Bupa has added over one million customers in the UK from 4 million to 5.1 million, mainly in health insurance, but says its care for the elderly is continuing to put pressure on profits.
Total UK revenue rose 5% from £2,711.2m to £2,857.8m, with profit rising 4% from £175.0m to £182.6m.
A review of Bupa’s UK performance by the company’s CEO Stuart Fletcher, says local authority fees must rise so that they cover the cost of providing care.
“In aged care, public funding pressures in the UK mean that local authority fees for care services are often below the true cost of delivering care, which is then compounded by the impact of inflation on operating costs,” says Mr Fletcher.
The imposition of the National Living Wage will increase pressure, Mr Fletcher asserts. “We are supportive of the move to a National Living Wage for our people. This will however increase the cost of delivering care and we are making the case to the government that fees from local authorities will need to increase to cover this additional cost. We are increasingly taking a firmer line when negotiating contracts with local authorities to ensure that we recover the true cost of caring for our residents,” he adds.
Bupa has written down the balance sheet value of its care home business by almost £300 million in anticipation of the impact that the Living Wage will create. “The ongoing funding challenges in the care sector, compounded by the introduction of the National Living Wage in the UK from April 2016, contribute to significant pressures on margins,” Mr Fletcher says.
“As we cannot at this stage be confident we will mitigate the whole of the impact, there has been a partial write down of the value of our care services business. This is comprised of goodwill impairment of £114.1m and a write down in the value of property and equipment of £179.7m, of which £67.8m has been recognised in the Income Statement, with the balance being taken to the revaluation reserve,” he explains.
While Bupa is widely rumoured to be looking for a buyer for its care home business, its financial statement says it is still investing in homes and care villages in the UK. “We remain committed to further improving and extending our range of services for older people. We completed 27 care home refurbishments during the year and in December, we acquired Hadrian Healthcare Limited, which is comprised of five purpose-built care homes and two development sites. Richmond Villages has continued its strong performance this year, with the expected completion of Richmond Witney bringing our portfolio to six villages in 2016,” Mr Fletcher advises.