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April, 2019 6:19 PM

Bupa's Australian business records sharp fall in profits

Bupa's Australian business records sharp fall in profits

Healthcare group Bupa says "challenging" conditions in Australia and other key markets around the world will continue to be a drag on the bottom line this year after profits slumped by double digits in 2018.

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By Mary Blake 21.03.2019

Healthcare group Bupa says "challenging" conditions in Australia and other key markets around the world will continue to be a drag on the bottom line this year after profits slumped by double digits in 2018.

The London-based healthcare group warned that "economic and political headwinds" have not eased as uncertainty caused by the U.S.-China trade war and Brexit continue to weigh on business sentiment. Bupa said the pressures are likely to persist in the short to medium term.

In Australia, Bupa remains the largest aged care provider and is a market leader in insurance with the latter responsible for the lion’s share of its local earnings. Bupa's Australian and New Zealand business drives around 40 percent of the company's revenue, but the testing conditions last year saw underlying profit plummet 12 percent, though revenue remained relatively steady at $22.8 billion.

Bupa also faces challenges specific to Australia this year after the aged care royal commissioner announced an official enquiry into the $20 billion industry last September due to concerns about the quality and safety of care. The Royal Commission's interim report is set to be published before the end of the year.

Bupa group chief executive, Evelyn Bourke said the litany of challenges had led to a drop in profits last year. She noted: "This was driven by the effect of our divestment of part of the UK aged care business, and challenges in our Australian aged care and health-insurance businesses. Looking ahead, conditions in some of our key markets will continue to be challenging with a number of economic and political headwinds."

Bupa’s aged care unit in Australia recorded a loss of more than $132 million during the twelve months to December 31, 2018, according to documents filed with the country's corporate regulator. The significant year-over-year dip was due in part to higher costs and a slump in occupancy rates. Bupa had logged a $90.11 million profit for the 2017 calendar year.

It is now facing up to more costs due to the ongoing enquiry into aged care. Bupa recently revealed that it had spent more than half a million dollars on its submission, which is actually less than rivals Estia Health (+$1 million) and Regis Healthcare ($800,000). Bupa has already lost accreditation for its homes in South Hobart and Berry following decisions by the commission.

While some of Bupa's businesses have had a difficult twelve months, it did manage to secure a contract with the Australian Defence Force to deliver healthcare to personnel, beginning this year. Significant challenges lie ahead though and new chief exec, Hisham El-Ansary will be tasked with putting the regional division back on course when he arrives next month.

Mr. El-Ansary will also need to be vigilant of the upcoming federal election. Labour is using health insurance as a central part of its campaign after promising to cap premium rises in the sector to 2% and begin a wholesale enquiry into the wider private healthcare industry.

In other news, Australia's AMP Ltd revealed in mid-week that the majority of its executives will no longer receive short-term bonuses in attempts to avert a potential board removal. Investors are set to vote on remuneration practices and the latest move could prevent upheaval if they go against the proposals for the second straight year.

"The board understands that many of our shareholders are disappointed with AMP's business and financial performance in 2018," AMP Chairman David Murray noted in an official annual report released on Wednesday. "Reflecting the circumstances of last year, the board decided to award zero short-term incentives for AMP's group leadership team in 2018."

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