FD Interview: Tom Singer

AS GROUP finance director of Bupa, the private medical insurer with 10 million members spread across 195 countries, and whose foundation preceded that of the National Health Service (NHS) by one year, Tom Singer is well placed to help deliver the financial cure for an ailing NHS.

According to comments made by health secretary Andrew Lansley, the NHS is on life support and faces a financial crisis that threatens the founding principles of the 63-year-old institution. In a letter to the Telegraph, Lansley said annual health spending will double to £230bn a year without urgent reform. By contrast, Singer presided over a 9% jump in revenues and underlying profit at Bupa to £7.6bn and £465m for 2010.

Lansley warned that universal healthcare, free at the point of use, would be at risk without reform to the NHS, but insisted this would not mean a move towards privatisation. Singer, on the other hand, is clear that the financial pressures facing the health service, including an ageing population and the cost of medical advances, mean private healthcare is an essential pillar of the future of health provision in the UK.

There are clear areas where the private sector can step in to pick up the slack, particularly in the case of care services for the frail and elderly, Singer tells Financial Director.

“The government is trying to transform the way in which healthcare is managed and at the same time trying to achieve efficiency savings. There is going to be considerable scope for private sector players to support it in achieving that goal,” Singer says.

Helping to plug a funding hole of £20bn a year is no small feat, and Bupa will require substantial capital investment to take advantage of that. Added to that, Bupa is hardly the only private health company interested in developments at the NHS. Thankfully for Bupa, Singer has presided over a strong balance sheet.

“The stance we have taken in how we manage the balance sheet means we are well resourced and have capital we can sensibly invest behind our businesses,” he says. “If growth opportunities present themselves, we will put money into those businesses to grow them more quickly.”

For many FDs, being capital rich is both a blessing and a curse. Striking the right balance between holding adequate capital and too much capital is like a walk on a tightrope for most companies. For Singer the problem becomes particularly acute because Bupa does not have any shareholders and so does not have the option of returning capital in the form of dividends.

“We have to find good uses for it,” he says. “Putting it into the bank right now generates pretty mediocre returns as interest rates are so low, so we have to find ways of deploying it for our existing operational businesses to generate good returns and potentially buy new businesses where we can create synergies by bolting them on to businesses we already have.”

The difficulty in investing cash wisely is evidenced by Bupa’s January 2008 acquisition of US disease management business Health Dialog, and MBF, Australia’s second-largest health fund, along with some care home businesses in New Zealand and Australia.

The acquisitions, which were part-funded by the sale of Bupa’s UK hospitals business for £1.4bn in 2007, were hit hard by the ensuing recession. The company’s 2010 profits were stung by a £249.2m goodwill impairment charge on its Home Healthcare division and Dialog, leaving it with a pre-tax profit of just £118m, almost three-quarters lower than 2009.

The timing of the acquisitions could appear poor, but Singer is adamant they were not ill-judged. The acquisitions reflect Bupa’s intention to focus on its healthcare businesses, including its health insurance services.

“We didn’t see any obvious synergies between running a UK hospital network and our insurance businesses, and the returns on the hospital business were not as good as we could achieve by investing that capital in some of these overseas operations,” says Singer.

While Bupa has had a presence outside the UK for many years, it is only in the last three or four that it could be described as a truly international company – more than half its revenues now come from overseas operations, predominantly in the US, Australia and Spain, and the business continues to look at opportunities in new and expanding markets such as India and China.

Singer is actively looking in countries that are becoming wealthier, where there are a growing number of people who have the means to improve their healthcare.

“We have seen strong growth in Asia and Australia in particular, and relatively muted growth in Europe and North America, which has accentuated that move to being increasingly reliant on businesses outside the UK,” he says. “We see opportunities in India and China, where we are looking to invest if we can find a suitable partner. I think that will continue to change the geographic mix of Bupa over the next five years.”

International diversification is not everything. Like many FDs grappling with growing in a saturated domestic market, Singer is all about deepening relationships – or selling more products – with Bupa’s existing customers.

“In many markets, the relationship with the customer is built upon the insurance services and products we offer, but our customers have a range of healthcare needs, where we would like to find ways of building out that relationship. Increasingly, we are looking at complimentary products and services we can offer alongside the insurance product to build a more sustainable, deeper relationship with customers,” he says.

None of this would have been possible, nor would Bupa have any chance of benefiting from the reform of the NHS, if it were unable to secure stable investment. But despite the recession – and the subsequent impairment charges – Singer says he was able to refinance the business throughout the downturn. In July 2009, Bupa was able to launch a £350m bond issue through its subsidiary, Bupa Finance, the proceeds of which were used to pay down the company’s existing debt.

He puts this down to articulating a long-term strategy to investors, who are often castigated for being a short-term breed.

“The reason we were so successful in being able to refinance was because investors recognised the quality of the business and the long-term opportunity that healthcare represents,” he says. “In terms of developing infrastructure or developing intellectual property or know how, these are decisions we can make with a long-term investment horizon in mind.”

A good bet

Singer’s previous experience as FD of Moss Bros and group FD of William Hill does not single him out as the right fit for such a sprawling organisation as Bupa. But there was one striking similarity between his time at William Hill and Bupa: Singer’s ability to manage growth while reacting to changes in the businesses market.

Bupa has come off a sustained period of growth while also dealing with longer life spans, medical advances in disease prevention, and increasing disposable incomes among emerging markets – not to mention health reform in the US and UK.

Singer sees parallels with William Hill. “The business was growing strongly because it coincided with a number of trends. There was growing use of the internet as a gambling medium, growing social acceptability around gambling, and some of the tax changes that happened around that time made it a better value proposition for consumers. We had a long period of strong growth. Managing that growth and making sure we had made the right commercial decisions while taking the business from private to public ownership was a huge professional challenge,” he says.

And being moved from the FD role to that of chief operating officer at William Hill gave Singer the operational nouse needed to run the finance function of a group that could be classified as an insurance company, a property owner and healthcare provider, but across different geographies and with different reporting requirements.

“I became COO and ended up running 2,200 betting shops, two call centres and the internet business – moving away from a finance brief to a more operationally intensive business was a terrific challenge,” he says. “Undoubtedly, it made me a better FD. It is invaluable if people in a finance career can find ways of broadening themselves by assuming some form of general management experience.” ?