REG - Spire Healthcare Grp - Final Results
29/02/2024 07:15
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RNS Number : 8750E Spire Healthcare Group PLC 29 February 2024
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Spire Healthcare reports its results
for the year ended 31 December 2023
London, UK, 29 February 2024, 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 2023 ('the period' or 'FY23').
Strong full year performance and confident of future growth
Summary group results for the year ended 31 December 2023
Year ended 31 December
£m 2023 2022 Variance
Revenue 1,359.0 1,198.5 13.4%
Adjusted operating profit (Adjusted EBIT) 130.4 105.6 23.5%
Adjusting items included in operating profit (4.2) (10.2) NM
Operating profit 126.2 95.4 32.3%
Profit before taxation 34.6 3.9 NM((1))
Profit after taxation 27.9 8.2 NM
Basic profit per share, pence 6.8 2.1 NM
Adjusted profit per share, pence ((2)) 7.9 4.2 88.1%
Adjusted EBITDA ((3)) 234.0 203.5 15.0%
Adjusted FCF ((4)) 48.0 28.0 71.4%
Net bank debt ((5)) 315.7 250.1 26.2%
Net bank debt / EBITDA covenant ratio 2.2 2.2 -
1. Not meaningful
2. Adjusted profit / (loss) per share is stated before the effects of
Adjusting Items.
3. 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.
4. 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.
5. Net bank debt is defined as bank borrowings less cash and cash
equivalents.
Financial and operating highlights
Strong financial performance with revenue and earnings significantly ahead of
prior year
· Revenue((6)) up 13.4% vs FY22 to £1,359.0m, driven by increasing
demand for private healthcare
· Private revenue up 9.5% vs FY22 to £959.7m (FY22: up 14.5%),
with strong growth in PMI
· Adjusted EBIT up 23.5% vs FY22 to £130.4m and Adjusted EBITDA up
15.0% vs FY22 to £234.0m
· Operating profit up 32.3% vs FY22 to £126.2m, delivered in a
period of macroeconomic uncertainty and in an inflationary environment
· For the Hospitals Business ((6)) revenue up 10.8% vs FY22,
Adjusted EBITDA margin increased to 17.6% (FY22: 17.0%)
· ROCE((7)) increased to 7.5% (FY22: 6.2%)
· Net bank debt / EBITDA covenant ratio maintained at 2.2x at 31
December 2023 (end FY22: 2.2x) after acquisition of Vita Health Group
· Recommended final dividend of 2.1 pence per ordinary share (FY22:
0.5 pence per ordinary share)
Continued development of the business in line with strategy
· 98% of inspected locations currently rated 'Good' or
'Outstanding' by regulators in England, Scotland and Wales (end FY22: 98%)
· Acquired Vita Health Group, a provider of mental and physical
health services in England, for a net cash consideration of £73.2m (see note
24)
· £15m cost savings achieved as planned; another £60m targeted by
the end of 2026, of which at least £15m will be targeted in 2024
· £84.4m capex (FY22: £90.1m), including a new outpatients and
diagnostic centre at Yale, cardiac services at Manchester and Nottingham, and
investment in new clinics at Abergele and Harrogate
· Progress towards target of becoming net carbon zero by 2030
6. Unless otherwise stated numbers quoted refer to the Group. The
Hospitals Business relates to business operations performed at hospital sites.
All other Group operations are referred to as 'New Services' and include the
Doctors Clinic Group (DCG), Vita Health Group (VHG) and the clinics. Revenue
and earnings from New Services were not material in FY23. From FY24, New
Services will be presented separately. Refer tp page 11 for alternative
performance measures.
7. 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 ROCE outcome includes the impact of the
acquisition of Vita Health Group (VHG) in October 2023 and is stated after
taking its actual profit contribution to the Group for the period to 31
December 2023, adjusting for a full year effect to annualise the effect of VHG
as it has not contributed a full 12 month EBIT to the Group. Refer to page 12.
Current trading and outlook
Since the year end, Spire Healthcare has continued to trade in line with
management expectations. Management remains confident of reaching the
medium-term targets that were set at the Group's Capital Markets Day in 2022.
In 2024, the Group is planning for another year of strong overall demand.
Private Medical Insurers (PMIs) are reporting strong increases in policies
written, particularly in corporate, and Spire management expects this trend to
continue. Management believes this will result in more outpatient activity,
which often leads to more inpatient and daycase treatment.
Management anticipates modest self-pay (SP) revenue growth in 2024, driven
mainly by average revenue per case (ARPC) and mix management. The Company is
observing certain patients who had previously visited as self-paying customers
now coming to Spire hospitals with PMI coverage, and we anticipate that this
trend will continue.
The Group's NHS work saw strong growth in 2023, and in the period ahead, there
could be increased commissioning. Spire Healthcare continues to be well placed
to help the NHS address record waiting lists.
Spire is targeting another year of strong EBITDA growth, with Adjusted EBITDA
guided to be in the range £255m to £275m for the current financial year.
This includes an EBITDA contribution from VHG of c.£10m and more than £100m
revenue, as previously disclosed. The actual Group outcome will depend on a
number of factors. Supporting factors include growth of the private business,
acceleration of digitalisation/ savings, new services and NHS commissioning.
Potential factors which may impede the Group's progress include consumer
sentiment, the economy, excessive inflation, high incidence of respiratory
illnesses and NHS budgetary constraints.
Justin Ash, Chief Executive Officer of Spire Healthcare, said:
"This is a strong set of results, delivered during a period of macroeconomic
uncertainty and in an inflationary environment, demonstrating that our
strategy and execution is working. The high-quality diagnosis and treatment we
provide in our hospitals continued to meet the demand for fast access to care
throughout 2023, while we broadened our range of services to meet more of
people's healthcare needs out-of-hospital, in the community and at home. This
enabled us to care for over one million patients for the first time, over the
year.
"Our number one priority will always be quality of care and patient safety,
which underpins our market penetration and consultant support. We have
demonstrated that we can keep this focus whilst driving efficiencies,
generating profit and margin improvement, and delivering long-term shareholder
value. Our strong financial performance in 2023 and our confidence in the
future, underpins the board's recommendation of a full year dividend of 2.1
pence per share, up significantly over the prior year. I thank all our
colleagues and consultant partners for their tremendous contribution.
"2024 will be a key year as we continue to transform the business. Through our
programme of investments in digital platforms, we will be driving further
change and improvement, benefiting patients and colleagues, and generating
significant efficiencies. Our new services will become material contributors
to our operations and financial results, as we strive to provide a more
integrated healthcare offering. I am excited about our prospects for 2024 and
look forward to contributing in even greater measure to the nation's health in
the year ahead."
The person responsible for making this announcement is:
Philip Davies, Company Secretary
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 (http://www.spirehealthcare.com) is a leading independent
healthcare group in the United Kingdom, with 39 hospitals and over 50 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 800 corporate clients.
Working in partnership with over 8,600 experienced consultants, Spire
Healthcare delivered tailored, personalised care to over one million
inpatients, outpatients and daycase patients, and occupational health
programme clients, in 2023, 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. It also delivers a range of private and NHS
mental health, musculoskeletal and dermatological services.
Spire Healthcare's well-located and scalable hospitals have delivered
successful and award-winning outcomes, positioning the group well with
patients, consultants, the NHS, GPs and Private Medical Insurance ('PMI')
providers. 98% of Spire Healthcare's inspected locations are rated 'Good,'
'Outstanding' or the equivalent by health inspectors in England, Wales and
Scotland.
Spire Healthcare is listed on the London Stock Exchange and is a member of the
FTSE 250.
Cautionary statement
This 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 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 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, risks arising
out of health crises and pandemics, changes in tax rates, future business
combinations or dispositions, 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 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 announcement.
The group is providing the information in this 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_M9WnWjkDRzWqDVic-IA8VQ
(https://spirehealthcare.zoom.us/webinar/register/WN_M9WnWjkDRzWqDVic-IA8VQ)
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
Spire Healthcare delivered strong financial and operational performance during
2023, producing a year of profitable growth. All headline metrics rose
materially year-on-year (YOY) with increases in revenue, volume, average
revenue per case (ARPC), EBITDA, EBIT and PBT. The performance was in line
with management's expectations and delivered against a background of high
inflation and economic complexity. The Group's ongoing focus on cost
management, with c.£15m saved during the year, resulted in a strong YOY
profit growth, with Adjusted EBITDA of £234.0m (FY22: £203.5m) and profit
before tax of £34.6m (FY22: £3.9m).
Revenue in FY23 was up 13.4% to £1,359.0m (FY22: £1,198.5m), driven by
increasing demand for private healthcare, which remained strong throughout the
year. Admissions were up by 5.3% to 276,705. 2023 saw particularly high demand
from private medical insurance (PMI) patients. The Group's self-pay (SP)
business remained robust with volumes exceeding pre-pandemic levels. SP
revenue was up YOY, delivered through a strong focus on mix, where it targeted
more complex, higher margin treatments in orthopaedics, while scaling back in
areas such as cosmetics.
Going forwards, the Group will present numbers separately for its Hospitals
Business and New Services - Vita Health Group (VHG), Doctors Clinic Group
(DCG) and the clinics. The New Services, VHG in particular, have lower EBITDA
margins but because they have lower capex requirements, they will have good
flowthrough to PBT. Adjusted EBITDA margin for the Group's Hospitals Business
was 17.6%, up 0.6ppts compared to prior year. The Group's cost base in 2023
included £6m of IT costs that relate to cloud-based products that are not
capitalised. Adjusted EBIT margin for the Hospitals Business was 9.9% for the
period, up from 8.8% in FY22. Spire management has now laid the platform for
further margin development to achieve the Group's medium-term Adjusted EBITDA
margin target of at least 21% and Adjusted EBIT margin target of more than 13%
for its Hospitals Business.
Occurrences of COVID-19 and other respiratory illnesses do still occur,
affecting patients, colleagues and consultants, but are now part of normal
business and we are managing the associated costs accordingly. The ongoing
shortage of skilled healthcare workers in the UK and around the world showed
little signs of abatement during the period but we continue to manage this
well. It is particularly pleasing to note that staff turnover fell and
colleague engagement scores increased YOY at Spire Healthcare.
The Group responded well to the external environment in the period. Despite
high UK inflation prevailing through most of 2023, affecting input costs and
wages, Spire succeeded in growing the business and increasing profits through
careful management of pricing, mix and cost management.
Further good progress was made during 2023 to implement the strategy to expand
the Group's healthcare offering. In October 2023, Spire Healthcare acquired
VHG for a net cash consideration of £73.2m. VHG is the largest independent
NHS talking therapies provider and delivers musculoskeletal and dermatology
services, as well as corporate and occupational health services. The
integration of DCG, a provider of occupational health and GP services, which
we acquired towards the end of 2022, continued during 2023, together with the
rollout of the Group's new clinics. As the Group's broader healthcare offering
continues to be developed, income from this area will become increasingly
material to the Group's performance.
The Group is pleased to announce a recommended final dividend of 2.1 pence per
share (FY22: 0.5 pence per share), reflecting the Board's confidence in the
long-term prospects of the business.
Managing the business successfully against a backdrop of inflation and
economic complexity
The Group delivered a strong performance across almost every area of the
business in 2023. Revenue and earnings grew YOY, which was particularly
creditable given a backdrop of high inflation affecting input costs and wages.
Adjusted EBIT rose by 23.5% to £130.4m during FY23 compared to prior year and
Adjusted EBITDA by 15.0% to £234.0m. For the Hospitals Business, Adjusted
EBITDA was up 14.8% vs FY22 to £233.8m and Adjusted EBITDA margin increased
to 17.6%.
Group Profit before tax for FY23 was £34.6m, up significantly on the £3.9m
recorded in FY22.
Spire Healthcare delivered cost savings of c.£15m during 2023 as planned. Key
cost-saving initiatives included the refinement of best practice establishment
models for hospital operations, the ongoing reorganisation of hospitals into
hubs, sharing of resources and procurement savings. Improvements in
productivity enabled us to reduce FTE per admission. Another £60m of cost
savings is targeted by the end of 2026, of which at least £15m will be
targeted in 2024.
The Group continues to benefit from energy commodity prices fixed in 2021
until Q3 2024, and management anticipates an additional £2m of expenditure in
Q4 24 when these lapses.
As a people business, the support and investment in Spire Healthcare's
workforce is critical to the health of the Group's business and to delivering
good patient outcomes. Wage rate pressure remains an ongoing consideration for
Spire Healthcare and for healthcare services in the UK more broadly. Several
workforce initiatives were initiated or continued during 2023 (further detail
below) and this led to a YOY improvement in staff retention and an increase in
colleague engagement. The Group also benefited from a reduction on the use of
agency staff per admission.
Overall, management believes that the benefits secured from the above actions,
combined with the strategic focus on securing more complex work and the
Company's ability to adjust SP pricing and PMI pricing contractual
arrangements, provide adequate self-help levers to enable the Group to prosper
and deliver profitable, sustainable growth.
Strong cash conversion enabling ongoing capex investment and M&A
Net bank debt at 31 December 2023 was £315.7m (vs £250.1m at 31 December
2022), with a cash balance of £49.6m (vs £74.2m at 31 December 2022). The
increase in net bank debt over the period reflects the acquisition of VHG
financed by a combination of cash and debt. The Group entered an interest rate
hedge in July 2022, resulting in 75% of the risk from the senior loan facility
being mitigated until April 2024, after which 50% will be hedged until
February 2026. The Group's funding facilities were extended by one year to
February 2027.
Net debt / Adjusted EBITDA covenant ratio remained flat at 2.2x as at 31
December 2023 and 2022, even though bank debt has increased due to the
acquisition of VHG.
The Group continued to be cash generative during the period. Cash inflow from
adjusted operating activities during the period was £228.2m (FY22: £188.1m)
which constitutes a cash conversion rate of 98% (FY22: 92% conversion).
Capital investment in FY23 was £84.4m (FY22: £90.1m), in line with the
Company's full-year target range of 6-7% of revenue. Investment in the year
includes the new outpatients and diagnostic centre at Yale, investment into
cardiac services at Manchester and Nottingham, ophthalmic services at
Cambridge, our new clinics, continued major hospital refurbishment programmes
and investment in new equipment, including further roll-out of robotic
surgical capability.
The strong operational performance of Spire Healthcare in the period resulted
in Adjusted EBIT rising by 23.5% YOY to £130.4m, leading to a material
improvement in ROCE, up by 1.3ppts to 7.5%. (The ROCE has been adjusted for
VHG to reflect that it has not contributed a full 12 month trading result to
the Group's consolidated financial results.)
Our market
The demand for private healthcare - from GP and diagnostic services to
hospital treatment, occupational health and talking therapies - remained
strong in 2023, with patients seeking prompt, safe and effective diagnosis and
treatment. Demand from SP patients continues to significantly exceed
pre-pandemic levels, while the growth in the PMI business is being driven by
increased awareness among employers and employees of its benefits in helping
people remain in good health.
A number of key trends are affecting our market:
1. Population profile
The growing and ageing population and greater prevalence of long-term
conditions continue to be underlying factors putting pressure on the UK's
healthcare resources.
2. NHS waiting lists
NHS waiting lists have grown to record levels, rising to 7.6m pathways in
December 2023, up from 7.2m in December 2022, with some people waiting on more
than one pathway. The difficulty for patients lies not only the length of the
lists, but also the length of time people are waiting for diagnoses and
treatments.
3. Private market
Demand for SP healthcare fell slightly from historic highs in 2023, but demand
remains strong, particularly in our core specialities of hip and knee surgery.
Since the pandemic, PMI penetration has grown significantly - the most recent
LaingBuisson data states that c.7.4m lives are now covered by private medical
cover, and 3.5m each by health cash plans and dental benefit plans.
4. Healthcare workforce
The UK healthcare sector continues to face a severe skills shortage.
Attracting and retaining the best people remains a challenge for all
healthcare providers, both public and private. Rates for agency staff are also
rising, presenting a further challenge.
5. Economic environment
Following sharp rises in inflation in the UK in 2022, the rate fell late in
2023, but remains much higher than the Bank of England's target of 2%.
Cost-of-living pressures are still having a major impact on many people's
disposable income, and higher interest rates have become a factor for
individuals and businesses everywhere. Our core customer is generally more
affluent and more insulated against rising costs, while our older self-funding
customers are mostly far less affected by mortgage increases.
6. Role for employers in healthcare
It is increasingly understood that employers have a role to play in improving
the health of their employees, to enhance the health, protection and wellbeing
of people at work. As a consequence, employers are increasing the provision of
PMI for their employees. Our occupational health (OH) services are seeing
continued demand for employee health support, and VHG is seeing increased
demand from employers for the mental health and MSK services it provides.
Driving our Purpose and Strategy
In 2022, Spire Healthcare widened its Purpose to 'making a positive difference
to people's lives', while broadening our offer of outstanding personalised
care to more people in a wider range of settings. We now aim to be involved in
people's healthcare across both pre- and post-hospital care, providing support
to local communities and responding to increasing demand for the broad range
of healthcare services beyond hospital-led treatments.
Our strategy is 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 develop new services through selective investments 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 margin and
return on capital, and delivering strong shareholder returns.
Driving hospital performance
The core of Spire Healthcare's business remains the efficient operation of its
39 hospitals. Overall, hospital performance during the year was strong.
Ongoing significant demand for safe, high quality treatment underpinned growth
in hospital revenue. Overall admissions and revenue were higher than in FY22,
with in-patient and day case admissions 5.3% ahead of prior year.
Private admissions grew by 3.6% during the 12-month period compared to prior
year, with private revenue ahead by 9.5%.
PMI revenue grew by 14.3% vs FY22 to £615.7m, reflecting an increase in
referrals as demand for PMI grew. Volume of PMI patients, including admissions
and outpatient procedures, was up 10.1% vs FY22, with admissions up 10.5%.
SP revenue was up YOY by 1.8% to £344.0m with volumes maintained at levels
significantly higher than pre-COVID. SP admissions and OP procedures reduced
by 6.3% versus FY22. The overall SP market declined. We have maintained the
high levels of revenue from 2022, with ARPC increasing 10.1%. This revenue has
been delivered with management of mix and price. We have used our digitised
pricing engine to generate increased ARPC and revenue, and we have reduced
volumes in cosmetics. We continue to invest selectively in high quality
ophthalmology services but have remained disciplined on pricing in a
competitive market.
Spire Healthcare continued to support the NHS to reduce waiting lists during
the period. It contributed to the Government's Elective Recovery Taskforce,
which was set up to make better use of the country's healthcare capacity, and
welcomed the emphasis on promoting patient choice which was an important part
of the Taskforce's recommendations. NHS revenue grew in 2023 by 15.5% to
£341.1m compared to last year, while the NHS tariff increased by 4.1%. We had
increased referrals through the electronic referral system (eRS). Overall NHS
volumes, including admissions and outpatient procedures, were up 6.1% YOY with
admissions up 9.4%. Orthopaedic volumes were up 14% YOY and now comprise c.58%
of all Spire NHS referrals.
The private proportion of total revenue during FY23 was 70.6% (FY22: 73.1%),
72.3% of hospital revenue (FY22: 73.2%). This aligns with our aim for private
revenue to be in the range of 70-80%.
The average revenue per case (ARPC) rose by 6.3% to £3,381. In SP, management
has control over pricing and actively manages it using the Group's digitised
pricing system. Spire Healthcare's PMI prices are adjusted annually in Q1 / Q2
each year and contain mechanisms linked to inflation, as well as pricing
incentives to capture increased patient flow from insurance partners. Compared
to FY22, PMI ARPC was up 5.1% to £2,896, SP up 10.1% to £4,356 and NHS up
8.4% to £3,392.
Spire Healthcare launched a new, successful multichannel brand-building
campaign in September 2023, focusing on patients' desire to get back to their
lives by having their health conditions diagnosed and treated - "the sooner
you're better, the better".
Building on quality
Delivery of patient safety and high-quality patient care is central to Spire
Healthcare's operations and embedded in our purpose and culture. A significant
proportion of the Group's operational and capital expenditure is centred on
the delivery of first class healthcare service. 98% of our inspected hospitals
and clinics are currently rated 'Good' or 'Outstanding' by the Care Quality
Commission (CQC) or the equivalent in Scotland and Wales. Three CQC
inspections were performed in 2023: Nottingham - Outstanding (previously
Outstanding); Methley Park - Good (previously Good); and the Orth Team Centre
- Good (initial inspection). We are awaiting re-inspection of Spire Alexandra,
the one remaining site which has a 'Requires Improvement' rating, and which
has not been inspected since 2016/17. 93% of Spire Healthcare's patients rate
the Group's care as 'Outstanding', up 1ppt vs FY22, while 83% of the Group's
consultant partners rate its care as 'Very Good' or 'Excellent', up 5ppts vs
FY22.
Management continues to prepare for rollout of the new Patient Safety Incident
Response Framework (PSIRF), a new approach to responding to patient safety
incidents across the healthcare sector, which will enable us to investigate
events, when they do happen, in a more responsive and inclusive way.
Investing in our workforce
With the ongoing shortage of skilled healthcare staff in the UK and
international market, Spire Healthcare has continued to invest heavily in its
workforce in line with our strategy.
A number of training and development courses were delivered during 2023 as
part of a programme to equip current and future leaders of the business. This
included a range of apprenticeship programmes for clinical and non-clinical
colleagues, and almost 4% of permanent colleagues are in apprenticeship roles.
Spire Healthcare supported eligible colleagues with a 5.5% salary increase
from 1 September 2023, with a 3% rise for colleagues eligible for a bonus, on
top of a 5% rise in 2022 for most eligible colleagues. At that point, the
Group's lowest paid colleagues moved in-line with the Real Living Wage. In our
annual survey of colleagues, 81% recorded that they were proud to work for
Spire Healthcare, up 1ppt versus FY22.
Spire Healthcare brought recruitment in-house during H1 2023, which is leading
to improved filling of vacancies and has already generated over £0.5m of
savings. Management is very encouraged that the combined investments in the
workforce are leading to a material reduction in colleague leaver rates, to
the lower levels we sustained before the pandemic. The Group's 12-month
turnover rate was 15.1% in the year to 31 December 2023, down from 18.8% in
the year to 31 December 2022.
Championing sustainability
Championing sustainability is core to the Group's strategy and important to
our success and future, and we continue to implement the sustainability
strategy we launched in 2022. The sustainability strategy covers Spire
Healthcare Limited only at this stage; we anticipate working to bring the rest
of the group under the same plan.
In 2023, we made further progress towards achieving net zero carbon status by
2030, with investment during the year in the removal of piped nitrous oxide
systems, the installation of new solar panels, increasing recycling and
generating carbon reduction through the effective management of our waste, and
the optimisation of our building management systems. Waste is managed more
efficiently with 35% (FY22: 30%) now recycled and we have saved 27,000 litres
of water in a trial at two hospitals. The intensity of the Group's carbon
emissions reduced by 12% in 2023 compared to prior year (down 13% in 2022). We
are planning to install solar panels on all our hospitals, with most of the
work completed in 2024, enabling us to make further progress towards net zero.
Expanding our healthcare proposition
While running great hospitals remains central to Spire Healthcare, management
is responding to the rapid and fundamental changes taking place in the UK
healthcare landscape by making selective investments in new services that are
designed to attract new patients and meet more of their healthcare needs.
Spire Healthcare wants to take a more proactive role in its patients' care
before and after a stay in hospital. More than that, the Company wants to be
with people throughout their whole healthcare journey. Further progress
towards this ambition of being a more integrated healthcare provider was made
during the year.
The acquisition of VHG, with a customer base of 16 NHS integrated care boards
and more than 200 corporate clients, enables the Group to expand its
capabilities into low-acuity mental health. In addition, it provides synergies
with the relationships it has already built with corporate and PMI customers,
and occupational health businesses. VHG comes to the Group with outstanding
customer feedback, a proven management team, and a strong track record in
winning new contracts - several of which will come online in early 2024.
The ongoing integration of DCG, which was acquired in late 2022, progressed
well during 2023. Company management has restructured the business into two
units, Spire Occupational Health and London Doctors Clinic (LDC).
Spire Occupational Health continues to develop in line with the Group's plan.
Management's focus during 2023 has been on integrating the two OH businesses
previously within DCG, Soma Health and Maitland Medical, and rebranding them
as Spire Occupational Health, and the integration is ongoing in 2024. We also
continued to retain and win new clients including the University of Worcester
and F1.
During the year, Spire Healthcare focused the LDC business in London and South
East England, and closed four LDC clinics in Manchester and Birmingham. The
Group has since opened five new clinics in our core target areas of Bank,
Chiswick, Fulham, Hampstead and Islington. LDC made a small loss in 2023 due
to investment in new clinics. The business is expected to reach profitability
in 2024.
Spire Healthcare's GP services have continued to grow in recent years, with
patients attracted by a high-quality service offering efficient access to a GP
near to where they live, or virtually. Patients also value the longer
appointment times that enable a fuller examination and discussion of their
medical needs with the GP. Taken together, the Spire GP and LDC businesses now
constitute a large, nationwide private GP network with 18 rapid-access LDC
clinics in Greater London and Spire GP in most hospitals, together delivering
around 8,000 GP appointments each month.
The Group's previously disclosed plans to target 10 new medical clinics to
meet the growing healthcare needs in our communities, advanced during 2023. We
opened the first of the Company's clinics at Abergele, North Wales earlier
this month. Work to open a second clinic at Harrogate is underway. The clinics
offer ambulatory care, enabling the Group to build in efficiencies from the
start. Some of the clinics will follow an 'outreach' model, opening close to
existing hospitals and enabling the Group to move some of its outpatient
functions and minor treatments away from its hospitals. Others will be in
completely new parts of the country where the Group does not currently have a
presence, enabling Spire Healthcare to meet the healthcare needs of more
people, and to build relationships with new consultants.
Dividend
The Directors of Spire Healthcare have recommended the payment of a final
dividend of 2.1 pence per share for the year ended 31 December 2023. Subject
to shareholder approval at the forthcoming Annual General Meeting on 9 May
2024, the dividend will be paid on 21 June 2024 to shareholders of the Company
at the close of business on 24 May 2024. This payment is in line with the
Group's 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
Debbie White and Natalie Ceeney joined the Board as independent non-executive
directors on 1 February 2023 and 1 May 2023, respectively. Debbie White took
over from Martin Angle as the Board's Senior Independent Director on 12 May
2023. Professor Dame Janet Husband was appointed Vice Chair from 1 March 2023.
Financial review
Selected financial information
Year ended 31 December 2023 Year ended 31 December 2022
(£m) Total before Adjusting items Adjusting Total Total before Adjusting items Adjusting Total
items
items
(note 9)
(note 9)
Revenue 1,359.0 - 1,359.0 1,198.5 - 1,198.5
Cost of sales (734.8) - (734.8) (660.1) - (660.1)
Gross profit 624.2 - 624.2 538.4 - 538.4
Other operating costs (497.4) (6.7) (504.1) (435.8) (10.2) (446.0)
Other income 3.6 2.5 6.1 3.0 - 3.0
Operating profit 130.4 (4.2) 126.2 105.6 (10.2) 95.4
Finance income 1.4 - 1.4 - - -
Finance costs (93.0) - (93.0) (91.5) - (91.5)
Profit before taxation 38.8 (4.2) 34.6 14.1 (10.2) 3.9
Taxation (6.4) (0.3) (6.7) 2.5 1.8 4.3
Profit for the period 32.4 (4.5) 27.9 16.6 (8.4) 8.2
Profit for the year attributable 31.8 (4.5) 27.3 17.0 (8.4) 8.6
to owners of the Parent
Profit for the year attributable to non-controlling interest 0.6 - 0.6 (0.4) - (0.4)
Adjusted EBITDA ((1)) 234.0 203.5
Basic earnings per share, pence 6.8 2.1
Adjusted FCF ((2)) 48.0 28.0
Net cash from operating activities 215.5 180.1
Net bank debt ((3)) 315.7 250.1
1. 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.
2. 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 property, plant and equipment.
3. Net bank debt is defined as bank borrowings less cash and cash
equivalents
Revenue
Group revenues increased 13.4% to £1,359.0m (2022: £1,198.5m). The increase
is driven by demand for private healthcare which remained strong throughout
the year. The group's self-pay business remained robust with revenue up YOY
delivered through a strong focus on mix, where it targeted more complex,
higher margin treatments in orthopaedics, while scaling back in high volume
but low value areas such as ophthalmology and cosmetics.
Included in other revenue is £31.4m related to new Services of which £18.3m
of revenue relates to our recent acquisition of VHG and £13.1m (2022: £0.1m)
relates to The Doctors Clinic Group acquired in the prior year. Revenue and
earnings from new Services were not material in FY23. From FY24, new Services
will be presented separately.
Revenue by location and payor
(£m) 2023 2022 Variance %
(2023-2022)
Total revenue 1,359.0 1,198.5 13.4%
Of which:
Inpatient 535.5 487.5 9.8%
Daycase 399.9 348.0 14.9%
Out-patient 365.4 333.1 9.7%
Other 58.2 29.9 94.5%
Total revenue 1,359.0 1,198.5 13.4%
Of which:
PMI 615.7 538.7 14.3%
Self-pay 344.0 338.0 1.8%
Total Private 959.7 876.7 9.5%
Total NHS 341.1 295.4 15.5%
Other(1) 58.2 26.4 120.5%
Total revenue 1,359.0 1,198.5 13.4%
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) and rehabilitation, counselling and physiotherapy
revenue from the recent VHG acquisition.
Cost of sales and gross profit
Gross margin for the year is 45.9% compared to 2022 of 44.9%. Cost of sales
increased in the period by £74.7m or 11.3% to £734.8m (2022: £660.1m) on
revenues that increased by 13.4% (2022: 8.3%). Increased costs are due to
inflationary pressures, increased agency costs and continued wage rate
expansion. The margin was higher in 2023 due to increased private volumes, and
careful management of pricing, mix and cost savings.
Cost of sales is broken down, and presented as a percentage of revenue, as
follows:
2023 2022
Year ended 31 December Year ended 31 December
£m % of revenue £m % of revenue
Clinical staff 304.1 22.4% 275.3 23.0%
Direct costs 312.4 23.0% 280.3 23.4%
Medical fees 118.3 8.7% 104.5 8.7%
Cost of sales 734.8 54.1% 660.1 55.1%
Gross profit 624.2 45.9% 538.4 44.9%
Other operating costs
Other operating costs, excluding adjusting items have increased by £61.6m, or
14.1% to £497.4m (2022: £435.8m). The main driver is increased staff costs
due to continued wage rate expansion and other inflationary pressures.
Depreciation for the year was £103.6m (2022: £97.9m). The increase is in
line with expectations and is largely due to additional leases relating to
medical equipment and RPI increases on properties. As disclosed in 2022, the
prior year benefits from a reduction in charge of £6.6m (2022: £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 aligned with external
benchmark information. The useful life was 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).
Adjusting items included in operating costs are explained below. Other
operating costs including Adjusting items for the year ended 31 December 2023
increased by £58.1m or 13.0% to £504.1m (2022: £446.0m)
Operating margin for the year ended 31 December 2023 is 9.3% (2022: 8.0%).
Operating margin, excluding adjusting items is 9.6%, up from 8.8% at 2022.
Adjusted EBITDA
Adjusted EBITDA for the group has increased by 15.0% in the period from
£203.5m to £234.0m for 2023. 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
2023, the charge to the income statement is £3.7m (2022: £2.3m), or £4.1m
inclusive of National Insurance (2022: £2.6m). Further details are contained
in note 27 of the Annual Report and Accounts.
Adjusting items
Year ended 31 December
(£m) 2023 2022
Business reorganisation and corporate restructuring costs 2.0 4.5
Asset acquisitions, disposals, impairment and aborted project costs 3.1 4.3
Remediation of regulatory compliance or malpractice costs (0.9) 1.1
Hospitals set up and closure costs - 0.3
Total pre-tax Adjusting items 4.2 10.2
Income tax credit charge on Adjusting items 0.3 (1.8)
Total post-tax Adjusting items 4.5 8.4
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.
Asset acquisitions, disposals, impairment and aborted project costs of £3.1m
mainly relate to asset acquisitions. In October 2023, the group acquired 100%
of the share capital in Vita Health Group Limited for a net cash consideration
of £73.2m as part of its strategic investment in its broader healthcare
offering. The costs of acquisition of £2.5m have been incurred in the period.
Costs for integration are expected to continue into FY24. £0.4m of
integration related costs have been incurred following the acquisition of
Doctors Clinic Group in December 2022.
In the prior year, the costs mainly related to Claremont Hospital and the
purchase of the remaining non-controlling interest, and an impairment of
£0.5m was recognised on the St Saviours property which was sold in H2 2022.
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, £2.0m
(2022: £4.5m) has been incurred. The initial phase of the initiative was
completed in 2022, with the majority of the project completed in 2023. It is
expected that some costs will be incurred in 2024 as the project enters into
the next strategic phase.
The group has recognised a credit of £0.9m during the year in respect of
Remediation of Regulatory Compliance or Malpractice Costs relating to
Paterson. This comprises £2.5m funds received from its insurer and £0.9m
reduction in provision which had been held to resolve the matter. This is
offset by an increased separate provision in respect of Paterson by £2.5
million (2022: £0.9 million), which relates to a detailed patient review
initiative which commenced in 2021, supporting patients of Paterson. During
2023 the group has re-evaluated the expected cost of completing this complex
project, and its associated settlement of patient claims.
Hospital set-up and closure costs in the prior year mainly relate to the
maintenance costs of non-operational sites.
Net finance costs
Net finance costs remain flat at £91.6m (2022: £91.5m). This is due to the
effectiveness of the interest rate swaps, interest income on bank deposits
offset by increased interest on the draw down of the revolving credit facility
and a one-off charge of £3.1m in the prior year in respect of unamortised
fees which were recognised in full following the refinancing of the senior
loan facility.
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) 2023 2022
Profit before taxation 34.6 3.9
Tax at the standard rate 8.1 0.7
Effects of:
Expenses and income not deductible or taxable 3.2 8.2
Tax adjustment for the Super-deduction allowance (0.8) (2.6)
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 (4.2) (1.8)
Difference in tax rates 0.2 0.1
Deferred tax not previously recognised 0.2 -
Total tax charge/(credit) 6.7 (4.3)
Corporation tax is calculated at 23.5% (2022: 19.0%) of the estimated taxable
profit or loss for the year. The effective tax rate on profit before taxation
for the year is 19.4%, although not truly reflective of the current year
position as a result of adjustments to the prior years (2022: not meaningful
as a result of adjustments in respect of prior years and movements on deferred
tax which are not directly linked to profit). Excluding the adjustments to
prior years in 2023, the effective tax rate is 31.5%. The adjustments to prior
years includes the recognition of a deferred tax asset in respect of Corporate
Interest restrictions which has recognised a credit of £3.3 million through
adjustments to prior years for deferred tax purposes, as well as the
recognition of deferred tax on acquired losses of £1.9 million in respect of
an acquisition. In the prior year, the group reassessed the useful life and
residual value of its freehold property portfolio. This resulted in a one-off
deferred tax credit of £9.0 million.
Deferred tax is detailed in note 23 of the annual report.
Profit after taxation
The profit after taxation for the year ended 31 December 2023 was £27.9m
(2022: £8.2m).
Alternative performance (non-GAAP) financial measures
We have provided alternative financial information that has not been prepared
in accordance with IFRS. We use these alternative 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 alternative
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
alternative financial measures to investors.
Alternative 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 alternative
financial measures to their most directly comparable IFRS financial measures
provided in the financial statements table.
Adjusted EBITDA, Adjusted EBIT and Hospital Business Adjusted EBITDA margin
Year ended 31 December
(£m) 2023 2022
Operating profit 126.2 95.4
Remove effects of: 4.2
Adjusting items before interest and tax 10.2
Adjusted EBIT 130.4 105.6
Depreciation 103.0 97.9
Amortisation 0.6 -
Adjusted EBITDA 234.0 203.5
For the Hospital Business
Revenue 1,327.6 1,198.5
Adjusted EBITDA 233.8 203.5
Adjusted EBITDA margin 17.6% 17.0%
Adjusted profit after tax and adjusted earnings per share
Adjustments have been made to remove the impact of non-recurring items.
Year ended 31 December
(£m) 2023 2022
Profit before tax 34.6 3.9
Adjustments for: 4.2
Adjusting Items - operating costs 10.2
Adjusted profit before tax 38.8 14.1
Taxation((1)) (6.4) 2.5
Adjusted profit after tax 32.4 16.6
Profit for the year attributable to owners of the parent 31.8 17.0
Profit / (loss) for the year attributable to non-controlling interests 0.6 (0.4)
Weighted average number of ordinary shares in issue (No.) 403,648,886 402,679,296
Adjusted earnings per share (pence) attributable to the parent 7.9 4.2
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. In the current year the calculation annualises the EBIT
of the VHG acquisition as it was not part of the group for the full year. The
calculation of return on capital employed is shown below:
Year ended 31 December
(£m) 2023 2022
Adjusted EBIT 130.4 105.6
Adjusted: for full year pro-forma effect of VHG acquisition 6.8 -
Adjusted EBIT pre VHG 137.2 105.6
Total Assets 2,288.1 2,159.8
Less: Cash and cash equivalents (49.6) (74.2)
Less: Capital investments (84.4) (90.1)
Less: Current Liabilities (317.6) (283.4)
Capital Employed 1,836.5 1,712.1
Return on capital employed % 7.5% 6.2%
Adjusted Free Cash flow
Year ended 31 December
(£m) 2023 2022
Adjusted EBITDA 234.0 203.5
Less: Lease payments (100.2) (93.7)
Less: Cash flow for the purchase of property, plant and equipment (84.4) (87.7)
Less: Working capital movement (15.5) (15.0)
Less: Adjustments for non-recurring items 14.1 20.9
Adjusted FCF 48.0 28.0
Cash flow analysis for the period
Year ended 31 December
(£m) 2023 2022
Opening Cash balance 74.2 202.6
Operating cash flows before recurring items and VHG 228.2 186.5
Less: Adjustments for non-recurring items and VHG 9.9 -
Operating cash flows before Adjusting Items and income tax paid 218.3 186.5
Net cash flow from Adjusting Items (included in operating cash flows) (2.7) (6.4)
Income tax paid (0.1) (0.1)
Operating cash flows after operating Adjusting Items and income tax 215.5 180.0
Net cash flow from Adjusting Items (included in investing cash flows) - 3.2
Net cash in investing activities (84.0) (87.2)
Cash outflow for acquisition of subsidiary (73.2) (11.4)
Investing cash flows after investing Adjusting Items (157.2) (95.4)
Net cash in financing activities (82.9) (210.3)
Financing cash flows after financing Adjusting Items (82.9) (213.0)
Closing cash balance 49.6 74.2
Closing cash balance
The group's year end cash balance stood at £49.6m, which reflects a reduction
of £24.6m against the prior year balance of £74.2m. This movement contains
two significant one-off items being the acquisition of VHG for a net cash
consideration of £73.2m and a cash inflow of £40m from the draw down of the
revolving credit facility. 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, Adjusting items and VHG
was £228.2m (2022: £186.5m), which constitutes a cash conversion rate from
£232.2m Adjusted EBITDA pre VHG of 98% (2022: 92% conversion of £203.5
Adjusted EBITDA). The net cash outflow from movements in working capital in
the period was £15.5m (2022: £15.0m outflow).
Investing and financing cash flows
Net cash outflow in investing activities for the period was £157.2m (2022:
£95.4m). The cash outflow relates to the net cash consideration paid for the
acquisition of VHG of £73.2m and the purchase of plant, property and
equipment in the period totalled £84.4m (2022: £87.7m). Capital investment
in the year includes the new outpatients and diagnostic centre at Yale,
investment into cardiac theatres at Manchester and Nottingham, ophthalmic
services at Cambridge and continued major hospital refurbishment programmes.
Net cash used in financing activities for the period was £82.9m (2022:
£213.0m) Cash outflows include interest paid and other financing costs of
£90.0m (2022: £94.6m), and £27.2m (2022: £18.5m) of lease liability
payments and £3.1m for the buyback of shares to settle share awards. This is
offset by an inflow of £40m from the draw down of the revolving credit
facility.
Borrowings
At 31 December 2023, the group has bank borrowings (inclusive of IFRS 9
adjustments) of £365.3m (2022: £324.3m), drawn under facilities which mature
in February 2027.
Year ended 31 December
(£m) 2023 2022
Cash 49.6 74.2
Bank borrowings 365.3 324.3
Bank borrowings less cash and cash equivalents 315.7 250.1
During the year, the group exercised its option to extend the senior loan
facility by a further year. The financial covenants and agreement terms
relating to this agreement are unchanged, with leverage to be below 4.0x and
interest cover to be in excess of 4.0x. As at 31 December 2023 the leverage
measure stood at 2.2x (2022:2.2x) and interest cover of 8.5x (2022: 8.5x).
As at 31 December 2023 lease liabilities were £891.7m (2022: £866.5m).
Dividend
The directors of Spire Healthcare have recommended the payment of a final
dividend of 2.1 pence per share for the year ending 31 December 2023. Subject
to shareholder approval at the forthcoming Annual General Meeting on 9 May
2024.
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. Further
detail on our principal risks will be found in the 2023 Annual Report and
Accounts on pages 64 to 74.
1. Workforce We seek to retain colleagues through:
· A common purpose and a positive workplace culture
· Competitive pay and reward benefits. In 2023, we announced a
competitive pay award that provided a 5.5% increase for most eligible
colleagues. We will continue to review pay competitiveness in all the sectors
in which we operate
· Offering greater flexibility in employee's roles
· Employee development programmes, eg a nurse training programme
and other apprentice schemes
· Continuous investment in our equipment, facilities and services
to retain high-quality clinicians
In 2023, our risk mitigations have helped to produce a downward trend in
colleague churn rates.
We seek to recruit colleagues through:
· A centralised recruitment process which we brought in-house 2023
· Offering apprenticeship programmes to support the development of
clinical and non-clinical teams across the business
· Building of local bank colleague pools and using digital
solutions to improve access to available shifts
· An overseas recruitment capability to secure skilled healthcare
workers from outside the EU (in line with World Health Organization protocols
to recruit from only 'green' countries).
The group manages immediate colleague shortages using agency and bank workers.
2. Inflation and wage inflation 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 pricing engine
subject to prevailing market conditions. Our conversion rate from Out-patient
appointment to In-patient procedure remains stable. Our procurement team
maintains a constant review of pricing and seeks opportunities to mitigate
inflationary increases.
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, and supported by an efficient cost base.
We responded to wage inflation by announcing to our staff early in 2023 that
the 2023 general pay increase will be 5.5% for most eligible colleagues, and
more for those near minimum wage.
3. Climate change Flood risk mitigation includes a continued periodic review of our estate in
relation to existing and predicted flood risk zones and investment in improved
roofing and drainage where vulnerabilities have been identified. None of our
current sites are situated in predicted high risk flood zones or in coastal
areas predicted to be at risk from rising sea levels.
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 eg, 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 which has seen all our current
energy requirements secured until December 2024.
4. Information governance & security The data strategy, governance and security committee monitors the risk and
mitigations for data governance and cyber security. The committee reports into
the executive committee with a separate reporting line to the audit and risk
committee . To support this governance structure, we have a range of policies
and practices, and mandatory staff training covering data governance and cyber
security (eg, central monitoring of compliance with data subject access
requests, data processing impact assessments and notifications to or from the
Information Commissioners Office) and cyber security.
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 cyber-attack.
We work with several industry-leading technical partners to provide:
· Multiple layers of business protection using advanced detection
and protection systems
· Regular third-party penetration testing on new and existing IT
systems
· Red-Teaming Exercises to attempt to access our systems using a
variety of real-world techniques
· Managed Security Operations Centre (SOC) to monitor, analyse and
respond to security threats 24x7
5. Digitalisation, automation & efficiency The digital strategy focuses on an 18-24 month planning horizon to improve the
predictability of investment and outcomes. This will enable Spire to adjust
the priorities and speed of implementation in response to changes in the macro
climate and competitive landscape.
We will utilise best practice programme governance, supported by third party
experts, to deliver change programmes into the business.
We will use technology to enable early benefits realisation, for example
utilising process automation to release immediate efficiencies and
improvements to boost productivity and further fund future investments for
digitalisation.
The digital strategy has built-in focus on innovation and external horizon
scanning to ensure we are not behind the curve compared to competitors
(current or future).
6. 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.
7. Government and NHS policy Historically, we derived 70% of our revenues from PMI and self-pay patients
that provided a natural 'hedge' against exposure to government and NHS policy.
Post-pandemic, we are seeing strong private revenues that are expected to
continue medium term.
During the COVID-19 pandemic, we strengthened our relationships with the
Department of Health and Social Care and NHS England. Meanwhile hospitals have
also strengthened their relationships with the 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.
Vita Health Group's acquisition gives us a new opportunity to participate in
the NHS tender market.
We also inputted into the government's Elective Recovery Taskforce, whose work
concluded in summer 2023.
8. Self-pay market dynamics We invest in high-quality patient care as this provides an attractive service
to self-pay patients and promotes our brand through word-of-mouth
recommendations.
Since 2022, we have deployed national multi-channel marketing campaigns
highlighting the key benefits of private healthcare to increase our brand
awareness.
We are expanding the range of services we offer to capture a greater share of
services that have healthy demand growth (as illustrated by our acquisition of
Vita Health Group).
We are strengthening our operational capability with further enhancements to
the website (content and functionality) and call centre resilience and
training.
We have adopted sophisticated pricing capability.
We are promoting patient financing as a payment option.
9. Major infrastructure failure All our hospitals have a backup power source provided from diesel powered
generators that operates major circuits of a hospital, but some key equipment
is not covered, eg, 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 daily at the end of their shifts to
ensure resilient operational capability.
NHS hospitals are obliged to provide emergency care to everyone but their
pressures on ambulance services can and do lead to delays to emergency
transfers on rare occasions. Mitigation plans are in place and rehearsed at
hospitals.
The chief executive officer chairs a regular multi-disciplinary winter
planning meeting to co-ordinate response activities to any infrastructure
failures.
10. 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. We are migrating to the new
Patient Safety Incidence Response Framework (PSIRF) in 2024 in line with the
NHS
· Continually monitoring clinical standards, reporting progress via
the board's clinical governance and safety committee (CGSC)
· Quality and safety reporting based on a Quality Assurance
Framework with a standard set of KPIs
· 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
· Consistent reporting of clinical outcome and effectiveness
measures within the hospital and central meeting governance structures
(including medical advisory committee meetings) to ensure that insights and
learning are actioned and shared
· Continuous monitoring of patient experience via regular surveys
and policies and procedures in place to ensure learning from patient
experience feedback (including detractors and complaints)
11. Expanding our proposition 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 advisers
· Acquisition due diligence processes using appropriate third-party
expertise
· Board review and approval of acquisitions
· Post-acquisition project management and integration processes
incorporating learnings from previous acquisitions
The acquisition of Vita Health Group has opened new commercial opportunities
for us, but importantly also improved our mitigation of this risk.
12. 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 in delivering high-quality patient care.
We invest in high quality patient care as this provides a high-quality service
to the insured patients of our PMI partners.
We ensure we have long-term contracts in place with our PMI partners that
avoids co-termination of contractual arrangements.
We believe that 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.
13. Supply chain disruption We run a centralised supply chain with a national distribution centre (NDC)
and its own vehicle and driver fleet. Medical consumables are held at the NDC
with an average of six weeks' supply, medicines and prostheses are being held
at hospital sites.
We must respond to product shortages and global recalls consistently, 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 who has its own
delivery fleet and directly employs its HGV drivers. Order fulfilment has
remained in the high ninety percentile. We have contingency menu plans in case
of fresh food shortages.
Any national shortages in critical medicines and medical gases are managed by
NHS Supply Chain. We receive allocations based on our activity.
We will continue to monitor supply chain risks considering the continuing
geopolitical volatility.
14. Antimicrobial resistance Our mitigations are:
· Executive level awareness of the government's five-year AMR
strategy
· Participation in, and collaboration with, government's monitoring
of AMR outbreaks
· Requirement on clinicians to follow guidance in line with
government guidelines on the prescribing of antibiotics
· 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 Macroeconomic related risk 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 refinanced its
existing senior finance facility and revolving credit facility in February
2022; 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 review, 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
The group assessed going concern risk through to 30 June 2025. As at 31
December 2023 the group had cash of £49.6m, a Senior Loan Facility of £325m
and an undrawn Revolving Credit Facility of £60m. A RCF drawing of £50m was
used for the October 2023 acquisition of Vita Health Group with £10m of this
being repaid by the end of the year. On 3 March 2023, the group successfully
extended the senior loan facility by a further year. 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 30
June 2025, 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 breaches its
financial covenant. 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 21% fall in forecast annual
revenue before the group breaches its financial covenant, we believe that the
risk of an event giving rise to this size of reduction in revenue is remote.
It should be noted that we are in a period of material 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.
By order of the board
Justin Ash
Jitesh Sodha
Chief Executive Officer Chief
Financial Officer
28 February 2024
Consolidated income statement
For the year ended 31 December 2023
2023 2022
(£m) Note Total before Adjusting Adjusting Total Total before Adjusting items Adjusting Total
items
items
items
(note 9) (note 9)
Revenue 5 1,359.0 - 1,359.0 1,198.5 - 1,198.5
Cost of sales (734.8) - (734.8) (660.1) - (660.1)
Gross profit 624.2 - 624.2 538.4 - 538.4
Other operating costs (497.4) (6.7) (504.1) (435.8) (10.2) (446.0)
Other income 6 3.6 2.5 6.1 3.0 - 3.0
Operating profit (EBIT) 7 130.4 (4.2) 126.2 105.6 (10.2) 95.4
Finance income 8 1.4 - 1.4 - - -
Finance cost 8 (93.0) - (93.0) (91.5) - (91.5)
Profit before taxation 38.8 (4.2) 34.6 14.1 (10.2) 3.9
Taxation 10 (6.4) (0.3) (6.7) 2.5 1.8 4.3
Profit for the year 32.4 (4.5) 27.9 16.6 (8.4) 8.2
Profit for the year attributable 31.8 (4.5) 27.3 17.0 (8.4) 8.6
to owners of the parent
Profit / (loss) for the year attributable 0.6 - 0.6 (0.4) - (0.4)
to non-controlling interest
Earnings per share (in pence per share)
- basic 11 7.9 (1.1) 6.8 4.2 (2.1) 2.1
- diluted 11 7.7 (1.1) 6.6 4.1 (2.0) 2.1
Consolidated statement of comprehensive income
For the year ended 31 December 2023
(£m) 2023 2022
Profit for the year 27.9 8.2
Items that may be reclassified to profit or loss in subsequent periods
(Loss) / Gain on cash flow hedges (4.2) 9.3
Taxation on cash flow hedges 0.9 (2.2)
Other comprehensive (loss) / profit for the year (3.3) 7.1
Total comprehensive profit for the year, net of tax 24.6 15.3
Attributable to:
Equity holders of the parent 24.0 15.7
Non-controlling interests 0.6 (0.4)
24.6 15.3
Consolidated statement of changes in equity
For the year ended 31 December 2023
(£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 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 - - - - 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 20 - - - - - 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) -
As at 1 January 2023 4.0 830.0 376.1 - 6.6 (485.7) 731.0 (5.9) 725.1
Profit for the year - - - - - 27.3 27.3 0.6 27.9
Other comprehensive loss for the year - - - - (3.3) - (3.3) - (3.3)
Total comprehensive profit - - - - (3.3) 27.3 24.0 0.6 24.6
Dividends paid - - - - - (2.0) (2.0) - (2.0)
Share-based payments 20 - - - - - 3.7 3.7 - 3.7
Deferred tax adjustment on share-based payments reserve - - - - - (0.3) (0.3) - (0.3)
Settlement on vested share awards - - - - - (0.6) (0.6) - (0.6)
Purchase of own shares by EBT - - - (3.1) - - (3.1) - (3.1)
Issue of own shares by EBT in respect of share awards - - - 2.4 - 2.4 - - -
Additional interest acquired of non-controlling interest - - - - - (3.2) (3.2) 3.2 -
Financial liability to acquire non-controlling interests - - - - - (9.6) (9.6) - (9.6)
Balance at 31 December 2023 4.0 830.0 376.1 (0.7) 3.3 (472.8) 739.9 (2.1) 737.8
Consolidated balance sheet
For the year ended 31 December 2023
(£m) Note 2023 2022
ASSETS
Non-current assets
Property, plant and equipment 12 1,618.8 1,584.4
Intangible assets 13 438.3 345.8
Derivatives 0.4 5.0
Financial assets 10.0 4.6
2,067.5 1,939.8
Current assets
Inventories 44.3 40.6
Trade and other receivables 14 121.6 100.5
Derivatives 4.0 3.6
Cash and cash equivalents 49.6 74.2
219.5 218.9
Non-current assets held for sale 15 1.1 1.1
220.6 220.0
Total assets 2,288.1 2,159.8
EQUITY AND LIABILITIES
Equity
Share capital 16 4.0 4.0
Share premium 830.0 830.0
Capital reserves 16 376.1 376.1
EBT share reserves (0.7) -
Hedging reserve 16 3.3 6.6
Retained loss (472.8) (485.7)
Equity attributable to owners of the Parent 739.9 731.0
Non-controlling interests (2.1) (5.9)
Total equity 737.8 725.1
Non-current liabilities
Bank Borrowings 17 361.9 321.4
Lease liabilities 17 793.3 773.7
Financial liabilities 23 9.6 -
Deferred tax liabilities 67.9 56.2
1,232.7 1,151.3
Current liabilities
Bank Borrowings 17 3.4 2.9
Lease liabilities 17 98.4 92.8
Provisions 18 16.4 21.7
Trade and other payables 19 197.1 164.5
Income tax payable 2.3 1.5
317.6 283.4
Total liabilities 1,550.3 1,434.7
Total equity and liabilities 2,288.1 2,159.8
These Consolidated financial statements and the accompanying notes were
approved for issue by the Board on 28 February 2024 and signed on its behalf
by:
Justin
Ash
Jitesh Sodha
Chief Executive Officer Chief
Financial Officer
Consolidated statement of cash flows
For the year ended 31 December 2023
(£m) Note 2023 2022
Cash flows from operating activities
Profit before taxation 34.6 3.9
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
(Profit) / loss on disposal of property, plant and equipment (0.3) 0.3
Adjusting items - other 1.5 2.5
Depreciation of property, plant and equipment and right-of-use assets 103.0 97.9
Amortisation of intangible assets 0.6 -
Finance income (1.4) -
Finance costs 93.0 91.5
Other income (3.6) (3.0)
Share-based payments expense 3.7 2.3
Movements in working capital:
Increase in trade receivables and prepayments (12.7) (6.9)
Increase in inventories (3.7) (0.4)
Increase in trade and other payables 2.2 8.2
Decrease in provisions (1.3) (15.9)
Cash generated from operations 215.6 181.7
Tax paid (0.1) (0.1)
Net cash flows from operating activities 215.5 181.6
Cash flows from investing activities
Receipt from financial asset 0.7 0.5
Acquisition of a subsidiary, net of cash acquired (73.2) (11.3)
Purchase of property, plant & equipment (84.4) (87.7)
Proceeds of disposal of property, plant and equipment 0.8 -
Proceeds of disposal of assets held for sale (Adjusting items)(1) - 3.2
Interest received on bank deposits 1.4 -
Movement in restricted cash (2.5) -
Net cash used in investing activities (157.2) (95.3)
Cash flows from financing activities
Interest paid and other financing costs (17.0) (21.1)
Interest on lease liabilities (73.0) (73.5)
Payment of lease liabilities (27.2) (20.2)
Proceeds from senior loan facility - 325.0
Repayment of senior loan facility - (425.0)
Draw down on revolving credit facility 60.0 -
Repayment on revolving credit facility (20.0) -
Proceeds from the issue of new shares - 3.1
Purchase of own shares (3.1) -
Purchase of non-controlling interests (Adjusting item)(1) - (2.7)
Settlement on vested share awards (0.6) -
Dividend paid to non-controlling interests - (0.3)
Dividends paid to equity holders of the parent (2.0) -
Net cash used in financing activities (82.9) (214.7)
Net decrease in cash and cash equivalents (24.6) (128.4)
Cash and cash equivalents at 1 January 74.2 202.6
Cash and cash equivalents at 31 December 49.6 74.2
Total pre-tax adjusting items is £4.2m (2022: £10.2m) of which £2.7m (2022:
£6.4m) is included in cash generated from operations.
( )
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 2023 were authorised
for issue by the board of directors of the company on
28 February 2024.
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 2023
included in this report was approved by the board on 28 February 2024. The
financial information set out here does not constitute the company's statutory
accounts for the year ended 31 December 2023 but is derived from those
accounts. Statutory accounts for 2023 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 30 June 2025.
As at 31 December 2023 the group had cash of £49.6m, a Senior Loan Facility
of £325m and an undrawn Revolving Credit Facility of £60m. An RCF drawing of
£50m was used for the October 2023 acquisition of Vita Health Group with
£10m of this being repaid by the end of the year. On 3 March 2023, the group
exercised the option to extend the senior loan facility by a further year. The
financial covenants relating to this new agreement are materially unchanged
and there have been no modifications to the agreement terms.
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 30
June 2025, 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 breaches its
financial covenant. 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 21% fall in annual forecast
revenue before the group breaches its financial covenant, we believe that the
risk of an event giving rise to this size of reduction in revenue is remote.
It should be noted that we are in a period of material geopolitical and
macroeconomic 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 2023, a copy
of this report will shortly be available on the company's website at
www.spirehealthcare.com (https://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 2023. Other than some additional disclosures, these amendments
have not had a material impact on the consolidated financial statements of the
group.
Effective date*
Amendments to IAS 8 - Definition of accounting estimates 1 January 2023
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting 1 January 2023
Policies
Amendments to IAS 12 - Deferred tax related to assets and liabilities arising 1 January 2023
from a single
transaction
Amendments to IAS 12 - International Tax Reform-Pillar Two Model Rules 1 January 2023
IFRS 17 - Insurance contracts 1 January 2023
* 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 1 January 2024
non-current
Amendments to IAS 7 and IFRS 7 - Supplier Finance Arrangements 1 January 2024
Amendments to IFRS 16 - Lease Liability in a sale and leaseback 1 January 2024
Amendments to IAS 21 - Lack of exchangeability 1 January 2025
* 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.
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 2023.
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.
Revenue by location (inpatient, daycase or out-patient) and wider customer
(payor) group is shown below:
(£m) 2023 2022
Inpatient 535.5 487.5
Day case 399.9 348.0
Out-patient 365.4 333.1
Other (1) 58.2 26.4
NHS - COVID-19 - 3.5
Total revenue 1,359.0 1,198.5
Insured 615.7 538.7
Self-pay 344.0 338.0
NHS 341.1 295.4
Other (1) 58.2 26.4
Total 1,359.0 1,198.5
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) and rehabilitation, counselling and physiotherapy
revenue from the recent VHG acquisition.
Group revenues increased 13.4% to £1,359.0 million (2022: £1,198.5 million).
The increase is driven by demand for private healthcare which remained strong
throughout the year. The group's self-pay business remained robust with
revenue up YOY delivered through a strong focus on mix, where it targeted more
complex, higher margin treatments in orthopaedics, while scaling back in high
volume but low value areas such as ophthalmology and cosmetics. Included in
other revenue is £31.4m related to new services of which £18.3m of revenue
relates to our recent acquisition of VHG and £13.1m (2022: £0.1m) relates to
The Doctors Clinic Group acquired in the prior year. Revenue from new services
were not material in FY23. From FY24, new services will be presented
separately.
6. Other income
(£m) 2023 2022
Fair value movement on financial asset 2.8 2.3
Realised profit in respect of financial asset 0.8 0.7
Settlement from an insurer (adjusting items) 2.5 -
Total other income 6.1 3.0
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) 2023 2022
Depreciation of property, plant and equipment (see note 12) 65.5 64.2
Depreciation of right-of-use assets (see note 12) 37.5 33.7
Amortisation of intangible assets 0.6 -
Acquisition-related transaction costs (adjusting item) (see note 9) 2.5 1.8
Lease payments made in respect of low value and short leases 18.6 13.6
Provision following a court judgment related to Ian Paterson (adjusting item) 2.5 0.3
(see note 9)
Impairment on assets held for sale - 0.5
Movement on the provision for expected credit losses of trade receivables 0.5 0.9
(Profit) / loss on disposal of property, plant and equipment (0.3) 0.3
Fair value adjustment on financial liability - 0.8
Staff restructuring costs 2.0 4.5
Staff costs (net of staff restructuring costs and including share-based 475.2 413.9
payment charge)
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) 2023 2022
Finance income
Interest income on bank deposits 1.4 -
Total finance income 1.4 -
Finance cost
Interest on bank facilities 18.5 12.4
Refinancing fees - 1.0
Amortisation of fee arising on facilities extensions/borrowing costs ((1)) 1.5 1.5
Accelerated amortisation and loss on extinguishment of loan - 3.1
Interest on obligations under leases 73.0 73.5
Total finance costs 93.0 91.5
Total net finance costs 91.6 91.5
(1.) (£5.0 million of borrowing costs were capitalised on the refinancing of
the senior facility, these are being amortised. In the prior year £3.1m of
unamortised fees on the old facility were charged to the profit and loss in
the year on the extinguishment of the old facility.)
9. Adjusting items
(£m) 2023 2022
Asset acquisitions, disposals, impairment and aborted project costs 3.1 4.3
Business reorganisation and corporate restructuring costs 2.0 4.5
Remediation of regulatory compliance or malpractice costs (0.9) 1.1
Hospital set up and closure costs - 0.3
Total pre-tax adjusting items 4.2 10.2
Income tax credit on adjusting items 0.3 (1.8)
Total post-tax adjusting items 4.5 8.4
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.
Asset acquisitions, disposals, impairment and aborted project costs of £3.1
million mainly relate to asset acquisitions. In October 2023, the group
acquired 100% of the share capital in Vita Health Group Limited for £83.0
million as part of its strategic investment in its broader healthcare
offering. The costs of acquisition of £2.5 million have been incurred in the
period. Costs for integration are expected to continue into FY24. £0.4
million of integration related costs have been incurred following the
acquisition of The Doctors Clinic Group in December 2022.
In the prior year, the costs mainly related to Claremont Hospital and the
purchase of the remaining non-controlling interest, and an impairment of £0.5
million was recognised on the St Saviours property which was sold in H2 2022.
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, £2.0
million (2022: £4.5 million) has been incurred. The initial phase of the
initiative was completed in 2022, with the majority of the project completed
in 2023. It is expected that some costs will be incurred in 2024 as the
project enters into the next strategic phase.
The group has recognised a credit of £0.9 million during the year in respect
of Remediation of Regulatory Compliance or Malpractice Costs relating to
Paterson. This comprises £2.5 million funds received from its insurer and
£0.9 million reduction in provision which had been held to resolve the
matter. This is offset by an increased separate provision in respect of
Paterson by £2.5 million (2022: £0.9 million), which relates to a detailed
patient review initiative which commenced in 2021, supporting patients of
Paterson. During 2023 the group has re-evaluated the expected cost of
completing this complex project, and its associated settlement of patient
claims.
Hospital set up and closure costs mainly relate to the maintenance costs of
non-operational sites.
10. Taxation
(£m) 2023 2022
Current tax
UK corporation tax expense 0.9 0.1
Adjustments in respect of prior years (1.3) (0.7)
Total current tax credit (0.4) (0.6)
Deferred tax
Origination and reversal of temporary differences 10.0 (2.6)
Adjustments in respect of prior years (2.9) (1.1)
Total deferred tax charge / (credit) 7.1 (3.7)
Total tax charge / (credit) 6.7 (4.3)
In addition to the above, a credit of £0.9 million has been recognised in
Other Comprehensive income (2022: £2.1 million charge) and £0.3 million
credit (2022: £0.1 million charge) through equity. The £0.3 million credit
through equity relates to movements on share-based payments, and reflects a
£0.5 million deferred tax charge, offset by a current tax credit of £0.8
million.
Corporation tax is calculated at 23.5% (2022: 19.0%) of the estimated taxable
profit or loss for the year. The effective tax rate on profit before taxation
for the year is 19.4%, although not truly reflective of the current year
position as a result of adjustments to the prior years (2022: not meaningful
as a result of adjustments in respect of prior years and movements on deferred
tax which are not directly linked to profit). Excluding the adjustments to
prior years in 2023, the effective tax rate is 31.5%. The adjustments to prior
years includes the recognition of a deferred tax asset in respect of Corporate
Interest restrictions which has recognised a credit of £3.3 million for
deferred tax purposes, as well as the recognition of deferred tax on acquired
losses of £1.9 million in respect of an acquisition. In the prior year, the
group reassessed the useful life and residual value of its freehold property
portfolio. This resulted in a one-off deferred tax credit of £9.0 million.
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) 2023 2022
Profit before taxation 34.6 3.9
Tax at the standard rate 8.1 0.7
Effects of:
Expenses and income not deductible or taxable 3.2 8.2
Tax adjustment for the super-deduction allowance (0.8) (2.6)
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)
Reallocation to equity - -
Adjustments to prior year (4.2) (1.8)
Difference in tax rates 0.2 0.1
Deferred tax not previously recognised 0.2 -
Total tax charge / (credit) 6.7 (4.3)
Expenses and income not deductible or taxable relate mostly to depreciation on
non-qualifying fixed assets, disallowable entertaining and legal and
professional fees.
The current year and prior year charges are driven by expenses not deductible
for tax purposes, offset by adjustments to 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 (2022: none).
Pillar Two legislation, reflecting the OECDs Base Erosion Profit Shifting
('BEPs') framework, seeks to enforce a minimum tax rate on large and
multinational groups in each jurisdiction in which it operates. This
legislation has been enacted or substantively enacted in the UK, being the
only jurisdiction in which the group operates.
The legislation will be effective for the group's financial year beginning 1
January 2024. The group has performed an assessment of the group's potential
exposure to Pillar Two income taxes.
This assessment is based on the most recent information available regarding
the financial performance of the constituent entities in the group. Based on
the assessment performed, Pillar Two effective tax rates in the UK, being the
only jurisdiction in which the group operates, has been above 15% in the
current and previous financial years, and management is not currently aware of
any circumstances under which this might change. Therefore, the group does not
expect a potential exposure to Pillar Two top-up taxes.
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.
2023 2022
Profit for the year attributable to ordinary equity holders of the parent 27.3 8.6
(£m)
Weighted average number of ordinary shares for basic EPS (No.) 404,117,249 402,756,797
Adjustment for weighted average number of shares held in EBT (468,363) (77,501)
Weighted average number of ordinary shares in issue (No.) 403,648,886 402,679,296
Basic earnings per share (in pence per share) 6.8 2.1
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.
2023 2022
Profit for the year attributable to ordinary equity holders of the parent 27.3 8.6
(£m)
Weighted average number of ordinary shares in issue (No.) 403,648,886 402,679,296
Adjustment for weighted average number of contingently issuable shares 9,494,645 9,363,470
Diluted weighted average number of ordinary shares in issue (No.) 413,143,531 412,042,766
Diluted earnings per share (in pence per share) 6.6 2.1
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 for the year attributable to owners of the parent (£m) 27.3 8.6
Adjusting items (see note 9) 4.5 8.4
Adjusted profit (£m) 31.8 17.0
Weighted average number of Ordinary Shares in issue 403,648,886 402,679,296
Weighted average number of dilutive Ordinary Shares 413,143,531 412,042,766
Adjusted basic earnings per share (in pence per share) 7.9 4.2
Adjusted diluted earnings per share (in pence per share) 7.7 4.1
12. Property, plant and equipment
(£m) Freehold property Leasehold improvements Equipment Assets in the course of construction Right-of-use Total
(ROU)
Cost:
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 24) - - 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)
Transfers(1) - - (10.0) - 10.0 -
At 1 January 2023 850.2 180.4 455.3 30.2 873.9 2,390.0
Additions 7.2 12.1 42.3 22.3 - 83.9
Acquisition of a subsidiary (note 24) - - 1.3 - 1.3 2.6
Additions to ROU assets - - - - 14.7 14.7
Adjustments to existing assets (eg indexation) - - - - 36.7 36.7
Disposals (0.7) (2.4) (21.6) (0.4) (0.1) (25.2)
Transfer(1) 3.7 13.3 9.9 (26.9) - -
At 31 December 2023 860.4 203.4 487.2 25.2 926.5 2,502.7
Accumulated depreciation and impairment:
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 1 January 2023 198.2 60.1 291.8 - 255.5 805.6
Charge for the year 12.2 9.8 43.5 - 37.5 103.0
Disposals (0.6) (2.4) (21.6) - (0.1) (24.7)
Transfers(1) (0.2) - 0.2 - - -
At 31 December 2023 209.6 67.5 313.9 - 292.9 883.9
Net book value:
At 31 December 2023 650.8 135.9 173.3 25.2 633.6 1,618.8
At 31 December 2022 652.0 120.3 163.5 30.2 618.4 1,584.4
(1 In the prior year management identified a number of assets which should be
reclassified from Equipment to Right of use. In the current year the transfer
from assets under construction relates to assets which were brought into use.
These have been reflected in the reclassification line in the note above.
There is no overall impact to the carrying value of property, plant and
equipment.)
The net book value of land is £156.3 million (2022:£156.3 million). Nine of
the group's freehold properties are pledged as security against the senior
finance facility, the net book value of these properties are £124 million
(2022: £157.6 million). There were no borrowing costs capitalised during the
year ended 31 December 2023 (2022: 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 2028 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 that have substantially
commenced 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 was one property 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 property triggered for detail review has headroom (amount that recoverable
amount exceeded the carrying amount) of £3.9 million. The sensitivity
analysis identified that a reasonably possible change in the EBITDA growth
over the five year period for the triggered property, would result in the
elimination of headroom. The average annual EBITDA growth over the five years
is 8.8%. The annual EBITDA over the five year period would have to decrease by
16.0% per annum to eliminate the headroom.
During the year the group moved to a post IFRS 16 discount rate, the group has
used a pre-tax discount rate of 11.5% (2022: 10.6% adjusted for the effect of
IFRS 16). A long-term growth rate of 2.0% has been applied to cash flows
beyond 2028 based on a 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 discount rate, 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 Customer contracts IT projects Mobilisation costs Total
Cost or valuation:
At 1 January 2022 535.8 - - - 535.8
Acquisition of a subsidiary 11.1 - - - 11.1
Adjustment to prior year goodwill acquired (0.1) - - - (0.1)
At 31 December 2022 546.8 - - - 546.8
Acquisition of a subsidiary 65.3 20.6 4.3 2.4 92.6
Additions - - 0.3 0.2 0.5
At 31 December 2023 612.1 20.6 4.6 2.6 639.9
Impairment:
At 31 January 2022 and 31 December 2022 201.0 - - - 201.0
Amortisation charge during the year - 0.2 0.3 0.1 0.6
At 31 December 2023 201.0 0.2 0.3 0.1 201.6
Carrying amount:
At 31 December 2023 411.1 20.4 4.3 2.5 438.3
At 31 December 2022 345.8 - - - 345.8
Acquisition during the year
On 18 October 2023, the group acquired 100% of the voting shares of Vita
Health Group, a non-listed company based in England who are a provider of
mental and physical health services in the UK, for a net cash consideration of
£73.2 million generating goodwill of £65.3 million. On acquisition the group
acquired £27.3 million of other intangible assets relating to IT projects,
mobilisation costs related to NHS contracts and customer relationship
contracts. In determining the fair value of intangible assets acquired in line
with IFRS 3 the group obtained an independent valuation of customer contracts
relating to NHS and corporate contracts and recognised acquired intangibles of
£20.1 million.
Impairment testing
The directors treat the hospital business and The Doctors Clinic Group as
separate cash-generating units for the purposes of testing goodwill for
impairment as the goodwill can be reliably allocated. The goodwill recognised
for the VHG acquisition has not yet been allocated as the initial accounting
is not yet complete. 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 2028 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.
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.
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 table below provides the headroom and the reasonably possible change
identified in the sensitivity analysis mentioned above which would result in
the elimination of headroom.
Cash generating unit Headroom (the amount that recoverable amount exceeded the carrying amount) Average EBITDA growth over the five year period Sensitivity for decrease of average EBITDA per annum
£m
Hospital business 793.7 9.0% 23.2%
The Doctors Clinic Group ("DCG") 7.2 87.9% 30.3%
The trading projections for the five-year period underlying the value-in-use
reflect a growth in EBITDA. EBITDA 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. During the year DCG made a small loss owing to the effect of
integration costs, one off investments in new clinics and a planned delay in
the offer of in-house laboratory services. This is now rolling out and 2024 is
expected to see a return to profitability, which is factored into the growth
in EBITDA.
During the year the group moved to a post IFRS 16 discount rate, and has used
a pre-tax discount of 11.5% (2022: 10.6% adjusted for the effect of IFRS 16).
A long-term growth rate of 2.0% has been applied to cash flows beyond 2028
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) 2023 2022
Amounts falling due within one year:
Trade receivables 74.8 59.8
Unbilled receivables 20.2 18.2
Prepayments 21.9 15.7
Other receivables 10.2 11.8
127.1 105.5
Allowance for expected credit losses (5.5) (5.0)
Total current trade and other receivables 121.6 100.5
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 £4.6 million insurance reimbursement right
(2022: £5.4 million); as well as £4.1 million (2022: £2.6 million)
reimbursement right related to the Paterson fund, which is being held by
solicitors on account until payments are made, with any amount not paid out
being returned to Spire Healthcare. During the year, £3.9 million was paid
out of this fund and an additional £5.5 million was paid into the 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.
Trade and other receivables of £12.7 million have been recognised on the
acquisition of Vita Health Group during the year (note 24).
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 where there is no
right to offset these at the reporting date). 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 2023 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% 2.7% 16.3% 29.0% 41.9% 5.1%
Gross debt (£m) 75.3 14.8 4.3 6.2 6.2 106.8
Less payments on account (£m) (32.0)
Carrying amount of trade receivables (£m) 74.8
Loss allowance (£m) - 0.4 0.7 1.8 2.6 5.5
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
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 two 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) 2023 2022
Private medical insurers 29.5 30.4
NHS 25.0 8.2
Patient debt 4.1 7.2
Other 10.7 9.0
69.3 54.8
The movement in the allowance for impairment in respect of trade receivables
during the year was as follows:
(£m) 2023 2022
At 1 January 5.0 4.1
Provided in the year 1.6 1.1
Utilised during the year (0.3) (0.2)
Released during the year (0.9) -
At 31 December 5.5 5.0
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
dependent 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
As at 31 December 2023 the group's management have committed to sell a parcel
of land at Bostocks Lane as the group has accepted an offer on the property.
The sale is considered highly probable and the assessment has not changed. It
therefore remains as classified as held for sale.
(£m) 2023 2022
Bostocks Lane (East Midlands Cancer Centre) 1.1 1.1
1.1 1.1
16. Share capital and reserves
2023 2022
Authorised shares
Ordinary share of £0.01 each 404,126,630 404,108,470
404,126,630 404,108,470
Issued and fully paid £0.01 ordinary shares
Shares £'000
At 31 December 2023 404,126,630 4,042
At 31 December 2022 404,108,470 4,041
During the year, the authorised share capital was increased by £181.60 by the
issue of 18,160 ordinary shares of £0.01 each.
Share premium
(£m) 2023 2022
At 1 January 830.0 826.9
Issue of new shares - 3.1
At 31 December 830.0 830.0
During the year the group issued 18,160 shares to settle share awards of which
18,160 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 were
£29,163.
Capital reserves
This reserve represents the loans of £376.1 million 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 benefitting 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 1,339,634 shares and exercised 1,054,620
shares (2022: 88,354 shares issued and 300,491 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 2023, 312,160 shares (2022: 27,146)
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.
2023 2023 2022 2022
number of shares £m number of shares £m
At 1 January 27,146 - 239,283 0.8
Purchased 1,339,634 3.1 88,354 -
Exercised (1,054,620) (2.4) (300,491) (0.8)
At 31 December 312,160 0.7 27,146 -
Hedging reserve
The balance of £3.3 million at 31 December 2023 (2022: £6.6 million)
reflects the £4.4 million debit (2022: £1.2 million credit) recycled in the
period, the fair value credit of £0.2 million (2022: £8.1 million credit)
and the £0.9 million tax credit on the profit (2022: £2.2 million charge) to
give a net movement of a decrease of £3.3 million during the year (2022: an
increase of £7.1 million) 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 2023 were £1,257.0 million (2022: £1,190.8 million). 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 £100.0 million of the Senior Loan Facility. During the year the
group exercised its option to extend the facility by one year the arrangement
has a maturity of February 2027. 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 (2022: 2.05% over SONIA).
The group drew down £60.0 million on its revolving credit facility to acquire
Vita Health Group in October 2023. Since the acquisition the group has repaid
£20.0 million.
(£m) 2023 2022
Amount due for settlement within 12 months 3.4 2.9
Amount due for settlement after 12 months 361.9 321.4
Total bank borrowings 365.3 324.3
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 2023 2022
Senior finance facility February 2027 2.05% 325.3 324.3
Revolving credit facility February 2027 1.95% 40.0 -
Net debt for the purposes of the covenant test in respect of the Senior Loan
Facility was £315.4 million (December 2022: £250.8 million) and the net debt
to EBITDA ratio was 2.2x (December 2022: 2.2x). The net debt for covenant
purposes comprises the senior facility of £325.0 million, drawn revolving
credit facility of £40.0 million less cash and cash equivalents of £49.6
million. EBITDA for covenant purposes comprises Adjusted EBITDA for Last
Twelve Months (LTM) of pre-IFRS 16 Adjusted EBITDA of £152.9 million
(December 2022: 123.9 million) less the rental of a finance lease pre-IFRS 16
of £10.0 million (2022: £9.5 million).
The interest cover for covenant purposes was 8.5x (2022: 8.5x) and is
calculated as the pre-IFRS 16 EBITDA described above over pre-IFRS 16 finance
costs paid.
The senior finance facility includes a sustainability-linked element connected
to environmental and quality factors. The group also has access to a further
£60.0 million through a committed and undrawn revolving credit facility to
February 2027.
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 £891.7 million (2022: £866.5
million), expire in various years to 2046 and carry incremental borrowing
rates in the range 3.2% - 14.6% (2022: 3.1% - 14.6%). Rents 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 in an
7.5% movement in lease liability.
In the year, the group recognised charges of £3.8 million (2022: £3.3
million) of lease expenses relating to low value leases and £14.8 million
(2022: £10.3 million) of lease expense in respect of short-term 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 £118.8 million (2022: £105.6 million). The group has not
made any variable lease payments in the year. The group is not a lessor for
any leases to external parties. 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.
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, extension or break clause 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) 31 December
Additions(2)
2023
Bank loans 324.3 (17.0) 18.0 40.0 365.3
Lease liabilities 866.5 (100.2) 73.0 52.4 891.7
Total 1,190.8 (117.2) 91.0 90.8 1,257.0
(£m) 1 January Cash flows Non cash changes(1) 31 December
Additions(2)
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 and acquisitions of subsidiaries.)
Derivatives
The following derivatives were in place at 31 December:
Interest rate Maturity date Notional amount Carrying value Asset
31 December 2023 (£m)
Interest rate swaps 2.7780% Feb 2026 243.8 4.4
31 December 2022 (£m)
Interest rate swaps 2.7780% Feb 2026 243.8 8.6
(£m) 2023 2022
Amount due for settlement within 12 months 4.0 3.6
Amount due for settlement after 12 months 0.4 5.0
Total derivatives 4.4 8.6
The group entered into interest rate swaps on the 25 July 2022. The movement
in respect of derivatives reflects £4.4 million (December 2022: £1.2
million) recycled in the period and a £0.2 million credit (December 2022:
£8.1 million 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 2023 19.4 2.3 21.7
Increase in existing provisions 3.8 - 3.8
Provisions utilised (7.1) (1.0) (8.1)
Provisions released (1.0) - (1.0)
At 31 December 2023 15.1 1.3 16.4
Medical malpractice relates to estimated liabilities arising from claims for
damages in respect of services previously supplied to patients. During the
period £3.8 million was added due to additional claims received, and £7.1
million utilised and £1.0 million was released. Amounts are shown gross of
insured liabilities. Any such insurance recoveries of £4.6 million (December
2022: £5.4 million) are recognised in other receivables.
In response to the publication of the Public Inquiry report on Paterson on 4
February 2020, Spire Healthcare established a provision in respect of
implementing the recommendations including a detailed patient review and
support for patients. The provision is being utilised, including £9.2 million
in patient claim settlements. The provision to complete the reviews, settle
any claims and costs in respect of other Paterson items has been increased by
£2.5 million. 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. This provision remains subject to ongoing review. In
addition, and as disclosed in note 9 adjusting items, this was offset by the
release of a £0.9 million provision which had been held to resolve a matter
with an insurer.
As at 31 December 2023, the remaining business restructuring and other
provisions primarily includes acquisition related provisions related to tax
matters other than income tax which is expected to be utilised or released as
the relevant tax years close for review. During the year the group settled
non-patient claims as appropriate and sought external counsel on this
settlement.
Provisions as at 31 December 2023 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) 2023 2022
Trade payables 63.9 67.2
Accrued expenses 65.9 58.4
Deferred income 10.4 -
Social security and other taxes 15.2 9.7
Other payables 41.7 29.2
Trade and other payables 197.1 164.5
Trade and other payables of £26.1 million have been added on the acquisition
of Vita Health Group during the year (see note 24) of which £10.4 million
relates to deferred income related to contract revenue.
Accrued expenses includes general operating expenses incurred but not invoiced
as at the year end, as well as holiday pay accrued of £2.1 million (2022:
£5.2million), and bonuses accrued during the year and paid during the
following year of £12.7 million (2022: £7.0 million).
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 £10.3 million (2022: £11.9 million). In addition other credit
balances re-classed from trade debtors were £32.0 million (2022: £28.2
million), 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 2022 were
utilised in the current year when the patient attended the procedure, and not
cancelling or deferring treatment, such payments on account 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 £3.7 million in the year ended 31 December 2022
(2022: £2.3 million). 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 £0.4 million (2022: £0.3 million).
The following table analyses the total cost between each of the relevant
schemes, together with the number of options outstanding:
2023 2022
Charge Number of options (thousands) Charge Number of options (thousands)
£m £m
Long Term Incentive Plan 3.0 12,394 1.8 12,787
Deferred Share Bonus Plan - 449 - 525
Save As You Earn (SAYE) 0.7 3,252 0.5 3,652
3.7 16,095 2.3 16,964
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. No
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 15 March 2023, the company granted a total of 2,980,384 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 2025, relative total shareholder return (TSR) (35%) targets
on performance over the three-year period to 31 December 2025 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 2033. The executive directors are subject to a two-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 15 March 2023, the company granted a total of 168,042 options to executive
directors, with a vesting date of 14 March 2026. 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 three years from
grant. The requirement to save is a non-vesting condition.
21. Commitments
Consignment stock
At 31 December 2023, the group held consignment stock on sale or return of
£24.5 million (2022: £24.3 million). 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) 2023 2022
Contracted but not provided for 31.6 27.0
22. Contingent liabilities
The group had the following guarantees at 31 December 2023:
· the bankers to Spire Healthcare Limited have issued a letter of credit in
the maximum amount of £1.5 million (2022: £1.5 million) 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.
23. Financial liabilities
Financial instruments to purchase non-controlling interest
In the period, the group entered into an agreement with the non-controlling
interest of one of its subsidiaries, Montefiore House Limited, in which both
parties can exercise an option for Spire to purchase the remaining 25%
interest in the subsidiary at a future date. The purchase price is calculated
in line with pre-determined metrics which are based on the subsidiary's EBITDA
performance and the group multiple. The option can be exercised between two to
five years. The expected future cash flow to settle the obligation is
discounted at the group cost of debt of 8.1%. The financial liability is
initially recognised through equity at the present value of future cash flows
and subsequently recognised at amortised cost.
(£m) 2023 2022
Valuation at 1 January - -
Option to purchase non-controlling interests 9.6 -
Valuation at 31 December 9.6 -
24. Business combinations and acquisition of non-controlling interests
Acquisitions in 2023
Acquisition of Kingfisher TopCo Limited (together 'Vita Health Group')
On 18 October 2023, the group acquired 100% of the voting shares of Kingfisher
TopCo Limited (which in turn owns 100% of the shares of Vita Healthcare
Group), a non-listed company based in England a market-leading provider of
mental and physical health services in the UK, for £83.0 million and a net
cash consideration of £73.2 million. This acquisition complements our
existing business and aligns well with our strategy of developing new services
and moving into adjacent markets.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Vita Health
Group as at the date of acquisition were:
(£m) Fair value recognised on acquisition
Assets
Intangible assets (note 13) 27.3
Plant, property and equipment (note 12) 1.3
Right of use assets 1.3
Trade and other receivables (note 14) 12.7
Cash 9.8
52.4
Liabilities
Payables (26.1)
Income tax and withholding tax payable (2.3)
Deferred tax liability (5.0)
Lease liabilities (1.3)
(34.7)
Total identifiable net assets at fair value 17.7
Goodwill arising on acquisition (note 13) 65.3
Purchase consideration transferred 83.0
The initial accounting for the business combination is not complete due to the
timing of the acquisition which occurred close to the year end. Amounts
recognised, are subject to adjustment in line with IFRS 3 for up to 12 months
from acquisition, with goodwill being adjusted accordingly. Therefore,
goodwill has not been allocated.
The fair value of the trade receivables amounts to £12.7 million. The gross
amount of trade receivables is £13.2 million and it is expected that the full
contractual amounts can be collected.
From the date of acquisition, Vita Health Group contributed £18.3 million of
revenue and profit of £1.1 million 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 £1,450.5
million and loss before tax from continuing operations for the group would
have been £40.1 million.
Goodwill has been recognised to reflect the synergies which the group believes
are available to expand its offering for mental and physical 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 9.8
Cash paid 83.0
Net cash flow on acquisition 73.2
Transaction costs of £2.5 million were expensed and are included within
adjusting items.
Prior year Acquisition of Doctors Clinic Group Limited (together "The Doctors
Clinic Group")
During the year the group reviewed its goodwill position in respect of The
Doctors Clinic Group in line with IFRS 3 and no adjustment has been
recognised.
25. 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 (https://www.spirehealthcare.com/)
Financial Calendar
2024 Annual General Meeting (London) 9 May 2024
Announcement of 2024 half year results September 2024
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