromlifeinvestmentcontractholders (221.0) (589.2)Withdrawalspaidtolifeinvestmentcontractholders 260.7 641.9Foreignexchange (112.4) (29.8)

at end of year (832.0) (679.4)

Otherassetsbackinglifeinvestmentcontractliabilitiescomprisecash,receivables,otherliabilitiesandpolicyholdertaxation.Policyholdertaxationof£1.3m(2008:£3.8m)isrecognisedintheincomestatement.

18 assets arising from insurance business group

2009 2008 (restated) £m £m

non-currentInsurancedebtors – 2.7Reinsurers’shareofinsuranceprovisions 56.0 50.9Deferredacquisitioncosts 30.9 33.4

86.9 87.0

currentInsurancedebtors 626.3 613.7Reinsurers’shareofinsuranceprovisions 25.7 22.4Deferredacquisitioncosts 108.4 96.5Medicarerebate 57.6 50.2RiskEqualisationTrustFundrecoveries 15.9 16.2

833.9 799.0

total assets arising from insurance business 920.8 886.0

Reinsurers’shareofinsuranceprovisionsarefurtheranalysedinnote25.



18 assets arising from insurance business continued

Impairmentlossesinrespectofinsurancedebtorsamountingto£5.7m(2008:£9.4m)havebeenchargedtootheroperatingexpensesintheincomestatement.

deferred acquisition costsAspartoftheGroup’sinsurancebusiness,directcostsinrelationtotheacquisitionofinsurancecontractrevenuesaredeferred.Themovementinthesedeferredcostsissetoutbelow: group

2009 2008 £m £m

Atbeginningofyear 129.9 113.0Acquisitioncostsdeferred 270.4 230.3Acquisitioncostsreleasedtoincomestatement (258.7) (220.9)Transferredtoassetsheldforsale – (1.9)Foreignexchange (2.3) 9.4


IncompliancewithIFRS4,localGAAPappliesforinsuranceaccounting.UnderAustralianIFRS,acquisitioncostsincurredinAustraliainrelationtolifeinsurancecontractsarecapitalisedinthevaluationofthepolicyliabilitiesandareincludedwithinprovisionsunderinsurancecontractsissued. .companyTheCompanyhasnoassetsarisingfrominsurancebusiness(2008:£nil).

19 trade and other receivables group company

2009 2008 2007 2009 2008 (restated) (restated) £m £m £m £m £m

non-currentInvestmentreceivablesandaccruedinvestmentincome 2.1 2.1 2.4 – –Amountsowedbysubsidiarycompanies – – – 244.7 –Otherreceivables 0.2 0.2 0.4 – –Serviceconcessionreceivables 17.3 40.1 17.8 – –Fairvalueofderivativeassets 22.6 39.8 – – – Prepayments 7.9 8.6 6.2 0.2 0.3Accruedincome 2.8 – – – –

52.9 90.8 26.8 244.9 0.3

currentTradereceivables—netofimpairmentlosses 138.2 136.9 102.2 – –Investmentreceivablesandaccruedinvestmentincome 11.1 14.0 16.4 – –Amountsowedbysubsidiarycompanies – – – 348.7 239.3Otherreceivables 81.2 54.4 54.5 2.1 1.7Serviceconcessionreceivables 88.3 53.4 – – –Prepayments 38.5 38.8 24.8 8.1 6.3Accruedincome 25.7 15.4 12.1 – –

383.0 312.9 210.0 358.9 247.3

total trade and other receivables 435.9 403.7 236.8 603.8 247.6

Impairmentlossesontradereceivablesamountingto£0.9m(2008:£2.6m)havebeenchargedtootheroperatingexpensesintheincomestatement.


Businessreview

Governan

ceFinan

cialstatements

20 inventories

group 2009 2008 £m £m

Drugs,prosthesesandconsumables 17.0 12.4

Inventorywritedownsof£0.1m(2008:£0.2m)weremadeduringtheyear.

TheGroupconsumed£191.7m(2008:£174.2m)ofinventories,whichisrecognisedwithinotheroperatingexpensesintheincomestatement.Certaininventoriesformpartofafloatingchargeinrespectofcertaininterestbearingliabilities(seenote24).

companyTheCompanyhasnoinventories(2008:£nil).

21 disposals and assets and associated liabilities classified as held for sale

(i) disposals On1January2009,theGroupsoldtheinsurancebookandtherelatedassetsandliabilitiesofBupaMiddleEastLimitedCompanyEC(BME),a50%ownedsubsidiary,toBupaArabiaForCooperativeInsuranceCompany,a26.25%ownedassociate,bothofwhichareincludedwithintheEMEALAsegment.TheassetsandliabilitiesofBMEweresoldforcashproceedsof£16.0m,ofwhich£8.0misdeferred.

Thedeferredproceedswillbesettledthroughaseriesofannualpaymentsbetween2010and2015representing50%oftheannualnetprofitsofBupaArabia.Thetotalofthesepaymentswillnotexceed£8.0mandanydeferredproceedsthatremainunpaidafter2015willnotberecovered.

On30April2009,theGroupsoldits100%shareholdinginBupaChildcareProvisionLimitedanditssubsidiarycompanies,whichtradedasTeddiesNurseriesandwereincludedwithintheCareServicessegment,forcashproceedsof£10.7m.Theprimaryassetsheldbythesecompaniesweretheleaseholdimprovementsontheir30leasednurseries.

Duringtheyearto31December2008,theGroupmadenodisposalsofsubsidiarycompanies.

Totaldisposalsareanalysedbelow: group

2009 2008 £m £m

Intangibleassets 1.6 –Property,plantandequipment 10.2 –Assetsarisingfrominsurancebusiness 55.4 –Deferredtaxationasset 0.3 –Tradeandotherreceivables 3.1 –Cashandcashequivalents 43.9 –Provisionsunderinsurancecontractsissued (97.6) –Provisionsforliabilitiesandcharges (2.3) –Tradeandotherpayables (6.5) –

Netassetsdivested 8.1 –Foreignexchange (2.2) –Directlyrelatedcostsofdisposal –cash 0.8 – –non-cash 0.2 –Netgainonsaleofbusiness 20.3 –

sale proceeds 27.2 –

Thenetgainonsaleofbusinessisincludedwithinotherincome/(charges)intheconsolidatedincomestatement(seenote6).

Theproceedsfromsaleofsubsidiaries,netofdisposalcostsandcashandcashequivalentsdisposedof,wasanoutflowof£25.5m.

companyTheCompanymadenodisposalsduringtheyear(2008:£nil).



21 disposals and assets and associated liabilities classified as held for sale continued

(ii) assets and associated liabilities classified as held for saleTherearenoassetsorliabilitiesclassifiedasheldforsaleasat31December2009.

TheassetsandassociatedliabilitiesoftheGroup’ssubsidiaryBupaMiddleEastLimitedCompanyEC,partoftheEMEALAsegment,werepresentedasheldforsaleat31December2008followingthearrangementtotransferallofitsbusinesstoBupaArabiaForCooperativeInsuranceCompany.

group

2009 2008 £m £m assets held for sale Intangibleassets – 1.7Property,plantandequipment – 1.9Financialinvestments – (0.1)Assetsarisingfrominsurancebusiness – 60.6Tradeandotherreceivables – 1.9Cashandcashequivalents – 77.2

total assets classified as held for sale – 143.2

liabilities associated with assets held for sale Provisionsunderinsurancecontractsissued – (104.6)Provisionsforliabilitiesandcharges – (2.6)Tradeandotherpayables – (2.7)

total liabilities classified as held for sale – (109.9)

net assets classified as held for sale – 33.3

companyTheCompanyhasnoassetsorliabilitiesclassifiedasheldforsaleasat31December2009(2008:£nil).

22 cash and cash equivalents group company

2009 2008 2009 2008 £m £m £m £m

Cashatbankandinhand 223.8 416.0 – 4.0Short-termbankdeposits 834.5 504.6 – –

cash and cash equivalents 1,058.3 920.6 – 4.0

Bankoverdrafts (0.7) (2.0) (11.1) –Restrictedaccessdeposits (31.2) (43.5) – –

Cashandcashequivalentsinthestatementofcashflows 1,026.4 875.1 (11.1) 4.0

Cashandcashequivalentsinclude£31.2m(2008:£43.5m)overwhichtheGrouphasrestrictedaccess.Theseamountsareheldinrespectofspecificobligationsandpotentialliabilitiesandmaybeusedonlytodischargethoseobligationsandpotentialliabilitiesifandwhentheycrystallise.Includedinshort-termdepositsis£25.4m(2008:£25.7m)tosecurealiabilityforunapprovedpensionarrangements.


Businessreview

Governan

ceFinan

cialstatements

23 subordinated liabilities

group 2009 2008 £m £m

non-currentCallablesubordinatedperpetualguaranteedbonds 330.0 330.0Fairvalueadjustmentinrespectofhedgedinterestraterisk 22.6 39.8

Callablesubordinatedperpetualguaranteedbondsatcarryingvalue 352.6 369.810.5%subordinatedguaranteedbondsdue2018 3.9 3.9

356.5 373.7

currentCallablesubordinatedperpetualguaranteedbonds 5.9 5.9

total subordinated liabilities 362.4 379.6

callable subordinated perpetual guaranteed bondsInDecember2004,BupaFinanceplcissued£330.0mofcallablesubordinatedperpetualguaranteedbonds,whichareguaranteedbyBupaInsuranceLimited.Interestispayableonthebondsat6.125%perannum.ThebondshavenofixedmaturitydatebutacalloptionisexercisablebyBupaFinanceplctoredeemthebondson16September2020.Thiscalloptioncoincideswithanincreaseintheinterestrateapplicableonthebonds,whichmakesredemptionatthispointhighlylikely.IntheeventofthewindingupofBupaFinanceplcorBupaInsuranceLimitedtheclaimsofthebondholdersaresubordinatedtotheclaimsofothercreditorsofthesecompanies.

Thetotalfairvalueofthecallablesubordinatedperpetualguaranteedbonds,netofaccruedinterest,is£358.5m(2008:£375.7m).

Thevaluationadjustmentisthechangeinvaluearisingfrominterestraterisk,whichismatchedbythefairvalueofswapcontractsinplacetohedgethisrisk.

10.5% subordinated guaranteed bondsAt31December2009,£3.9m(2008:£3.9m)wasoutstandinginrespectof10.5%subordinatedguaranteedbonds,whicharerepayableon3December2018.ThebondswereissuedbyBupaFinanceplcandareguaranteedbytheCompany.AcalloptionisexercisablebyBupaFinanceplctoredeemthebondson3December2013.IntheeventofthewindingupofBupaFinanceplcortheCompany,theclaimsofthebondholdersaresubordinatedinrightofpaymenttotheclaimsofothercreditorsoftheCompany.Interestispayableat10.5%perannum.

companyTheCompanyhasnosubordinatedliabilities(2008:£nil).


Notes to the fiNaNcial statemeNts continuedfor the year ended 31 December 2009

24 other interest bearing liabilities

GroupThis note provides information about the contractual terms of the Group’s interest bearing liabilities. Further information about the Group’s exposure to interest rate and foreign currency risk is included in note 34. Non-current current total Note £m £m £m

2009Secured loans (i) 234.1 4.1 238.2 Debenture stock (ii) 57.0 1.7 58.7Senior unsecured bonds (iii) 347.1 12.5 359.6Bank loans (iv) 464.0 1.9 465.9Bank overdrafts (iv) – 0.7 0.7Finance lease liabilities (v) 4.2 0.9 5.1

total interest bearing liabilities 1,106.4 21.8 1,128.2

2008 Secured loans (i) 234.2 4.1 238.3 Debenture stock (ii) 58.6 1.5 60.1 Bank loans (iv) 1,133.6 38.0 1,171.6 Bank overdrafts (iv) – 2.0 2.0 Finance lease liabilities (v) 5.4 0.9 6.3

total interest bearing liabilities 1,431.8 46.5 1,478.3

(i) secured loansThe secured loans balance of £238.2m (2008: £238.3m) relates to a loan issue by UK Care No 1 Limited. On 17 February 2000, UK Care No 1 Limited issued two classes of secured notes. A £175.0m Class A1 note is due to mature in 2029 and a £60.0m Class A2 note is due to mature in 2031. The £238.2m balance is shown net of initial issue costs and discount on issue not yet fully amortised of £5.0m. The A1 and A2 loan notes bear a fixed interest rate of 6.3% and 7.5% respectively. The loan notes are secured by fixed and floating charges over the assets and undertakings of UK Care No 1 Limited. The security includes UK Care No 1 Limited’s overriding lease interest, and the rental income receivable thereunder, held in a number of the Group’s care homes which eliminates on consolidation. The carrying value of the property, plant and equipment of these homes is £461.6m (2008: £470.1m).

(ii) Debenture stockThe 11.8% debenture stock of £58.7m (2008: £60.1m) is repayable at par in 2014. The stock is secured by a fixed charge over certain of the Group’s assets and a first floating charge over the businesses attached thereto and a general floating charge over certain assets. The assets pledged as security include £86.4m (2008: £90.5m) of property, plant and equipment and £0.2m (2008: £0.3m) of inventories.

(iii) senior unsecured bondsOn 2 July 2009, Bupa Finance plc issued £350.0m of 7.5% senior unsecured bonds. The bonds are repayable in July 2016. They are guaranteed by the Company and other Group subsidiary companies. The £359.6m balance (2008: £nil) is net of initial issue costs, discount on issue and accrued interest.

(iv) Bank loans and bank overdrafts Of the £465.9m (2008: £1,171.6m) of bank loans, £407.6m (2008: £1,138.1m) is guaranteed by the Company and other Group subsidiary companies. The overdraft facilities are subject to cross guarantees within the Group. The bank loans and overdrafts bear interest at commercial rates linked to LIBOR, EURIBOR, or at commercial fixed rates. (v) obligations under finance leases Future minimum payments under finance leases are as follows: Present Present future value of future value of minimum minimum minimum minimum lease lease lease lease payments payments payments payments 2009 2009 2008 2008 £m £m £m £m

Payable within one year 1.0 0.9 1.0 0.9Payable after one year but within five years 2.1 1.6 2.7 2.3Payable after five years 3.7 2.6 4.4 3.1

Total gross payments 6.8 8.1 Less: finance charges included above (1.7) (1.8)

Total payments net of finance charges 5.1 5.1 6.3 6.3

The balance of £5.1m (2008: £6.3m) due under finance leases relates to leases of equipment.

companyThe Company has an overdraft balance of £11.1m (2008: £nil).


Business review

Governan

ceFinan

cial statements

25 Provisions under insurance contracts issued

Group 2009 2008 (restated)

Gross Reinsurance Net Gross Reinsurance Net Note £m £m £m £m £m £m

General insurance businessProvisions for unearned premiums (i) 1,202.2 (2.8) 1,199.4 1,165.0 (1.4) 1,163.6Provisions for claims (ii) 755.4 (0.5) 754.9 709.6 (0.9) 708.7

long-term businessProvisions for life insurance benefits (iii) 132.5 (78.4) 54.1 121.6 (71.0) 50.6

total insurance provisions 2,090.1 (81.7) 2,008.4 1,996.2 (73.3) 1,922.9

Non-current 93.8 (56.0) 37.8 88.0 (50.9) 37.1Current 1,996.3 (25.7) 1,970.6 1,908.2 (22.4) 1,885.8

2,090.1 (81.7) 2,008.4 1,996.2 (73.3) 1,922.9

General insurance(i) analysis of movements in provisions for unearned premiums

At beginning of year 1,165.0 (1.4) 1,163.6 979.9 (1.2) 978.7 Additions through business combinations – – – 106.8 – 106.8Premiums deferred 5,289.0 (21.2) 5,267.8 4,461.9 (24.3) 4,437.6Deferred premiums released to income (5,275.3) 19.8 (5,255.5) (4,388.5) 24.4 (4,364.1)Transfer to assets held for sale – – – (53.7) – (53.7)Foreign exchange 23.5 – 23.5 58.6 (0.3) 58.3

at end of year 1,202.2 (2.8) 1,199.4 1,165.0 (1.4) 1,163.6

(ii) analysis of movements in provisions for claims

At beginning of year 709.6 (0.9) 708.7 542.1 (1.1) 541.0 Additions through business combinations – – – 126.6 – 126.6 Cash paid to settle claims (4,122.3) 14.1 (4,108.2) (3,378.6) 14.7 (3,363.9)Decrease for prior years’ claims (95.7) – (95.7) (82.5) – (82.5)Increase for current year claims 4,306.0 (13.7) 4,292.3 3,480.8 (14.6) 3,466.2Increase in Risk Equalisation Trust Fund levy (56.8) – (56.8) (38.2) – (38.2)Transfer to assets held for sale – – – (28.8) – (28.8) Foreign exchange 14.6 – 14.6 88.2 0.1 88.3

at end of year 755.4 (0.5) 754.9 709.6 (0.9) 708.7

long-term business(iii) analysis of movements in provisions for life insurance benefits

At beginning of year 121.6 (71.0) 50.6 138.4 (67.6) 70.8Additions through business combinations – – – (30.6) – (30.6)Movement in opening value of in force business (24.6) 8.9 (15.7) (6.2) 2.6 (3.6)New business written 35.6 (17.5) 18.1 36.9 (21.2) 15.7Assumption changes 0.5 1.0 1.5 (15.5) 15.8 0.3Net movement in deferred acquisition costs in Bupa Australia 2.5 – 2.5 (7.3) – (7.3)Foreign exchange (3.1) 0.2 (2.9) 5.9 (0.6) 5.3

at end of year 132.5 (78.4) 54.1 121.6 (71.0) 50.6

In compliance with IFRS 4, local GAAP applies for insurance accounting. Under Australian IFRS, acquisition costs incurred in Australia in relation to life insurance contracts are capitalised within the valuation of the policy liabilities. The Group’s other deferred acquisition costs are included within assets arising from insurance business (see note 18).

The movement in the long-term business provision includes £2.3m (2008: £1.4m) in respect of the movements in policyholder deposits relating to certain policies that include savings features. The receipts associated with these deposits are accounted for directly in provisions under insurance contracts.

At 31 December 2009, the increase in the long-term business provision in respect of net assumption changes of £1.5m (2008: £0.3m) comprises an increase of £nil (2008: £1.0m) in relation to the implementation of the FSA’s policy statement PSO6 / 14: Prudential Changes for Insurers, and a net increase of £1.5m (2008: decrease of £0.7m) relating to model changes, demographic and economic changes.

companyThe Company has no provisions under insurance contracts issued (2008: £nil).



25 Provisions under insurance contracts issued continued

assumptions for general insurance businessThe process of recognising liabilities arising from general insurance contracts requires the exercise of judgement in relation to estimating future claims payments, claims handling expenses and unexpired risk provisions. The principal assumption affecting the measurement of liabilities is that the nature of recent claims development profile of the Group’s insurance entities and that current claims experience will be consistent with recent trends. Other assumptions are also applied in measuring the Group’s insurance liabilities but have a less material effect. The aim of these assumptions is to arrive at the best estimate of future obligations and cash outflows of the Group. A margin for adverse deviation is reflected within the estimates.

Claims development patterns are analysed in each of the Group’s general insurance entities and, in some cases, are further sub-analysed where an entity has distinct portfolios of general insurance with distinct characteristics. The characteristics may differ by product line, geographic sector or market sector. The analysis is used to determine a claims settlement pattern using recent experience, adjusted where appropriate by observed trends over time. Claims are assessed on a case by case basis. Extrapolation methods based on the claims settlement pattern are used: these are recognised methods described in the Institute and Faculty of Actuaries Claims Reserving Manual (1997). Large homogeneous sections of insurance business (eg corporate business in a specific region) are often analysed by more than one method, such as the chain ladder, link ratio, Bornheutter-Ferguson and paid claim loss ratio methods.

While there is some diversity in the claims development profile across the Group, the Group’s general insurance contracts principally relate to healthcare benefits that occur with stable frequencies and exhibit very short development patterns that can be characterised in months rather than years. Less automated medical insurance portfolios may have development patterns of twelve to 18 months, whereas pre-authorisation electronic claims settlement and network provider arrangements may produce development patterns of four to six months.

assumptions for long-term insurance businessThe Group makes estimates of future policyholder deaths, illnesses and recoveries for the period that it is exposed to risk. The principal assumptions underlying the calculation of the long-term business provision include mortality and morbidity, discount rate and renewal expenses, lapse rates and inflation. These estimates are based on industry mortality and morbidity tables, adjusted to reflect anticipated changes in market conditions, experience, price inflation and the Group’s own experience. There is a considerable level of uncertainty in these estimates in relation to changing lifestyles, future advances in medical prevention and detection, epidemics and catastrophes. The estimates are reviewed at least annually to reflect changes in the Group’s and industry experience. The assumptions derived represent best estimates of future experience as required under Prudential Sourcebook for Insurers (INSPRU) 1.2 in the UK, plus a margin for adverse deviation, and in Australia under Prudential Standards that support the Life Insurance Act 1995 without the additional margin.

mortality and morbidityThe incidences of death and disability are derived from studies, performed by independent actuarial bodies, on the experience of assured lives published by the Continuous Mortality Investigation (CMI) and the Institute and Faculty of Actuaries. These estimates are adjusted, where appropriate, to reflect the Group’s own experience and expected improvement or deterioration in industry experience, including more recent CMI data and reinsurers’ data.

Discount rateThe interest rate risk is managed through asset / liability matching that seeks to match the interest rate sensitivity of the assets to that of the underlying liabilities. The valuation rate of interest is the risk adjusted gross redemption yield for the matching gilts, corporate bonds and cash. This rate implicitly includes an allowance for risk over and above the best estimate.

Renewal expenses, lapse rates and inflationThe current level of renewal expenses is assumed to be an appropriate expense base. In the UK and Australia, lapse rates are set by policy and are based on actual experience. Expense inflation is derived from the Consumer Price Index and the National Average Earnings Index.

The Group runs its valuation models on various bases. An analysis of sensitivity around various scenarios provides an indication of the adequacy of the Group’s estimation process in respect of its life assurance contracts. In the UK an additional margin is applied. The table below shows the sensitivity of insured liability estimates to particular movements in assumptions used in the estimation process. Certain variables can be expected to impact on life assurance liabilities more than others, and consequently a greater degree of sensitivity to these variables may be expected.

2009 2008

Reduction in Reduction in surplus net of surplus net of reinsurance reinsurance change in before change in before variable taxation variable taxation % £m % £m

Base run Increase in mortality / morbidity 10.0 0.8 5.0 0.4Increase in renewal expenses 10.0 0.1 10.0 0.1Increase in inflation 1.0 0.4 1.0 0.4Decrease in interest rates 1.0 1.2 1.0 1.4Decrease in lapses 10.0 0.3 10.0 0.1

The reduction in equity as a result of the various changes in variables detailed in the table above would be materially the same as the reduction in surplus highlighted.

The analysis above has been prepared for a change in variable with all other assumptions remaining constant and ignores changes in values of related assets. Performing the sensitivity analysis gross or net of reinsurance will result in a similar effect with the difference being immaterial.


Business review

Governan

ceFinan

cial statements

26 other liabilities under insurance contracts issued

Group 2009 2008 £m £m

currentReinsurers’ deposits 4.1 2.7Reinsurance payables 10.7 9.3Commission payable 9.8 8.8Risk Equalisation Trust Fund 2.3 2.8Other insurance payables 5.9 6.8

total other liabilities under insurance contracts issued 32.8 30.4

companyThe company has no other liabilities under insurance contracts issued (2008: £nil)

27 Post employment benefits

The assets and liabilities in respect of defined benefit funded pension schemes, unfunded pension and post retirement medical benefit schemes are as follows:

Group Pension Post retirement medical schemes benefit schemes total

2009 2008 2009 2008 2009 2008 Note £m £m £m £m £m £m

Present value of funded obligations (ii) (902.1) (693.8) – – (902.1) (693.8)Fair value of scheme assets (iii) 916.2 799.7 – – 916.2 799.7

Net assets of funded schemes 14.1 105.9 – – 14.1 105.9Present value of unfunded obligations (ii) (28.2) (24.8) (21.7) (17.0) (49.9) (41.8)

Net recognised (liabilities) / assets (14.1) 81.1 (21.7) (17.0) (35.8) 64.1

Individual pension schemes showing a net deficit are classified on the balance sheet within post employment benefit liabilities and those schemes showing a net asset are classified within post employment benefit assets as follows:

Net liabilities (60.9) (50.9)Net assets 25.1 115.0

Net recognised (liabilities) / assets (35.8) 64.1

company Pension Post retirement medical schemes benefit schemes total

2009 2008 2009 2008 2009 2008 Note £m £m £m £m £m £m

Present value of funded obligations (ii) (830.8) (638.2) – – (830.8) (638.2)Fair value of scheme assets (iii) 855.7 753.2 – – 855.7 753.2

Net assets of funded schemes 24.9 115.0 – – 24.9 115.0Present value of unfunded obligations (ii) (28.2) (24.8) (21.7) (17.0) (49.9) (41.8)

Net recognised (liabilities) / assets (3.3) 90.2 (21.7) (17.0) (25.0) 73.2

Represented on the balance sheet as: Net liabilities (49.9) (41.8) Net assets 24.9 115.0

Net recognised (liabilities) / assets (25.0) 73.2


27 Post employment benefits continued

Pensions — funded schemesThe Group operates several funded defined benefit and defined contribution pension schemes for the benefit of employees and Directors. The defined benefit schemes provide benefits based on final pensionable salary. Contributions by Group companies to such schemes are made in accordance with the recommendations of independent scheme actuaries of the individual schemes. Complete disclosure of each separate pension scheme’s details is not practicable within this report. The key factors relating to the Group’s funded pension arrangements are discussed below.

The principal defined benefit scheme in the UK is The Bupa Pension Scheme. Contributions by employees and by Bupa Group companies are administered by the Trustees in funds independent of the Group. The scheme was closed to new entrants from 1 October 2002, but its existing members continue to accrue entitlements in respect of current service.

An independent actuary performs detailed triennial valuations together with periodic interim reviews. Both triennial and interim valuations use the attained age method, recognising the closure of the scheme to new entrants. The latest triennial valuation of The Bupa Pension Scheme was carried out as at 1 July 2008. The key assumptions were the rate of return on investments both pre and post retirement of 5.7%, the rate of increase in pensionable salaries of 5.7% and the rate of increase in pensions in payment of 3.7%. At the date of the last triennial valuation the value of accrued benefits was £830.0m. The aggregate market value of the scheme assets, excluding members’ additional voluntary contributions, at the valuation date was £772.7m, representing 93.1% of the accrued benefits. The triennial valuation as at 1 July 2008 is The Bupa Pension Scheme’s first valuation under the new scheme specific funding legislation introduced by the Pensions Act 2004.

The Bupa Pension Scheme has been valued as at 31 December 2009 under IAS 19 using the projected unit method based on data used for the triennial valuation dated 1 July 2008, with an approximate allowance for membership movements to 1 July 2009. Details of the assumptions used are set out in note (i).

As recommended by the scheme’s independent actuary in the triennial valuation dated 1 July 2005, from 1 January 2009 to 30 June 2009, regular employer contributions were paid at the rate of 26.34% of pensionable salary. In accordance with the triennial valuation dated 1 July 2008, regular employer contributions increased from 1 July 2009 to 31.9% of pensionable salary. Included in the employer contributions is 7.0%, which represents the employer pension contributions paid as part of the Group’s salary sacrifice arrangement, PeopleChoice Pensions. There is a corresponding reduction in wages and salaries as a result. The expected contributions payable in 2010, with regards to the accumulation of future benefits, are £12.4m in respect of The Bupa Pension Scheme and £3.3m in respect of PeopleChoice Pensions.

The Company has made a series of additional payments in order to reduce the deficit in the scheme. During 2009 the total of additional payments made was £24.5m (2008: £24.5m), bringing the total of additional payments made since November 2003 to £279.1m (2008: £254.6m). Following the disposal of its UK hospitals business in 2007, Bupa agreed to pay, or procure the payment of, a number of further contributions to the Trustees of the scheme. Certain of these contributions remain payable on the following terms: — on or before 31 December 2010, a payment of £24.5m; — on or before 31 December 2011, a payment of £24.5m; and — on or before 31 December 2012, a further payment intended to equate to the investment return that the scheme would have achieved had £98.0m been paid into the scheme at the time of the sale of the UK hospitals business, assuming that the scheme would have achieved investment returns of 7.0% per annum compound during that period. The payments may be reduced if in the view of the scheme’s independent actuary the liability to take the entire scheme to a closed scheme funding level is secured by a lesser payment.In addition, Bupa Finance plc (which is not an employer in respect of the scheme) entered into a legally binding and irrevocable guarantee for the benefit of the Trustees in respect of the payments due from Bupa as set out above.

The principal defined contribution pension plan in the UK is the Bupa Retirement Savings Plan, which is a discrete tier of The Bupa Pension Scheme. It provides benefits based on the accumulated contributions made by employee and employer. This scheme was opened with effect from 1 October 2002. The charge to the consolidated income statement in respect of this plan, and all other defined contribution schemes, is the amount of employer contributions payable to the scheme in respect of the accounting period.

There are several other minor schemes operated by UK and overseas subsidiaries. Of these, the defined benefit schemes are assessed by independent actuaries in accordance with UK or local practice and under IAS 19 as at 31 December 2009 for the purposes of inclusion in the Group’s consolidated financial statements. Pensions — unfunded schemesUnfunded defined benefit pension arrangements exist for certain employees and former employees in excess of the funded pension arrangements provided by the Group. There are no separate funds or assets in the balance sheet to support the unfunded schemes, however provisions are included in the balance sheet in respect of these liabilities. The latest valuation of these arrangements was performed as at 31 December 2009 under IAS 19 by the Group’s independent actuary. The charge to the consolidated income statement in respect of these arrangements and the assessment of the related pension liability as at 31 December 2009 have been made in accordance with this latest valuation, which used the same principal assumptions as adopted at 31 December 2009 under IAS 19 for The Bupa Pension Scheme.

Post retirement medical benefit schemesThe Group also provides unfunded post retirement medical benefits for certain former employees. These benefits were granted under an agreement which closed to new entrants in 1992. The latest valuation of this scheme was carried out as at 31 December 2009 by an actuary employed by the Group using the same key assumptions as adopted at 31 December 2009 under IAS 19 for The Bupa Pension Scheme.

companyThe Company is the sponsoring employer for The Bupa Pension Scheme, the unfunded pension scheme and post retirement medical benefit scheme described above.



Business review

Governan

ceFinan

cial statements


(i) actuarial assumptionsThe responsibility for setting the assumptions underlying the IAS 19 valuations rests with the Directors, having first taken advice from the Group‘s independent actuary. The key weighted average financial assumptions used when valuing the obligations of the post employment benefit schemes under IAS 19 are as follows: Group company

funded schemes Unfunded schemes funded schemes Unfunded schemes

2009 2008 2009 2008 2009 2008 2009 2008 % % % % % % % %

Inflation rate 3.6 2.9 3.6 2.9 3.6 2.9 3.6 2.9Rate of increase in salaries 5.6 4.8 5.6 4.9 5.6 4.9 5.6 4.9Rate of increase to pensions in payment 3.5 2.8 3.6 3.0 3.6 2.9 3.6 3.0Discount rate for scheme obligations 5.7 6.0 5.7 6.0 5.7 6.0 5.7 6.0Overall expected return on scheme assets 6.3 5.3 – – 6.3 5.3 – –Medical cost trend rate – – 4.5 3.6 – – 4.5 3.6

Asset performance for the disclosures for the year ended 31 December 2009 have been measured against the expected return on assets disclosed as at 31 December 2008.

actuarial assumptions underlying the valuation of obligationsThe inflation assumption is set by reference to the difference between the yield on long-term fixed interest gilts and the real yield on index linked gilts, with a deduction of 0.2% to reflect an inflation risk premium. The rate of increase of pensions in payment is the same as the inflation rate, with the exception of benefits which receive fixed increases in payment as defined under the respective scheme rules.

The rate of increase in salaries is equal to the long-term expected annual average salary pay increase for the employees who are members of the scheme. This assumption is set relative to the inflation rate assumption.

The discount rate used to value scheme liabilities is the yield at the balance sheet date on high quality corporate bonds of appropriate term.

expected rate of return on assetsThe overall expected return on scheme assets has been derived by calculating the weighted average expected return applied to each of the major asset classes, equities, bonds and ‘other’.

The expected return on equities and other return seeking assets has been taken as the yield on fixed interest gilts at the balance sheet date plus a margin of 3.5%, representing the additional return on top of the risk free return available on the asset class. The expected return on bonds has been taken as an average of the yield available on fixed interest gilts and high quality corporate bonds at the balance sheet date. The expected return on ‘other’ has been taken as 3.0% pa, representing the long-term expected return on cash and short dated securities.

medical cost trend rateThe medical cost trend rate is the assumed additional escalation of medical costs over and above the assumed inflation rate. It is assumedthat such an effect will continue during the remaining run-off of the liability. Assumed medical cost trend rates have a significant effect on the amounts recognised in the consolidated income statement. A one percentage point change in assumed medical cost trend rates would result in the following increase and decrease in the post retirement medical benefit obligation:

Group and company one % one % one % one % point point point point increase decrease increase decrease 2009 2009 2008 2008 £m £m £m £m

Effect on post retirement medical benefit obligation 3.2 (2.7) 2.3 (1.9) Effect on the aggregate of current service cost and interest cost 0.2 (0.1) 0.1 (0.1)

mortality assumptionsThe Trustees of The Bupa Pension Scheme have undertaken a scheme specific mortality investigation as part of the 1 July 2008 triennial valuation. The Trustees shared the conclusion drawn from this analysis with the Directors, who have adopted assumptions in line with this analysis for the purposes of the IAS 19 valuation as at 31 December 2009. The mortality tables adopted at 31 December 2009 are the PA92 year of birth mortality tables with the ‘medium cohort’ improvements, a plus one year age rating and a minimum level of future improvements of 1.0% pa. The average life expectancies at age 60 based on these tables for a male currently aged 60 (45) is 26.6 years (28.1 years), and for a female is 29.8 years (31.4 years).



(ii) Present value of the scheme obligationsThe movement in the present value of the schemes’ obligations is:

Group Pension Post retirement medical schemes benefit schemes total

2009 2008 2009 2008 2009 2008 £m £m £m £m £m £m

At beginning of year 718.6 772.6 17.0 16.8 735.6 789.4Additions through business combinations – 20.9 – – – 20.9Current service cost 19.3 23.1 – – 19.3 23.1 Interest on obligations 42.0 44.5 1.0 0.9 43.0 45.4 Contributions by employees 0.9 1.0 – – 0.9 1.0 Actuarial losses / (gains) 174.5 (124.4) 4.4 0.1 178.9 (124.3) Benefits paid (24.6) (20.2) (0.7) (0.8) (25.3) (21.0) Gains on curtailment (3.0) – – – (3.0) – Foreign exchange 2.6 1.1 – – 2.6 1.1

at end of year 930.3 718.6 21.7 17.0 952.0 735.6

company At beginning of year 663.0 740.0 17.0 16.8 680.0 756.8Current service cost 16.9 20.9 – – 16.9 20.9Interest on obligations 39.1 41.7 1.0 0.9 40.1 42.6Contributions by employees 0.2 0.2 – – 0.2 0.2Actuarial losses / (gains) 165.4 (123.4) 4.4 0.1 169.8 (123.3) Benefits paid (22.6) (16.4) (0.7) (0.8) (23.3) (17.2) Gains on curtailment (3.0) – – – (3.0) –

at end of year 859.0 663.0 21.7 17.0 880.7 680.0

(iii) fair value of funded schemes’ assetsThe movement in the fair value of the funded schemes’ assets is: Group company

2009 2008 2009 2008 £m £m £m £m

At beginning of year 799.7 813.4 753.2 778.3Additions through business combinations – 18.0 – –Expected return on scheme assets 46.5 59.1 43.5 55.2 Actuarial gains / (losses) 45.1 (115.5) 39.6 (102.9)Contributions by employer 43.4 42.3 39.0 38.4 Contributions by employees 0.9 1.0 0.2 0.2 Benefits paid (21.6) (19.7) (19.8) (16.0)Foreign exchange 2.2 1.1 – –

at end of year 916.2 799.7 855.7 753.2

The market value of the assets of the funded schemes is as follows:

Equity 414.3 365.4 375.2 334.8 Bonds 442.2 400.4 427.2 391.3 Other assets 59.7 33.9 53.3 27.1

916.2 799.7 855.7 753.2

Other assets of £59.7m in the Group and £53.3m in the Company as at 31 December 2009 include £26.0m of cash, which was invested in equities on 4 January 2010.

Equity assets comprise index tracker funds as well as specialist equity managers and other absolute return managers, who seek a return above pre-set benchmarks.



Business review

Governan

ceFinan

cial statements


(iv) amounts recognised in the consolidated income statementThe amounts charged / (credited) to other operating expenses for the year are: Group company

2009 2008 2009 2008 £m £m £m £m

Current service cost 19.3 23.1 16.9 20.9Interest on obligations 43.0 45.4 40.1 42.6Expected return on scheme assets (46.5) (59.1) (43.5) (55.2) Gains on curtailments (3.0) – (3.0) –

total amount charged to consolidated income statement 12.8 9.4 10.5 8.3

Actual return on scheme assets (91.6) 56.4 (83.1) 47.7

The charge to other operating expenses in respect of cash contributions to defined contribution schemes is £18.4m (2008: £15.8m).

(v) amounts recognised directly in other comprehensive incomeThe amounts charged / (credited) directly to other comprehensive income are:

Actual return less expected return on assets (45.1) 115.5 (39.6) 102.9Experience gains arising on obligations (11.4) (27.1) (10.9) (28.3)Changes in assumptions 188.7 (98.6) 179.8 (96.1)

total actuarial losses / (gains) charged / (credited) directly to other comprehensive income 132.2 (10.2) 129.3 (21.5)

GroupThe cumulative amount of actuarial losses recognised directly in other comprehensive income is £179.9m (2008: £47.7m).

companyThe cumulative amount of actuarial losses recognised directly in other comprehensive income is £167.1m (2008: £37.8m).



(vi) history of experience gains and losses

Group 2009 2008 2007 2006 2005 £m £m £m £m £m

Pension schemesPresent value of scheme obligations (930.3) (718.6) (772.6) (787.6) (715.3)Fair value of scheme assets 916.2 799.7 813.4 695.2 554.8

Net (deficit) / surplus (14.1) 81.1 40.8 (92.4) (160.5)

Experience (credit) / charge arising on: Scheme obligations (9.6) (25.7) (3.3) 5.2 1.0 Scheme assets (45.1) 115.5 6.7 (5.2) (56.0)

Post retirement medical benefit schemesPresent value of scheme obligations (21.7) (17.0) (16.8) (17.2) (21.2)

Experience (credit) / charge arising on: Scheme obligations (0.2) – (0.2) (0.4) 0.2

company

Pension schemesPresent value of scheme obligations (859.0) (663.0) (740.0) (740.9) (676.1)Fair value of scheme assets 855.7 753.2 778.3 653.0 522.2

Net (deficit) / surplus (3.3) 90.2 38.3 (87.9) (153.9)

Experience (credit) / charge arising on: Scheme obligations (9.8) (27.3) 1.8 5.0 1.3 Scheme assets (39.6) 102.9 3.9 (2.6) (53.0)

Post retirement medical benefit schemesPresent value of defined benefit obligations (21.7) (17.0) (16.8) (17.2) (21.2)

Experience (credit) / charge arising on: Scheme obligations (0.2) – (0.2) (0.4) 0.2

28 Provisions for liabilities and charges

Group long service Regulatory Unoccupied insurance leave provisions property other total £m £m £m £m £m £m

At beginning of year 17.9 16.8 5.4 5.2 9.7 55.0Charge for year 6.4 11.7 5.4 0.5 8.6 32.6Released in year – (0.2) (1.9) (1.5) (4.5) (8.1)Utilised in year — cash (6.7) (8.9) (3.4) (0.5) (3.6) (23.1)Transfer from assets held for sale – – – – 0.1 0.1Foreign exchange – 2.8 – – 0.4 3.2

at end of year 17.6 22.2 5.5 3.7 10.7 59.7

Non-current 13.6 9.7 – 3.4 7.2 33.9Current 4.0 12.5 5.5 0.3 3.5 25.8

17.6 22.2 5.5 3.7 10.7 59.7

insuranceThe insurance provision is in respect of the Group’s self insurance and covers the excess that arises on claims made in relation to losses arising from damage to property, business interruption and medical, employee or public liability. Any outflows relating to this provision are dependent on the frequency and value of claims submitted as well as the excess amount specified within individual policies with insurers. The fund is actuarially assessed twice a year to ensure that the provision is adequate.



Business review

Governan

ceFinan

cial statements

28 Provisions for liabilities and charges continued

long service leaveThe long service leave relates to territories where employees are legally entitled to substantial paid leave after completing a certain length of qualifying service. Uncertainty around both the amount and timing of future outflows arises as a result of variations in employee retention rates, which may vary based on historical experience.

Regulatory provisionsRegulatory provisions relate to levies payable to customer protection bodies by the Group’s various regulated entities. Such levies are generally determined on a capped percentage of revenues basis. Payments are normally made annually, although the frequency may be increased or decreased at the discretion of the customer protection bodies.

Unoccupied propertyIn prior years, the Group entered into non-cancellable leases for property which it no longer fully occupies. The Group has provided for lease obligations, net of sub-lease receivables. The lease obligations are payable monthly, quarterly or annually, within a range of one to 15 years, the average being eight years. The future net outflows are uncertain and are affected by the Group’s ability to sub-let unoccupied property.

otherOther provisions include amounts relating to employee benefits and legal claims.

company insurance other total £m £m £m

At beginning of year 17.8 5.8 23.6Charge for year 6.4 2.2 8.6Released in year – (3.4) (3.4)Utilised in year – cash (6.6) (3.6) (10.2)

at end of year 17.6 1.0 18.6

Non-current 13.6 0.8 14.4Current 4.0 0.2 4.2

17.6 1.0 18.6

29 Deferred taxation assets and liabilities

GroupRecognised deferred taxation assets and liabilitiesDeferred taxation assets and liabilities are attributable to the following:

assets liabilities Net

2009 2008 2007 2009 2008 2007 2009 2008 2007 (restated) (restated) (restated) (restated) (restated) (restated) £m £m £m £m £m £m £m £m £m Accelerated capital allowances – – – (14.8) (17.3) (30.2) (14.8) (17.3) (30.2)Post employment benefit liability 8.7 – – – (17.7) (5.6) 8.7 (17.7) (5.6)Revaluation of properties to fair value – – – (109.2) (140.1) (152.5) (109.2) (140.1) (152.5)Employee benefits (other than post employment) 5.0 4.8 3.6 – – – 5.0 4.8 3.6Provisions 5.8 6.5 20.1 – – – 5.8 6.5 20.1Taxation value of losses carried forward 21.1 22.7 1.0 – – – 21.1 22.7 1.0Goodwill and intangible assets – – – (108.0) (138.1) (29.0) (108.0) (138.1) (29.0)Other 43.9 24.3 22.2 (26.5) (5.8) (24.7) 17.4 18.5 (2.5)

Deferred taxation assets / (liabilities) 84.5 58.3 46.9 (258.5) (319.0) (242.0) (174.0) (260.7) (195.1)Allowable netting of deferred taxation assets and liabilities (71.3) (58.3) (40.6) 71.3 58.3 40.6 – – –

Net deferred taxation asset / (liability) 13.2 – 6.3 (187.2) (260.7) (201.4) (174.0) (260.7) (195.1)

Deferred taxation assets relating to the carry forward of employee benefits, other provisions, unused taxation losses and other deferred taxation assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred taxation assets can be utilised.


29 Deferred taxation assets and liabilities continued

Unrecognised deferred taxation assetsAs at 31 December 2009 the Group had deductible temporary differences relating to intangible assets of £22.6m (2008: £6.2m), trading losses of £3.2m (2008: £6.7m) and capital losses of £14.1m (2008: £14.7m) for which no deferred taxation asset was recognised due to uncertainty of utilisation of those temporary differences.

movement in net deferred taxation liabilities Recognised additions Recognised in other through arising on Disposal of at beginning in income comprehensive business business subsidiary foreign at end of year statement income combinations combinations companies exchange of year £m £m £m £m £m £m £m £m

2009Accelerated capital allowances (17.3) 2.4 – – – (0.1) 0.2 (14.8)Post employment benefit liability (17.7) (3.3) 29.7 – – – – 8.7Revaluation of properties to fair value (140.1) 20.7 8.7 – – – 1.5 (109.2)Employee benefits (other than post employment) 4.8 0.4 – – – – (0.2) 5.0Provisions 6.5 (0.5) – – – (0.2) – 5.8Taxation value of losses carried forward 22.7 (1.9) – – – – 0.3 21.1Goodwill and intangible assets (138.1) 32.4 – – – – (2.3) (108.0)Other 18.5 (1.8) 0.8 – – – (0.1) 17.4

(260.7) 48.4 39.2 – – (0.3) (0.6) (174.0)

2008 (restated)Accelerated capital allowances (30.2) 12.9 – – – – – (17.3)Post employment benefit liability (5.6) (9.5) (2.6) – – – – (17.7)Revaluation of properties to fair value (152.5) 10.4 9.2 – – – (7.2) (140.1)Employee benefits (other than post employment) 3.6 1.2 – – – – – 4.8Provisions 20.1 (13.6) – – – – – 6.5Taxation value of losses carried forward 1.0 (4.6) – 21.5 – – 4.8 22.7Goodwill and intangible assets (29.0) 4.8 – – (94.5) – (19.4) (138.1)Other (2.5) (0.8) – 16.6 – – 5.2 18.5

(195.1) 0.8 6.6 38.1 (94.5) – (16.6) (260.7)

2007 (restated)Accelerated capital allowances (26.7) (17.5) – – – 14.0 – (30.2)Post employment benefit liability 33.2 (7.5) (31.3) – – – – (5.6)Revaluation of properties to fair value (206.8) 12.2 (52.4) (19.6) – 115.1 (1.0) (152.5)Employee benefits (other than post employment) 3.8 (0.1) – – – (0.1) – 3.6Provisions 9.6 11.3 – – – (0.8) – 20.1Taxation value of losses carried forward 7.3 (6.3) – – – – – 1.0Goodwill and intangible assets (18.6) 3.3 – – (11.5) – (2.2) (29.0)Other 12.3 (12.8) – 4.7 – (7.3) 0.6 (2.5)

(185.9) (17.4) (83.7) (14.9) (11.5) 120.9 (2.6) (195.1)

company

Recognised deferred taxation assets and liabilitiesDeferred taxation assets and liabilities are attributable to the following: assets liabilities Net

2009 2008 2009 2008 2009 2008 £m £m £m £m £m £m

Accelerated capital allowances 1.5 0.9 – – 1.5 0.9Post employment benefit liability 6.7 – – (20.4) 6.7 (20.4)Employee benefits (other than post employment) 4.3 4.4 – – 4.3 4.4Provisions 5.2 5.5 – – 5.2 5.5Other 1.0 0.6 – (0.2) 1.0 0.4

Deferred taxation assets / (liabilities) 18.7 11.4 – (20.6) 18.7 (9.2)Allowable netting of deferred taxation assets and liabilities – – – – – –

Net deferred taxation asset / (liability) 18.7 11.4 – (20.6) 18.7 (9.2)

Deferred taxation assets relating to the carry forward of post employment liabilities, employee benefits, other provisions and other deferred taxation assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred taxation assets can be utilised.



Business review

Governan

ceFinan

cial statements

29 Deferred taxation assets and liabilities continued

movement in net deferred taxation assets / (liabilities) Recognised Recognised in other at beginning in income comprehensive at end of year statement income of year £m £m £m £m

2009Accelerated capital allowances 0.9 0.5 – 1.4Post employment benefit liability (20.4) (8.7) 35.8 6.7Employee benefits (other than post employment) 4.4 – – 4.4Provisions 5.5 (0.3) – 5.2Other 0.4 0.5 0.1 1.0

(9.2) (8.0) 35.9 18.7

2008Accelerated capital allowances 0.1 0.8 – 0.9Post employment benefit liability (6.0) (8.5) (5.9) (20.4)Employee benefits (other than post employment) 3.2 1.2 – 4.4Provisions 4.8 0.7 – 5.5Other – 0.4 – 0.4

2.1 (5.4) (5.9) (9.2)

30 trade and other payables Group company

2009 2008 2007 2009 2008 (restated) (restated) £m £m £m £m £m

Non-currentTrade payables – – 0.5 – –Amounts owed to subsidiary companies – – – 198.9 –Deferred income 1.8 2.1 1.5 – –Other payables 38.0 34.5 40.6 – –Accruals 9.9 9.1 12.0 8.4 7.4Fair value of derivative liabilities 3.1 – 6.2 – –

52.8 45.7 60.8 207.3 7.4

currentTrade payables 101.4 106.2 52.0 – –Liability to external unit trust holders 95.1 74.7 – – –Amounts owed to subsidiary companies – – – 609.8 413.9Social security and other taxes 24.0 22.8 14.0 – –Deferred income 61.1 84.3 36.2 – – Other payables 277.9 241.7 181.6 6.5 5.5Accruals 298.7 279.6 212.7 30.5 43.8Deferred consideration – – 34.7 – –

858.2 809.3 531.2 646.8 463.2

Total trade and other payables 911.0 855.0 592.0 854.1 470.6

Current other payables of £277.9m (2008: £241.7m) includes £176.6m (2008: £139.6m; 2007: £99.5m) relating to accommodation bonds in Bupa Care Services Australia.


31 equity

capital management The Group manages as capital the cumulative individual amount of the equity of all Group subsidiaries, exclusive of any minority interests, and other inadmissible assets as discussed below. The Group has a £330.0m perpetual bond accounted for as debt in these financial statements. However, this is managed as though it were capital for regulatory purposes, as discussed below.

As a company limited by guarantee, Bupa has no shareholders or owners. All profits are therefore used to develop the Group’s businesses for the benefit of customers. Except for equity attributable to minority interests, any equity in the Group is considered ‘equity attributable to Bupa’.

The Group’s capital management objective is to maintain sufficient capital to protect the interests of all of its customers, investors, regulators and trading partners while also efficiently deploying capital and managing risk to sustain ongoing business development.

The Group aims to operate within a targeted range for solvency, leverage and interest cover ratios designed to support an investment grade rating. The Bupa Group as a whole is not rated by any rating agency although individual debt issues and various subsidiaries within the Group do have public ratings.

The UK’s Financial Services Authority (FSA) classifies the whole of the Group as an insurance group. As such, the Group must maintain regulatory capital resources in excess of a collective capital requirement, imposed by the FSA through its Prudential Sourcebook (PSB), for Bupa to comply with the EU Insurance Groups Directive (IGD). When assessing the Group’s compliance with its capital requirement, the PSB requires that the Group values and credits towards its net asset position only those assets that meet certain criteria on admissibility, concentration limits and counterparty exposure limits. Group companies that are regulated are subject to similar regulatory restrictions within the jurisdictions in which they operate. The Group and its regulated subsidiaries complied with all externally imposed capital requirements during the prior year. Although they are not insurance businesses, the Group can and does recognise the book value of its care provision businesses as capital resources.

It is the Board’s policy that the Group maintains capital resources significantly in excess of its capital requirements and furthermore that all regulated entities within the Group’s corporate structure meet any local minimum capital requirement imposed by local regulators at all times.

The Group has a number of internal processes to ensure compliance with the Group’s capital requirements. These include requiring that significant future capital expenditure and growth initiatives be approved by the Board, either as stand alone projects or as part of the budgeting and forecasting exercises. The Group’s Investment Committee must approve any change to financial investment strategy. Strategic developments and acquisitions affecting the Group’s capital require Board authorisation.

The Group Finance Department routinely reports to the Board the Group’s capital position, and leverage and interest cover ratios as well as any constraints, risks or uncertainties about this position. The Group reports on any regulatory capital resources to local regulators and the FSA each year end.

In addition, the Group’s management reporting process to the Board includes the regular calculation of the return on capital employed. This allows the Group to promote capital usage in product pricing and operational budgeting exercises while also identifying any capital deterioration at an early stage.

The Group has in place internal debt and investment management arrangements that allow the assets supporting technical liabilities or any solvency capital to be efficiently managed in a centralised manner. The Group’s Treasury Department also maintains large external credit lines with several leading banks to ensure the liquidity of the Group as needed.

Finally, the Group has developed economic capital models of Bupa Insurance Limited and Bupa Health Assurance Limited to enable it to dynamically and holistically characterise the sensitivities and inter dependencies of its capital assets. This aids the Group in more thoroughly understanding the risk profile and diversification of its investments and business portfolio in a manner that enhances risk management. The Group submits these capital models to the FSA for its UK domiciled life and health insurance subsidiaries.

There have been no changes to the Group’s capital management objectives, policies or procedures over the prior year.



Business review

Governan

ceFinan

cial statements

32 movement in net funds

The movement in the Group’s net funds during the financial year is explained as follows: at 1 changes January to market other at 31 2009 value and non-cash December (restated) cash flow currencies changes 2009 £m £m £m £m £m

cash and cash equivalentsCash at bank and in hand 416.0 (205.5) 13.9 (0.6) 223.8Overdrafts (2.0) 1.3 – – (0.7)Short-term bank deposits 461.1 279.8 33.7 28.7 803.3

75.6

financial investments — non-current Debt securities — government gilts 28.8 37.8 (2.2) 1.7 66.1Debt securities — corporate bonds 139.5 20.4 26.8 1.6 188.3Shares and other variable yield securities 86.7 (0.1) – (86.5) 0.1Medium term notes 115.7 93.7 – (86.5) 122.9Deposits with credit institutions 130.7 20.9 12.9 – 164.5

172.7

financial investments — currentDebt securities — government gilts 38.7 62.6 (12.7) (0.8) 87.8Debt securities — corporate bonds 5.2 (3.5) (0.1) (1.6) –Shares and other variable yield securities 131.9 (142.6) 55.8 86.2 131.3Medium term notes 63.6 109.2 – 86.5 259.3Reverse repo securities 196.7 9.1 (14.0) – 191.8Deposits with credit institutions 736.7 (332.9) 6.5 (0.1) 410.2Property trusts 1.7 0.9 0.1 – 2.7

(297.2)

life investment contractsFinancial investments backing life investment contract liabilities 681.2 (56.4) 201.1 – 825.9Life investment contract liabilities (679.4) 39.7 (207.7) 15.4 (832.0)

(16.7) investment properties 87.4 2.7 8.2 6.4 104.7

2.7 other interest bearing liabilities — non-currentSecured loans (234.2) – – 0.1 (234.1)Debenture stock (58.6) – – 1.6 (57.0)Senior unsecured bonds – (347.1) – – (347.1)Bank loans (1,133.6) 620.7 48.8 0.1 (464.0)Finance lease liabilities (5.4) 0.7 0.3 0.2 (4.2)

274.3

other interest bearing liabilities — currentSecured loans (4.1) – – – (4.1)Debenture stock (1.5) – – (0.2) (1.7)Senior unsecured bonds – – – (12.5) (12.5)Bank loans (38.0) 30.1 – 6.0 (1.9)Finance lease liabilities (0.9) 0.2 – (0.2) (0.9)

30.3

subordinated liabilities — non-currentCallable subordinated perpetual guaranteed bonds (369.8) – 17.2 – (352.6)10.5% subordinated guaranteed bonds due 2018 (3.9) – – – (3.9)

–

subordinated liabilities — currentCallable subordinated perpetual guaranteed bonds (5.9) – – – (5.9)

–

Net funds per balance sheet 784.3 241.7 188.6 45.5 1,260.1



33 financial instruments

Description of hedging activities

Net investment hedgesNet investment foreign exchange risk is managed using both foreign currency forward contracts and foreign currency denominated borrowings. These hedging relationships are documented and tested as required by IAS 39 as net investment hedges. All foreign currency forward contracts are accounted for on a fair value basis.

The Group’s Australian Dollar translation exposure of £1,867.8m (AU$3,367.8m) (2008: £1,594.3m (AU$3,332.4m)) arises from the net assets of MBF, Bupa Australia Pty Limited, Bupa Care Services Australia, Bupa Care Services New Zealand and their subsidiary companies. Foreign exchange gains and losses on the Australian Dollar inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21 total a loss of £60.8m (2008: loss of £43.9m). At 31 December, the Group held forward foreign exchange contracts totalling £221.0m (AU$398.5m) (2008: £nil (AU$nil)) to hedge a portion of net assets, which have been designated as hedges under IAS 39. All forward contracts mature within one month from the balance sheet date and are rolled forward on monthly contracts.

Euro translation exposure of £299.9m (€338.1m) (2008: £306.8m (€321.4m)) arises from the net assets of Grupo Bupa Sanitas SL and its subsidiary companies. Foreign exchange gains and losses on the Euro inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21 total a gain of £21.9m (2008: loss of £64.9m). At 31 December the Group held the following financial instruments to hedge a portion of these net assets, all of which have been designated as hedges under IAS 39: Euro borrowings of £98.0m (€110.5m) (2008: £110.7m (€116.0m)) which have an interest rate reset and maturity profile monthly.

US Dollar translation exposure of £418.4m (US$662.2m, HK$111.6m) (2008: £615.1m (US$873.2m, HK$194.6m)) arises from the net assets of Health Dialog, Bupa International Miami and their subsidiary companies, and from exposure through the Hong Kong Dollar (which is pegged to the US Dollar), which arises from the net assets of Bupa International (Hong Kong), Bupa Asia Limited and Bupa Limited (HK). Foreign exchange gains and losses on the US Dollar inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21 total a loss of £29.5m (2008: gain of £91.7m). At 31 December the Group held forward foreign exchange contracts totalling £176.3m (US$285.0m) (2008: £290.5m (US$424.3m)) to hedge a portion of net assets, which have been designated as hedges under IAS 39.

Danish Krone translation exposure of £12.4m (DKK104.2m) (2008: £119.4m (DKK932.5m)) arises from the net assets of International Health Insurance danmark a/s and its subsidiary companies. Foreign exchange gains and losses on the Danish Krone inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21 total a gain of £4.6m (2008: loss of £8.7m). At 31 December the Group held the following financial instruments to hedge a portion of these net assets, all of which have been designated as hedges under IAS 39: Danish Krone borrowings of £36.9m (DKK309.8m) (2008: £39.7m (DKK309.8m)), which have an interest rate reset and maturity profile monthly. In December 2009, a portion of these borrowings in excess of the hedged asset were deemed ineffective and recognised in the income statement.


Business review

Governan

ceFinan

cial statements

33 financial instruments continued

Fair value hedges The following derivative contracts were in place as at 31 December to hedge the Group’s interest rate exposure:

initial value Notional of contracts value of carrying maturity, expiry or sold assets value execution date £m £m £m

2009Interest rate swaps — fair value September 2020 330.0 330.0 22.6

2008Interest rate swaps — fair value September 2020 330.0 330.0 39.8

Interest rate swaps totalling £330.0m have been entered into to swap the fixed rate coupon on the £330.0m callable subordinated perpetual guaranteed bond to a floating rate. These interest rate swaps are designated as fair value hedges of the underlying interest rate risk on the debt. The fixed receipt occurs annually on the payment of the bond coupon in September. The variable payment is settled quarterly and the rate is reset on the floating element at this time. As at 31 December 2009, the fair value movement in the bond attributable to the hedged risk amounted to £17.2m (2008: £46.0m).

As at 31 December, the following derivative contracts were in place to hedge the Group’s currency exposure:

initial value Notional of contracts value of carrying maturity, expiry or sold liabilities value execution date £m £m £m

2009 Currency forward contracts held in the following currencies:Euro (¤55.0m) 14 January 2010 (49.8) (48.8) 1.0US Dollar (US$67.2m) 15 January 2010 (41.4) (41.6) (0.2)

2008 Currency forward contracts held in the following currencies:US Dollar (US$30.2m) 30 January 2009 (20.2) (20.7) (0.5)

The currency forward contracts hedge the Group’s currency exposure, which arises from holding US Dollar and Euro denominated financial investments classed as shares and other variable yield securities. These hedged items have resulted in an income statement loss of £3.5m (2008: gain of £20.1m).

Cash flow hedgesDuring 2009, interest rates swaps were designated to hedge the €40.3m (£35.7m) floating rate debt in Especializada Y Primaria L’Horta Manises. The swaps currently cover 70.4% of the floating rate loan principal balance outstanding at the balance sheet date. At 31 December 2009, the fair value of the interest rate swap liability was £2.8m (€3.1m).

In 2008 forward foreign exchange contracts were entered into hedge cash outflows for the acquisition of MBF amounting to AU$2,001.1m (£915.2m) which led to a cash flow hedge reserve gain of £36.4m, and the acquisition of Health Dialog amounting to US$635.2m (£343.0m) resulting in a cash flow hedge reserve loss of £1.4m.



effect of hedging transactionsThe impact of all external foreign currency hedging activity is set out below. The ineffective portion of all hedges recognised in the income statement was £0.5m (2008: £nil).

Gains / (losses) included in the income statement are: currency forward external contracts borrowing total £m £m £m

2009 US Dollar 4.2 – 4.2Danish Krone – 0.5 0.5

4.2 0.5 4.7

2008 Australian Dollar 10.5 – 10.5Euro 0.5 – 0.5US Dollar (31.3) – (31.3)

(20.3) – (20.3)

Gains / (losses) included in other comprehensive income are:

2009 Australian Dollar (19.6) – (19.6)Euro (1.4) 7.8 6.4US Dollar 13.7 – 13.7Danish Krone – 2.3 2.3

(7.3) 10.1 2.8

2008 Australian Dollar 36.4 38.1 74.5Euro – (40.0) (40.0)US Dollar (92.5) (19.3) (111.8)Danish Krone – (27.0) (27.0)

(56.1) (48.2) (104.3)

At 31 December 2009 and 2008, there were no material exposures to foreign currency transaction risk.

fair value of financial instrumentsThe fair value of a financial instrument is defined as the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties. Fair values have been calculated as follows:

— debt securities, shares and other variable yield securities — discounted expected future principal and interest cash flows or quoted price if available;

— listed securities — quoted price; — interest bearing loans and borrowings — discounted expected future principal and interest cash flows or quoted price if available; — other receivables and other payables (current) — carrying value; — other receivables and other payables (non-current) — discounted cash flows; — derivatives (currency forward contracts) — quoted prices at balance sheet date; and — derivatives (interest rate swaps) — bank and broker quotes.

The carrying values of short-term receivables and payables are a reasonable approximation of the fair value.

The Group uses the zero coupon curve as at the balance sheet date to discount financial instruments where the fair value cannot otherwise be found from quoted market values. The range of interest rates used is as follows: 2009 2008 % %

Sterling assets and liabilities 1.2 – 4.5 2.6 – 3.7Australian Dollar assets and liabilities 4.6 – 6.4 2.7 – 4.3Euro assets and liabilities 1.2 – 4.2 2.7 – 4.0US Dollar assets and liabilities 1.0 – 4.8 1.5 – 2.9



Business review

Governan

ceFinan

cial statements


The fair values of financial instruments are as follows: 2009 2008 (restated)

carrying fair carrying fair value value value value £m £m £m £m

assetsFinancial investments Debt securities — government gilts 153.9 153.9 67.5 67.5 Debt securities — corporate bonds 188.3 188.3 144.7 144.7 Shares and other variable yield securities 131.4 131.4 218.6 218.6 Medium term notes 382.2 384.5 179.3 152.6 Reverse repo securities 191.8 191.8 196.7 196.7 Deposits with credit institutions 574.7 574.7 867.4 867.4 Property trusts 2.7 2.7 1.7 1.7Financial investments backing life investment contract liabilities 825.9 825.9 681.2 681.2 Trade and other receivables Investment receivables and accrued investment income 13.2 12.7 16.1 15.6 Other receivables 81.4 81.4 54.6 54.5 Service concession receivables 105.6 105.6 93.5 93.5 Derivative assets 22.6 22.6 39.8 39.8 Accrued income 28.5 28.4 15.4 15.4 Cash and cash equivalents 1,058.3 1,058.3 920.6 920.6

liabilitiesSubordinated liabilities (362.4) (276.7) (379.6) (236.6)Other interest bearing liabilities (1,128.2) (1,158.0) (1,478.3) (1,470.5)Life investment contract liabilities (832.0) (832.0) (679.4) (679.4) Trade and other payables Liability to external unit trust holders (95.1) (95.1) (74.7) (74.7) Other payables (315.9) (313.1) (276.2) (257.3) Accruals (308.6) (308.4) (288.7) (288.1) Derivative liabilities (3.1) (3.1) – –

Financial instruments carried at fair value are measured by different valuation methods defined by a three level hierarchy. The different levels have been defined as follows: — Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;— Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly

(ie derived from prices); and— Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

An analysis is as follows: 2009

level 1 level 2 level 3 £m £m £m

Financial investments Debt securities – government gilts 153.9 – – Debt securities – corporate bonds 31.5 91.2 – Shares and other variable yield securities 122.5 8.9 –Financial investments backing life investment contract liabilities 827.6 (1.7) – Trade and other receivables Derivative assets 22.6 – –Life investment contract liabilities – (832.0) –Trade and other payables Derivative liabilities – (3.1) –

The financial investments backing the life investment contract liabilities are primarily classified as level 1 as they are based on quoted prices in active markets. The fair value of the life investment contract liabilities is calculated using the fair value of the underlying assets and they are therefore classified as level 2.



34 Risk management

Risk management policyThe Board is responsible for ensuring that there is a continuous process for identifying, evaluating and managing any material risks faced by the Group and for ensuring that it is effective. As such, the Board is responsible for the nature and extent of the risks facing the Group. This includes:

— the extent and categories of risk the Board regards as acceptable for the Group to bear; — the likelihood of these risks materialising; — the Group’s ability to reduce the incidence or impact on the business of any risks that do crystallise; and — the costs of operating particular controls relative to the benefit from managing the related risks.

The Group has exposure to a number of risks from its use of financial instruments, including: credit, liquidity and market risks and from its insurance business. The Group has adopted a risk management strategy that endeavours to mitigate these risks, which is approved by the Board.

In managing these exposures, the Investment Committee reviews and monitors any significant investment and market risks.

Risk and future cash flows from general insurance contractsInsurance risk from the general insurance activities of the Group may be subdivided into claims risk, pricing risk and reserving risk.

Claims risk and pricing risk are the two principal risks which affect future cash flows of the general insurance entities in the Group. They respectively represent the risk of adverse variances in claims outflows and premium inflows.

claims riskClaims risk is controlled by means of pre-authorisation of claims, outpatient benefit limits, the use of consultant networks and agreed networks of hospitals and charges. Specific processes vary across the Group depending on local conditions and practice.

Future adverse claims experience, for example, caused by external factors such as medical inflation, will affect cash flows after the date of the financial statements. Recent adverse claims risks are reflected in these financial statements in claims paid and movement in provisions.

Generally, the Group’s health insurance contracts contain terms and conditions that provide for the reimbursement of incurred medical expenses for treatment related to acute medical conditions. The contracts do not provide for capital sums or indemnified amounts. Therefore claims experience is necessarily underpinned by prevailing rates of illness. Additionally, claims risk is generally mitigated by the insurers running control processes to ensure that both the treatments and the consequent reimbursements are appropriate.

The short-tail nature of the Group’s general insurance contracts means that movements in claims development assumptions are generally not significant. The development patterns are kept under constant review to maintain the validity of the assumptions and hence, the validity of the estimation of recognised general insurance liabilities. The Group does not discount claims provisions due to the speed of claim settlements.

Pricing riskPricing risk arises from routine revisions to premium tariffs and from the processes, in certain businesses, to set bespoke premiums for large corporate health insurance customers. The adequacy of pricing rests on thorough actuarial analyses of past and most recent claims levels, combined with forward projections of the most recent observed trends. Pricing risk affects only future cash flows since new tariffs impact on levels of premium earned when health insurance contracts renew.

In every general insurer in the Group the dominant product style is of an annually renewable health insurance contract. This permits tariff revisions to respond reasonably quickly to adverse claims experience. This is a significant mitigant to pricing risk. The Group underwrites no material general insurance business that commits it to cover risks at premiums fixed beyond a twelve month period from inception or renewal.

Reserving risk Reserving risk is the risk of technical provisions for claims incurred proving inadequate in light of later events or information. Reserving risk is not significant to the Group as a result of the shortness of claims development patterns, coupled with the efficacy of the processes used to derive the assumptions used in setting provisions. As claims provisions are not discounted, their short-tail nature means that changes in market interest rates have no impact on reserving risk.

The amount of claims provision at any given time that relates to potential claims payments that have not been resolved within one year is not material. Also, of the small provisions that do relate to longer than one year, it is possible to predict with reasonable confidence the outstanding amounts. Comparisons of actual claims against previous estimates are therefore not provided.

All of the Group’s general insurance activities are single line health portfolios. Even though only a single line of business is managed, the Group does not have severe concentrations of insurance risk for the following reasons:

— geographical diversity, with major activities in UK, Spain, Australia, the US and Hong Kong; — product diversity between domestic individual, domestic corporate and expatriate health insurance; and — a variety of claims exposures across diverse medical providers — consultants, nursing staff, clinics, individual hospitals and hospital groups.

None of the Group’s general insurance contracts contain embedded derivatives so the contracts do not, in that respect, give rise to market risk. However, some products will settle claims in any number of foreign currencies, and therefore are affected by foreign exchange rate movements. In addition, the future premium income and claims outflows of general insurance contracts are unaffected by changes in interest rates.

The Group’s general insurance entities cede only a very small portion of risk through reinsurance and this does not represent a material credit risk exposure to the Group.


Business review

Governan

ceFinan

cial statements

34 Risk management continued

long-term insurance riskThe products currently sold within the long-term business are income protection, critical illness and life assurance to both corporate and individual customers, for terms of up to 40 years. These products are distributed primarily through intermediary channels in the UK and direct to individual customers in Australia. Some closed books of business are operated in the UK, Australia and Bermuda for some products following withdrawal from these markets, in particular immediate needs and pre-funded long-term care products.

Critical illness and life assurance products provide for a payment of a lump sum to the policyholder or beneficiary upon the diagnosis of a specified illness or death. Income protection provides for a monthly payment to the policyholder following a period of time being unable to work through illness, which is payable until retirement age or when the individual returns to work. None of the Group’s long-term insurance contracts contain embedded derivatives.

The Group is exposed to uncertainty around the timing, frequency and severity of morbidity and mortality claims under these insurance contracts through inadequate pricing and random and catastrophic events. It is also exposed to worse than anticipated operating experience on factors such as persistency levels and management and administrative expenses.

morbidity riskThe Group is exposed to the risk of paying higher claim costs than expected. This can arise from higher claim incidence rates and longer claim durations than expected. If claim costs are higher than estimated, there is a risk that the insurance liabilities are not sufficient to cover future claims. A significant proportion of this risk is mitigated by the use of quota share reinsurance arrangements.

mortality riskFor contracts which offer a lump sum benefit payable on death, the Group is exposed to the risk that mortality rates are higher than expected and lead to increased claim costs. For long-term care contracts the risk is that mortality rates are lower than expected and hence benefits are payable for longer than expected. A significant proportion of this risk is mitigated by the use of quota share reinsurance arrangements.

PersistencyThe Group is at risk of higher than expected lapse rates at early durations. This could result in a loss should insufficient premiums be collected to cover the costs of acquiring the policy. At longer durations there is a risk of lower than expected lapses leading to higher claims frequency and costs. Persistency risk does not affect the Group’s single premium contracts or annuities.

expense variabilityIf expense levels or expense inflation are higher than expected, insurance liabilities may not be sufficient to cover costs.

Geographical concentrations of riskThe Group is exposed to the risk that a single event occurs in a location which would result in a large number of claims arising under a Group risk policy. This is mitigated by reinsurance which caps the overall liability arising from a single event.

catastrophe riskEither a natural disaster, such as the spread of an epidemic, or a man made disaster could lead to a large number of claims and thus higher than expected claims costs. Such risks are reduced by quota share, surplus and catastrophe reinsurance cover.

To manage all of the above risks presented by long-term business the Group operates a risk management framework of approval procedures, underwriting limits, pricing guidelines, premium loadings, policy exclusions and close monitoring of actual performance and market developments. A significant proportion of the risk that is underwritten is ceded through proportionate and non-proportionate reinsurance treaties. Catastrophe reinsurance is also purchased to protect against concentration of risk within the Group life portfolio. The Risk and Compliance Committee approves any changes to reinsurance arrangements.

market riskMarket risk is the risk of adverse financial impact due to changes in fair values or future cash flows of financial instruments from fluctuations in interest rates, foreign exchange rates, commodity prices, credit spreads and equity prices. The focus of the Group’s long-term financial strategy is to facilitate growth without undue balance sheet risk. The Investment Committee is responsible for the management of the Group’s cash and short-term borrowings. Under the guidance of the Committee the role of the Group Treasury Department is to manage the Group’s liquidity position and short-term borrowings, together with the risks arising on interest rates and foreign currencies and to protect the security of the Group’s financial assets.

Market risk in relation to the long-term insurance business arises from fluctuations in values or income from current invested assets or projected yields for future investments. In order to reduce the risk of assets being insufficient to meet future policyholder obligations, the Group matches investments to liabilities. In addition, the Group actively manages assets using an approach that balances quality, diversification, liquidity and investment return.

In respect of its life assurance contracts, a sensitivity analysis is performed on renewal expenses and inflation based around various scenarios, to provide an indication of the adequacy of the Group’s estimation of these. Further details of this are set out in note 25.

The Group manages price risk by ensuring that the majority of its cash and investments are held with highly rated credit institutions.

Where the Group has moved away from straight money market investments and invested in a limited portfolio of absolute return assets (principally corporate bonds), the Group uses a value at risk (VaR) analysis to quantify risk, taking account of asset volatility and correlation between asset classes.

This portfolio was £161.2m at 31 December 2009 (2008: £227.8m).




interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group is exposed to interest rate risk arising from fluctuations in market rates. This affects both the return on floating rate assets, the cost of floating rate liabilities and the balance sheet value of its investment in fixed rate bonds. Floating rate assets represent a natural hedge for floating rate liabilities. The net balance on which the Group is exposed as at 31 December 2009 was £991.5m (2008: £661.0m). The rate at which maturing deposits are reinvested represents a significant potential risk to the Group, in currencies such as the Australian Dollar where the Group has a significant net floating cash or debt position.

The Group has also used interest rate swaps to manage interest rate exposure whereby the requirement to settle interest at fixed rates has been swapped for floating rates. This increases the ability to match floating rate assets with floating rate liabilities.

The Group manages investment liquidity against a target benchmark of four months’ duration for deposits with financial institutions and takes actions around this target based on future market expectations. The maturity profile of financial assets at 31 December 2009 and 2008 is as follows:

shares and other cash and Deposits Reverse UK overseas UK overseas medium variable cash with credit repo government government corporate corporate term yield Property equivalents institutions securities gilts gilts bonds bonds notes securities trusts total £m £m £m £m £m £m £m £m £m £m £m

2009 2010 1,058.3 410.2 191.8 – 87.8 – – 259.3 131.3 2.7 2,141.42011 – 164.5 – – 40.5 2.1 1.7 72.9 – – 281.72012 – – – – – 14.1 4.6 – – – 18.72013 – – – 4.8 – 16.4 1.6 – – – 22.82014 – – – – – 24.1 2.1 50.0 – – 76.22015–2019 – – – 5.1 – 44.3 6.6 – – – 56.0After 2019 – – – 15.7 – 70.7 – – 0.1 – 86.5

Total 1,058.3 574.7 191.8 25.6 128.3 171.7 16.6 382.2 131.4 2.7 2,683.3

2008 (restated) 2009 920.6 736.7 196.7 2.6 36.1 3.5 1.7 63.6 131.9 1.7 2,095.12010 – 114.5 – 0.3 1.9 – 2.2 115.7 – – 234.62011 – 16.2 – – – – – – 86.7 – 102.92012 – – – – 0.8 2.0 – – – – 2.82013 – – – 4.7 0.8 1.9 – – – – 7.42014–2018 – – – 5.3 2.0 70.1 – – – – 77.4After 2018 – – – 12.9 0.1 1.2 62.1 – – – 76.3

Total 920.6 867.4 196.7 25.8 41.7 78.7 66.0 179.3 218.6 1.7 2,596.5

Information regarding the ageing of financial and insurance assets, including those above, and the value of any impairment made against these assets is included on page 110.


Business review

Governan

ceFinan

cial statements


Variable loans are re-priced at intervals of between one and six months. Interest is settled on all loans in line with agreements and is settled at least annually.

The contractual and anticipated repayment profile of interest bearing financial liabilities is as follows: Undrawn Variable fixed total facility £m £m £m £m

2009 2010 (2.6) (25.1) (27.7) (685.7)2011 (410.8) (2.4) (413.2) –2012 (6.1) (2.6) (8.7) –2013 (4.7) (2.6) (7.3) –2014 (5.3) (51.5) (56.8) –2015–2019 (18.7) (354.0) (372.7) –After 2019 (348.1) (256.1) (604.2) –

Total (796.3) (694.3) (1,490.6) (685.7)

2008 2009 (44.0) (8.4) (52.4) (170.0)2010 (0.3) (4.4) (4.7) –2011 (1,105.0) (4.8) (1,109.8) –2012 (4.2) (3.5) (7.7) –2013 (5.3) (2.6) (7.9) –2014–2018 (13.3) (53.6) (66.9) –After 2018 (330.9) (277.6) (608.5) –

Total (1,503.0) (354.9) (1,857.9) (170.0)

The impact of a rise of 100 bps (2008: 100 bps) in interest rates at the reporting date, on an annualised basis, would have increased / (decreased) equity and surplus by the amounts shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. This analysis is performed on the same basis for 2008. Gains / (losses) included in income statement and equity £m

2009 Debt securities – government gilts 1.5Debt securities – corporate bonds 1.2Medium term notes 3.8Reverse repo securities 1.9Financial investments backing life investment contract liabilities 3.7Deposits with credit institutions 5.7Cash and cash equivalents 10.6Subordinated liabilities (3.3)Other interest bearing financial liabilities (4.7)Life investment contract liabilities (3.7)

Total 16.7

2008 (restated) Debt securities – government gilts 0.7Debt securities – corporate bonds 0.8 Medium term notes 1.8Reverse repo securities 2.0Financial investments backing life investment contract liabilities 2.7Deposits with credit institutions 8.3Cash and cash equivalents 9.2Subordinated liabilities (3.3)Other interest bearing financial liabilities (11.6)Life investment contract liabilities (2.7)

Total 7.9

The impact of a fall of 100 bps (2008: 100bps) in interest rates, on an annualised basis, would have the inverse effect to that shown in the table above.

companyThe Company is not materially exposed to interest rate risk.




foreign exchange riskThe Group is exposed to foreign exchange risks arising from commercial transactions and from recognising assets, liabilities and investments in overseas operations.

The Group is exposed to both transaction and translation risk. The former is the risk that a company’s cash flows and realised profits may be impacted by movements in foreign exchange rates. The latter arises from translating the financial statements of a foreign operation into the Group’s functional currency.

Bupa has exposure to foreign exchange risk arising from its overseas operations. Key exposures are to the Australian Dollar, US Dollar, Euro, New Zealand Dollar, Bahraini Dinar, Danish Krone, Hong Kong Dollar, Thai Baht and Singapore Dollar.

Where appropriate, the Group uses foreign currency forward contracts and foreign currency borrowings to hedge balance sheet translation exposure.

The carrying value of total assets and total liabilities categorised by currency is as follows: Net currency Net currency exposure currency forward Borrowing including exposure contracts transactions hedges £m £m £m £m

2009 Australian Dollar 1,867.8 (221.0) – 1,646.8 US Dollar 409.5 (217.8) – 191.7 Euro 299.9 (48.8) (98.0) 153.1New Zealand Dollar 177.1 – – 177.1Bahraini Dinar 46.7 – – 46.7Danish Krone 12.4 – (36.9) (24.5)Hong Kong Dollar 8.9 – – 8.9 Thai Baht 7.7 – – 7.7 Other 8.4 – – 8.4

Total foreign currency denominated net assets 2,838.4 (487.6) (134.9) 2,215.9

Percentage of Group net assets 71.2% 55.6%

2008 (restated) Australian Dollar 1,594.3 – – 1,594.3 US Dollar 597.9 (311.2) – 286.7 Euro 306.8 – (110.7) 196.1 New Zealand Dollar 155.2 – – 155.2 Bahraini Dinar 49.7 – – 49.7 Danish Krone 119.4 – (39.7) 79.7 Hong Kong Dollar 17.2 – – 17.2 Thai Baht 8.6 – – 8.6 Other 2.6 – – 2.6

Total foreign currency denominated net assets 2,851.7 (311.2) (150.4) 2,390.1

Percentage of Group net assets 78.7% 65.9%

The following significant exchange rates applied during the year: average rate closing rate

2009 2008 2009 2008

Australian Dollar 1.9906 2.1864 1.8031 2.0902US Dollar 1.5659 1.8519 1.6170 1.4604Euro 1.1227 1.2574 1.1275 1.0477


Business review

Governan

ceFinan

cial statements


The impact of 5% strengthening of Sterling (2008: 5%) against the currencies below, with all other variables constant, would have (decreased) / increased equity and surplus by the amounts shown below: Gains / (losses) included in Gains / (losses) income included statement in equity £m £m

2009 Australian Dollar (6.2) (78.4)US Dollar (1.8) (9.1)Euro (3.1) (7.3)Other (2.1) (10.7)

Total sensitivity (13.2) (105.5)

2008 (restated) Australian Dollar (3.9) (75.9)US Dollar 5.3 (14.9)Euro (4.8) (9.3)Other (0.2) (14.9)

Total sensitivity (3.6) (115.0)

The impact of 5% weakening of Sterling (2008: 5%) against the currencies above, with all other variables constant, would have the inverse effect to that shown above.

companyThe Company is not materially exposed to foreign exchange risk.

credit riskCredit risk is the risk of loss in the value of financial assets due to counterparties failing to meet all or part of their contractual obligations. The Group manages its credit risk exposures under the guidance of the Investment Committee.

Investment exposure with external counterparties is managed by ensuring there is a sufficient spread of investments and that all counterparties are rated at least AA– by two of the three key rating agencies used by the Group (unless specifically approved by the Investment Committee). The investment profile at 31 December is as follows:

2009 2008 (restated) £m £m

UK government gilts 25.6 25.8Overseas government gilts 128.3 41.7Investment grade counterparties 2,436.9 2,428.6Non-investment grade counterparties 92.5 100.4

2,683.3 2,596.5

Investment grade counterparties include cash and cash equivalents of £1,058.3m (2008: £920.6m).

The investments which are held with non-investment grade counterparties are classed as shares and other variable yield securities and include commodity funds. Non-investment grade counterparties are those rated below BBB-.

In aggregate across the Group, reinsurance credit risk is not material; however, what does exist is concentrated in the UK life insurance business. Reinsurance credit risk is mitigated by using reinsurers which have been approved by the Risk and Compliance Committee of Bupa Health Assurance Limited (BHA). The Group monitors the exposure and financial status of reinsurers on an ongoing basis. The Bupa Insurance Ltd and BHA Risk and Compliance Committee is responsible for approving all new reinsurance arrangements.




Information regarding the ageing of financial and insurance assets and the value of the impairment made against these assets is provided below:

total Neither carrying past Greater value in the due or 0–3 3–6 6 months– than balance impaired months months 1 year 1 year impairment sheet £m £m £m £m £m £m £m 2009 Debt securities 342.2 – – – – – 342.2Shares and other variable yield securities 131.4 – – – – – 131.4Medium term notes 382.2 – – – – – 382.2Reverse repo securities 191.8 – – – – – 191.8Deposits with credit institutions 574.7 – – – – – 574.7Property trusts 2.7 – – – – – 2.7Reinsurers’ share of insurance provisions 81.7 – – – – – 81.7Insurance debtors 470.2 210.4 22.1 11.9 7.4 (22.2) 699.8Investment receivables and accrued investment income 12.3 0.1 – – 0.8 – 13.2Trade and other receivables 227.2 102.8 12.1 3.9 10.9 (9.1) 347.8

Total financial and insurance assets 2,416.4 313.3 34.2 15.8 19.1 (31.3) 2,767.5

2008 (restated) Debt securities 212.2 – – – – – 212.2 Shares and other variable yield securities 218.6 – – – – – 218.6 Medium term notes 179.3 – – – – – 179.3 Reverse repo securities 196.7 – – – – – 196.7 Deposits with credit institutions 867.4 – – – – – 867.4 Property trusts 1.7 – – – – – 1.7Reinsurers’ share of insurance provisions 73.3 – – – – – 73.3 Insurance debtors 542.3 136.1 15.7 10.0 6.3 (27.6) 682.8 Investment receivables and accrued investment income 2.7 12.9 – – 0.5 – 16.1Trade and other receivables 217.0 95.4 11.4 11.2 3.3 (13.5) 324.8

Total financial and insurance assets 2,511.2 244.4 27.1 21.2 10.1 (41.1) 2,772.9

The carrying amount of financial and insurance assets of £2,661.9m (2008: £2,679.4m) included on the Group balance sheet represents the maximum credit exposure.

The movement in the allowance for impairment in respect of financial and insurance assets during the year was as follows: 2009 2008 £m £m

At beginning of year 41.1 27.1 Impairment loss recognised 6.6 12.0Additions through business combinations – 4.9Disposal of subsidiary companies (0.8) – Bad debt provision released in year (13.0) (6.3)Transferred to assets held for sale – (1.2)Foreign exchange (2.6) 4.6

At end of year 31.3 41.1

The Group believes no impairment allowance is necessary in respect of financial assets not past due date.

The Group considers notified disputes, significant changes in the counterparty’s financial position and collection experience in determining which assets should be impaired. The credit quality of receivables is managed at a local business unit level with uncollectable amounts being impaired when necessary.

Assets pledged as security include £31.2m (2008: £43.5m) of cash held in restricted access deposits, £86.4m (2008: £90.5m) of property, plant and equipment and £0.2m (2008: £0.3m) of inventories.

companyThe maximum credit risk exposure of the Company is £2.1m (2008: £1.7m). The Company believes amounts owed to it by subsidiary companies carry no credit risk.


Business review

Governan

ceFinan

cial statements


liquidity riskLiquidity risk is the risk that the Group will not have available funds to meet its liabilities when they fall due.

The Group’s main source of short-term funding is via a £1.1bn committed bank facility, of which only £414.3m was drawn at 31 December 2009. The facility matures in February 2011, and the Group expects to refinance this during 2010. The Group repaid £679.8m of bank borrowings during 2009 from both the proceeds of the issue of a £350.0m senior bond in the public market and the regular repatriation of operating cash flows. As a result of these ongoing repatriations, the Group expects that the level of drawings on the bank facility will decrease during the course of 2010 and discussions with the Group’s banks have given no indication that the facility will not be able to be refinanced at an appropriate level and on acceptable commercial terms. The Group Treasury department monitors funding risk as well as compliance with existing financial covenants within the banking arrangements. There were no concerns regarding bank covenant coverage in 2009 and that position is not expected to change in the foreseeable future.

The Group enjoys a strong liquidity position and adheres to strict liquidity management policies as set by the Investment Committee as well as adhering to certain liquidity parameters, as defined by the FSA for the Group’s regulated entities in the UK and local equivalent authorities for the Group’s foreign operations.

Liquidity is managed by currency, and by considering the segregation of accounts required for regulatory purposes, short-term operational working capital requirements are met by cash in hand and committed bank facilities.

Liquidity risk for the long-term insurance business is managed by matching assets to liabilities and by maintaining a portion of the long-term investment portfolio in liquid, short-term deposits.

The maturity of assets which are used to match liabilities and manage liquidity risk is disclosed on page 110.

The contractual maturities of financial liabilities and the expected maturities of insurance liabilities including estimated interest payments of the Group as at 31 December are as follows: other Provisions liabilities other under under life interest insurance insurance investment trade subordinated bearing contracts contracts contract and other liabilities liabilities issued issued liabilities payables total £m £m £m £m £m £m £m 2009 2010 (20.6) (65.8) (1,996.3) (32.8) (832.0) (773.1) (3,720.6)2011 (20.6) (461.0) (2.0) – – (20.7) (504.3)2012 (20.6) (56.5) (2.9) – – (7.7) (87.7)2013 (20.6) (55.1) (2.8) – – (7.6) (86.1)2014–2019 (127.1) (588.6) (1.7) – – (15.0) (732.4)After 2019 (345.2) (415.6) (84.4) – – – (845.2)

Total (554.7) (1,642.6) (2,090.1) (32.8) (832.0) (824.1) (5,976.3)

Carrying value in the balance sheet (362.4) (1,128.2) (2,090.1) (32.8) (832.0) (824.1) (5,269.6)

2008 (restated) 2009 (20.6) (52.4) (1,908.2) (30.4) (679.4) (702.2) (3,393.2)2010 (20.6) (10.6) (2.3) – – (2.9) (36.4)2011 (20.6) (1,115.7) (1.9) – – (14.8) (1,153.0)2012 (20.6) (13.6) (3.9) – – (6.7) (44.8)2013–2018 (123.6) (83.7) (2.2) – – (18.7) (228.2)After 2018 (374.3) (234.8) (77.7) – – (0.5) (687.3)

Total (580.3) (1,510.8) (1,996.2) (30.4) (679.4) (745.8) (5,542.9)

Carrying value in the balance sheet (379.6) (1,478.3) (1,996.2) (30.4) (679.4) (745.8) (5,309.7)

It is deemed that the provisions under insurance contracts issued relating to general insurance liabilities fall due within one year.

The total liability is split by remaining duration in proportion to the cash flows expected to arise during that period. Interest payments are included in the cash flows for subordinated liabilities and other interest bearing liabilities.

companyThe contractual maturity of financial liabilities fall due within one year.




Going concernDetails of the Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review on pages 16 to 32. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Finance Director’s report on pages 24 to 27, together with further information disclosed in notes 22 to 24 and 32. In addition, notes 33 and 34 summarise the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. The Group maintains significant cash balances to meet its day to day working capital requirements (see note 22). The Group’s medium term financing requirements are funded by these balances and bank loans drawn under the Group’s £1.1bn committed bank facility, which matures in February 2011. The Group plans to refinance the bank facility during 2010, and has initiated discussions with its main relationship banks with a view to this. Nothing has arisen during these discussions that would suggest that the Group will be unable to refinance the facility on acceptable commercial terms in the foreseeable future. IAS 1 requires the Group to make an assessment of its ability to continue as a going concern when preparing its financial statements. In making this assessment, management have considered the ongoing discussions with the relationship banks as well as forecasts based on the Group’s three year plan for the period 2010 to 2012, which take account of reasonably possible changes in trading performance.

After making enquiries, the Directors have reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.

35 acquisitions

2009 acquisitionsNo acquisitions were made during the year ended 31 December 2009.

2008 acquisitionsA number of acquisitions were made during the year ended 31 December 2008, the more significant of which were MBF Australia Limited (MBF), Australia’s second largest health fund, and Health Dialog, the US based health information and disease management company.

Further details of the acquisitions made during the year ended 31 December 2008 are as follows: Percentage Date of holding acquisition acquired

Bupa Aged Care Australasia Pty Limited (BACA) 4 February 2008 7%*

MBF Australia Limited (MBF) 14 May 2008 100%Health Dialog 16 January 2008 84.3%**

The Bupa Cromwell Hospital (formerly The Cromwell Health Group Limited) 14 March 2008 100%Terapia Y Pilates, S.L. 18 February 2008 100%Secledin S.L. 3 August 2008 100%Emily Lenny 1 February 2008 Trade and assets* Bupa acquired a 93% shareholding in BACA on 12 December 2007, thereby gaining immediate effective management control. There was a contractual obligation

to purchase shares from the minority shareholders through a written put option on 4 February 2008. As a result, BACA was treated as 100% owned subsidiary for the year ended 31 December 2007. The minority interest at that stage was properly accounted for as a liability, reflecting Bupa’s commitment.

** Bupa acquired a 84.3% shareholding in Health Dialog during 2008 such that it now owns 100%.

During the year ended 31 December 2009, the fair value accounting for MBF, Health Dialog and The Bupa Cromwell Hospital was finalised and, as such, the reported Group balance sheet as at 31 December 2008 has been adjusted to reflect the final fair value adjustments on acquisition. As a result of the final analysis of the acquisition balance sheet of MBF by management, assets arising from insurance business (Medicare rebate) has decreased by £0.6m, trade and other receivables has decreased by £2.4m, trade and other payables has increased by £2.9m, with a corresponding decrease of £0.4m in the net deferred taxation liability. These adjustments have resulted in a net increase to goodwill of £5.5m to that reported at 31 December 2008. These adjustments have no impact on the 2008 income statement. There has been no adjustment with respect to Health Dialog or The Bupa Cromwell Hospital.


Business review

Governan

ceFinan

cial statements

35 acquisitions continued mBf (restated) health Dialog

carrying carrying value at fair value value at fair value acquisition adjustments fair value acquisition adjustments fair value £m £m £m £m £m £m

Intangible assets 71.8 168.8 240.6 17.3 93.6 110.9Property, plant and equipment 13.0 (1.9) 11.1 8.8 0.1 8.9Equity accounted investments 1.1 – 1.1 – – –Financial investments 529.2 – 529.2 – – –Financial investments backing life investment contract liabilities 785.0 – 785.0 – – –Inventories 0.2 – 0.2 – – –Assets arising from insurance business 33.6 (0.6) 33.0 – – –Deferred taxation asset 6.3 (6.3) – 23.9 (23.9) –Policyholder taxation attributable to life investment contracts 3.6 – 3.6 – – –Current taxation asset 1.9 – 1.9 1.3 – 1.3Trade and other receivables 22.9 (2.4) 20.5 23.3 – 23.3Cash and cash equivalents 219.2 – 219.2 37.3 – 37.3Other interest bearing liabilities – – – (0.2) 0.2 –Provisions under insurance contracts issued (201.5) (1.3) (202.8) – – –Life investment contract liabilities (807.3) – (807.3) – – –Provisions for liabilities and charges (2.9) – (2.9) – – –Deferred taxation liabilities – (41.0) (41.0) – (15.8) (15.8)Trade and other payables (144.4) (3.5) (147.9) (52.4) – (52.4)

531.7 111.8 59.3 54.2

Net assets acquired 643.5 113.5Change in value of previously acquired interest – (5.1)Goodwill 472.8 273.8

Consideration 1,116.3 382.2

Consideration satisfied by:Cash 1,102.3 352.7Original investment – 28.7Directly attributable costs — cash 13.7 0.8Directly attributable costs — accrued 0.3 –

1,116.3 382.2

Purchase consideration settled in cash 1,102.3 352.7Directly attributable costs 13.7 0.8Cash and cash equivalents in subsidiary companies acquired (219.2) (37.3)

Net cash outflow on acquisition 896.8 316.2

The above tables are translated at average exchange rates for the year ended 31 December 2008. Set out below is the calculation of goodwill using the spot rates as at the respective dates of acquisition.

Net assets acquired 676.4 106.9Change in value of previously acquired interest – 4.8Goodwill 496.6 257.5

Consideration 1,173.0 369.2



35 acquisitions continued the Bupa cromwell hospital other

carrying carrying value at fair value value at fair value acquisition adjustments fair value acquisition adjustments fair value £m £m £m £m £m £m

Intangible assets 0.2 – 0.2 1.9 – 1.9Property, plant and equipment 20.1 (1.2) 18.9 6.3 – 6.3Inventories 1.2 – 1.2 – – –Deferred taxation asset – 0.2 0.2 0.2 – 0.2Trade and other receivables 17.0 1.2 18.2 0.1 – 0.1Cash and cash equivalents 7.5 – 7.5 0.2 – 0.2Other interest bearing liabilities (10.6) – (10.6) (0.7) – (0.7)Post employment benefit liabilities (0.8) (2.1) (2.9) – – –Provisions for liabilities and charges – – – (0.1) – (0.1)Deferred taxation liabilities (0.6) 0.6 – – – –Current taxation liabilities – (0.3) (0.3) – – –Trade and other payables (8.3) 0.1 (8.2) (5.4) – (5.4)

25.7 (1.5) 2.5 –

Net assets acquired 24.2 2.5Goodwill 70.0 3.6

Consideration 94.2 6.1

Consideration satisfied by:Cash 93.2 5.5Deferred consideration – 0.1Directly attributable costs — cash 1.0 0.5

94.2 6.1

Purchase consideration settled in cash 93.2 5.5Directly attributable costs 1.0 0.5Cash and cash equivalents in subsidiary companies acquired (7.5) (0.2)

Net cash outflow on acquisition 86.7 5.8

In 2008, a dividend of £2.6m was paid by BACA out of pre-acquisition revenues which reduced the goodwill arising on acquisition from £280.0m to £277.4m.

Deferred consideration of £34.7m, which was paid on 4 February 2008 in respect of BACA, comprised AU$79.1m which was translated at the average exchange rate for 2008 (2007:£33.0m). It was included within trade and other payables at 31 December 2007 (see note 30).


Business review

Governan

ceFinan

cial statements

Notes to the fiNaNcial statemeNtsfor the year ended 31 December 2009 – continued

35 acquisitions continued

The total fair value of intangible assets acquired through business combinations during 2008 was £353.6m, of which £31.8m was acquired within the net assets of the acquired businesses and £321.8m arose on acquisition and is analysed below: health total mBf Dialog Group £m £m £m

Customer-related assets 163.3 39.5 202.8Technology and database – 44.1 44.1Brand 42.2 10.7 52.9In-force business 17.4 – 17.4Distribution networks 4.6 – 4.6

227.5 94.3 321.8

In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting terms to identifiable assets and liabilities acquired and is therefore recognised as goodwill.

In MBF, goodwill of £472.8m represents a premium for the ability to identify and market new products, as well as the expectation of gaining new customers, the fair value of the going concern element of MBF’s existing business, the assembled workforce and other intangible assets that do not meet the criteria of IAS 38 and the synergistic benefits through merging the business with Bupa Australia.

In Health Dialog, the value attributed to goodwill of £273.8m includes a premium for obtaining a foothold in the US healthcare industry with an experienced workforce and established reputation. Other elements include synergies to be gained from operating Health Dialog alongside Bupa’s existing insurance business and continuing relationships with key industry organisations.

Goodwill attributable to The Bupa Cromwell Hospital of £70.0m represents a premium paid for the assembled workforce, the affluent locality of the hospital and the synergies expected to be gained by incorporating The Bupa Cromwell Hospital into Bupa’s existing business.

In the period from the respective dates of acquisition to 31 December 2008, the total amount contributed to the Group’s surplus for the financial year ended 31 December 2008 from the acquisitions made in the year was £44.2m, of which £28.5m was contributed by MBF, £13.2m by Health Dialog and £2.5m by The Bupa Cromwell Hospital. These results include adjustments to give effect to amortisation of intangible assets arising on business combination, together with the related taxation effect.

If the acquisitions had occurred on 1 January 2008, the Group’s revenue and surplus for that financial year would have been £6,358.1m and £130.0m respectively. These results include adjustments to give effect to amortisation of intangible assets arising on business combinations, together with the related taxation effect. The results are not necessarily indicative of the results that would have occurred had the purchases been made at the beginning of the year, or of the future results of the combined activities of the Group.



36 commitments and contingencies

(i) capital commitments

GroupCapital expenditure for the Group contracted as at 31 December 2009 but for which no provision has been made in the financial statements amounted to £7.1m (2008: £22.0m), all of which related to property, plant and equipment.

companyThe Company has no capital commitments as at 31 December 2009 (2008: £nil).

(ii) operating leases

GroupThe total value of future non-cancellable operating lease rentals is payable as follows: 2009 2008 (restated) £m £m

Less than one year 39.4 35.9 Between one and five years 140.9 138.5More than five years 415.8 456.0

596.1 630.4

The Group leases a number of properties under operating leases. The leases typically run for a period of 25 years, with an option to renew the lease after that date. Lease payments are reviewed regularly in accordance with the terms and conditions of the individual lease agreements. None of these leases include contingent rentals.

Some of the leased properties have been sub-let by the Group. These leases expire between 2010 and 2024 and the sub-leases between 2010 and 2022. Sub-lease receipts of £1.6m (2008: £1.5m) are expected to be received during the next financial year. The Group has recognised an unoccupied property provision of £3.7m (2008: £5.2m) in respect of these leases (see note 28).

leases as lessorThe Group leases out its investment properties under operating leases (see note 13). The future lease receipts under non-cancellable leases are as follows:

2009 2008 £m £m

Less than one year 1.1 1.0Between one and five years 3.6 4.1More than five years 0.9 1.7

5.6 6.8

During the year ended 31 December 2009, £1.1m (2008: £1.0m) was recognised as rental income in the income statement.

companyThe Company had no operating lease obligations (2008: £nil).

(iii) Pension contributions

companyThe Company has an obligation to make a series of special contributions to The Bupa Pension Scheme between 31 December 2009 and 31 December 2012, details of which are set out in note 27. In addition, Bupa Finance plc has entered into a legally binding and irrevocable guarantee for the benefit of the Trustees of The Bupa Pension Scheme in respect of these payments.

(iv) contingent assets and liabilities

GroupThe Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, from which it is anticipated that the likelihood of any material unprovided liabilities arising is remote.

companyThe Company has guaranteed the borrowings of certain subsidiary undertakings, which at 31 December 2009 amounted to £407.6m(2008: £1,138.1m).

The Company has given a guarantee in respect of a £350.0m bond issued by Bupa Finance plc.

The Company is party to a £1.1bn revolving credit facility, together with various other companies within the Group, of which £407.6m (2008: £1,138.1m) had been drawn down as at 31 December 2009. The Company has joint and several liability for all obligations under the agreement.


Business review

Governan

ceFinan

cial statements

37 Related party transactions

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

GroupThe ultimate parent company of the Group is The British United Provident Association Limited.

Intra Group related party transactions and outstanding balances are eliminated in the preparation of the consolidated financial statements of the Group.

transactions with key management personnelThe key management personnel are the Group’s Executive and Non-Executive Directors and the Managing Directors of the Group’s business segments. The remuneration of the Group’s Executive and Non-Executive Directors is disclosed in note 5. The remuneration of the business segment Managing Directors is as follows: 2009 2008 Note £m £m

Short-term employee benefits 3.6 3.3Long-term incentive plan a 2.4 –Post employment benefits 2.7 2.6

total remuneration paid to key management personnel 8.7 5.9

Notesa. Amounts paid in respect of the long-term incentive plan are earned during a two year period with 60.0% of the total fund value paid in April of year three and 40.0% paid

in April of year five.

The total remuneration of key management personnel is included in staff costs (see note 4).

No Director had any material interest in any contracts with Group companies at 31 December 2009 (2008: £nil) or at any time during the year.

transactions with the trustees of the Bupa Pension schemeThe Company has made pension promises to Executive Directors and key management personnel through an unapproved pension arrangement which mirrors the terms of The Bupa Pension Scheme. These unfunded benefits have been secured by a charge, in the name of the Trustees of The Bupa Pension Scheme, over £25.4m (2008: £25.7m) of cash deposits.

There were no material transactions during the year with any other related parties, as defined by IAS 24.

companyThe Company has a related party relationship with its key management personnel and with its subsidiary companies (see note 15).

transactions with key management personnelThe key management personnel are the Group’s Executive and Non-Executive Directors and the Managing Directors of the Group’s business segments. The remuneration of the Group’s Executive and Non-Executive Directors is disclosed in note 5. The total remuneration of the business segment Managing Directors is as disclosed above.

The total remuneration of key management personnel is included in staff costs (see note 4).

transactions and balances with subsidiary companies transactions Balance at during the year 31 December

2009 2008 2009 2008 £m £m £m £m

income statementManagement charges received 139.9 140.5 Interest income 6.6 21.8 Interest expense (9.0) (33.2) Income received (including rental income of £0.1m (2008: £0.2m)) 2.1 1.9 Expenses paid (including rental expense of £6.4m (2008: £6.5m)) (7.0) (7.0)

Balance sheetAmounts owed by subsidiary companies 108.7 (8.9) 348.7 240.0Amounts owed to subsidiary companies (200.8) (41.9) (609.8) (409.0)Loans to subsidiary companies 244.7 – 244.7 –Loans from subsidiary companies (194.3) 0.7 (198.9) (4.6)

The above outstanding balances arose during the ordinary course of business and are on substantially the same terms, including interest rates, as for comparable transactions with third parties.


2009 2008 2007 2006 2005 (restated) (restated) (restated) Note £m £m £m £m £m

Revenues — segmental analysisUK and North America 2,131.4 2,069.3 1,807.5 1,640.0 1,544.2 EMEALA 1,760.4 1,568.9 1,207.9 1,056.4 773.1 Asia Pacific 2,122.8 1,394.3 568.5 513.7 493.2 Care Services 926.3 891.6 665.7 606.3 540.4 Hospitals – – – – 531.2Net reclassification to other expenses or financial income and expenses (0.1) (3.1) (3.4) (1.9) (3.9)Other 0.6 2.9 3.9 12.7 0.5

Revenue from continuing operations 6,941.4 5,923.9 4,250.1 3,827.2 3,878.7 Revenue from discontinued operations – – 295.3 420.6 –

consolidated total revenues a 6,941.4 5,923.9 4,545.4 4,247.8 3,878.7

Operating expenses (including claims) (6,564.3) (5,567.5) (3,909.2) (3,525.7) (3,564.7)Impairment of goodwill – (116.5) – (14.3) (6.0)Impairment of other intangible assets arising on business combinations (11.7) (4.0) (5.7) – – Other income / (charges) 2.4 (3.4) 20.1 10.2 28.9

Claims and expenses from continuing operations (6,573.6) (5,691.4) (3,894.8) (3,529.8) (3,541.8)

Claims and expenses from discontinued operations – – (242.8) (380.9) –

total claims and expenses (6,573.6) (5,691.4) (4,137.6) (3,910.7) (3,541.8)

surplus before impairment of goodwill, impairment of other intangible assets arising on business combinations, other income / (charges), and financial income and expenses from continuing operations 377.1 356.4 340.9 301.5 314.0 Impairment of goodwill arising on business combinations – (116.5) – (14.3) (6.0)Impairment of other intangible assets arising on business combinations (11.7) (4.0) (5.7) – – Other income / (charges) 2.4 (3.4) 20.1 10.2 28.9

surplus before financial income and expenses from continuing operations 367.8 232.5 355.3 297.4 336.9

Financial income and expenses 48.7 (40.6) 44.1 (4.7) 20.5

surplus before taxation expense from continuing operations 416.5 191.9 399.4 292.7 357.4Taxation expense (115.7) (79.5) (104.5) (91.0) (103.7)

surplus for the year from continuing operations 300.8 112.4 294.9 201.7 253.7

Notesa. Included in revenues from continuing operations and surplus before impairment of goodwill, impairment of other intangible assets arising on business

combinations, other income / (charges), and financial income and expenses from continuing operations for the year ended 31 December 2005 are the results of Bupa Hospitals sold in August 2007, one hospital sold in March 2006 and nine hospitals sold in July 2005. The trading of these entities has not been disclosed as discontinued for the year ended 31 December 2005, as at the time of these disposals, the decision had not been made to exit the hospitals market.

fiVe yeaR fiNaNcial sUmmaRy


Business review

Governan

ceFinan

cial statements

2009 2008 2007 2006 2005 (restated) (restated) (restated) £m £m £m £m £m

Discontinued operationsSurplus from operating activities before financial income and expenses – – 52.5 39.7 –Financial income and expenses – – (9.8) (1.2) –

surplus from operating activities before taxation expense – – 42.7 38.5 –Taxation expense – – (12.3) (2.5) –

surplus from operating activities for the financial year – – 30.4 36.0 –

Profit on sale of business – – 815.6 – –Taxation on profit on sale of business – – (6.3) – –

– – 809.3 – –

surplus for the financial year from discontinued operations – – 839.7 36.0 –

surplus for the financial year 300.8 112.4 1,134.6 237.7 253.7

attributable to:Bupa 288.9 106.9 1,132.0 220.8 236.1 Non-controlling interests Callable subordinated perpetual guaranteed bonds – – – 14.3 14.3 Other 11.9 5.5 2.6 2.6 3.3

300.8 112.4 1,134.6 237.7 253.7

ReservesProperty revaluation reserve 596.7 636.5 647.5 641.9 645.8Income and expense reserve 2,989.1 2,795.2 2,684.2 1,287.0 1,056.1 Cash flow hedge reserve 29.7 30.9 (1.4) – –Foreign exchange translation reserve 333.6 124.9 17.1 (11.8) 1.0

equity attributable to Bupa 3,949.1 3,587.5 3,347.4 1,917.1 1,702.9 equity attributable to minority equity interests Callable subordinated perpetual guaranteed bonds – – – – 317.7 Other 36.8 37.0 16.5 11.7 23.3

36.8 37.0 16.5 11.7 341.0

total equity 3,985.9 3,624.5 3,363.9 1,928.8 2,043.9


international financial Reporting standards (ifRs) IFRS 1 First-time adoption of International Financial Reporting Standards IFRS 3 Business combinations IFRS 4 Insurance contracts IFRS 5 Non-current assets held for sale and discontinued operations IFRS 7 Financial instruments: DisclosuresIFRS 8 Operating segments

international accounting standards (ias)IAS 1 Presentation of financial statements IAS 2 Inventories IAS 7 Cash flow statements IAS 8 Accounting policies, changes in accounting estimates and errors IAS 10 Events after the balance sheet date IAS 12 Income taxes IAS 16 Property, plant and equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee benefits IAS 21 The effects of changes in foreign exchange rates IAS 23 Borrowing costsIAS 24 Related party disclosuresIAS 27 Consolidated and separate financial statements IAS 28 Investments in associates IAS 31 Interests in joint venturesIAS 32 Financial instruments: Presentation IAS 36 Impairment of assets IAS 37 Provisions, contingent liabilities and contingent assets IAS 38 Intangible assets IAS 39 Financial instruments: Recognition and measurement IAS 40 Investment property

interpretationsIFRIC 4 Determining whether an arrangement contains a leaseIFRIC 9 Embedded derivativesIFRIC 12 Service concession arrangementsIFRIC 13 Customer loyalty programmesIFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interactionIFRIC 16 Hedges of a net investment in a foreign operationIFRIC 17 Distributions of non-cash assets to ownersIFRIC 18 Transfer of assets from customersSIC 12 Consolidation: Special purpose entitiesSIC 27 Evaluating the substance of transactions involving the legal form of a lease

iNteRNatioNal fiNaNcial RePoRtiNG staNDaRDs ReleVaNt to BUPa

Designed, edited and produced by Wardourwww.wardour.co.uk

Printed in the UK by Royle Print Ltd, Environmental Management System ISO 14001 accredited and Forest Stewardship Council (FSC) chain of custody certified.

This report is printed utilising vegetable based inks on Revive 50:50 offset which is produced with 50% recycled fibre from pre-consumer sources, together with 50% TCF (Totally Chlorine Free) fibre from well-managed forests independently certified according to the rules of the Forest Stewardship Council.

ConTenTs

Business review 1 2009 Group highlights 2 Where we operate 4 Bupa facts and figures 5 Chairman’s statement 6 Chief Executive’s review

Case studies 8 Leading: Sanitas 9 Ethical: The Ecuador Challenge 10 Enabling: Bupa Home Healthcare 11 Dedicated: Bupa Latin America 12 Accountable: Health Dialog 13 Caring: Bupa Health and Wellbeing UK 14 Special: Bupa Australia 15 Respectful: Bupa Care Services

16 UK and North America 18 Europe, Middle East, Africa and Latin America 20 Asia Pacific 22 Care Services 24 Finance Director’s report 28 Business risks and uncertainties 31 Corporate responsibility

Governance 33 Report of the Board of Directors 34 Directors and advisers 36 Corporate governance statement 39 Remuneration report 42 Statement of Directors’ responsibilities

Financial statements 44 Independent auditors’ report 46 Financial statements118 Five year financial summary120 International Financial Reporting

Standards relevant to Bupa

In the face of a challenging global economy, Bupa’s performance in 2009 showed the strength of our trusted brands and excellent market positions in healthcare. Ray King, Chief Executive

Bupa an

nual repo

rt and ac

co

un

ts 2009

The British United Provident Association Limited is a company limited by guarantee. Registered in England No. 432511

© Bupa ™® ‘Bupa’ and the Heartbeat logo are registered service marks

The world of Bupa

Registered office Bupa House

15–19 Bloomsbury Way London WC1A 2BA

For further copies of this document020 7656 2300

Press office020 7656 2454

www.bupa.com

RA / 2009

Financial health

protection

Care homes Health information

Travel insurance

Home healthcare

International health

insurance

Health coaching

Private health

insurance

Health assessments

Helping people live

longer, healthier, happier lives

annual report and accounts 2009

new annual report and accounts 2009 - bupa · 2017. 9. 22. · uk and north america 2,131.4 emeala...

Documents