REG - Spire Healthcare Grp - Final Results
02/03/2023 07:00
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RNS Number : 6062R Spire Healthcare Group PLC 02 March 2023
Spire Healthcare reports its results
for the year ended 31 December 2022
London, UK, 2 March 2023, Spire Healthcare Group plc (LSE: SPI) ('Spire
Healthcare', 'the Group' or 'the Company'), a leading independent healthcare
group in the UK, today announces its preliminary results for the year ended 31
December 2022 ('the period' or 'FY22').
Strong underlying demand for private healthcare, driving positive financial
performance
Summary Group results for the year ended 31 December 2022
Year ended 31 December
£m 2022 2021 Variance
Revenue 1,198.5 1,106.2 8.3%
Adjusted operating profit (Adjusted EBIT) 105.6 81.1 30.2%
Adjusting items included in operating profit (10.2) 5.9 NM((1))
Operating profit 95.4 87.0 9.7%
Profit / (loss) before taxation 3.9 (1.9) NM
Profit / (loss) after taxation((2)) 8.2 (8.9) NM
Basic profit / (loss) per share, pence 2.1 (2.4) NM
Adjusted profit / (loss) per share, pence ((3)) 4.2 (7.1) NM
Adjusted EBITDA ((4)) 203.5 178.2 14.2%
Adjusted FCF ((5)) 28.0 12.0 NM
Net bank debt ((6)) 250.1 224.9 11.2%
Net bank debt / EBITDA covenant ratio 2.2 2.3 (0.1)
1. Not meaningful
2. Profit / (loss) after taxation is stated after a revision to useful
lives and residual values applied to certain freehold property assets. See
pages 9 and 11 for more information.
3. Adjusted profit / (loss) per share is stated before the effects of
Adjusting Items.
4. Adjusted EBITDA is calculated as Operating Profit, adjusted to add
back depreciation, and Adjusting items, referred to hereafter as 'Adjusted
EBITDA' refer to page 11. For EBITDA for covenant purposes, refer to note 17.
5. Adjusted FCF (Free Cash Flow) is calculated as Adjusted EBITDA, less
rent, capital expenditure cash flows and changes in working capital after
adjusting for one-off items which are not related to the normal trading
activity of the business. Rent cash flows are defined as interest on, and
payment of, lease liabilities. Capital expenditure cash flows are defined as
the Purchase of plant, property and equipment.
6. Net bank debt is defined as bank borrowings less cash and cash
equivalents.
7. Return in capital employed (ROCE) is the ratio of the Group's Adjusted
EBIT to total assets less cash, capital investments made in the last 12 months
and current liabilities refer to page 12.
Financial and operating highlights
Positive financial performance with revenue, earnings and margins
significantly ahead of prior year
· Revenue up 8.3% to £1,198.5m, driven by increased private
treatment; private revenue up by 14.5%
· Average revenue per case up 10.3% to £3,179; admissions up 7.8%
to 262,801
· Adjusted EBIT up 30.2% to £105.6m and Adjusted EBITDA up 14.2%
to £203.5m
· ROCE((7)) increased to 6.2% (FY21: 4.9%)
· Profit after taxation of £8.2m (FY21: loss of £8.9m)
· Growth delivered despite material impacts from COVID, raised
sickness and workforce pressure
· Good cost management with Adjusted EBITDA margin up from 16.1% to
17.0%
· Continued support for the NHS especially on 104-week waiting
patients and orthopaedics
· Repaid £100m of bank loan and completed re-financing of the
Group's £325m funding facilities
· Net bank debt / Adjusted EBITDA covenant ratio of 2.2x at 31
December 2022 (end FY21: 2.3x)
· Recommencing dividend payments with proposed final dividend of
0.5 pence per ordinary share
Continued development of the business in line with refreshed strategy
· 98% of inspected hospitals and clinics currently rated 'Good' or
'Outstanding' by the CQC or equivalent in Scotland and Wales (end FY21: 90%)
· Acquired The Doctors Clinic Group for £12m, an integrated
provider of occupational health and private GP services
· New multi-year agreements signed with Bupa, Aviva and Vitality
· Delivered efficiency programme with more than £15m of cost
savings
· £90.1m capex investment in facilities and equipment (FY21:
£77.1m)
· 5% colleague salary increases from 1 September 2022, with in-year
rises of over 16% for the lowest earners
· Continued progress towards target of becoming net carbon zero by
2030
Looking forward
· Continued top-line growth with strong demand for private and NHS
· Improving profitability, margins, ROCE and strong cash conversion
expected
· Continuing inflation, staffing and agency cost pressures, and
COVID/sickness may slow margin improvement
· Continued investment in digitisation, IT security and software as
a service
· Continuing efficiency programme and existing cost hedges,
targeting cost savings of £15m mainly in 2023
· Plans progressing to open 10 community-based clinics offering GP
and outpatient consultations, with two in 2023
Current trading and outlook
2022 ended strongly for Spire and we are pleased that we are seeing this
momentum continuing into the early months of 2023. Enquiries from private
patients are ahead of prior year, with good private growth.
We believe this sets us up well for the rest of 2023, and we anticipate seeing
continued growth in revenue, profit and ROCE during the year, with further
margin improvement. Nonetheless, our margins remain susceptible to
inflationary pressures, workforce challenges, agency costs and the continued
presence of COVID and flu in society, which impact on our sickness absence and
cancellation levels. To address this, we will deliver further efficiencies and
are on track to deliver another £15m of savings. We will continue with
pricing management as and where appropriate, and the nature of some of our
pricing arrangement is such that the benefit will be seen more strongly in H2.
We will also continue to respond to and to drive demand, including expanding
the range of services we offer.
In the medium to long term, we remain committed to help meet the high demand
for healthcare, both private and through supporting the NHS. We retain our
focus on improving ROCE and margins. Inflation and wage pressures
notwithstanding, we are confident of continuing progress this year and beyond.
In particular, the pricing management in 2023 will extend into 2024 when
certain cost pressures are expected to ease.
We have a strong balance sheet that supports continuing investment in our
hospitals and clinics as well as supporting expansion of our service offering.
We are as committed as ever to delivering the highest quality patient care
which will underpin our success, as well as making our business carbon zero by
2030 and more sustainable in every sense.
Overall in 2023, we expect to make further good progress and continued
delivery of the Group's strategy.
Justin Ash, Chief Executive Officer of Spire Healthcare, said:
"Last year saw continued change in UK healthcare, with even more people
seeking prompt and safe private care, and 2022 was a year of good performance
for Spire Healthcare. I am encouraged by the growth in activity, revenue,
earnings and return on investment of the business against a particularly
challenging operating background. Momentum has continued into the new year.
The Company has made encouraging progress in the delivery of its refreshed
strategy and the acquisition of The Doctors Clinic Group, as we expand the
business to meet significant healthcare demand."
"Our primary focus is on delivering the highest quality of care and patient
safety every single day. To that end, I would like to take this opportunity to
thank our outstanding colleagues for the enormous contribution that they make
to Spire Healthcare and to our patients. The quality of our people, the
resilience of our business model and the sustained demand for healthcare mean
that despite the current macroeconomic uncertainty, we remain confident in the
future growth and returns prospects for Spire Healthcare."
For further information please contact:
Spire
Healthcare
+44 (0)20 7427 9000
Angus Prentice - Director of Investor Relations
Instinctif
Partners
+44 (0)20 7457 2020
Damian Reece
Guy Scarborough
Registered Office and Head Office:
Spire Healthcare Group plc
3 Dorset Rise
London
EC4Y 8EN
Registered number 09084066
About Spire Healthcare
Spire Healthcare (https://www.spirehealthcare.com/) is a leading independent
healthcare group in the United Kingdom, with 39 hospitals and 33 clinics,
medical centres and consulting rooms across England, Wales and Scotland. It
operates a network of private GPs and provides occupational health services to
over 700 corporate clients.
Working in partnership with over 8,760 experienced consultants, Spire
Healthcare delivered tailored, personalised care to approximately 926,500
inpatients, outpatients and day-case patients in 2022, and is the leading
private provider, by volume, of knee
(https://www.spirehealthcare.com/treatments/bones-and-joints/knee-replacement/)
and hip
(https://www.spirehealthcare.com/treatments/bones-and-joints/hip-replacement-surgery/)
operations in the United Kingdom. The Group's well-located and scalable
hospitals have delivered successful and award-winning clinical outcomes,
positioning the Group well with patients, consultants, the NHS, GPs and
Private Medical Insurance (PMI) providers. 98% of Spire Healthcare's inspected
hospitals and clinics are rated 'Good', 'Outstanding' by the CQC or the
equivalent in Scotland and Wales.
Cautionary statement
This preliminary announcement contains certain forward-looking statements
relating to the business of Spire Healthcare Group plc (the "Company") and its
subsidiaries (collectively, the "Group"), including with respect to the
progress, timing and completion of the Group's development, the Group's
ability to treat, attract, and retain patients and customers, its ability to
engage consultants and GPs and to operate its business and increase referrals,
the integration of prior acquisitions, the Group's estimates for future
performance and its estimates regarding anticipated operating results, future
revenue, capital requirements, shareholder structure and financing. In
addition, even if the Group's actual results or development are consistent
with the forward-looking statements contained in this preliminary
announcement, those results or developments may not be indicative of the
Group's results or developments in the future. In some cases, you can identify
forward-looking statements by words such as "could," "should," "may,"
"expects," "aims," "targets," "anticipates," "believes," "intends,"
"estimates," or similar words. These forward-looking statements are based
largely on the Group's current expectations as of the date of this preliminary
announcement and are subject to a number of known and unknown risks and
uncertainties and other factors that may cause actual results, performance or
achievements to be materially different from any future results, performance
or achievement expressed or implied by these forward-looking statements. In
particular, the Group's expectations could be affected by, among other things,
uncertainties involved in the integration of acquisitions or new developments,
changes in legislation or the regulatory regime governing healthcare in the
UK, poor performance by consultants who practice at our facilities, unexpected
regulatory actions or suspensions, competition in general, the impact of
global economic changes, and the Group's ability to obtain or maintain
accreditation or approval for its facilities or service lines. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking statements made in this preliminary announcement will in fact
be realised and no representation or warranty is given as to the completeness
or accuracy of the forward-looking statements contained in this preliminary
announcement.
The Group is providing the information in this preliminary announcement as of
this date, and we disclaim any intention or obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Analyst and investor meeting
There will be an analyst and investor meeting today at 9.00am. Please register
in advance for the live webinar of the meeting through the following link:
https://spirehealthcare.zoom.us/webinar/register/WN_uSJ3csEcRtWRHIj3nSg2ag
(https://spirehealthcare.zoom.us/webinar/register/WN_uSJ3csEcRtWRHIj3nSg2ag)
The webinar will be available for replay following the meeting through the
Company's investor website: https://investors.spirehealthcare.com/home/
(https://investors.spirehealthcare.com/home/)
Operating review
Overview
2022 was another good year for Spire Healthcare across every aspect of the
business. We maintained the high-quality care our people work so hard to
achieve, we have evolved our purpose and strategy to take account of the
changing demands and dynamics of our market. We have delivered a positive
financial performance as well as advancing our sustainability strategy.
Demand for private healthcare remained strong throughout the period, with
patients seeking prompt, safe and effective diagnosis and treatment amidst
increasing NHS waiting lists in the wake of the COVID-19 pandemic. Our
investments in systems and high quality patient care allowed Spire to attract
an increasing number of these patients and increased our market share.
The Group operated in a tough trading environment in 2022, facing significant
headwinds that included inflationary pressure, especially in people costs,
raised absence levels amongst colleagues and consultants due to COVID-19 and
other sickness, which led to greater reliance on agency staff. This was
compounded by patients themselves cancelling procedures due to illness. Our
teams worked hard to mitigate and respond to these challenges through the
successful implementation of a targeted savings programme, improved
operational leverage, focus on complex treatment and implementation of
appropriate price rises.
Overall admissions and private patient volumes continued to increase. Adjusted
EBIT rose by 30.2% to £105.6m and Adjusted EBITDA by 14.2% to £203.5m and
leverage fell further to 2.2x. This resulted in an Adjusted EBITDA margin of
17.0%, up from 16.1% in 2021 and an Adjusted EBIT margin of 8.8%, up from
7.3%., improved profitability and targeted investment in our hospitals of
£90.1m has raised ROCE to 6.2% from 4.9% in 2021, a key management focus.
Profit before tax was £3.9m (FY21: loss of £1.9m) and Profit after tax was
£8.2m (FY21: loss of £8.9m) - a welcome return to profitability.
We have also made good progress implementing our evolved strategy with the
acquisition of The Doctors Clinic Group (DCG), an integrated provider of
occupational health and private GP services, for a total cost of £12m.
We are pleased to announce a return to dividend at the end of 2022, reflecting
the Board's confidence in the long-term prospects of the business
Safety and quality care
Patient safety remains our top priority at Spire Healthcare, allied to our
ongoing investments in quality, which are vital to our ambitions to be a
leader in this area. This year, we have embedded our new Quality Improvement
strategy, and it is pleasing to report that in our latest survey 96% of
patients rated their experience as 'Good' or 'Very Good', unchanged from a
year ago.
We are proud that all ten of the Spire Healthcare hospitals inspected this
year were rated 'Good' or 'Outstanding' by the CQC, or the equivalent in
Scotland or Wales, with Manchester re-rated as 'Outstanding' for a second
time, South Bank uprated to 'Good', Cardiff receiving excellent feedback and
Murrayfield Edinburgh rated Good. 98% of our inspected hospitals and clinics
are now rated 'Good' or 'Outstanding' by the CQC or the equivalent in Scotland
and Wales, an improvement from the 90% at the end of 2021 and 69% at the end
of 2016.
Improving margins, ROCE and on-going savings programme; staffing cost and
agency inflationary background; accelerated IT investment
Our Adjusted EBITDA margin improved to 17.0% from 16.1%, as part of an ongoing
programme to raise margins to a sustainable level consistent with high quality
care. The margin improvement came through operational leverage from an 8.3%
revenue growth to £1,198.5m and over £15m of efficiency savings, while
focusing on a complex treatment mix and appropriate price rises. The savings
were driven by the introduction of a best practice establishment model for
hospital operations, combined with a safe staffing acuity tool, and a
reorganisation of hospitals into hubs, sharing resources, marketing and
referrals. We are targeting a further £15m savings across 2023-24, most of
which will fall in 2023. An element of our cost base also benefits from
arrangements with certain suppliers resulting in fixed price per unit
contracts over the short term with energy commodity prices in particular fixed
at 2021 pricing until Q3 2024.
This margin improvement was tempered by the costs and disruption associated
with COVID-19 and raised sickness and absence, common across UK employers in
2022, higher staffing and agency costs as well as general inflation. Late
patient cancellations were also well in excess of pre-pandemic run rates for
the same reasons, which, taken with the testing costs, amounted to total
COVID-related costs of £42.9m (2021: £53.5m). COVID and raised sickness
levels continue to persist, though our ability to manage this improves
continuously. A combination of COVID and increased sickness, together with
high volumes, led to agency usage rising slightly, rather than the targeted
reduction we had forecast.
In managing mix we maintained our strategic progress to a more complex
treatment mix, and combined with appropriate price rises, average revenue per
case during FY22 was £3,179 compared with an average of £2,960 in 2021, up
7.4%.
As a result of these and other actions, we remain positive about our ability
to offset some of the ongoing inflationary risk. These include implementing
price rises where appropriate, managing our mix of services and being more
selective in the choice of products we use. Wage rate pressure is clearly an
ongoing risk in UK healthcare, with agencies, in particular, taking advantage
of pressure for marginal staffing needs. This could result in slower margin
improvement in 2023 than would otherwise be the case, notwithstanding price
rises and efficiency programmes.
In 2023, we will see an incremental annual increase in IT costs of c.£6m due
to accelerating our investment in IT security and software as a service
(SaaS), which will also deliver operational benefits in addition to our
ongoing digitisation programme. This is to respond to the increasingly
sophisticated risks in cyber security faced by all businesses.
Focus on strong demand for private healthcare
We saw a continued growth in demand from self-pay (SP) patients, and a strong
rebound in our private medical insurance (PMI) business. This reflects
changing market dynamics, as more people turn to private care to meet their
treatment needs and Spire's strategic investment in SP capability and
relations with key insurers. Continued strain on the NHS, manifested in over
seven million people on waiting lists, is clearly a backdrop to this changing
demand profile.
Private revenue rose by 14.5% to £876.7m during 2022 compared to prior year.
Our focus on making SP easy and accessible helped support SP revenue growth of
15.8% YOY to £338.0m. We were pleased to see a very strong performance in PMI
this year, with new patient volumes and admissions recovering to pre-pandemic
levels. PMI revenue growth in FY22, up 13.7% YOY to £538.7m, fulfilled our
expectations of a return to growth in the insurance market. Our private GP
service grew by 46% reflecting the desire of an increasing number of patients
for fast access to longer face-to-face appointments with a GP. We were
delighted to expand our GP services through the acquisition of The Doctor's
Clinic Group in December, as well as entering the fast-growing occupational
health sector, with the acquisition of Maitland Medical and Soma Health as
part of the same transaction.
At the end of H1 22, the Group announced that it has signed a new four-year
agreement with Bupa, to provide services to its UK health insurance customers
through to March 2026. Since the year end, similar contract renewals have been
signed with Aviva and Vitality, both over three years. These contracts are all
now delivering robust patient volume growth. Generally, our PMI contracts
include inflationary mechanisms, with PMI pricing reset with respect to
inflation over the last 12 months, less certain efficiency factors.
Inflationary related increases reflecting the 2021 environment will be applied
from April 2023, and those reflecting this year's inflationary effects in
April 2024. We have passed through appropriate pricing increases in SP to
reflect the considerably increased costs of healthcare delivery.
Our payor mix of total revenue during FY22 was 45% PMI, 28% SP, 25% NHS and 2%
Other. Comparable figures for FY21 are 43% PMI, 26% SP, 28% NHS and 2% Other,
demonstrating the results of our ongoing shift to private pay during recent
years.
Supporting the NHS
NHS commissioning in 2022 was lower than the significant support provided to
the NHS by Spire Healthcare in 2020 and 2021 due to COVID-19. NHS revenue was
down 6.1% YOY at £295.4m. Our focus in the period moved back to engagement
with NHS GPs and local commissioners to maximise our capture of available
referrals via the electronic referral system (eRS). By the end of the year,
overall referrals were still marginally behind pre-pandemic levels. However,
orthopaedic referrals were significantly outperforming 2019.
We have also supported local NHS systems in treating those patients who have
been waiting the longest, helping first to reduce to almost zero, the list of
NHS patients who had been waiting for over two years, and now, helping to
treat those waiting over a year and a half. Local hospital teams are
encouraged to be responsive to NHS requests for support in waiting list
reduction.
In December, Spire Healthcare CEO Justin Ash joined the launch, by the Prime
Minister, of the government's Elective Recovery Taskforce for England. We
welcome this initiative and hope it will result in a long-term partnership
between the NHS and the independent sector, where the sector is fully
integrated as part of the solution for reducing the backlog in care. Since the
launch, Spire Healthcare has been actively involved in supporting Trusts with
requests to treat patients waiting 78 weeks or more for a first appointment.
Spire Healthcare advocates an increase in patient choice to make it easier to
select a provider with shorter wait times for care, combined with improved
visibility of NHS demand and a longer-term commitment to NHS use of the
independent sector. A more predictable commissioner environment will make it
easier for Spire Healthcare to invest in capacity and capability to serve NHS
patients, especially those with more complex needs. The NHS tariff uplift for
2022-23 was 3.7% (net). The rate for the forthcoming year will be confirmed by
April 2023.
Broadened our Purpose and refreshed our Strategy
The increased demand for healthcare is not just seen in hospital care but is
also manifested in out-of-hospital, primary and community healthcare.
We have widened our Purpose in 2022, anticipating the opportunities presented
by this increased demand to expand our proposition and range of services. Our
purpose has gone from making a positive difference to 'patients' lives' to
'people's lives', broadening our offer of outstanding personalised care to
more people in a wider range of settings. We aim to be involved in people's
healthcare across both pre- and post-hospital care, thereby helping our
workforce, providing support to local communities and responding to the demand
we know is out there.
To deliver on this new purpose, we have refreshed our strategy, supported by
five key pillars:
· We will drive hospital performance, through consistent growth in
our existing hospital estate with increasing margins.
· We will build on quality and patient safety to make it a
competitive advantage in all our activities.
· We will continue to invest in our workforce through strong
recruitment, retention and development programmes.
· We will champion sustainability, as we aim to be recognised as a
leader in our sector.
· We will expand our proposition through selective investments in
new services that will attract new patients by meeting more of their
healthcare needs.
All this will help us focus on delivering a strong financial performance with
a particular emphasis on cash generation, investment, improving our return on
capital and delivering strong shareholder returns.
Expanding our healthcare proposition
Spire Healthcare is now working towards becoming an integrated healthcare
provider, with services in primary care, diagnosis, occupational health and
long-term condition management.
We were already developing our primary care services through Spire GP, which
is now present at most of our hospitals, and we are getting strong support
from other GPs who want to work with us. The growth of 46% reflected an
expansion of provision across the country.
Our acquisition of DCG in December 2022 provides further capacity to our GP
offering. It also adds occupational health as a new service thereby extending
the range of healthcare services delivered by the Group, through the Maitland
and Soma occupational health businesses. This also aligns with our plans to
target 10 new clinics to meet the growing healthcare needs in our communities,
as well as digital services we are looking to offer patients in the future.
The first of our new clinics in Abergele, North Wales, is due to open in late
2023, and our ambition is to open a second clinic and have a further two
clinics in development by the end of 2023.
In December, we launched a pilot for a subscription-based, nurse-led Type 2
diabetes care, a new service in long-term condition management.
Supporting the development of our workforce and consultant body
One of the biggest challenges for our sector is the shortage of skilled
healthcare staff in the UK and internationally. This places pressure on our
costs, especially when it comes to agency usage, and can limit capacity.
Investing in our workforce is therefore also a vital part of our strategy. As
a people business, we recognise our key role in addressing this shortage of
clinical staff, and work hard to recruit and retain talented people, offering
colleagues genuine opportunities to grow and develop their careers with us and
in the NHS.
One of the Group's most successful initiatives - our nurse degree
apprenticeship programme, run in partnership with the University of Sunderland
- is aimed at building a talent pipeline for our business and for the UK
healthcare sector more broadly, and continues to grow, with 180 trainee nurses
now on the programme. Looking across a broader range of clinical and
non-clinical roles, we now have around 550 apprentices in all, representing
some 5% of our total workforce.
We continue to focus on colleagues' learning and development with more than
1,000 colleagues on professional and other development programmes. We also
have around 520 overseas nurses across the business. We are committed to
ethical recruitment - only recruiting actively from 'green' countries under
the Department of Health and Social Care definition. We provide training and
development opportunities for these colleagues so that eventually these nurses
can take a range of new skills and opportunities back to the countries they've
come from.
2022 was another challenging year in which to deliver high quality care. We
were pleased despite this to see again a positive result from our engagement
survey, with 77% of colleagues participating in the survey and 80% saying they
are proud to work for Spire Healthcare. We supported colleagues with an on
average 5% pay rise in September 2022, following on from continued pay rises
over the last few years, with up to 16% for lower paid colleagues, and less
for senior managers. In 2023 we will launch our reward strategy to provide a
clearer set of job families and career progression for colleagues, which will
also accommodate any inflationary rises.
We are also pleased to receive improved feedback from our consultants on the
service we provide them and the high quality of care provided by Spire
Healthcare. During 2022, we continued close working with our employed MAC
Chairs, raised communication with all consultants, and sought to develop the
practice of many with investments in equipment and marketing support. Our
rigorous oversight of all aspects of consultant clinical practice continued to
be an area of focus also.
Sustainability
Alongside integrating sustainability into Spire Healthcare's business
strategy, we also developed and articulated our sustainability strategy this
year. We have made it clear how sustainability and championing the
environment, social and governance issues are integral to the way we operate.
Our aim is to be recognised as an ESG/sustainability leader in the sector.
During the year, we also established our waste strategy, helping us to
increase recycling rates, and mitigate where possible the waste we send to end
disposal.
During FY22, we reduced our carbon emission by 6%. We remain on target to
reach net carbon zero by 2030, though our trajectory has been slower this year
due to a shortage of electricity from green sources. For now, we have
protected our energy prices from existing sources, but we will buy more green
energy in the future and are taking advantage of initiatives such as replacing
gas-powered boilers, installing electric vehicle charging points, increasing
recycling rates and mitigating where possible the waste we send to landfill.
Our endeavours in this area were recognised in 2022 when we were highly
commended in the BusinessGreen Leaders Awards, in the Net Zero Strategy of the
Year category.
Strong cash conversion enabling ongoing capex investment and further leverage
reduction
Net bank debt at 31 December 2022 was £250.1m (vs £224.9m at 31 December
2021), with a cash balance of £74.2m (vs £202.6m at 31 December 2021). The
increase in net bank debt over the period reflects the anticipated reduction
in cash following repayment of £100m of bank debt, the acquisition of the DCG
business and the insurer settlement of £13.3m disclosed in the Group's H1 22
results. The Group also completed a re-financing of the Group's bank funding
facilities in February 2022. The Group entered into an interest rate hedge in
July 2022, with the result that 75% of the risk from increasing interest rates
is now mitigated until April 2024, reducing down to 50% thereafter.
As a result of the above, the Group's leverage ratio continued to reduce,
resulting in a net bank debt / Adjusted EBITDA covenant ratio of 2.2x as at 31
December 2022 (from 2.3x at the end of FY21). This represents the lowest level
of leverage since 2016.
The Group continued to be cash generative during the period. Cash inflow from
adjusted operating activities during the period was £188.1m, which
constitutes a cash conversion rate of 92% from £203.5m Adjusted EBITDA (FY21:
106% conversion of £178.2m Adjusted EBITDA).
Capital investment in FY22 was £90.1m. Our capex budget includes investment
in significant capacity projects, such as the completed major refurbishment at
Spire Shawfair Park in Edinburgh and the ongoing major developments at Spire
Yale in Wrexham, but also covers further investment in patient care and
digital transformation, the replacement of nine X-ray rooms and four MRI/CT
scanners this year, as well as refurbishment and maintenance work in several
hospitals.
The strong operational performance of Spire Healthcare in the period resulted
in Adjusted EBIT climbing by 30.2% to £105.6m, leading to a material
improvement in ROCE, up by 1.3 percentage points to 6.2%.
Dividend
The Directors of Spire Healthcare have recommended the payment of a final
dividend of 0.5 pence per share for the year ending 31 December 2022. Subject
to shareholder approval at the forthcoming Annual General Meeting on 11 May
2023, the dividend will be paid on 23 June 2023 to shareholders of the Company
at the close of business on 26 May 2023. This represents the first dividend
payment since the decision to suspend dividends due to COVID-19 uncertainties
was made in April 2020, and reflects the financial strength of the business
and strong capital position as well as the Board's confidence in current
prospects and the outlook for the Group. As we outlined at our Capital Markets
Day, we have a clear and sustainable dividend policy whereby dividends will
typically be set at 25-35% of Profit After Tax, provided bank leverage remains
less than 2.5 times.
Board changes
We welcomed Paula Bobbett as an independent non-executive director on 1
November 2022 and, since the year-end, Debbie White was appointed on 1
February 2023 and Natalie Ceeney will join us from 1 May 2023 in a similar
role. All three bring considerable expertise to the Board particularly in
digital and PLC experience. Both Debbie and Natalie will be appointed members
of the Company's Audit and Risk Committee and the Nomination Committee from 1
May 2023.
Debbie White will take over as the Board's Senior Independent Director from 12
May 2023 and Spire is grateful to Martin Angle for agreeing to step aside from
this role in order for the Company to meet the changes to the Listing Rules
brought about by the FCA's statement on diversity and inclusion. Martin will
remain as the Company's Deputy Chairman and will also become a member of the
Clinical Governance and Safety Committee on 1 May 2023. Dame Janet Husband was
appointed Vice Chair from 1 March 2023.
Financial review
Selected financial information
Year ended 31 December 2022 Year ended 31 December 2021
(£m) Total before Adjusting items Adjusting Total Total before Adjusting items Adjusting Total
items
items
(note 9)
(note 9)
Revenue 1,198.5 - 1,198.5 1,106.2 - 1,106.2
Cost of sales (660.1) - (660.1) (615.0) - (615.0)
Gross profit 538.4 - 538.4 491.2 - 491.2
Other operating costs (435.8) (10.2) (446.0) (411.2) (17.4) (428.6)
Other income 3.0 - 3.0 1.1 23.3 24.4
Operating profit 105.6 (10.2) 95.4 81.1 5.9 87.0
Net finance costs (91.5) - (91.5) (88.1) (0.8) (88.9)
Profit / (loss) before taxation 14.1 (10.2) 3.9 (7.0) 5.1 (1.9)
Taxation 2.5 1.8 4.3 (20.8) 13.8 (7.0)
Profit / (loss) for the period((1)) 16.6 (8.4) 8.2 (27.8) 18.9 (8.9)
Profit / (loss) for the year attributable 17.0 (8.4) 8.6 (28.6) 18.9 (9.7)
to owners of the Parent
Profit for the year attributable to non-controlling interest (0.4) - (0.4) 0.8 - 0.8
Adjusted EBITDA ((2)) 203.5 178.2
Basic earnings / (loss) per share, pence 2.1 (2.4)
Adjusted FCF ((3)) 28.0 12.0
Net cash from operating activities 180.1 183.8
Net bank debt ((4)) 250.1 224.9
1. Profit / (loss) for the period is
stated after a revision to useful lives and residual values applied to certain
freehold property assets. See pages 9 and 11 for more information.
2. Adjusted EBITDA is calculated as Operating Profit, adjusted to add
back depreciation, and Adjusting items, referred to hereafter as 'Adjusted
EBITDA' refer to page 11. For EBITDA for covenant purposes, refer to note 17.
3. Adjusted FCF (Free Cash Flow) is calculated as Adjusted EBITDA, less
rent, capital expenditure cash flows and changes in working capital after
adjusting for one-off items which are not related to the normal trading
activity of the business. Rent cash flows are defined as interest on, and
payment of, lease liabilities. Capital expenditure cash flows are defined as
the Purchase of plant, property and equipment.
4. Net bank debt is defined as bank borrowings less cash and cash
equivalents
Revenue
Group revenues increased 8.3% to £1,198.5m (2021: £1,106.2m). The increase
in revenue is due to the increased demand for private treatment with the
continued growth in self-pay seen during the prior period, but also the
recovery by PMI patients. NHS revenue of £295.4m includes £3.5m (2021:
£314.5m and £58.1m respectively) revenue from specific COVID-19 contracts.
In Q1 2021 the Group operated under an NHS volume-based contract with a
minimum income guarantee, included in the £58.1m below was £47.4m reflecting
the "top up" to minimum income guaranteed under the contract.
Revenue by location and payor
(£m) 2022 2021 Variance %
(2022-2021)
Total revenue 1,198.5 1,106.2 8.3%
Of which:
Inpatient 487.5 414.2 17.7%
Day case 348.0 307.0 13.3%
Out-patient 333.1 300.9 10.7%
Other 26.4 26.0 1.4%
NHS - COVID-19 3.5 58.1 (93.9%)
Total revenue 1,198.5 1,106.2 8.3%
Of which:
PMI 538.7 473.7 13.7%
Self-pay 338.0 292.0 15.8%
Total Private 876.7 765.7 14.5%
Total NHS 295.4 314.5 (6.1%)
Other 26.4 26.0 1.5%
Total revenue 1,198.5 1,106.2 8.3%
Cost of sales and gross profit
Gross margin for the year is 44.9% compared to 2021 levels of 44.4%. Cost of
sales increased in the period by £45.1m or 7.3% (2021: £150.9m, 32.5%) to
£660.1m (2021: £615.0m) on revenues that increased by 8.3% (2021: 20.3%).
Increased costs are due to inflationary pressures, increased agency costs and
continued wage rate expansion. Increased agency spend is due to managing short
notice absences caused by the peaks of COVID-19 during the year. The margin
was higher in 2022 as a result of increased private volumes, and good cost
management against the inflationary backdrop.
Cost of sales is broken down, and presented as a percentage of relevant
revenue, as follows:
2022 2021
Year ended 31 December Year ended 31 December
£m % of revenue £m % of revenue
Clinical staff 275.3 23.0% 260.8 23.6%
Direct costs 280.3 23.4% 263.4 23.8%
Medical fees 104.5 8.7% 90.8 8.2%
Cost of sales 660.1 55.1% 615.0 55.6%
Gross profit 538.4 44.9% 491.2 44.4%
Other operating costs
Excluding Adjusting items, other operating costs have increased by £24.6m, or
6.0% to £435.8m (2021: £411.2m) the main driver is increased staff costs due
to continued wage rate expansion and other inflationary pressures.
Depreciation for the year was £97.9m (2021: £97.1m). The depreciation charge
in 2022 benefits from a reduction in charge of £2.9m as a consequence of a
revision of the useful life and residual value policy in respect of freehold
properties so that it more closely aligns with external benchmark information.
The useful life has been extended from a maximum of 50 years to a maximum of
60 years, and the Group has set the residual value equal to 20% of cost
(previously nil). This change is anticipated to result in a reduction in
depreciation of approximately £5.8m in 2023.
Adjusting items included in operating costs decreased by £7.2m versus 2021
mainly due to £11.4m of charges relating to remediation of regulatory
compliance and malpractice costs in the prior year versus £1.1m in the
current year with an increase of £4.5m in the current year due to business
reorganisation and restructuring costs. Other operating costs including
Adjusting items for the year ended 31 December 2022 increased by £17.4m or
4.1% to £446.0m (2021: £428.6m)
Operating margin for the year ended 31 December 2022 is 8.0% (2021: 7.9%) in
2021. Excluding Adjusting items, operating margin is 8.8%, up from 7.3% at
2021.
Adjusted EBITDA
Adjusted EBITDA for the Group has increased by 14.2% in the period from
£178.2m to £203.5m for 2022. The increase is due to continued growth in
private revenue and good cost management.
Share-based payments
During the period, grants were made to Executive Directors and other employees
under the Company's Long Term Incentive Plan. For the year ended 31 December
2022, the charge to the income statement is £2.3m (2021: £2.8m), or £2.6m
inclusive of National Insurance (2021: £3.2m). In addition, the Group has a
Share save scheme which was launched in 2022. Further details are contained in
note 27 of the Annual Report and Accounts.
Adjusting items
Year ended 31 December
(£m) 2022 2021
Business reorganisation and corporate restructuring costs 4.5 1.2
Costs related to / (income from) asset disposals and aborted projects 4.3 4.5
Remediation of regulatory compliance or malpractice costs 1.1 11.4
Hospitals set up and closure costs 0.3 0.3
Income from asset disposals - (23.3)
Total Adjusting items in operating costs 10.2 (5.9)
Interest payable on Adjusting items - 0.8
Total pre-tax Adjusting items 10.2 (5.1)
Income tax (credit) / charge on Adjusting items (1.8) (13.8)
Total post-tax Adjusting items 8.4 (18.9)
Adjusting items comprise those matters where the Directors believe the
financial effect should be adjusted for, due to their nature, size or
incidence, in order to provide a more accurate comparison of the Group's
underlying performance.
During H2 21, the Group announced a strategic, group wide initiative that
impacts the operating model of the Group to allow a more efficient governance
and reporting structure, as well as a drive on digital functionality. This
initiative will be implemented over several phases. In the period, £4.5m
(2021: £1.2m) has been incurred. The initial phase of the initiative was
completed in 2022, the estimated time frame to overall completion being the
end of 2024.
Asset acquisitions, disposals, impairment and aborted project costs of £4.3m
mainly comprise costs in respect of the acquisition of the Doctors Clinic
Group, and the acquisition of the minority interest in Claremont, as well as
its integration with the Group. In the prior year costs incurred by the Group
relating to Merger and Acquisition (M&A) costs, related to the attempted
takeover bid by Ramsay Health Care, and the acquisition and integration of
Claremont.
In December 2022, the Group acquired 100% of the share capital in the Doctors
Clinic Group Limited for £12m as part of its strategic investment in its
broader healthcare offering. The costs of acquisition of £1.8m have been
incurred in the period. Costs for integration are expected to continue into
FY23.
Following the acquisition of Claremont Hospital in November 2021, the Group
has incurred costs of £0.5m for integration alongside some transitional
services in the period. In addition, on 31 March 2022, the Group acquired the
remaining minority interest for £2.7m, of which £1.9m had been provided for
in FY21. Therefore, £0.8m is included in Adjusting items. Other costs
incurred mainly relate to the final business transfer of the Sussex Hospital
to the NHS Trust which completed on 31 March 2022, as announced during FY21.
In addition, integration costs of £0.5m were incurred in the period.
In December 2022, the Group completed on the sale of St Saviours, an asset
held for sale, for £3.2m, following a write down in value reported at H1 2022
of £0.5m.
In the prior period, the Group agreed the sale and leaseback of its Cheshire
Hospital for consideration of £89m. A gain on disposal of £23.5m has been
recognised, offset by £0.2m of costs to sell.
Remediation of regulatory compliance or malpractice costs includes amounts
paid to the Insurer following the Court of Appeal hearing. £13.0m was
provided in FY21, with £13.3m being settled in FY22. The £0.3m recognised in
the period reflects this additional amount. In the prior year, and in response
to the Public Inquiry the Group commenced a detailed patient review
initiative, during the year the Group has re-evaluated the expected cost of
completing this complex project, and its associated settlement of claims. As a
result, the Group has increased its provision by £0.9m for the project. In
the prior year, a credit of £0.4m was recognised following the settlement of
costs to Spire from its insurer following the original judgment finding in
favour of the Group in FY20.
Hospital set up and closure costs mainly relate to the maintenance costs of
non-operational sites.
Net finance costs
Net finance costs increased by 2.9% to £91.5m (2021: £88.9m). The increase
is due to a one-off charge of £3.1m in respect of unamortised fees which were
recognised in full following the refinancing of the senior loan facility in Q1
2022 as well as increased finance costs related to additional lease
liabilities. In the prior year Adjusting items of £0.8m costs relates to the
interest repayment on the Court of Appeal judgment in respect of an insurer.
Taxation
The effective tax rate assessed for the year, all of which arises in the UK,
differs from the standard weighted rate of corporation tax in the UK.
The reconciliation of the actual tax charge to that at the domestic
corporation tax rate is as follows:
Year ended 31 December
(£m) 2022 2021
Profit / (loss) before taxation 3.9 (1.9)
Tax at the standard rate 0.7 (0.4)
Effects of:
Expenses and income not deductible or taxable 8.2 4.5
Tax adjustment for the Super-deduction allowance (2.6) (2.2)
Tax adjustment in respect of sale and leaseback - (16.0)
Impairment charge in respect of held for sale assets (not tax deductible) 0.1 -
One-off impact of revision to useful economic life and residual value of (9.0) -
freehold property portfolio
Adjustments to prior year (1.8) 3.5
Difference in tax rates 0.1 17.7
Deferred tax not previously recognised - (0.1)
Total tax (credit)/charge (4.3) 7.0
Corporation tax is calculated at 19.0% (2021: 19.0%) of the estimated taxable
profit or loss for the year. The effective tax rate on profit before taxation
for the year was not meaningful (2021: not meaningful) as a result of prior
year adjustments and movements on deferred tax which are not directly linked
to profit. As noted on page 9, during the period, the Group has revised the
useful life and residual value of its freehold property portfolio so that it
more closely aligns with external benchmark information. This revision results
in a one-off deferred tax credit of £9.0m in 2022. The prior year deferred
tax charge was largely driven by the effects of revaluing deferred tax assets
and liabilities from 19% to 25% due in April 2023, and the deferred tax
movement as a result of the sale and leaseback of Spire Cheshire.
Profit after taxation
The profit after taxation for the year ended 31 December 2022 was £8.2m
(2021: Loss £8.9m). This is stated after the impact of adjusting the useful
life and residual value of freehold properties, including the £9.0m credit to
deferred tax as set out above.
Adjusted financial information
This statement was prepared for illustrative purposes only and did not
represent the Group's actual earnings. The information was prepared as
described in the notes set out below.
Non-GAAP financial measures
We have provided in this release financial information that has not been
prepared in accordance with IFRS. We use these non-GAAP financial measures
internally in analysing our financial results and believe they are useful to
investors, as a supplement to IFRS measures, in evaluating our ongoing
operational performance. We believe that the use of these non-GAAP financial
measures provides an additional tool for investors to use in evaluating
ongoing operating results and trends in comparing our financial results with
other companies in the industry, many of which present similar non-GAAP
financial measures to investors.
Non-GAAP financial measures should not be considered in isolation from, or as
a substitute for, financial information prepared in accordance with IFRS.
Investors are encouraged to review the reconciliation of these non-GAAP
financial measures to their most directly comparable IFRS financial measures
provided in the financial statements table in the press release.
Adjusted EBITDA and Adjusted EBIT
Year ended 31 December
(£m) 2022 2021
Operating profit 95.4 87.0
Remove effects of: 10.2 (5.9)
Adjusting items before interest and tax((1))
Adjusted EBIT 105.6 81.1
Depreciation 97.9 97.1
Adjusted EBITDA 203.5 178.2
(1 In the prior year adjusting items before tax total £5.1m including the
£0.8m interest payable on the Court of Appeal judgment in respect of an
insurer which was previously awarded to Spire Healthcare. Interest payable is
not included in Adjusted EBIT or Adjusted EBITDA.)
Adjusted profit after tax and adjusted earnings per share
Adjustments have been made to remove the impact of a number of non-recurring
items.
Year ended 31 December
(£m) 2022 2021
Profit / (loss) before tax 3.9 (1.9)
Adjustments for: 10.2 (5.9)
Adjusting Items - operating costs / (income)
Adjusting items - interest payable - 0.8
Adjusted profit / (loss) before tax 14.1 (7.0)
Taxation((1)) 2.5 (20.8)
Adjusted profit / (loss) after tax 16.6 (27.8)
Profit / (loss) for the year attributable to owners of the parent 17.0 (28.6)
(Loss) / profit for the year attributable to non-controlling interests (0.4) 0.8
Weighted average number of ordinary shares in issue (No.) 402,679,296 400,848,264
Adjusted earnings / (loss) per share (pence) attributable to the parent 4.2 (7.1)
1. Reported tax charge for the period adjusted for the tax effect of Adjusting
Items
Return on capital employed
Return on capital employed ('ROCE') is the ratio of the Group's Adjusted EBIT
to total assets less cash, capital investments made in the last 12 months and
current liabilities. The calculation of return on capital employed is shown
below:
Year ended 31 December
(£m) 2022 2021
Adjusted EBIT 105.6 81.1
Total Assets 2,159.8 2,237.4
Less: Cash and cash equivalents (74.2) (202.6)
Less: Capital investments (90.1) (77.1)
Less: Current Liabilities (283.4) (302.1)
Capital Employed 1,712.1 1,655.6
Return on capital employed % 6.2% 4.9%
Adjusted Free Cash flow
Year ended 31 December
(£m) 2022 2021
Adjusted EBITDA 203.5 178.2
Less: Rental payments (93.7) (81.5)
Less: Cash flow for the purchase of property, plant and equipment (87.7) (69.3)
Less: Working capital movement (15.0) 11.4
Less: Adjustments for non-recurring items 20.9 (26.8)
Adjusted FCF 28.0 12.0
Cash flow analysis for the period
Year ended 31 December
(£m) 2022 2021
Opening Cash balance 202.6 106.3
Operating cash flows before Adjusting Items and income tax paid 186.5 189.0
Net cash flow from Adjusting Items (included in operating cash flows) (6.4) (5.2)
Income tax received / (paid) (0.1) -
Operating cash flows after operating Adjusting Items and income tax 180.0 183.8
Net cash flow from Adjusting Items (included in investing cash flows) 3.2 35.2
Net cash in investing activities (87.2) (68.8)
Cash outflow for acquisition of subsidiary (11.4) (14.7)
Investing cash flows after investing Adjusting Items (95.4) (48.3)
Net cash flow from Adjusting Items (included in financing cash flows) (2.7) 55.5
Net cash in financing activities (210.3) (94.7)
Financing cash flows after financing Adjusting Items (213.0) (39.2)
Closing cash balance 74.2 202.6
Closing cash balance
The Group's year end cash balance stood at £74.2m, which reflects a reduction
of £128.4m against the prior year balance of £202.6m. This movement contains
3 significant one-off items: repayment of £100m of the Group's senior finance
facility as part of the refinancing agreement; a net cash outflow of £11.4m
paid for the acquisition of the Doctors Clinic Group; and a payment of £13m
paid to an insurer following the outcome of a Court of Appeal hearing in late
2021. Further detailed information on the cash flow during the period is set
out in the following sections.
Operating cash flows before Adjusting items
The cash inflow from operating activities before tax and Adjusting items was
£186.5m (2021: £189.0m), which constitutes a cash conversion rate from
£203.5m Adjusted EBITDA of 92% (2021: 106% conversion of £178.2m Adjusted
EBITDA). The net cash outflow from movements in working capital in the period
was £16.6m (2021: £11.4 inflow). The movement is largely driven amounts paid
to the Insurer following the Court of Appeal hearing of £13.0m which was
provided for in 2021.
Investing and financing cash flows
Net cash outflow in investing activities for the period was £95.4m (2021:
£48.3m). The cash outflow relates to the consideration paid for the
acquisition of the Doctors Clinic Group of £11.4m net of cash acquired and
the purchase of plant, property and equipment in the period totalled £87.7m
(2021: £69.3m), relating to the completed major refurbishment at Spire
Shawfair Park in Edinburgh and the ongoing major developments at Spire Yale in
Wrexham, it also covers further investment in patient care and digital
transformation and the replacement of nine X-ray rooms. The total capital
investment in the year in respect of additions of plant, property and
equipment amounted to £90.1m (2021: £77.1m). This was offset by an inflow of
£3.2m from the sale of St Saviours which was classified as held for sale.
Net cash used in financing activities for the period was £213.0m (2021:
£39.2m) Cash outflows include the repayment of £100.0m of the Group's senior
finance facility as part of the refinancing agreement, and including interest
paid and other financing costs of £94.6m (2021: £80.0m), and £18.5m (2021:
£14.7m) of lease liability payments. During the year the Group acquired the
remaining non-controlling interest in Claremont LLP for £2.7m and dividends
of £0.3m have been paid to non-controlling interests of Didsbury MSK Limited
(2021: nil).
Borrowings
At 31 December 2022, the Group has bank borrowings (inclusive of IFRS 9
adjustments) of £324.3m (2021: £427.5m), drawn under facilities which mature
in February 2026.
Year ended 31 December
(£m) 2022 2021
Cash 74.2 202.6
Bank borrowings 324.3 427.5
Bank borrowings less cash and cash equivalents 250.1 224.9
As announced by the Group on 25 February 2022, the Group entered into an
agreement on 24 February 2022 to refinance its Senior Loan Facilities. As part
of this exercise, and in recognition of the fact that the Group had
substantial cash reserves at 31 December 2021, the Group repaid £100m of the
Senior Loan Facility. As a consequence, the revised Senior Loan Facility was
set at £325.0m and the Group continued to have access to an undrawn Revolving
Credit Facility of £100.0m. This new arrangement has a maturity of 4 years,
with the Group having the option to extend by a further year. The financial
covenants relating to this new agreement are unchanged with leverage to be
below 4.0x and interest cover to be in excess of 4.0x. As at 31 December 2022
the leverage measure stood at 2.2x and interest cover of 8.5x (2021:4.5x).
As at 31 December 2022 lease liabilities were £866.5m (2021: £837.8m).
Dividend
The Directors of Spire Healthcare have recommended the payment of a final
dividend of 0.5 pence per share for the year ending 31 December 2022. Subject
to shareholder approval at the forthcoming Annual General Meeting on 11 May
2023.
Related party transactions
There were no significant related party transactions during the period under
review.
Principal Risks
We set out our principal risks with their material mitigations below.
1. Workforce We seek to retain colleagues through:
· A common purpose and a positive workplace culture
· Competitive pay and reward benefits. In 2022, we announced a
competitive pay award that focused in particular on the 4,000 lowest paid
colleagues in Spire Healthcare. We announced the creation in 2023 of a
national reward framework. We are piloting other new benefits e.g. providing
subsidised prepared meals for employees to take home.
· Offering greater flexibility in employees' roles, including
encouraging them to move to our staff bank roles if they are to leaving
permanent employment
· Responding to key employee metrics, for example rolling out a
network of trainer mental health first aiders
· Continuous investment in our equipment, facilities and services
to retain high-quality clinicians
We seek to recruit colleagues through:
· A centralised recruitment process
· An overseas recruitment capability to secure skilled healthcare
workers from outside the EU where necessary
· Offering apprenticeship programmes to support the development of
clinical and non-clinical teams across the business
· Building of local bank staff pools
The group manages immediate staff shortages using agency and bank workers.
2. Macroeconomics The COVID-19 pandemic has left high levels of pent up demand for our services.
We understand that private medical insurance policy renewals and sales are
seeing growth, and we have seen strong activity growth in 2021-22. Self-pay
enquiries remain at record levels despite growing impact of the economy on
people's ability to afford treatment largely because of record waiting lists.
NHS referrals continue to recover with record levels of orthopaedics through
2022.
In response to macro inflationary pressure we will continue to benefit from a
range of inflation mechanisms built into the PMI contracts and will benefit
from our ability to change self-pay pricing quickly via our new pricing
engine. Our conversion rate from outpatient appointment to inpatient procedure
remains stable. Procurement maintains a constant review of pricing and seeks
opportunities to mitigate inflationary increases.
In addition, we continue to respond to changing economic circumstances by
optimising our private and NHS funded work ensuring we are not over reliant on
one income source, supported by an efficient cost base. We are also expanding
our proposition into GP, day case clinic, digital and occupational health
areas to meet changing demand, notably the acquisition of Doctors Clinic Group
in late 2022.
3. Climate Change An estate wide condition assessment of roofs completed in 2021 has informed a
prioritised approach to capital investment to manage storm damage risk.
Flood risk mitigation includes a continued periodic review of our estate in
relation to existing and predicted flood risk zones.
Extreme ambient temperature risk mitigation includes an informed investment
plan for upgrade of failing and vulnerable plant. Design of the replacement
and upgrade would account for the predicted increase in ambient temperature
profiles expected within the lifespan of the plant e.g.15 years. Further
mitigation measures include extreme weather warning protocol and business
continuity plans to provide emergency loan HVAC plant.
Energy price risk mitigation includes energy efficiency measures to reduce
consumption and our energy hedging strategy that has seen all our current
energy requirements secured until October 2024.
Net zero targets form part of the remuneration of the executive directors.
4. Competitor Challenge We maintain a watching brief on new and existing competitor activity and
retain the ability to react quickly to changes in patient and market demand.
We consider that a partial mitigation of the impact of competitor activity is
ensured by providing patients with high-quality clinical care and by
maintaining good working relationships with GPs and consultants.
We continue to invest in the brand and deliver an effective acquisition
capability both direct and via our partners in order to protect our market
position. We have also strengthened our pricing and tendering capabilities.
Despite the COVID-19 pandemic, we have maintained investment into the estate
and clinical equipment to differentiate our proposition.
We monitor the market for opportunities, should they arise, to acquire or open
facilities in specific geographies or services creating incremental volume.
5. Information Governance & Security We have a governance structure, with board oversight, that monitors the risk
and mitigations for information governance. To support the governance
structure we have a range of policies and practices covering information
governance. All colleagues have to complete annual mandatory training on
information governance and data protection.
Our IT team have a cyber-security strategy for continuous improvement based on
industry standards. It covers the processes from identifying specific risks,
to protecting physical and digital data assets through to recovery in the
event of a successful cyberattack.
We work with a number of industry leading technical partners to provide:
· Multiple layers of business protection through the use of advanced
detection and protection systems
· Regular third-party penetration testing on new and existing IT systems
6. COVID-19 new variants We followed the UK Health and Security Agency's (UKHSA) guidance throughout
the pandemic as well as the Infection Prevention Controls (IPC) set out in the
NHSE's IPC Board Assurance Framework regarding COVID-19. IPC performance
indicators are reported to the executive committee and board on a regular
basis.
We follow UKHSA guidance on screening patients pre-admission before in-patient
procedures, and local sites have outbreak guidance in the event of a COVID-19
outbreak.
We offered all clinical colleagues COVID-19 booster jabs and flu vaccinations
in Q4 2022. We continue to educate and encourage all our employees to have all
the COVID-19 vaccinations they are entitled to, and will encourage all
employees to participate in future COVID-19 and flu national vaccination
programmes.
7. Brand Reputation Our primary mitigations against damage to our brand reputation is through the
good management of our principal risks, in particular:
· Patient safety and clinical quality
· Cyber security and data protection
· Workforce
In addition, we continue to invest in the awareness and health of the brand
through national advertising, public relations and centrally coordinated
social media. We also continue to build our reputation amongst analysts and
public commentators.
8. Supply Chain Disruption We run a centralised supply chain with a national distribution centre (NDC)
and our own vehicle and driver fleet. This allows us to maintain stock at a
group level and source where the need is greatest. Medical consumables are
held at the NDC with an average of eight weeks supply, medicines and
prostheses are held at hospital sites.
In 2021, and into 2022, we have had to respond to a number of product
shortages and global recalls, and we have seen some minor shortfalls in order
fulfilment. In all cases, our centralised procurement function has been able,
with the support of a permanent presence from the clinical team, to find
alternative supplies to maintain hospitals' activities.
Fresh food is supplied through a national food distributor which has its own
delivery fleet and directly employs its HGV drivers. Order fulfilment has
remained in the high 90 percentile. Because of the group's Brexit planning, it
does have contingency menu plans in case of fresh food shortages.
NHS Supply Chain manages any national shortages in critical medicines and
medical gases. We receive allocations based on our activity.
9. Government and NHS Policy Historically, we have derived 70% of our revenues from PMI and self-pay
patients that provided a natural -protection against a change in government
and NHS policy. Post-pandemic, we are seeing strong private revenues that are
expected to continue medium term.
Through the COVID-19 pandemic, we strengthened our relationships with the
Department of Health and Social Care (DHSC), and NHS England. Meanwhile
hospitals have also strengthened their relationships with their local NHS
commissioners. The Integrated Care Systems (ICSs) are all established and
starting to commission referrals effectively. The impact on NHS referrals has
been minimal.
From a contract perspective we have now signed effective contracts with all
ICSs.
Our chief executive officer, Justin Ash, attended the launch of the
government's Elective Recovery Taskforce, aimed at reducing waiting lists
10. Pandemic from new pathogen We maintain awareness of early warnings of potential pandemics from
organisations like the WHO, DHSC, NHS England.
We have a developed emergency response plan in line with the NHS and our
experience of managing the COVID-19 pandemic.
11. Diversification and disintermediation We have:
· An innovation board bringing together the CEO and executive
committee members of the medical, clinical, commercial and finance functions
to identify healthcare trends and opportunities to develop new services
· A dedicated director of innovation and proposition development,
sourcing specific opportunities to support the group strategy, leading on
development, supported with dedicated IT and project resource
· A dedicated director sourcing suitable target acquisitions
supported by an expert external financial and tax adviser
A property lead to handle the assessment and acquisition of new physical
assets with the support of retained property advisors.
12. Patient Safety and Clinical Quality We maintain the following controls to mitigate against a failure of patient
safety and clinical quality:
· A reporting culture of openness and shared learning from ward to
board, with a FTSUG at each site
· Timely Incident reporting via a database with central oversight
and development of actions to ensure learning.
· Continually monitoring clinical standards, reporting progress via
the board's CGSC
· Integrated quality reporting based on a quality assurance
framework with a standard set of KPIs
· Development of a board assurance framework to assess risks
against clinical and medical strategic objectives
· A schedule of robust and regular hospital audits including the
patient safety and quality reviews, with an action plan for improvement that
is monitored
· Standard operating procedure for patient notification exercises
that includes learning and continuous improvement methodologies
· Colleague induction, clinical competencies requirements and
mandated training
· Reporting on clinical outcomes with workforce and consultants
including the chairs of hospital medical advisory committees with a view to
driving up safety and performance
13. PMI Market Dynamics We work hard to maintain good relationships and a joint product/patient health
offering with the PMI companies, which, in the opinion of the directors,
assists the healthcare sector as a whole in delivering high-quality patient
care.
We ensure we have long-term contracts in place with our PMI partners that
avoids co-termination of contractual arrangements.
We believe continuing to invest in our well-placed portfolio of hospitals
provides a natural fit to the local requirements of all the PMI providers long
term.
We continue to invest in efficiency programmes to ensure that we can offer the
best combination of high quality patient care at competitive prices.
14. Major infrastructure failure All our hospitals have a backup power source provided by diesel powered
generators that operate major circuits of an hospital, but some key equipment
is not covered, e.g. MRI scanners. Battery powered uninterrupted power is
provided into specific equipment in theatres to ensure patients remain safe in
the event of a generator failure. These backup power sources are designed to
keep patients in the hospital safe, but are not a complete substitute for
mains power.
Our national distribution fleet refuel on a daily basis at the end of their
shifts to ensure resilient operational capability.
In theory, NHS hospitals will still have to take emergency transfers so Trusts
should not withdraw SLAs but there may be increased frequency of delays to
emergency transfers. Mitigation plans are in place and being rehearsed at
hospitals as delays are being experienced occasionally because of the
overstretched ambulance service across the UK. The chief operating officer is
chairing a regular multi-disciplinary winter planning meeting to coordinate
response activities to any infrastructure failures.
15. Antimicrobial resistance Our mitigations are:
· Executive level awareness of the government's five year AMR
strategy.
· Participation in, and collaboration with, government monitoring
of AMR outbreaks
· Require clinicians to follow national guidelines on the
prescribing of antibiotics in line with government guidelines
· Access to up-to-date antimicrobial prescribing via online systems
and access to microbiologists at all sites
· Appropriate investigations of post-surgery infections including
review of antibiotics.
Directors' responsibilities statement
Viability
Assessment of prospects
In accordance with the 2018 UK Corporate Governance Code, the Directors
assessed the viability of the Group and have maintained a period of three
years for their assessment. Although longer periods are used when making
significant strategic decisions, three years has been used as it is considered
the longest period of time over which suitable certainty for key assumptions
in the current climate can be made. The assessment conducted considered the
Group's current financial position and forecasted revenue, EBITDA, cash flows,
risk management controls and loan covenants over the three-year period (which
is consistent with the approach for prior years).
Assessment of viability
Further detail on both Macroeconomic related risk and COVID-19 is provided in
the Risk management and internal control section in the Strategic Report.
Other specific scenarios covered by our testing were as follows:
· the Group is subject to temporary suspension of trade, with a
temporary adverse impact on revenue, for example, as a result of a successful
cyber-attack on key business systems;
· the downside modelling of a number of risks which result in a
decline in earnings, including the loss of a contractual relationship with a
key insurer;
· significant change in government policy resulting in consultants
going on payroll; and
· short term disruption to trade at a sub-set of hospitals owing to
an extreme weather event.
This review included the following key assumptions:
· no change in capital structure given the Group has since the 2022
year end refinanced its existing senior finance facility and revolving credit
facility; and
· the government will not make significant change to its existing
policy towards utilising private provision of healthcare services to
supplement the NHS.
Based on the results of this analysis, the Directors confirm that they have a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the next three years.
Going Concern (see note 2. Basis of Preparation for more detail)
The Group assessed going concern risk for a 12 month period through to 31
March 2024. As at 31 December 2022 the Group had cash of £74.2m, a Senior
Loan Facility of £325m and an undrawn Revolving Credit Facility of £100m. On
24 February 2022, the Group successfully refinanced its debt facilities with a
syndicate of existing and new Lenders. As part of the refinancing exercise and
in recognition of the fact that the Group had substantial cash reserves at 31
December 2021, the Group repaid £100m of the Senior Loan Facility. The new
arrangement has a maturity of 4 years. The financial covenants relating to
this new agreement are materially unchanged.
The Group has undertaken extensive activity to identify plausible risks which
may arise and mitigating actions, which in the first instance would include
management of working capital and constrained levels of capital investment.
Based on the current assessment of the likelihood of these risks arising by 31
March 2024, together with their assessment of the planned mitigating actions
being successful, the Directors have concluded it is appropriate to prepare
the accounts on a going concern basis. In arriving at their conclusion, the
Directors have also noted that, were these risks to arise in combination, it
could result in a liquidity constraint or breach of covenant, however, the
risk of this is considered remote.
The Group has also assessed, as part of its reverse stress testing, what
degree of downturn in trading it could sustain before it no longer forecasts a
positive cash balance. This stress testing was based on flexing revenue
downwards with a consistent percentage decline in variable costs, whilst
maintaining the forecast of fixed costs. The testing did not allow for the
benefit of any action that could be taken by management to preserve cash. This
testing suggested that there would have to be at least a 35% fall in annual
revenue before the Group no longer forecast a positive cash balance. We do not
believe that such a reduction of income revenue is a plausible consequence of
the Group's identified principal risks.
It should be noted that we are in a period of unprecedented geo-political and
macro-economic uncertainty. Whilst the Directors continue to closely monitor
these risks and their plausible impact, their severity is hard to predict and
is dependent upon many external factors. Accordingly, the actual financial
impact of these risks may materially vary against the current view of their
plausible impact.
Each of the Directors confirms that, to the best of their knowledge:
· The preliminary financial statements, which have been prepared in
accordance with UK- adopted international accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the consolidation taken
as a whole; and
· The preliminary announcement includes a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
By order of the Board
Justin
Ash
Jitesh Sodha
Chief Executive Officer Chief
Financial Officer
1 March 2023
Consolidated income statement
For the year ended 31 December 2022
2022 2021
(£m) Note Total before Adjusting Adjusting Total Total before Adjusting items Adjusting Total
items
items
items
(note 9) (note 9)
Revenue 5 1,198.5 - 1,198.5 1,106.2 - 1,106.2
Cost of sales (660.1) - (660.1) (615.0) - (615.0)
Gross profit 538.4 - 538.4 491.2 - 491.2
Other operating costs (435.8) (10.2) (446.0) (411.2) (17.4) (428.6)
Other income 6 3.0 - 3.0 1.1 23.3 24.4
Operating profit / (loss) (EBIT) 7 105.6 (10.2) 95.4 81.1 5.9 87.0
Finance income 8 - - - - - -
Finance cost 8 (91.5) - (91.5) (88.1) (0.8) (88.9)
Profit / (loss) before taxation 14.1 (10.2) 3.9 (7.0) 5.1 (1.9)
Taxation 10 2.5 1.8 4.3 (20.8) 13.8 (7.0)
Profit / (loss) for the year 16.6 (8.4) 8.2 (27.8) 18.9 (8.9)
Profit / (loss) for the year attributable 17.0 (8.4) 8.6 (28.6) 18.9 (9.7)
to owners of the Parent
(Loss) / profit for the year attributable (0.4) - (0.4) 0.8 - 0.8
to non-controlling interest
Earnings / (loss) per share (in pence per share)
- basic 11 4.2 (2.1) 2.1 (7.1) 4.7 (2.4)
- diluted 11 4.1 (2.0) 2.1 (7.1) 4.7 (2.4)
Consolidated statement of comprehensive income
For the year ended 31 December 2022
(£m) 2022 2021
Profit/(Loss) for the year 8.2 (8.9)
Items that may be reclassified to profit or loss in subsequent periods
Net gain on cash flow hedges (net of taxation) 7.1 2.7
Other comprehensive profit for the year 7.1 2.7
Total comprehensive profit / (loss) for the year, net of tax 15.3 (6.2)
Attributable to:
Equity holders of the parent 15.7 (7.0)
Non-controlling interests (0.4) 0.8
15.3 (6.2)
Consolidated statement of changes in equity
For the year ended 31 December 2022
(£m) Note Share Share Capital EBT share Retained Total Non-Controlling Interest Total
Capital premium reserves reserves Hedging earnings Equity
(note 16) (note 16) (note 16) Reserve
(note 16)
As at 1 January 2021 4.0 826.9 376.1 (0.8) (3.2) (496.4) 706.6 - 706.6
(Loss)/Profit for the year - - - - - (9.7) (9.7) 0.8 (8.9)
Other comprehensive profit for the year - - - - 2.7 - 2.7 - 2.7
Total comprehensive profit / (loss) - - - - 2.7 (9.7) (7.0) 0.8 (6.2)
Non-controlling interests adjustment1 - - - - - 6.1 6.1 (6.1) -
Share-based payments 20 - - - - - 2.8 2.8 - 2.8
Deferred tax adjustment on share-based payments reserve - - - - - 3.0 3.0 - 3.0
Acquisition of a subsidiary - - - - - (1.9) (1.9) 0.5 (1.4)
As at 1 January 2022 4.0 826.9 376.1 (0.8) (0.5) (496.1) 709.6 (4.8) 704.8
Profit/(Loss) for the year - - - - - 8.6 8.6 (0.4) 8.2
Other comprehensive profit for the year - - - - 7.1 - 7.1 - 7.1
Total comprehensive profit / (loss) - - - - 7.1 8.6 15.7 (0.4) 15.3
Dividends to non-controlling interests - - - - - - - (0.2) (0.2)
Dividends paid in respect of vested share awards - - - - - (0.1) (0.1) - (0.1)
Share-based payments 0 - - - - - 2.3 2.3 - 2.3
Deferred tax adjustment on share-based payments reserve - - - - - (0.1) (0.1) - (0.1)
Issue of new shares - 3.1 - - - - 3.1 - 3.1
Utilisation of EBT shares for share awards - - - 0.8 - (0.8) - - -
Purchase of non-controlling interest - - - - - 0.5 0.5 (0.5) -
Balance at 31 December 2022 4.0 830.0 376.1 - 6.6 (485.7) 731.0 (5.9) 725.1
Consolidated balance sheet
For the year ended 31 December 2022
(£m) Note 2022 2021
ASSETS
Non-current assets
Property, plant and equipment 12 1,584.4 1,553.5
Intangible assets 13 345.8 334.8
Derivatives 5.0 -
Financial assets 4.6 2.3
1,939.8 1,890.6
Current assets
Inventories 40.6 40.2
Trade and other receivables 14 100.5 99.2
Derivatives 3.6 -
Cash and cash equivalents 74.2 202.6
218.9 342.0
Non-current assets held for sale 15 1.1 4.8
220.0 346.8
Total assets 2,159.8 2,237.4
EQUITY AND LIABILITIES
Equity
Share capital 16 4.0 4.0
Share premium 830.0 826.9
Capital reserves 16 376.1 376.1
EBT share reserves - (0.8)
Hedging reserve 16 6.6 (0.5)
Retained loss (485.7) (496.1)
Equity attributable to owners of the Parent 731.0 709.6
Non-controlling interests (5.9) (4.8)
Total equity 725.1 704.8
Non-current liabilities
Bank Borrowings 17 321.4 421.8
Lease liabilities 17 773.7 751.0
Deferred tax liabilities 56.2 57.7
1,151.3 1,230.5
Current liabilities
Bank Borrowings 2.9 5.7
Lease liabilities 17 92.8 86.8
Derivatives 17 - 0.7
Financial liabilities - 1.9
Provisions 18 21.7 44.8
Trade and other payables 19 164.5 159.1
Income tax payable 1.5 3.1
283.4 302.1
Total liabilities 1,434.7 1,532.6
Total equity and liabilities 2,159.8 2,237.4
These Consolidated financial statements and the accompanying notes were
approved for issue by the Board on 1 March 2023 and signed on its behalf by:
Justin Ash
Chief Executive Officer
Jitesh Sodha
Chief Financial Officer
Consolidated statement of cash flows
For the year ended 31 December 2022
(£m) Note 2022 2021
Cash flows from operating activities
Profit/(Loss) before taxation 3.9 (1.9)
Adjustments to reconcile profit before tax to net cash flows:
Impairment of assets held for sale (Adjusting items) (see note 9) 0.5 -
Fair value adjustment on financial liability (Adjusting items) (see note 9) 0.8 -
Loss on disposal of Property, plant and Equipment 0.3 -
Adjusting items - other 2.5 11.1
Depreciation of Property, plant and equipment and Right of use assets 97.9 97.1
Profit on disposal under Sale and leaseback (Adjusting items) (see note 9) - (23.5)
Profit on early termination of a lease (Adjusting items) (see note 9) - (0.2)
Finance costs 91.5 88.1
Other income (3.0) (1.1)
Share-based payments expense 2.3 2.8
Movements in working capital:
(Increase) /Decrease in trade receivables and prepayments (6.9) 1.7
Decrease/(Increase) in inventories (0.4) (1.9)
Increase in trade and other payables 8.2 14.3
Decrease in provisions (15.9) (2.7)
Cash generated from operations 181.7 183.8
Tax paid (0.1) -
Net cash flows from operating activities 181.6 183.8
Cash flows from investing activities
Receipt from financial asset 0.5 0.4
Acquisition of a subsidiary, net of cash acquired (11.3) (14.7)
Purchase of property, plant & equipment (87.7) (69.3)
Proceeds of disposal of property, plant and equipment - 0.1
Proceeds of disposal of assets held for sale (Adjusting items)(1) 3.2 -
Proceeds from sale and leaseback, net of costs (Adjusting items) - 33.4
Proceeds of asset under sale of operating unit, net of costs (Adjusting items) - 1.8
Net cash used in investing activities (95.3) (48.3)
Cash flows from financing activities
Interest paid and other financing costs (21.1) (13.2)
Interest on lease liabilities (73.5) (66.8)
Payment of lease liabilities (20.2) (14.7)
Proceeds from asset sold under Sale and leaseback (retained value) (Adjusting - 55.5
items)
Proceeds from senior loan facility 325.0 -
Repayment of senior loan facility (425.0) -
Proceeds from the issue of new shares 3.1 -
Purchase of non-controlling interests (Adjusting item)(1) (2.7) -
Dividend paid (0.3) -
Net cash used in financing activities (214.7) (39.2)
Net increase in cash and cash equivalents (128.4) 96.3
Cash and cash equivalents at 1 January 202.6 106.3
Cash and cash equivalents at 31 December 74.2 202.6
Adjusting Items (note 9)
Adjusting items paid included in the cash flow (6.4) 85.5
Total pre-tax Adjusting items (10.2) 5.1
(1 Adjusting item was not charged to profit and loss in the current financial
year and is therefore not included in the adjusting items paid included in the
cash flow)
Notes to the preliminary announcement
1. General information
Spire Healthcare Group plc (the 'Company') and its subsidiaries (collectively,
the 'Group') owns and operates private hospitals and clinics in the UK and
provides a range of private healthcare services.
The financial statements for the year ended 31 December 2022 were authorised
for issue by the Board of Directors of the Company on
1 March 2023.
The Company is a public limited company, which is listed on the London Stock
Exchange, incorporated, registered and domiciled in England and Wales
(registered number: 09084066). The address of its registered office is 3
Dorset Rise, London, EC4Y 8EN.
2. Basis of preparation
The preliminary financial information for the year ended 31 December 2022
included in this report was approved by the Board on 1 March 2023. The
financial information set out here does not constitute the Company's statutory
accounts for the year ended 31 December 2022, but is derived from those
accounts. Statutory accounts for 2022 will be delivered following the
Company's annual general meeting. The auditor has reported on those accounts;
their report was unqualified, and did not draw attention to any matters by way
of emphasis and did not contain statements under s498 (2) or (3) of the
Companies Act 2006.
Going concern
The Group assessed going concern risk for the period through to 31 March 2023.
As at 31 December 2022 the Group had cash of £74.2m, a Senior Loan Facility
of £325m and an undrawn Revolving Credit Facility of £100m. On 24 February
2022, the Group successfully refinanced its debt facilities with a syndicate
of existing and new Lenders. As part of the refinancing exercise and in
recognition of the fact that the Group had substantial cash reserves at 31
December 2021, the Group repaid £100m of the Senior Loan Facility. The new
arrangement has a maturity of 4 years. The financial covenants relating to
this new agreement are materially unchanged.
The Group has undertaken extensive activity to identify plausible risks
which may arise and mitigating actions, which in the first instance would
include management of working capital and constrained levels of capital
investment. Based on the current assessment of the likelihood of these risks
arising by 31 March 2024, together with their assessment of the planned
mitigating actions being successful, the Directors have concluded it is
appropriate to prepare the accounts on a going concern basis. In arriving at
their conclusion, the Directors have also noted that, were three of the most
likely specific risks to arise in combination, it could result in a liquidity
constraint or breach of covenant, however, the risk of this is considered
remote.
The Group has also assessed, as part of its reverse stress testing, what
degree of downturn in trading it could sustain before it no longer forecasts a
positive cash balance. This stress testing was based on flexing revenue
downwards with a consistent percentage decline in variable costs, whilst
maintaining the forecast of fixed costs. The testing did not allow for the
benefit of any action that could be taken by management to preserve cash. This
testing suggested that there would have to be at least a 35% fall in annual
revenue before the Group no longer forecast a positive cash balance. We do not
believe that such a reduction of income revenue is a plausible consequence of
the Group's identified principal risks.
It should be noted that we are in a period of unprecedented geo-political and
macro-economic uncertainty. Whilst the Directors continue to closely monitor
these risks and their plausible impact, their severity is hard to predict and
is dependent upon many external factors. Accordingly, the actual financial
impact of these risks may materially vary against the current view of their
plausible impact.
3. Accounting policies
In preparing this preliminary announcement, the same accounting policies,
methods of computation and presentation have been applied as set out in the
Group's Annual Report and Accounts for the year ended 31 December 2022, a copy
of this report will shortly be available on the Company's website at
www.spirehealthcare.com (www.spirehealthcare.com) .
Changes in accounting policy - New standards, interpretations and amendments
applied
The following amendments to existing standards were effective for the Group
from 1 January 2022. These amendments had no impact on the consolidated
financial statements of the Group. As the Group was renegotiating its
principal loans from which the interest determination is based on, there have
been no changes to contracts impacted by LIBOR until the facilities are in
place. All LIBOR linked contracts will be updated by 31 January 2022. The
contracts with significant exposures relate to loans, leases and swaps.
Effective date*
Amendments to IFRS 3 Business Combinations - Reference to the Conceptual 1 January 2022
Framework
Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended 1 January 2022
Use
Amendments to IAS 37 - Onerous Contracts - Costs of Fulfilling a Contract 1 January 2022
IFRS 9 Financial Instruments - Fees in the "10 per cent" test for 1 January 2022
derecognition of financial liabilities
* The effective dates stated above are those given in the original
IASB/IFRIC standards and interpretations that are consistent with the
endorsement process for use in the UK.
Changes in accounting policy - New standards, interpretations and amendments
in issue, but not yet effective
As at date of approval of the Group financial statements, the following new
and amended standards, interpretations and amendments in issue are applicable
to the Group but not yet effective and thus, have not been applied by the
Group:
Effective date*
Amendments to IAS 1 - Classification of liabilities as Current or Non-Current 1 January 2023
Amendments to IAS 8 - Definition of accounting estimates 1 January 2023
Amendments to IAS 12- Deferred tax related to assets and liabilities arising 1 January 2023
from a single transaction
IFRS 17 - Insurance contracts 1 January 2023
Amendments to IFRS 16 - Lease Liability in a Sale and Leaseback 1 January 2024
* The effective dates stated above are those given in the original
IASB/IFRIC standards and interpretations. As the Group prepares its financial
statements in accordance with IFRS as issued by the IASB as endorsed by the
UK, the application of new standards and interpretations will result in an
effective date subject to that agreed by the UK Endorsement process.
IFRS 17 is under review by management and the impact if any is still to be
quantified. All other amendments are not expected to have a material impact on
the Group.
Changes in accounting estimates
In line with our accounting policy, management has reviewed the expected
useful lives and residual values of property, plant and equipment. This
exercise included a detailed benchmarking exercise. As a result, the useful
life and residual value for freehold land and buildings has been revised, and
with effect from 1 July 2022 the Group changed its estimate for freehold
buildings from 5 - 50 years to 5- 60 years.
The benchmarking exercise confirmed that it would be appropriate to also
revise the residual value on freehold hospital buildings to 20% from a nil
residual value and this change took place with effect from 1 July 2022.
Management has therefore concluded that it would be appropriate to apply a 20%
residual value to the original cost of the freehold properties, and this
change took effect on 1 July 2022.
Management has concluded that the impact of climate-related risks would not
have a material impact on the extended useful life and residual value of its
freehold land and buildings, as these risks have been mitigated.
The depreciation charged to the profit and loss in the current year was
£97.9m (2021:£97.1m). The change in accounting estimate has resulted in a
reduction in depreciation of £2.9m in the current year. In addition this has
given rise to a one-off deferred tax credit of £9.0m. The effect of the
change in future period is to decrease annual depreciation by c. £6.0m.
4. Critical accounting judgements and estimates
In the application of the Group's accounting policies, the Directors are
required to make judgements and estimates about the carrying amounts of assets
and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ
from these estimates.
In preparing this preliminary announcement, the significant judgements and
estimates made by management in applying the Group's accounting policies and
key sources of estimation uncertainty were the same as those applied to the
consolidated financial statements for the year ended 31 December 2022.
5. Segmental reporting
In determining the Group's operating segment, management has primarily
considered the financial information in internal reports that are reviewed and
used by the executive management team and Board of Directors (who together are
the chief operating decision maker of Spire Healthcare) in assessing
performance and in determining the allocation of resources. The financial
information in those internal reports in respect of revenue and expenses has
led management to conclude that the Group has a single operating segment,
being the provision of healthcare services. All revenue is attributable to,
and all non-current assets are located in, the United Kingdom.
The nature of the NHS COVID-19 specific contracts in Q1 2021, and specific
agreement with one hospital in FY22, means that not all of the detail of
revenue by location (inpatient, day case or Out-patient) is available. In Q1
2021, where a patient was admitted, this revenue has been recorded within the
revenue by location. Amounts relating to the minimum income guarantee over and
above admitted patients, or any other elements are reflected in the NHS
COVID-19 line.
Revenue by location (inpatient, day case or Out-patient) and wider customer
(payor) group is shown below:
(£m) 2022 2021
Inpatient 487.5 414.2
Day case 348.0 307.0
Out-patient 333.1 300.9
Other (1) 26.4 26.0
NHS - COVID-19 3.5 58.1
Total revenue 1,198.5 1,106.2
Insured 538.7 473.7
Self-pay 338.0 292.0
NHS 295.4 314.5
Other (1) 26.4 26.0
Total 1,198.5 1,106.2
1 Other revenue includes fees paid to the Group by consultants (eg for the use
of Group facilities and services) and third-party revenue (eg pathology
services to third-parties).
Group revenues increased 8.3% to £1,198.5m (2021: £1,106.2m). The increase
in revenue is due to the increased demand for private treatment with the
continued growth in self-pay seen during the prior period, but also the
recovery by Insured patients. NHS revenue of £295.4m includes £3.5m (2021:
£314.5m and £58.1m respectively) revenue from specific COVID-19 contracts.
In the prior year (Q1 2021) the Group operated under an NHS volume based
contract with a minimum income guarantee, included in the £58.1m was £47.4m
reflecting the "top up" to minimum income guaranteed under the contract.
6. Other income
(£m) 2022 2021
Fair value movement on financial asset 2.3 0.7
Realised profit in respect of financial asset 0.7 0.4
Profit on disposal relating to sale and leaseback, net of costs (Adjusting - 23.3
item) (see note 10)
Total other income 3.0 24.4
The fair value movement and realised profit in respect of the financial asset
reflect the on-going profit share arrangement with Genesis Care which arose as
part of the sale of the Bristol Cancer Centre sold in 2019.
7. Operating profit
Arrived at after charging / (crediting):
(£m) 2022 2021
Depreciation of property, plant and equipment (see note 12) 64.2 67.4
Depreciation of right of use assets (see note 12) 33.7 29.7
Acquisition-related transaction costs (Adjusting item) (see note 9) 1.8 1.5
Lease payments made in respect of low value and short leases 13.6 12.3
Provision following a court judgment related to Ian Paterson (Adjusting item) 0.3 12.2
(see note 9)
Impairment on assets held for sale 0.5 -
Movement on the provision for expected credit losses of trade receivables 0.9 (1.2)
Loss on disposal of property, plant and equipment 0.3 -
Fair value adjustment on financial liability 0.8 -
Staff restructuring costs 4.5 1.2
Staff costs (net of staff restructuring costs and including share based 413.9 396.4
payment charge)
Profit on disposal relating to sale and leaseback (Adjusting item) (see note - (23.5)
9)
Profit on disposal relating to a lease modification at Spire Sussex (Adjusting - (0.4)
item) (see note 9)
Profit on the early termination of a lease (Adjusting item) (see note 9) - (0.2)
Impairment losses are included in other operating costs. Inventory recognised
as an expense in the current year is disclosed in note 17 of the Annual Report
and Accounts.
8. Finance income and costs
(£m) 2022 2021
Finance cost
Interest on bank facilities 12.4 18.8
Interest on the RSA judgment repayable (included in Adjusting items) - 0.8
Refinancing fees 1.0 -
Amortisation of fee arising on facilities extensions/borrowing costs ((1)) 1.5 1.0
Accelerated amortisation and loss on extinguishment of loan 3.1 -
IFRS 9 release arising on facilities extension ((1)) - 0.1
Interest on obligations under leases 73.5 68.2
Total finance costs 91.5 88.9
Total net finance costs 91.5 88.9
(1.) (£5.0m of borrowing costs were capitalised on the refinancing of the
senior facility, these are being amortised. In the prior year £3.3m that was
recorded at the date of the 2018 extension and £0.3m recorded at the date of
the 2020 extension. The remaining balance of these fees were changed to the
profit and loss in the year on the extinguishment of the old loan.)
9. Adjusting items
(£m) 2022 2021
Business reorganisation and corporate restructuring costs 4.5 1.2
Asset acquisitions, disposals, impairment and aborted project costs 4.3 4.5
Remediation of regulatory compliance or malpractice costs 1.1 11.4
Hospital set up and closure costs 0.3 0.3
Income from asset disposals - (23.3)
Total Adjusting items in operating costs 10.2 (5.9)
Interest payable on Adjusting items - 0.8
Total pre-tax Adjusting items 10.2 (5.1)
Income tax credit on Adjusting items (1.8) (13.8)
Total post-tax Adjusting items 8.4 (18.9)
Adjusting items comprise those matters where the Directors believe the
financial effect should be adjusted for, due to their nature, size or
incidence, in order to provide a more accurate comparison of the Group's
underlying performance.
During H2 21, the Group announced a strategic, group wide initiative that
impacts the operating model of the Group to allow a more efficient governance
and reporting structure, as well as a drive on digital functionality. This
initiative will be implemented over several phases. In the period, £4.5m
(2021: £1.2m) has been incurred. The initial phase of the initiative was
completed in 2022, the estimated time frame to overall completion being the
end of 2024.
Asset acquisitions, disposals, impairment and aborted project costs of £4.3m
mainly comprise costs in respect of the acquisition of the Doctors Clinic
Group, and the acquisition of the minority interest in Claremont, as well as
its integration with the Group. In the prior year costs incurred by the Group
relating to Merger and Acquisition (M&A) costs, related to the attempted
takeover bid by Ramsay Health Care, and the acquisition and integration of
Claremont.
In December 2022, the Group acquired 100% of the share capital in the Doctors
Clinic Group Limited for £12m as part of its strategic investment in its
broader healthcare offering. The costs of acquisition of £1.8m have been
incurred in the period. Costs for integration are expected to continue into
FY23.
Following the acquisition of Claremont Hospital in November 2021, the Group
has incurred costs of £0.5m for integration alongside some transitional
services in the period. In addition, on 31 March 2022, the Group acquired the
remaining minority interest for £2.7m, of which £1.9m had been provided for
in FY21. Therefore, £0.8m is included in Adjusting items. Other costs
incurred mainly relate to the final business transfer of the Sussex Hospital
to the NHS Trust which completed on 31 March 2022, as announced during FY21.
In addition, integration costs of £0.5m were incurred in the period.
In December 2022, the Group completed on the sale of St Saviours, an asset
held for sale, for £3.2m, following a write down in value reported at H1 2022
of £0.5m recognised in other operating costs.
In the prior period, the Group agreed with sale and leaseback of its Cheshire
Hospital for consideration of £89m. A gain on disposal of £23.5m has been
recognised, offset by £0.2m of costs to sell.
Remediation of regulatory compliance or malpractice costs includes amounts
paid to the Insurer following the Court of Appeal hearing. £13.0m was
provided in FY21, with £13.3m being settled in FY22. The £0.3m recognised in
the period reflects this additional amount. In the prior year, and in response
to the Public Inquiry the Group commenced a detailed patient review
initiative, during the year the Group has re-evaluated the expected cost of
completing this complex project, and its associated settlement of claims. As a
result, the Group has increased its provision by £0.9m for the project. In
the prior year, a credit of £0.4m was recognised following the settlement of
costs to Spire from its insurer following the original judgment finding in
favour of the Group in FY20.
Hospital set up and closure costs mainly relate to the maintenance costs of
non-operational sites.
10. Taxation
(£m) 2022 2021
Current tax
UK corporation tax expense 0.1 0.8
Adjustments in respect of prior years (0.7) -
Total current tax (credit) / charge (0.6) 0.8
Deferred tax
Origination and reversal of temporary differences (2.6) (15.0)
Effect of change in tax rate - 17.7
Adjustments in respect of prior years (1.1) 3.5
Total deferred tax (credit) / charge (3.7) 6.2
Total tax (credit) / charge (4.3) 7.0
In addition to the above, a charge of £2.1m has been recognised in Other
Comprehensive income (2021: £0.6m charge) and £0.1m charge (2021: £3.0m
credit) through Equity.
Corporation tax is calculated at 19.0% (2021: 19.0%) of the estimated taxable
profit or loss for the year. The effective tax rate on profit before taxation
for the year was not meaningful (2021: not meaningful) as a result of prior
year adjustments and movements on deferred tax which are not directly linked
to profit. During the period, the Group has reassessed the useful life and
residual value of its freehold property portfolio. This has results in a
one-off deferred tax credit of £9.0m. The prior year deferred tax charge was
largely driven by the effects of revaluing deferred tax assets and liabilities
from 19% to 25% due in April 2023, and the deferred tax movement as a result
of the sale and leaseback of Spire Cheshire. The effective tax assessed for
the year, all of which arises in the UK, differs from the standard weighted
rate of corporation tax in the UK.
The reconciliation of the actual tax charge to that at the domestic
corporation tax rate is as follows:
(£m) 2022 2021
Profit / (loss) before taxation 3.9 (1.9)
Tax at the standard rate 0.7 (0.4)
Effects of:
Expenses and income not deductible or taxable 8.2 4.5
Tax adjustment for the Super-deduction allowance (2.6) (2.2)
Tax adjustment in respect of sale and leaseback - (16.0)
Impairment charge in respect of held for sale assets (not tax deductible) 0.1 -
One-off impact of revision to useful life and residual value of freehold (9.0) -
property portfolio (deferred tax)
Adjustments to prior year (1.8) 3.5
Difference in tax rates 0.1 17.7
Deferred tax not previously recognised - (0.1)
Total tax (credit) / charge (4.3) 7.0
Expenses and income not deductible or taxable relate mostly to depreciation on
non-qualifying fixed assets, disallowable entertaining and legal and
professional fees. The one-off impact of revision to useful life and residual
value of the freehold property portfolio is described in note 23 of the annual
report and accounts.
The charge above in the prior year was driven mainly by the revaluation of
deferred tax assets and liabilities to 25% from 19% as a result of the
substantive enactment of the Government's decision to increase the corporation
tax rate from 1 April 2023, as well as the deferred tax movement as a result
of the sale and leaseback of Spire Cheshire. The current year charge driven by
expenses not deductible for tax purposes, offset by the one-off deferred tax
credit of £9.0m as a result in the revision to the useful life and residual
value of the freehold property portfolio, an adjustment in respect of prior
year and the claim of the super deduction for capital allowance purposes.
The Group does not hold any uncertain tax positions under IFRIC 23 at the
year-end (2021: none).
11. Earnings per share (EPS)
Basic EPS is calculated by dividing the profit for the year attributable to
ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the year.
2022 2021
Profit/(Loss) for the year attributable to ordinary equity holders of the 8.6 (9.7)
Parent (£m)
Weighted average number of ordinary shares for basic EPS (No.) 402,756,797 401,087,547
Adjustment for weighted average number of shares held in EBT (77,501) (239,283)
Weighted average number of ordinary shares in issue (No.) 402,679,296 400,848,264
Basic earnings per share (in pence per share) 2.1 (2.4)
For dilutive EPS, the weighted average number of ordinary shares in issue is
adjusted to include all dilutive potential ordinary shares arising from share
options. Refer to the Remuneration Committee Report in the Annual Report and
Accounts for the terms and conditions of instruments generating potential
ordinary shares that affect the measurement of diluted EPS.
2022 2021
Profit/(Loss) for the year attributable to ordinary equity holders of the 8.6 (9.7)
Parent (£m)
Weighted average number of ordinary shares in issue (No.) 402,679,296 400,848,264
Adjustment for weighted average number of contingently issuable shares 9,363,470 -
Diluted weighted average number of ordinary shares in issue (No.) 412,042,766 400,848,264
Diluted earnings per share (in pence per share) 2.1 (2.4)
In the prior year the weighted average number for contingently issuable shares
would be anti-dilutive, they are excluded from the above. However, 8,891,739
shares are potentially dilutive.
The Directors believe that EPS excluding Adjusting items ("Adjusted EPS")
better reflects the underlying performance of the business and assists in
providing a clearer view of the performance of the Group.
Reconciliation of profit after taxation to profit after taxation excluding
Adjusting items ("Adjusted profit"):
2022 2021
Profit/(Loss) for the year attributable to owners of the Parent (£m) 8.6 (9.7)
Adjusting items (see note 9) 8.4 (18.9)
Adjusted profit/(loss) (£m) 17.0 (28.6)
Weighted average number of Ordinary Shares in issue 402,679,296 400,848,264
Weighted average number of dilutive Ordinary Shares 412,042,766 400,848,264
Adjusted basic earnings per share (in pence per share) 4.2 (7.1)
Adjusted diluted earnings per share (in pence per share) 4.1 (7.1)
In the prior year the weighted average number for contingently issuable shares
would be anti-dilutive, they are excluded from the above. However, 8,891,739
shares are potentially dilutive.
12. Property, plant and equipment
(£m) Freehold property Leasehold improvements Equipment Assets in the course of construction Total
Right of use
(ROU)
Cost:
At 1 January 2021 870.5 164.0 447.4 9.2 763.9 2,255.0
Additions 11.4 11.9 47.6 6.2 - 77.1
Acquisition of a subsidiary (Note 22) - 0.1 4.7 - 25.5 30.3
Additions to ROU assets - - - - 32.6 32.6
Adjustments to existing assets (eg indexation) - - - - 9.7 9.7
Disposals (35.9) (1.7) (20.9) - (5.8) (64.3)
Transfers(1) (0.7) 3.4 1.8 (4.5) - -
At 1 January 2022 845.3 177.7 480.6 10.9 825.9 2,340.4
Additions 8.5 6.4 55.9 19.3 - 90.1
Acquisition of a subsidiary (Note 22) - - 0.6 - - 0.6
Additions to ROU assets - - - - 4. 9 4.9
Adjustments to existing assets (eg indexation) - - - - 34.0 34.0
Disposals (3.6) (3.7) (71.8) - (0.9) (80.0)
Transfer - - (10.0) - 10.0 -
At 31 December 2022 850.2 180.4 455.3 30.2 873.9 2,390.0
Accumulated depreciation and impairment:
At 1 January 2021 180.3 46.9 295.3 - 197.2 719.7
Charge for the year 17.9 8.4 41.1 - 29.7 97.1
Acquisition of a subsidiary (Note 22) - - 4.1 - - 4.1
Disposals (9.2) (0.9) (19.7) - (4.2) (34.0)
At 1 January 2022 189.0 54.4 320.8 - 222.7 786.9
Charge for the year 12.3 9.3 42.6 - 33.7 97.9
Disposals (3.1) (3.6) (71.6) - (0.9) (79.2)
At 31 December 2022 198.2 60.1 291.8 - 255.5 805.6
Net book value:
At 31 December 2022 652.0 120.3 163.5 30.2 618.4 1,584.4
At 31 December 2021 656.3 123.3 159.8 10.9 603.2 1,553.5
( )
(1 Management identified a number of assets which should be reclassified from
Equipment to Leasehold improvements and Freehold property to better reflect
the life of the assets. These have been reflected in the reclassification line
in the note above. There is no overall impact to the carrying value of plant,
property and equipment)
The net book value of land is £156.3m (2021:£156.3m). During the year the
Group refinanced it senior finance facility and pledged 9 of its freehold
properties as security, the net book value of these properties are £157.6m as
at 31 December 2022. No assets in the prior year were subject to restriction
on title or pledged as security for liabilities. There were no borrowing costs
capitalised during the year ended 31 December 2022 (2021: Nil).
Impairment testing
The Directors consider property and property right of use assets for
indicators of impairment semi-annually. As equipment and leasehold
improvements do not generate independent cash flows, they are considered
alongside the property as a single cash-generating unit ("CGU"). When making
the assessment, the value-in-use of the property is compared with its carrying
value in the accounts. Where headroom is significant, no further work is
undertaken. Where headroom is minimal, a detailed assessment is performed for
the property, which includes identifying the factors resulting in limited
headroom and undertaking financial forecasts to assess the level of
sensitivity this has to key assumptions.
In order to estimate the value-in-use, management has used trading projections
covering the period to December 2027 from the most recent board approved
strategic plan. The variables in the cash flows are interdependent and
reflect management's expectations based on past experience and current market
trends, it takes into account both current business and committed initiatives.
To the extent that there was a shortfall between the recent actual cash flows
and forecast, the future cash flows have been adjusted to reflect any
initiatives implemented by management to address the underlying cause. In
addition, Management consider the potential financial impact from short term
climate change scenarios, and the cost of initiatives by the Group to manage
the longer term climate impacts.
Key assumptions
Management identified a number of key assumptions relevant to the value-in-use
calculations, being EBITDA growth over the five year period, capital
maintenance spend, discount rates and long term growth rates. The
assumptions are based on past experience and external sources of information.
There were three properties triggered for detailed review in the period owing
to the relatively lower level of headroom. Management has performed a
sensitivity analysis on these properties using reasonably possible changes for
each key assumption, keeping all other assumptions constant. The sensitivity
analysis included an assessment of the break-even point for each of the key
assumptions.
The trading projections for the five year period underlying the value in use
reflect a growth in EBITDA. EBITDA is based on a number of elements of the
operating model over the longer-term, including pricing trends, volume growth
and the mix and complexity of procedures and assumptions regarding cost
inflation. The sensitivity analysis identified that a reasonably possible
change that would result the elimination of headroom for each property as
shown in the table below.
The Group has used a pre-tax discount rate of 10.6% (2021: 8.5%), adjusted for
the effect of IFRS 16. The sensitivity analysis identified that a reasonably
possible change in the pre-tax discount rate, would result in the elimination
of headroom as shown in the table below.
For the properties triggered for review the table below provides the headroom
and the reasonably possible change identified in the sensitivity analysis
mentioned analysis mentioned above which would result in the elimination of
headroom.
Headroom (the amount that recoverable amount exceeded the carrying amount) EBITDA growth for the five year period Sensitivity for decrease of EBITDA growth per annum Sensitivity for increase of the pre-tax discount rate sensitivity
Property CGU 1 £5.7m 2% - 62% 8.6% 270 bps
Property CGU 2 £5.0m 2% - 70% 4.5% 299 bps
Property CGU 3 £7.4m 0% - 79% 2.6% 135 bps
A long-term growth rate of 2.0% has been applied to cash flows beyond 2027
based on long term view of inflation, revenue growth and market conditions.
Capital maintenance spend is based on historic run rates and our expectations
of the Group's requirements. The sensitivity testing identified no reasonably
possible changes in the capital maintenance and long term growth rates that
would cause the carrying amount of any CGU to exceed its recoverable amount.
As a result, management believe that some of the key impairment review
assumptions constitute a major source of estimation uncertainty as they
consider that there is a significant risk of a material change to its estimate
of these assumptions within the next 12 months.
13. Intangible assets
(£m) Goodwill
Cost or valuation:
At 1 January 2021 518.8
Acquisition of a subsidiary 17.0
At 31 December 2021 535.8
Acquisition of a subsidiary 11.1
Adjustment to prior year goodwill acquired (0.1)
At 31 December 2022 546.8
Impairment:
At 31 December 2021 and 31 December 2022 201.0
Carrying amount:
At 31 December 2022 345.8
At 31 December 2021 334.8
Acquisition during the year
On 16 December 2022, the Group acquired 100% of the voting shares of The
Doctors Clinic Group, a non-listed company based in England who are an
integrated provider of occupational health services and private GP services,
for £12m generating goodwill of £11.1m.
Impairment testing
The Directors treat the business as a single cash-generating unit for the
purposes of testing goodwill for impairment prior to the acquisition of The
Doctors Clinic Group. The recoverable amount of goodwill is calculated by
reference to its estimated value-in-use. In order to estimate the
value-in-use, management has used trading projections covering the period to
December 2027 from the most recent board approved strategic plan. The
variables in the cash flows are interdependent and reflect management's
expectations based on past experience and current market trends, it takes into
account both current business and committed initiatives. In addition,
Management consider the potential financial impact from short term climate
change scenarios, and the cost of initiatives by the Group to manage the
longer term climate impacts. The recoverable amount exceeded the carrying
amount by c.£400m.
Key assumptions
Management identified a number of key assumptions relevant to the value-in-use
calculations, being EBITDA margin growth over the five year period, capital
maintenance spend, discount rates and long term growth rates. The
assumptions are based on past experience and external sources of information.
Management has performed a sensitivity analysis using reasonably possible
changes for each key assumption, keeping all other assumptions constant. The
sensitivity analysis included an assessment of the break-even point for each
of the key assumptions.
The trading projections for the five year period underlying the value in use
reflect a growth in EBITDA margin. EBITDA Margin is dependent on a number of
elements of the operating model over the longer-term, including pricing
trends, volume growth and the mix and complexity of procedures and assumptions
regarding cost inflation. The growth in EBITDA margin over the next 5 years
ranges between 0.5% and 1.8% per annum. The sensitivity analysis
identified that a reasonably possible decrease of 12% in the annual EBITDA
forecast within the trading projection (2023-2027) would result in the
elimination of headroom.
The Group has used a pre-tax discount rate of 10.6% (2021: 8.5%), adjusted for
the effect of IFRS 16. The sensitivity analysis identified that a reasonably
possible increase of 250 bps in the pre-tax discount rate, would result in the
elimination of headroom.
A long-term growth rate of 2.0% has been applied to cash flows beyond 2027
based on long term view of inflation and market conditions. Capital
maintenance spend is based on historic run rates and our expectation of the
Group's requirements. The sensitivity testing identified no reasonably
possible changes in the capital maintenance and long term growth rates that
would cause the carrying amount of any CGU to exceed its recoverable amount.
As a result, management believe that some of the key impairment review
assumptions constitute a major source of estimation uncertainty as they
consider that there is a significant risk of a material change to its estimate
of these assumptions within the next 12 months
14. Trade and other receivables
(£m) 2022 2021
Amounts falling due within one year:
Trade receivables 59.8 54.7
Unbilled receivables 18.2 12.3
Prepayments 15.7 18.4
Other receivables 11.8 17.9
105.5 103.3
Allowance for expected credit losses (5.0) (4.1)
Total current trade and other receivables 100.5 99.2
Unbilled receivables reflects work in progress where a patient had treatment,
or was receiving treatment, at the end of the period and the invoice had not
yet been raised.
Other receivables includes the £5.4m insurance reimbursement right (2021:
£7.4m); as well as £2.6m (2021:£7.9m) reimbursement right related to the
new Paterson Fund, which is being held by solicitors on account until payments
are made, with any amount not paid out being returned to Spire. During the
year, £5.3m was paid out of this fund. The amounts paid to the new Paterson
fund do not reflect an investment in a financial asset, but merely a right to
reimbursement should the fund not be utilised in full.
In the prior year, as well as the £7.4m insurance reimbursement right, other
receivables includes a £2.2m receivable from the vendor of Claremont
Hospital, which was acquired by the Group during the year, and is the
difference between the original estimated purchase price of £19.1m and the
final agreed purchase price of £16.9m.
Trade and other receivables of £1.5m have been recognised on the acquisition
of the Doctors Clinic Group during the year (Note 22).
Trade receivables comprise amounts due from private medical insurers, the NHS,
self-pay patients, consultants and other third parties who use the Group's
facilities. Invoices to customers fall due within 60 days of the date of
issue.
The Group was successful in its bid to be included on the NHSE Framework for
purchasing additional activity from the independent sector, which commenced in
April 2021. Inclusion on the Framework is at an agreed price for activity,
based on the NHS tariff, but carries no guaranteed volumes. For contracts
under the Framework that include an estimated contract value, billing is in
advance for the expected volume, with a quarterly true-up for actual volumes
undertaken. For contracts under the Framework without an estimated contract
value (which can include local agreements), billing is in arrears based on
actual volumes only.
The ageing of trade receivables is shown below and shows amounts that are past
due at the reporting date (excluding payments on account). A provision for
expected credit losses has been recognised at the reporting date through
consideration of the ageing profile of the Group's trade receivables and the
perceived credit quality of its customers reflecting net debt due. The
carrying amount of trade receivables, net of expected credit losses, is
considered to be an approximation to its fair value.
The loss allowance as at 31 December 2022 for trade receivables was determined
as follows:
Current 0-30 days 31-90 days 91-364 days 1-2 years Total
Expected loss rate 0.0% 1.8% 8.3% 29.2% 17.5% 7.2%
Gross debt (£m) 27.8 16.8 8.4 8.9 8.0 69.9
Less payments on account (£m) (10.1)
Carrying amount of trade receivables (£m) 59.8
Loss allowance (£m) - 0.3 0.7 2.6 1.4 5.0
The loss allowance as at 31 December 2021 for trade receivables was determined
as follows:
Current 0-30 days 31-90 days 91-364 days 1-2 years Total
Expected loss rate 0.7% 2.2% 5.1% 19.5% 23.6% 5.5%
Gross debt (£m) 27.1 22.9 13.7 7.7 5.5 76.9
Less payments on account (£m) (22.2)
Carrying amount of trade receivables (£m) 54.7
Loss allowance (£m) 0.2 0.5 0.7 1.5 1.2 4.1
Trade receivables are written off when there is no longer a reasonable
expectation of recovery. Indicators that there is no reasonable expectation of
recovery include, amongst others, the failure of a debtor to engage in a
repayment plan with the group, and failure to make contractual payments for a
period of greater than 2 years past due.
The Group assesses on a forward looking basis expected credit losses
associated with its debt instruments carried at amortised cost. The impairment
methodology applied for trade receivables is the simplified approach, which
requires expected lifetime losses to be recognised from initial recognition of
the trade receivables.
Trade receivables after expected credit losses comprise the following wider
customer/payor groups:
(£m) 2022 2021
Private medical insurers 30.4 27.4
NHS 8.2 9.2
Patient debt 7.2 8.9
Other 9.0 5.1
54.8 50.6
The movement in the allowance for impairment in respect of trade receivables
during the year was as follows:
(£m) 2022 2021
At 1 January 4.1 5.3
Provided in the year 1.1 -
Utilised during the year (0.2) (0.2)
Released during the year - (1.0)
At 31 December 5.0 4.1
The Group applies the IFRS 9 simplified approach to measuring Expected Credit
Losses (ECLs) for trade receivables. Under this standard, lifetime ECL
provisions are recognised for trade receivables using a matrix of rates
dependant on age thresholds and customer types. The ECL rates are determined
with reference to historical performance of each payor age group during the
last two years.
To develop the ECL matrix, trade receivables were grouped according to shared
characteristics (payor/payor type) and the days past due. As the majority of
the Group's debt is receivable from large, well-funded insurance companies,
the National Health Service or from a large number of individuals, the Group
has concluded that historical debt performance of the portfolio during the
last two reporting periods provides a reasonable approximation of the future
expected loss rates for each payor age category.
15. Non-current assets held for sale
During the year the Group completed the sale of its Spire St Saviours property
and received proceeds of £3.2m. In June 2022 an impairment of £0.5m was
recognised on the property, as the sales price less costs to sell on the
property was lower than the carrying value. No impairment was recognised in
the prior year (see Note 9).
As at 31 December 2022 the Group's management have committed to sell a parcel
of land at Bostocks Lane. Negotiations are complete and the buyer has
submitted a planning application to the authorities. The sale is considered
highly probable and the assessment has not changed. It therefore remains as
classified as held for sale.
(£m) 2022 2021
Spire St Saviours Hospital property (note 9) - 3.7
Bostocks Lane (East Midlands Cancer Centre) 1.1 1.1
1.1 4.8
16. Share capital and reserves
2022 2021
Authorised shares
Ordinary share of £0.01 each 404,108,470 401,104,036
404,108,470 401,104,036
Issued and fully paid £0.01 ordinary shares
Shares £'000
At 31 December 2022 404,108,470 4,041
At 31 December 2021 401,104,036 4,010
During the year, the authorised share capital was increased by £31,000 by the
issue of 3,004,434 ordinary shares of £0.01 each.
Share premium
(£m) 2022 2021
At 1 January 826.9 826.9
Issue of new shares 3.1 -
At 31 December 830.0 826.9
During the year the Group issued 3,004,434 shares to settle share awards of
which 2,916,000 shares were exercised under the save as you earn 2019 scheme
at an average price of £1.09 per share. The proceeds from the issue of shares
was £3.1m.
Capital reserves
This reserve represents the loans of £376.1m (2021: £376.1m) due to the
former ultimate parent undertaking and management that were forgiven by those
counterparties as part of the reorganisation of the Group prior to the IPO in
2014.
EBT share reserves
Equiniti Trust (Jersey) Limited is acting in its capacity as trustee of the
Company's Employee Benefit Trust ('EBT'). The purpose of the EBT is to further
the interests of the Company by benefiting employees and former employees of
the Group and certain of their dependants. The EBT is treated as an extension
of the Group and the Company.
During the year, the EBT purchased 88,354 shares and exercised 300,491 (2021:
nil shares acquired and nil exercised) in order to settle share awards in
relation to the Directors' Share Bonus award and Long-Term Incentive Plan.
Where the EBT purchases the Company's equity share capital the consideration
paid, including any directly attributable incremental costs, is deducted from
equity attributable to the Company's equity holders until the shares are
cancelled or reissued. As at 31 December 2022, 27,146 shares (2021: 239,283)
were held by the EBT in relation to the Directors' Share Bonus award and
Long-Term Incentive Plan. The EBT share reserve represents the consideration
paid when the EBT purchases the Company's equity share capital, until the
shares are reissued.
As with prior years, the Company will continue to fund the Spire Healthcare
Employee Benefit Trust ('EBT'), a discretionary trust held for the benefit of
the group's employees, for the ongoing acquisition of shares to satisfy the
exercise of share plan awards by employees.
2022 2022 2021 2021
number of shares £m number of shares £m
At 1 January 239,283 0.8 239,283 0.8
Purchased 88,354 - - -
Exercised (300,491) (0.8) - -
At 31 December 27,146 - 239,283 0.8
Hedging reserve
The balance of £6.6m at 31 December 2022 (2021: £0.5m) reflects the £1.2m
(2021: £2.5m) recycled in the period, the fair value credit of £8.1m (2021:
£0.8m credit) and the £2.2m tax charge on the profit (2021: £0.6m tax
charge on the profit) to give a net movement of an increase of £7.1m during
the year (2021: a decrease of £2.7m) on a hedged transaction. See note 17 for
further information.
17. Borrowings
The Group has borrowings in two forms, bank borrowings and lease liabilities
as disclosed on the consolidated balance sheet. Total borrowings at 31
December 2022 were £1,190.8m (2021: £1,265.3m). More detail in respect of
these two forms of borrowings are set out below.
Bank borrowings
The bank loans are secured on fixed and floating charges over both the present
and future assets of material subsidiaries of the Group. On 24 February
2022, the Group successfully refinanced its debt facilities with a syndicate
of existing and new Lenders. As part of the exercise and in recognition of
the fact that the Group had substantial cash reserves at 31 December 2021, the
Group repaid £100.0m of the Senior Loan Facility. The new arrangement has a
maturity of 4 years. The financial covenants relating to this new agreement
are materially unchanged. The loan is non-amortising and carries interest at a
margin of 2.05% over SONIA (2021: 2.25% over LIBOR).
For accounting purposes, the loan and associated deferred and amortised fees
have been treated as an extinguishment under IFRS 9, as a result £3.1m has
been recognised within finance costs in the income statement.
(£m) 2022 2021
Amount due for settlement within 12 months 2.9 5.7
Amount due for settlement after 12 months 321.4 421.8
Total bank borrowings 324.3 427.5
Terms and debt repayment schedule
The maturity date is the date on which the relevant bank loans are due to be
fully repaid. The carrying amounts drawn (after issue costs and including
interest accrued) under facilities in place at the balance sheet date were as
follows:
(£m) Maturity Margin over SONIA 2022 2021
Senior finance facility((1)) February 2026 2.05% 324.3 -
Senior finance facility((1)) July 2023 2.25%((2)) - 428.2
1 In the prior period the difference between the carrying amount of the
facility and the value of the debt repayment schedule is a modification fee on
the loan extension and is deferred and amortised in accordance with IFRS 9
loan modification accounting. On refinancing in the current period, these
amounts have been accelerated and recognised in the Income Statement as a
result of the refinancing being treated as an extinguishment for accounting
purposes.
2 Margin over LIBOR
Net debt for the purposes of the covenant test in respect of the Senior Loan
Facility was £250.8m (December 2021: £222.4m) and the net debt to EBITDA
ratio was 2.2x (December 2021: 2.3x). The net debt for covenant purposes
comprises the senior facility of £325.0m less cash and cash equivalents of
£74.2m. EBITDA for covenant purposes comprises Adjusted EBITDA for Last
Twelve Months (LTM) of pre-IFRS 16 Adjusted EBITDA of £123.9m (December 2021:
106.0m) less the rental of a finance lease pre-IFRS 16 of £9.5m (2021:
£9.1m).
The interest cover for covenant purposes was 8.5x (2021: 4.5x 2020: 4.0x, 2019
4.8x) and is calculated as the pre-IFRS 16 EBITDA described above over
pre-IFRS 16 finance costs paid.
The new facilities include a sustainability-linked element connected to
environmental and quality factors.
The Group also has access to a further £100.0m through a committed and
undrawn revolving credit facility to February 2026.
Lease liabilities
The Group has finance in respect of hospital properties, vehicles, office and
medical equipment. The leases are secured on fixed and floating charges over
both the present and future assets of material subsidiaries in the Group.
Leases, with a present value liability of £866.5m (2021: £837.8m), expire in
various years to 2046 and carry incremental borrowing rates in the range
3.1-14.6% (2021: 3.1-14.6%). Rent in respect of hospital property leases are
reviewed annually with reference to RPI or CPI, subject to assorted floors and
caps. The discount rates used are calculated on a lease by lease basis, and
are based on estimates of incremental borrowing rates. A movement in the
incremental borrowing rate of 1% would result is an 8% movement in lease
liability.
In the year, the Group recognised charges of £13.6m (2021: £12.3m) of lease
expenses relating to short term and low value leases for which the exemption
under IFRS 16 has been taken. Cash outflows in respect of these are materially
in line with the expense recognised, resulting in a total cash outflow of
£105.6m (2021: £38.3m). The Group has not made any variable lease payments
in the year. The Group is not a lessor for any leases to external parties.
There has been no (2021: one) sale and leaseback transaction in this period.
Where new leases have the right to extend and management is not reasonably
certain to exercise the extension option, those future cash flows are not
reflected in the above. The new leases do not include any restrictions or
covenants.
Some leases receive RPI increases on an annual basis which affects both the
cash flow and interest charged on those leases. Except for this increase, cash
flows and charges are expected to remain in line with current year. The cash
flows above do not reflect any termination or extension options as management
is reasonably certain that the options will not be exercised. There are no
significant restrictions or covenants which impact the cash flows in respect
of these leases.
See note 12 for more detail on the depreciation of the Right of Use (ROU)
assets and note 8 for more detail on the interest expense relating to leases.
Changes in bank borrowings and leases liabilities arising from financing
activities
(£m) 1 January Cash flows Non cash changes(1) Additios(2) 31 December
2022
Bank loans 427.5 (121.1) 17.9 - 324.3
Lease liabilities 837.8 (93.7) 73.5 48.9 866.5
Total 1,265.3 (214.8) 91.4 48.9 1,190.8
( )
(1 Non-cash changes reflect interest charged on the loan)
(2 Additions include both new leases entered into, indexation of existing
leases, transactions and acquisitions of subsidiaries.)
(£m) 1 January Cash flows Non cash changes(1) Loan modification(2) Additions(3) Disposals 31 December
2021
Bank loans 420.8 (13.2) 18.8 1.1 - - 427.5
Lease liabilities 749.5 (26.0) 67.7 - 48.4 (1.8) 837.8
Total 1,170.3 (39.2) 86.5 1.1 48.4 (1.8) 1,265.3
(1 Non-cash changes reflect interest charged on the loan)
(2 the loan modification relates to the fees incurred on the loan extensions,
which are amortised in accordance with IFRS 9)
(3 Additions include both new leases entered into, indexation of existing
leases, sale and leaseback transactions and acquisitions of subsidiaries.)
Derivatives
The following derivatives were in place at 31 December:
Interest rate Maturity date Notional amount Carrying value liability / (Asset)
31 December 2022 (£m)
Interest rate swaps 2.7780% Feb 2026 243.8 (8.6)
31 December 2021 (£m)
Interest rate swaps 1.2168% July 2022 213.0 0.7
(£m) 2022 2021
Amount due for settlement within 12 months (3.6) 0.7
Amount due for settlement after 12 months (5.0) -
Total derivatives (8.6) 0.7
The interest rate swap from the prior year matured on the 22 July 2022. The
Group entered into new interest rate swaps on the 25 July 2022. The movement
in respect of derivatives reflects £1.2m (December 2021: £1.2m) recycled in
the period and a £8.1m credit (December 2021: £0.4m credit) in fair value.
All movements are reflected within other comprehensive income.
18. Provisions
(£m) Medical malpractice Business restructuring Total
and other
At 1 January 2022 42.0 2.8 44.8
Increase in existing provisions 7.9 0.5 8.4
Provisions utilised (30.1) (1.0) (31.1)
Provisions released (0.4) - (0.4)
At 31 December 2022 19.4 2.3 21.7
Medical malpractice relates to estimated liabilities arising from claims for
damages in respect of services previously supplied to patients. During the
period £6.4m was added due to additional claims received, and £9.1m
utilised. Amounts are shown gross of insured liabilities. Any such insurance
recoveries of £5.4m (December 2021: £7.4m) are recognised in other
receivables. This drives the majority of the movement in the Medical
Malpractice provision with the exception of the Insurer settlement and the
Paterson actions following the Public Inquiry. Following the Court of Appeal
judgment in H2 2021, relating to the ongoing legal action between the Group
and its Insurer, finding in favour of the insurer, Spire provided for £13.0m
in the period, and settled £13m in the current period which is reflecting as
utilised during the period.
Following the completion of the criminal proceedings against Ian Paterson, a
consultant who previously had practicing privileges at Spire Healthcare,
management agreed settlement with all current and known civil claimants (and
the other co-defendants) and made a provision for the expected remaining costs
in FY20. The provision is being utilised, including £5.3m in patient claim
settlements. The provision to complete the reviews, settle any claims and cost
in respect of other Paterson items has been increased by £0.9m. This
provision remains subject to ongoing review following the publication of the
Public Inquiry report on Paterson issued on 4 February 2020, as the Group
continues to assess the potential impact of the recommendations. The project
is complex and the process for review and settlement takes some time. It is
possible that, as further information becomes available, an adjustment to this
provision will be required, but at this time, it reflects management's best
estimate of the costs and settlement of claims at this point. The variables
include the number of patients which are found to have been harmed following
review, the level of harm, and the associated compensation claim, as well as
the time to review each case can vary significantly.
The provision in relation to the Ian Paterson costs has been determined before
taking account of any potential further recoveries from insurers.
As at 31 December 2022, the remaining Business Restructuring and Other
provisions primarily includes non-patient claims made against the Group. The
Group is in the process of settling or defending such claims as appropriate.
Management have sought external counsel, where appropriate, to determine the
appropriate provision levels.
Provisions as at 31 December 2022 are materially considered to be current and
expected to be utilised at any time within the next twelve months, subject to
external factors beyond the Group's control.
19. Trade and other payables
(£m) 2022 2021
Trade payables 67.2 51.7
Accrued expenses 58.4 52.6
Social security and other taxes 9.7 8.3
Other payables 29.2 46.5
Trade and other payables 164.5 159.1
Trade and other payables of £1.9m have been added on the acquisition of the
Doctors Clinic Group during the year (see Note 22).
Accrued expenses includes general operating expenses incurred, but not
invoiced as at the year end, as well as holiday pay accrued of £5.2m (2021:
£9.1m) due to staff deferring leave to maintain operations throughout the
COVID-19 pandemic, and bonuses accrued during the year and paid during the
following year of £7.0m (FY21: £6.4m).
Other payables include an accrual for pensions and payments on account.
Revenue is not recognised in respect of payments on account until the
performance obligation has been met. At year end the balance of payments on
account was £11.9m (2021: £9.9m) partly, and other credit balances reclassed
from trade debtors were £28.2m (2021: £25.8m), which largely relate to NHS
credits. Payments on account are expected to be utilised against patient
procedures within the following 12 months. The balance of payments on account
as at 31 December 2021 have been fully utilised in the current year. However,
this is subject to the patient attending for the procedure, and not cancelling
or deferring treatment, which could result in repayment to the patient should
they request so.
20. Share-based payments
The Group operates a number of share-based payment schemes for Executive
Directors and other employees, all of which are equity settled.
The Group has no legal or constructive obligation to repurchase or settle any
of the options in cash. The total cost in respect of LTIPs and SAYE recognised
in the income statement was £2.3m in the year ended 31 December 2022 (2021:
£2.8m). Employer's National Insurance is being accrued, where applicable, at
the rate of 14.3%, which management expects to be the prevailing rate at the
time the options are exercised, based on the share price at the reporting
date. The total National Insurance charge for the year was £0.3m (2021:
£0.4m).
The following table analyses the total cost between each of the relevant
schemes, together with the number of options outstanding:
2022 2021
Charge Number of options (thousands) Charge Number of options (thousands)
£m £m
Long Term Incentive Plan 1.8 12,787 2.5 11,449
Deferred Share Bonus Plan - 525 - 383
Save As You Earn (SAYE) 0.5 3,652 0.3 3,114
2.3 16,964 2.8 14,946
A summary of the main features of the scheme is shown below:
Long Term Incentive Plan
The Long Term Incentive Plan ('LTIP') is open to Executive Directors and
designated senior managers, and awards are made at the discretion of the
Remuneration Committee. Awards are subject to market and non-market
performance criteria.
Awards granted under the LTIP vest subject to achievement of performance
conditions measured over a period of at least three years, unless the
Committee determines otherwise. Awards may be in the form of conditional share
awards or nil-cost options or any other form allowed by the Plan rules.
Vesting of awards will be dependent on a range of financial, operational or
share price measures, as set by the Committee, which are aligned with the
long-term strategic objectives of the Group and shareholder value creation.
Not less than 30% of an award will be based on share price measures. The
remainder will be based on either financial and/or operational measures. At
the threshold performance, no more than 25% of the award will vest, rising to
100% for maximum performance.
On 6 April 2020, the Company granted a total of 5,638,223 options to the
Executive directors and other senior management. The options will vest based
on earnings per share ('EPS') (20%) targets for the financial year ending 31
December 2022, relative total shareholder return ('TSR') (40%) targets on
performance over the three year period to 31 December 2022 and operational
excellence ('OE') (40%) targets based on employee engagement targets and
regulatory ratings for the current portfolio of hospitals, subject to
continued employment. Upon vesting, the options will remain exercisable until
1 April 2030.
On 18 March 2021, the Company granted a total of 3,595,102 options to the
Executive directors and other senior management. The options will vest based
on return on capital employed ('ROCE') (35%) targets for the financial year
ending 31 December 2023, relative total shareholder return ('TSR') (35%)
targets on performance over the three year period to 31 December 2023 and
operational excellence ('OE') (30%) targets based on employee engagement
targets and regulatory ratings for the current portfolio of hospitals, subject
to continued employment. Upon vesting, the options will remain exercisable
until March 2031. The Executive Directors are subject to a 2 year holding
period, whilst other senior management are not.
On 14 March 2022, the Company granted a total of 3,097,060 options to the
Executive directors and other senior management. The options will vest based
on return on capital employed ('ROCE') (35%) targets for the financial year
ending 31 December 2024, relative total shareholder return ('TSR') (35%)
targets on performance over the three year period to 31 December 2024 and
operational excellence ('OE') (30%) targets based on employee engagement
targets and regulatory ratings for the current portfolio of hospitals, subject
to continued employment. Upon vesting, the options will remain exercisable
until March 2032. The Executive Directors are subject to a 2 year holding
period, whilst other senior management are not.
Deferred Share Bonus Plan
The Deferred Share Bonus Plan is a discretionary executive share bonus plan
under which the Remuneration Committee determines that a proportion of a
participant's annual bonus will be deferred. The market value of the shares
granted to any employee will be equal to one-third of the total annual bonus
that would otherwise have been payable to the individual. The awards will be
granted on the day after the announcement of the Group's annual results. The
awards will normally vest over a three-year period.
On 6 April 2020, the Company granted a total of 243,973 options to Executive
directors, with a vesting date of 6 April 2023. The options will vest based on
a target EBITDA net debt leverage ratio for the year ending 31 December 2021,
and subject to continued employment.
On 18 March 2021, the Company granted a total of 138,888 options to Executive
directors, with a vesting date of 18 March 2024. The options will vest based
on a target EBITDA net debt leverage ratio for the year ending 31 December
2022, and subject to continued employment.
On 14 March 2022, the Company granted a total of 142,427 options to Executive
directors, with a vesting date of 14 March 2025. There are no performance
conditions in respect of the scheme and is subject to continued employment.
Save As You Earn
The Save As You Earn ('SAYE') is open to all Spire Healthcare employees.
Vesting will be dependent on continued employment for a period of 3 years from
grant. The requirement to save is a non-vesting condition.
On 3 May 2019, the Company launched the SAYE scheme. There are no performance
conditions in respect of the scheme and the scheme vested on 1 June 2022. The
options remained exercisable for 6 months to 31 December 2022.
On the 24 April 2022, the Company granted 3,800,557 options to employees with
a vesting date of 1 June 2025. There are no performance conditions in respect
of the scheme. Upon vesting, the options will remain exercisable for 6 months.
The IFRS 2 charge has been calculated using an adjusted Black Scholes model
with judgements including leavers of the scheme (employees who may cease to
save) and dividend yields.
21. Commitments
Consignment stock
At 31 December 2022, the Group held consignment stock on sale or return of
£24.3m (2021: £23.5m). The Group is only required to pay for the equipment
it chooses to use and therefore this stock is not recognised as an asset.
Capital commitments
Capital commitments comprise amounts payable under capital contracts which are
duly authorised and in progress at the consolidated balance sheet date. They
include the full cost of goods and services to be provided under the contracts
through to completion. The Group has rights within its contracts to terminate
at short notice and, therefore, cancellation payments are minimal.
Capital commitments at the end of the year were as follows:
(£m) 2022 2021
Contracted but not provided for 27.0 29.1
22. Business combinations and acquisition of non-controlling interests
Acquisitions in 2022
Acquisition of Doctors Clinic Group (together "Doctors Clinic Group")
On 16 December 2022, the Group acquired 100% of the voting shares of The
Doctors Clinic Group Limited (which in turn owns 100% of the shares of The
London Doctors Clinic Limited, Maitland Medical Service Limited and Soma
Health Limited), a non-listed company based in England which operates GP and
occupational health services in the UK, for £11.6m. The Group acquired the
companies to expand its offering for GP and occupational health services in
line with its strategic plan.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of The Doctors
Clinic Group Limited as at the date of acquisition were:
(£m) Fair value recognised on acquisition
Assets
Plant, property and equipment (Note 12) 0.6
Trade and other receivables (Note 14) 1.5
Cash 0.3
2.4
Liabilities
Payables (1.9)
Total identifiable net assets at fair value 0.5
Goodwill arising on acquisition (Note 13) 11.1
Purchase consideration transferred 11.6
The amounts recognised, are subject to adjustment in line with IFRS 3 for up
to a 12 months from acquisition, with goodwill being adjusted accordingly.
The fair value of the trade receivables amounts to £1.5m. The gross amount of
trade receivables is £1.5m and it is expected that the full contractual
amounts can be collected.
From the date of acquisition, The Doctors Clinic contributed £0.4m of revenue
and loss of £0.1 to profit before tax from continuing operations of the
Group. If the combination had taken place at the beginning of the year,
revenue from continuing operations would have been £10m and loss before tax
from continuing operations for the Group would have been £2.5m.
Goodwill has been recognised to reflect the synergies which the Group believes
are available to expand its offering for GP and occupational health services
in line with its strategic plan which reflect intangibles that cannot be
separately quantified. This goodwill is not deductible for tax purposes.
Purchase consideration transferred
(£m) Cash flow on acquisition
Net cash acquired with the subsidiary 0.3
Cash paid 11.6
Net cash flow on acquisition 11.3
Transaction costs of £1.7m were expensed and are included within Adjusting
items. The acquisition is subject to a completion accounts process which is
due to take place during H1 2023. Following this, the final purchase price
adjustments will be agreed, and goodwill updated accordingly in line with IFRS
3, which allows 12 months from the acquisition date to finalise the goodwill
position.
Prior year Acquisition of Claremont Hospital Holdings Limited and Claremont
Hospital LLP (together "Claremont Hospital")
During the year the Group reviewed its goodwill position in respect of
Claremont Hospital in line with IFRS 3 and adjustment of £0.1m has been
recognised in respect of provisions originally recognised on acquisition.
23. Contingent liabilities
The Group had the following guarantees at 31 December 2022:
· the bankers to Spire Healthcare Limited have issued a letter of credit in
the maximum amount of £1.5m (2021: £1.5m) in relation to contractual pension
obligations.
· under certain lease agreements entered into on 26 January 2010, the Group
has given undertakings relating to obligations in the lease documentation and
the assets of the Group are subject to a fixed and floating charge; and
· See note C11 in the company only accounts of the annual report and
accounts for details of contingent liability in respect of lease arrangements
and agreements.
24. Events after the reporting period
There have been no other events to disclose after the reporting date.
Shareholders' information
Registered Office and Head Office:
Spire Healthcare Group plc
3 Dorset Rise
London
EC4Y 8EN
Tel +44 (0)20 7427 9000
Fax +44 7427 9001
(Registered in England & Wales No. 09084066)
Corporate Website
Shareholder and other information about the Company can be accessed on the
Company's website:
www.spirehealthcare.com (www.spirehealthcare.com)
Financial Calendar
2023 Annual General Meeting (London)
11 May 2023
Announcement of 2023 half year
results September 2023
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