REG - Spire Healthcare Grp - Half-year Report
14/09/2023 07:15
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RNS Number : 3804M Spire Healthcare Group PLC 14 September 2023
Spire Healthcare reports its results
for the six months ended 30 June 2023
London, UK, 14 September 2023, Spire Healthcare Group plc (LSE: SPI) ('Spire
Healthcare', 'the Group' or 'the Company'), a leading independent hospital
group in the UK, today announces its interim results for the six months ended
30 June 2023 ('the period' or 'H1 23').
Strong H1 performance in line with full year expectations, with momentum
continuing
Summary Group results for the six months ended 30 June 2023
Six months ended 30 June (Unaudited)
(£ million) 2023 2022 Variance
Revenue 676.5 597.9 13.1%
Adjusted operating profit (Adjusted EBIT) 67.8 54.6 24.2%
Adjusting items (2.0) (5.6) NM((1))
Operating profit (EBIT) 65.8 49.0 34.3%
Profit before taxation 20.3 3.0 NM
Profit /(loss) after taxation 12.7 (0.6) NM
Basic earnings / (loss) per share, pence 3.1 (0.1) NM
Adjusted basic earnings per share, pence ((2)) 3.4 1.1 NM
Adjusted EBITDA ((3)) 117.9 105.8 11.4%
Adjusted FCF ((4)) 24.0 23.7 NM
Net bank debt ((5)) 248.5 227.8 9.1%
Net bank debt / EBITDA covenant ratio 2.1 2.2 (0.1)
1.Not meaningful
2.Adjusted basic earnings / (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'.
For EBITDA for covenant purposes, refer to note 16.
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.
6.Return in capital employed (ROCE) is the ratio of the Group's Adjusted EBIT
to total assets less cash, capital investments made in the last 12 months and
current liabilities.
7.Capital investment includes capital spend on property, plant and equipment
and right of use assets. Refer to note 14.
Financial and operating highlights
Strong revenue and earnings performance
· Revenue up 13.1% vs H1 22 to £676.5m, driven by continued strong
demand
· Private revenue up by 10.4% vs H1 22 with strong growth in PMI
and further growth in self-pay
· Continued support for the NHS, especially on longest waiting
patients and orthopaedics, with NHS revenue up 17.1%
· Average revenue per case (ARPC) on a weighted basis up 6.6% to
£3,337; admissions up 7.4% vs H1 22 to 141,347
· Adjusted EBIT up 24.2% vs H1 22 to £67.8m and Adjusted EBITDA up
11.4% vs H1 22 to £117.9m
· Profit before taxation of £20.3m (H1 22: £3.0m)
· Profit after taxation of £12.7m (H1 22: loss of £0.6m)
· Strong H1 23 performance supported by significantly reduced
impact of COVID-19 relative to comparative prior year period (particularly
affected in Jan-Apr 2022)
· Net bank debt / EBITDA covenant ratio of 2.1x at 30 June 2023
(2.2x at the end of FY22 and 2.2x at 30 June 2022)
Continued development of the business in line with strategy
· 98% of inspected hospitals and clinics currently rated 'Good' or
'Outstanding' by the CQC or equivalent in Scotland and Wales (end FY22: 98%)
· Further good progress in the delivery of efficiency programmes;
on track to deliver at least £15m cost savings in 2023
· £36.1m capex investment in facilities and equipment (H1 22:
£38.8m);
· Integration of The Doctors Clinic Group (DCG) into the business
in line with expectations
· 41% like-for-like increase in the number of GP appointments
across the in-hospital and recently acquired DCG business
· 5.5% colleague salary increases from 1 September 2023, with 3%
rise for colleagues eligible for a bonus; lowest paid colleagues move in-line
with the Real Living Wage
Current trading and outlook
Following the strong financial performance recorded in the first six months,
the second half of the year to date has started in line with our expectations.
The Group has continued to deliver operational and financial progress in line
with our plans, with sustained growth in revenue, earnings and EBIT margin.
We are confident of achieving our guidance provided at the time of our FY22
results announcement in March 2023: 'Overall in 2023, we expect to make
further good progress and continued delivery of the Group's strategy and in
particular anticipate continued momentum in top-line growth, margin
improvement and ROCE improvement.'
Justin Ash, Chief Executive Officer of Spire Healthcare, said:
"Our strategy is working, as this strong set of results demonstrates, with
top-line momentum and strong profit growth. Our investments in a high quality
service, partnerships with PMI providers and the NHS, and a compelling
self-pay proposition, meant we treated a record number of patients in the
first half of this year. Our efficiency programmes are on track, and we
continue to manage mix to focus on treatment areas most appropriate for our
acute hospital environment. This is enhancing our margin.
"In line with our strategy to develop adjacent services, we acquired The
Doctors Clinic Group last year and the business is performing well. Demand for
easily accessible private GP services continues to soar and our occupational
health services are a key platform for employers seeking to retain staff and
support their health needs.
"UK healthcare is entering an era of renewed choice as demand for healthcare
diagnosis and treatment remains strong. By continuing to invest in innovative
services, expanded facilities, technology, and our brilliant workforce, Spire
is ideally positioned to meet this demand."
For further information please contact:
Spire Healthcare +44 (0)20 7427 9000
Angus Prentice - Director of Investor Relations
Instinctif Partners +44 (0)20 7457 2020
Damian Reece
Guy Scarborough
Registered Office and Head Office:
Spire Healthcare Group plc
3 Dorset Rise
London
EC4Y 8EN
Registered number 09084066
About Spire Healthcare
Spire Healthcare (https://www.spirehealthcare.com/) is a leading independent
healthcare group in the United Kingdom, with 39 hospitals and over 30 clinics,
medical centres and consulting rooms across England, Wales and Scotland. It
operates a network of private GPs and provides occupational health services to
over 700 corporate clients.
Working in partnership with over 8,760 experienced consultants, Spire
Healthcare delivered tailored, personalised care to approximately 926,500
inpatients, outpatients and day-case patients in 2022, and is the leading
private provider, by volume, of knee
(https://www.spirehealthcare.com/treatments/bones-and-joints/knee-replacement/)
and hip
(https://www.spirehealthcare.com/treatments/bones-and-joints/hip-replacement-surgery/)
operations in the United Kingdom. The Group's well-located and scalable
hospitals have delivered successful and award-winning clinical outcomes,
positioning the Group well with patients, consultants, the NHS, GPs and
Private Medical Insurance (PMI) providers. 98% of Spire Healthcare's inspected
hospitals and clinics are rated 'Good', 'Outstanding' or the equivalent by
health inspectors in England, Scotland and Wales.
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 9.00 am. Please
register in advance for the live webcast of the meeting through the following
link:
https://spirehealthcare.zoom.us/webinar/register/WN_OPdXNsztQf-dpAJW5qbIFw
(https://spirehealthcare.zoom.us/webinar/register/WN_OPdXNsztQf-dpAJW5qbIFw)
The webcast will be available for replay following the presentation through
the Company's investor website: https://investors.spirehealthcare.com/home/
(https://investors.spirehealthcare.com/home/)
Operating review
Overview
Spire Healthcare delivered a strong financial and operational performance in
H1 23, while maintaining high standards of patient safety and providing the
highest quality care on a daily basis. Increased revenue, volume and average
revenue per case (ARPC), supported by ongoing focus on cost management,
resulted in strong profit growth in H1. Profit before tax for the first half
of the year was £20.3m, up from £3.0m in H1 22. The business is on track to
meet the medium-term targets as set out at the Group's capital markets event
on 29 June 2022.
Revenue and earnings for the first six months were materially ahead of the
prior year period. Revenue in H1 23 was up 13.1% to £676.5m (H1 22:
£597.9m), driven by strong demand. Overall activity rose in the period
compared to prior year, with admissions up by 7.4% to 141,347.
Performance in the period benefited from significantly lower COVID-19 cost
impact compared to H1 22. The January - April 2022 period was particularly
impacted by COVID-19 and resultant costs.
The Group managed the external environment well in the period. Against a
backdrop of high UK inflation and the well-documented skilled healthcare staff
challenges in the UK, Spire was able to resource its current growth
efficiently, and grow profits, despite cost input inflation, through pricing,
revenue growth and savings programmes.
Further steady progress was made during the first half of the year to
implement our strategy to grow adjacencies. This included our investment in
new clinics and the ongoing integration of The Doctors Clinic Group (DCG), a
provider of occupational health and GP services, which we acquired towards the
end of last year. DCG is performing in line with management's expectations.
Driving hospital performance
Running 39 hospitals is the core of Spire Healthcare's business. Performance
during the first half of the year was strong, with hospital revenue driven by
significant demand. Admissions were 7.4% ahead of those in H1 22 and 7.8%
ahead of H2 22, an indication of ongoing high demand for the Group's
healthcare services.
Overall admissions and revenue were higher than in H1 22, as expected, with
exceptionally strong growth in PMI (private medical insurance) and NHS payor
groups, with SP (self-pay) demand maintaining its high levels.
Overall, private admissions grew by 5.4% (vs H1 22: up 18.6%) during the
six-month period to the end of June 2023 compared to prior year, with private
revenue ahead by 10.4% (vs H1 22: up 21.6%).
PMI revenue grew by 15.6% vs H1 22 to £306.6m, reflecting an increase in
referrals and the reported marked growth of the insurance market, which we
have seen continue into H2 2023. Volumes of PMI patients, including admissions
and outpatient procedures, were up 12.5% vs H1 22.
SP revenue was up 2.5% to £178.4m with volumes maintained at levels
significantly higher than pre-COVID. In line with our strategy to increase the
acuity of our services, some high volume but lower value work has been
substituted by higher complexity, high value work.
NHS revenue grew by 17.1% to £170.5m in the first six months of this year
compared to last year, with increasing referrals through the electronic
referral system (eRS). Overall NHS volumes, including admissions and
outpatient procedures, were up 6.1% YOY with admissions up 12.4%. Orthopaedic
volumes were up 17.8% YOY and now comprise c. 50% of all Spire NHS referrals.
NHS tariff for 2023-24 will rise to 4.1%, effective from 1 April 2023, to
cover the cost of the nurses' and doctors' pay awards.
The private proportion of total revenue during H1 23 was 72% (H1 22: 73%).
This is in line with our target that private revenue as a proportion of total
revenue should be within the range of 70-80%.
The average revenue per case (ARPC) rose by 6.6% on a weighted basis to
£3,337. In SP, we have control over pricing and actively manage it using our
digitised pricing system. Our contracts with PMI providers generally allow for
price adjustments in Q2, with reference to rates of inflation in the prior
year. Compared to H1 22, PMI ARPC was up 5.2% to £2,870, SP up 8.5% to
£4,297 and NHS up 6.7% to £3,298. Pricing adjustments in PMI and SP will
continue to benefit overall private revenue in H2, at higher rates than H1.
We are pleased to have developed a new advertising campaign which has just
been launched 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".
In May 2023, Spire Healthcare Limited acquired an additional 25% interest in
the Montefiore Hospital in consideration of the release and discharge of
outstanding liabilities. The Group now owns 75% of this entity.
Expanding our proposition
While running great hospitals remains central to Spire Healthcare, we are
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.
Further steady progress to expand the Group's healthcare proposition was made
in the first six months of the year as the Group worked towards becoming an
integrated healthcare provider, with services in primary care, diagnosis,
occupational health and long-term condition management.
The ongoing integration of The Doctors Clinic Group (DCG), which was acquired
last December, is progressing well. We are restructuring the business into two
units, Occupational Health and Primary Care, with further integration into
Spire Healthcare teams for some roles.
Our Spire GP primary care services have experienced strong growth in recent
years with patients attracted by a high quality service offering efficient
access to a GP near to where they live. Patients also value the longer
appointment times that enable a fuller examination and discussion of their
medical needs with the GP. We saw increased demand for our private GP services
during H1 23. The total number of GP appointments rose by 41% and revenue by
45% like for like in H1 23 compared to the prior year period across DCG and
Spire Hospital GP services. The number of referrals from Spire GPs to
appointments with consultants in our hospitals was up by 28% for H1 23
compared to the prior year period. Work continues to build greater referral
activity from Doctors Clinic Group GPs as part of the overall integration
plan.
As well as expanding Spire Healthcare's GP service offering, the Group plans
to target 10 new medical clinics to meet the growing healthcare needs in our
communities. We remain on target to open the first of our clinics at Abergele,
North Wales, during H2 23 and are planning to open a second clinic at
Harrogate before the end of the year.
Spire Healthcare's occupational health (OH) business continues to develop in
line with the Group's plan. Our focus during the period has been on
integrating the two OH businesses within DCG and rebranding. Revenue for our
two occupational health businesses, Soma and Maitland, grew 41% on H1 22, when
they were under the previous ownership.
We welcome the consultation launched on 20 July 2023 by the UK Government's
Department for Work and Pensions seeking views on proposals aimed at
increasing employer use of OH services along with a joint consultation issued
on the same day by HM Treasury and HM Revenue & Customs on the role of tax
incentives in boosting OH provision by employers. These initiatives provide a
clear indication of the government's support of OH services as a catalyst for
getting people back to work and for promoting health and wellbeing in the
workforce.
We continue to make progress in development long-term condition management
services. Following the launch in December 2022 of a pilot for a
subscription-based, nurse-led Type 2 diabetes care service at Spire Leicester,
we are working to extend the pilot to Spire Harpenden and our London GP
clinics. Those patients already subscribed have provided very positive
feedback on the support and personalised care provided.
Successfully navigating in an inflationary environment
Adjusted EBIT rose by 24.2% to £67.8m during H1 23 compared to the H1 22 and
Adjusted EBITDA by 11.4% to £117.9m. This resulted in an Adjusted EBIT margin
of 10.0%, up from 9.1% in H1 22 and 8.5% in H2 22. Adjusted EBITDA margin for
the first six months of 2023 was 17.4%, down from 17.7% recorded in the first
half of last year, but up materially from 16.3% in H2 22; margin growth in H1
23 was ahead of expectations.
Profit before tax for the period was £20.3m, up significantly on the £3.0m
recorded in H1 22.
The profit improvements were driven by operational leverage provided by
revenue growth - up 13.1% vs H1 22 for the six-month period - and pricing
increases across SP, PMI and the NHS. Margin improvement also benefited from
progress made in our ongoing efficiency programme which is targeting at least
£15m of cost saving in 2023. Key cost-saving initiatives include refinement
of best practice establishment models for hospital operations, the
reorganisation of hospitals into hubs, sharing of resources and procurement
savings. We continue to benefit from energy commodity prices fixed at 2021
pricing until Q3 2024.
Wage rate pressure is an ongoing consideration for Spire Healthcare and UK
healthcare more broadly. However, our support and investment in our workforce
(below) are leading to improving staff retention and good engagement, with
reducing use of agency per admission as a result.
Overall, we believe that the benefits secured from the above actions, combined
with our strategic focus on securing more complex work and our ability to
adjust SP pricing and PMI pricing contractual arrangements, provide adequate
self-help levers to enable the Group to successfully navigate through the
ongoing inflationary environment. This will remain a key focus of the Group,
as is improving our ROCE which was up at 6.9% on an annual basis, from 5.4%
prior year.
Good cash generation enabling ongoing capex investment and further reduction
in leverage ratio
The Group has continued to be cash generative and further reduced overall debt
levels during the period. The cash inflow from operating activities was
£96.6m (H1 22: £91.5m). After adjusting for cash from Adjusting Items, the
Adjusted operating cash flows were £99.5m, which constitute a cash conversion
rate from £117.9m Adjusted EBITDA of 84.4% (H1 22: 90.5% conversion of
£105.8m Adjusted EBITDA).
Capital investment in the first half of 2023 was £36.1m and in line with our
plan for this period, with a full-year target range of 6-7% of revenue.
Capital investment during the period included the funding associated with the
completion of a new outpatient and diagnostic centre at Spire Yale and a new
ophthalmology site at Spire Cambridge. It also included investment in a new
MRI unit at Spire Yale plus a mobile MRI, and CT scanners at Spire Cambridge
Lea, Spire Gatwick Park and Spire Hartswood, the refurbishment of the Bristol
pathology lab as well as other medical equipment.
Net bank debt at 30 June 2023 was £248.5m (vs £250.1m at 31 December 2022),
with a cash balance of £75.7m (vs £74.2m at 31 December 2022). During Q1 22,
we paid down bank debt by £100m as part of a successful re-financing of the
Group's bank facilities. We also extended the scope of the Group's interest
rate hedge in July 2022, with the result that 75% of the risk from increasing
interest rates is now mitigated until April 2024, dropping back to 50%
thereafter for the rest of the term. During H1 23, the Group exercised the
option to extend the bank facility by a further year to February 2027.
The Group's leverage ratio continued to reduce, resulting in a net debt /
EBITDA covenant ratio of 2.1x at 30 June 2023 (from 2.2x at the end of FY22).
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. 98% of our
inspected hospitals and clinics are currently rated 'Good' or 'Outstanding' by
the CQC or the equivalent in Scotland and Wales. We are awaiting re-inspection
of Spire Alexandra, our one remaining site which has a 'Requires Improvement'
rating, which has not been inspected since 2016/17, and look forward to
demonstrating the improvements made since then. 93% of our patients rate our
care as 'Outstanding'.
We are implementing the new NHS England Patient Safety Incident Response
Framework (PSIRF). PSIRF promotes a new, more proportionate approach to
responding to patient safety incidents within a wider system of improvement,
with compassionate engagement and involvement of those affected by patient
safety incidents. It builds on our open and learning culture.
Like everyone working in healthcare, we have reflected on the terrible crimes
of Lucy Letby, committed at an NHS Trust. It has reinforced the importance of
our sector-leading freedom to speak up culture, and in the past couple of
weeks, we have re-emphasised to our colleagues and consultant partners that we
encourage them to speak up, that they will be listened to, and supported.
Investing in our workforce
As a healthcare service provider, we recognise and value the hard work and
dedication of all our colleagues. Given the well-documented shortage of
skilled healthcare staff in the UK and internationally, investing in our
workforce is a critical part of the Group's strategy. We recognise our vital
position in addressing this shortage of clinical staff and therefore endeavour
to ensure that all our colleagues are treated well and properly rewarded. We
announced this year's annual salary review on 25 May, to give colleagues
clarity well in advance of the increases taking effect in September. Most
permanent colleagues have been awarded a 5.5% salary increase, with a 3%
salary increase for colleagues who are eligible for a bonus. The announcement
has received positive feedback from colleagues. We have also continued to pay
all our colleagues at least the Real Living Wage.
The development of our workforce is critical for us to maintain the high
standards of quality and care delivery that we expect for our patients and
pride ourselves on. It also is imperative that we provide professional
development to attract and retain the very best people for our hospitals. We
will soon be welcoming another 25 nurse apprentices onto our sector-leading
nurse apprenticeship scheme. We already have around 550 apprentices in all,
representing some 5% of the workforce. We are excited to be launching the
Driving Clinical Excellence in Practice Programme for nursing colleagues over
the next few months. The programme is a bespoke educational initiative that
includes a comprehensive framework of necessary competencies and skills that
are aligned to our Spire values, quality objectives and priorities and a study
day that encourages participants to engage with peers to foster a deeper sense
of community and to explore the values and behaviour of a Spire nurse. It will
encourage reflective practice and professional conversations amongst our
valued nurses to ensure patient care deliver remains high. It will also
support nurse revalidation, promote better patient outcomes, patient
experience and promote better use of resources.
We brought recruitment in-house during H1 2023, which is already leading to
improved filling of vacancies, and we are very encouraged that the combined
investments in our workforce are leading to a material reduction in colleague
leaver rates, to the lower levels we sustained before the pandemic.
Championing sustainability
In 2022, we outlined the Group's sustainability strategy, and we provided
further detail on our sustainability ambitions, setting out specific targets
across Environment, Social and Governance (ESG) in our 2022 annual report.
Many of our sustainability initiatives have been operating for some time.
During H1 23, we made further progress towards our ambition of becoming an ESG
leader in our industry, as we continued to focus our ESG work on areas of the
business likely to have the greatest impact on the long-term sustainability of
the business. Our journey towards achieving net zero carbon status by 2030 is
going well, with investment during the period in the removal of piped nitrous
oxide systems, further installations of LED lighting technology, increasing
recycling and generating carbon reduction through effective management of our
waste and the optimisation of our building management systems.
Further details of progress made across the Group's various ESG/sustainability
initiatives will be reported on at the year end.
Dividend
We anticipate recommending the payment of a final dividend for the year ending
31 December 2023 in line with the Group's dividend policy.
Board changes
We welcomed Debbie White and Natalie Ceeney to the Board as independent
non-executive directors during the period. Debbie White was appointed on 1
February 2023 and Natalie Ceeney joined us from 1 May 2023. 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
Six months ended 30 June (Unaudited)
2023 2022
(£ million) Total before Adjusting items Adjusting Total Total before adjusting items Adjusting Total
items
items (note 10)
(note 10)
Revenue 676.5 - 676.5 597.9 - 597.9
Cost of sales (362.3) - (362.3) (328.4) - (328.4)
Gross profit 314.2 - 314.2 269.5 - 269.5
Other operating costs (247.5) (2.0) (249.5) (216.1) (5.6) (221.7)
Other income 1.1 - 1.1 1.2 - 1.2
Operating profit (EBIT) 67.8 (2.0) 65.8 54.6 (5.6) 49.0
Finance costs (45.5) - (45.5) (46.0) - (46.0)
Profit before taxation 22.3 (2.0) 20.3 8.6 (5.6) 3.0
Taxation (8.1) 0.5 (7.6) (4.4) 0.8 (3.6)
Profit / (loss) for the period 14.2 (1.5) 12.7 4.2 (4.8) (0.6)
Adjusted EBITDA ((1)) 117.9 105.8
Basic earnings/ (loss) per share, pence 3.1 (0.1)
Adjusted FCF((2)) 24.0 23.7
Net cash from operating activities 96.6 91.5
Net bank debt ((3)) 248.5 227.8
1 Adjusted EBITDA is calculated as operating profit, adjusted to add
back depreciation, and adjusting items, referred to hereafter as 'Adjusted
EBITDA'. See page 10 for further information. For EBITDA for covenant
purposes, refer to note 16.
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 plant, property and equipment.
3 Net bank debt defined as bank borrowings less cash and cash
equivalents.
Revenue
Group revenues increased by 13.1% to £676.5m (2022: £597.9m). The increase
in revenue is mainly driven by the strong performance of our private business
and in particular the recovery by PMI patients, which increased by 15.6%.
Total NHS revenue increased by 17.1% to £170.5m (2022: £145.6). Revenue of
£6.7m included in other relates to revenue generated by the Doctors Clinic
Group which was acquired in December 2022.
Revenue by location and payor
Six months ended 30 June (Unaudited)
(£ million) 2023 2022 Variance %
Total revenue 676.5 597.9 13.1%
Of which:
Inpatient 272.7 246.8 10.5%
Day case 199.0 170.0 17.1%
Out-patient 182.6 166.4 9.7%
NHS - COVID-19 1.2 1.7 NM((1))
Other 21.0 13.0 NM((1))
Total revenue 676.5 597.9 13.1%
Of which:
PMI 306.6 265.2 15.6%
Self-pay 178.4 174.1 2.5%
Total Private 485.0 439.3 10.4%
Total NHS 170.5 145.6 17.1%
Other 21.0 13.0 NM((1))
Total revenue 676.5 597.9 13.1%
(1 Not meaningful)
( )
Cost of sales and gross profit
Gross margin for the first six months of 2023 is 46.4% compared to 2022 levels
of 45.1%. Cost of sales increased in the period by £33.9m, or 10.3% to
£362.3m (2022: £328.4m) on revenues that increased by 13.1%. The margin
improvement was driven by operational leverage provided by revenue growth,
pricing increases and cost savings from our ongoing efficiency program.
Cost of sales is broken down, and presented as a percentage of relevant
revenue, as follows:
Six months ended 30 June (Unaudited)
2023 2022
£m % of revenue £m % of revenue
Clinical staff 144.9 21.4% 135.4 22.6%
Direct costs 157.5 23.3% 140.8 23.6%
Medical fees 59.9 8.9% 52.2 8.7%
Cost of sales 362.3 53.6% 328.4 54.9%
Gross profit 314.2 46.4% 269.5 45.1%
Other operating costs
Excluding Adjusting items other operating costs for the six months ended 30
June 2023 increased by £31.4m or 14.5% versus H1 22 to £247.5m. This
increase is mainly driven by annual salary increases and increased IT costs
related to the Groups digital initiatives. Adjusting Items included in
operating costs decreased by £3.6m versus H1 22 and relates mainly to ongoing
business reorganisation and restructuring costs.
Operating margin for the six months ended 30 June 2023 is 9.7% compared to
8.2% at H1 2022. Excluding adjusting items, operating margin is 10.0%, up from
9.1% at H1 2022.
Adjusted EBITDA
Adjusted EBITDA for the Group has increased by 11.4% in the period from
£105.8m to £117.9m for H1 2023. The increase primarily reflects increased
PMI and NHS revenue, and efficiency gains in the cost base.
Share-based payments
During the period, grants were made to Executive Directors and members of the
executive management team under the Company's Long Term Incentive Plan. For
the six months ended 30 June 2023, the charge to the income statement is
£1.5m (H1 2022: £1.3m), or £1.7m inclusive of National Insurance (H1 2022:
£1.5m).
Adjusting Items
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Business reorganisation and restructuring 1.6 3.3
Asset acquisitions, disposals, impairment and aborted project costs 0.4 1.9
Remediation of regulatory compliance or malpractice - 0.3
Hospital set up and closure costs - 0.1
Total costs 2.0 5.6
Income tax credit on Adjusting Items (0.5) (0.8)
Total post-tax Adjusting Items 1.5 4.8
Adjusting Items comprise those matters where the Directors believe the
financial effect should be adjusted for due to their nature or amount, in
order to provide a more comparable measure of the Group's underlying
performance.
During H2 2021, 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. As a
result of this initiative, costs of £1.6m have been incurred in the period.
This initiative will be implemented over several phases and to date costs of
£7.3m have been incurred. The initial phase of the initiative was completed
in 2022, the estimated time frame to overall completion being the end of 2024.
Asset acquisitions, disposals, impairment and aborted project costs mainly
comprise costs in respect of Doctors Clinic Group as costs are incurred to
integrate the Group into the Spire Group. 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.
Finance costs
Finance costs have decreased by £0.5m to £45.5m (H1 2022: £46.0m). Mainly
due to the accelerated amortised fees in the prior period as a result of the
refinancing of the senior finance facility offset by an increase in interest
on bank borrowings due to rising interest rates in the period.
Taxation
The taxation charge for the six months ended 30 June 2023 is £7.6m (H1 2022:
£3.6m). This consists of a £1.4m (H1 2022: £nil) release of a current tax
provision and a charge of £9.0m (H1 2022: £0.5m) for the current year
movement on deferred tax and £nil (H1 2022: £3.1m) adjustment in respect of
previous periods to deferred tax. The charge of £7.6m is a non-cash movement
and is caused by timing differences mainly due to the difference in the tax
base versus the accounting base for assets.
Profit after taxation
The profit after taxation for the six months ended 30 June 2023 was £12.7m
(H1 2022: loss £0.6m)
Non-GAAP financial measures
We have provided below financial information that has not been prepared in
accordance with IFRS. We use these non-GAAP financial measures internally in
analysing our financial results and believe they are useful to investors, as a
supplement to IFRS measures, in evaluating our ongoing operational
performance. We believe that the use of these non-GAAP financial measures
provides an additional tool for investors to use in evaluating ongoing
operating results and trends in comparing our financial results with other
companies in the industry, many of which present similar non-GAAP financial
measures to investors.
Non-GAAP financial measures should not be considered in isolation from, or as
a substitute for, financial information prepared in accordance with IFRS.
Investors are encouraged to review the reconciliation of these non-GAAP
financial measures to their most directly comparable IFRS financial measures
provided in the financial statements table in the press release.
The following information includes references to adjusted financial
information. This has been produced for illustrative purposes and does not
represent the Group's actual statutory earnings.
Adjusted EBITDA
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Operating profit 65.8 49.0
Remove effects of: 2.0
Adjusting items 5.6
Depreciation 50.1 51.2
Adjusted EBITDA 117.9 105.8
Adjusted EBIT
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Operating profit 65.8 49.0
Remove effects of: 2.0
Adjusting items 5.6
Adjusted EBIT 67.8 54.6
Adjusted profit after tax and adjusted earnings per share
Adjustments have been made to remove the impact of a number of non-recurring
items.
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Profit before tax 20.3 3.0
Remove effects of: 2.0 5.6
Adjusting items
Adjusted profit before tax 22.3 8.6
Taxation (8.1) (4.4)
Adjusted profit after tax 14.2 4.2
Adjusted profit after tax attributable to owners of the Parent 13.9 4.3
Weighted average number of ordinary shares in issue (No.) 403,771,475 401,391,262
Adjusted basic earnings per share (pence) 3.4 1.1
Adjusted Free Cash flow
Six months ended 30 June (Unaudited)
(£m) 2023 2022
Adjusted EBITDA 117.9 105.8
Less: Rental payments (47.4) (41.1)
Less: Cash flow for the purchase of property, plant and equipment (31.0) (44.1)
Less: Working capital movement (19.2) (10.5)
Add: Adjustments for non-recurring items 3.7 13.6
Adjusted Free Cash Flow (FCF) 24.0 23.7
Cash flow analysis for the period
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Opening cash balance 74.2 202.6
Adjusted operating cash flows 99.5 95.8
Adjusting items (2.9) (4.3)
Income tax received - -
Operating cash flows 96.6 91.5
Net cash in investing activities (33.3) (44.0)
Net cash in financing activities (61.8) (154.3)
Closing cash balance 75.7 95.8
Operating cash flows before adjusting items
The cash inflow from operating activities was £96.6m. After adjusting for
cash from Adjusting Items, the Adjusted operating cash flows were £99.5m,
which constitutes a cash conversion rate from £117.9m Adjusted EBITDA of
84.4% (H1 2022: 90.5% conversion of £105.8m Adjusted EBITDA). The net cash
outflow from movements in working capital in the period was £19.2m (H1 2022:
£10.5m outflow).
Investing and financing cash flows
Net cash used in investing activities for the period was £33.3m (H1 2022:
£44.0m). Cash outflow for the purchase of Plant, Property and Equipment in
the period totalled £31.0m (H1 2022: £44.1m), which included investment in
MRI and CT's, refurbishment of the Bristol pathology lab and other
building-related works.
Net cash used in financing activities for the period was £61.8m (H1 2022:
£154.3m). Cash outflows include £3.1m for the buyback of shares to settle
share awards, a final dividend payment of £2.0m, lease and bank interest paid
of £45.6m (H1 2022: £47.1m) and £11.1m (H1 2022: £7.3m) of lease principal
payments.
Borrowings
At 30 June 2023, the Group has bank borrowings of £324.2m (December 2022:
£324.3m), drawn under facilities which are due to mature in February 2027.
As at
(£ million) 30 June 2023 (Unaudited) 31 December 2022 (Audited)
Cash 75.7 74.2
Bank borrowings 324.2 324.3
Bank borrowings less cash and cash equivalents 248.5 250.1
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 30 June 2023 the leverage
measure stood at 2.1x and interest cover of 7.4x
As at 30 June 2023, lease liabilities were £864.6m (December 2022: £866.5m).
Refer to note 17 for more detail.
Dividend
The Board will not be proposing an interim dividend. A final dividend for the
year ended 31 December 2022 of 0.5 pence was declared and £2m was paid to
shareholders on 21 June 2023.
Related party transactions
Other than as disclosed in Note 22 there were no significant related party
transactions during the period under review.
Principal Risks
In our 2022 Annual Report and Accounts we set out our principal risks. They
remain materially unchanged since then, details of which can be found on pages
66 to 76 of the 2022 Annual Report and Accounts. One principal risk reported
in 2022 is no longer considered a principal risk by the Board, that being the
risk from a further outbreak of Covid-19. The Board has also renamed its
macroeconomic principal risk to "Inflation and Wage inflation" to highlight
the specific economic risk to the business. The risks below are the principal
risks and uncertainties remaining for the last six months of the year. Below,
we set out our principal risks with their material mitigations.
Workforce We seek to retain staff 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% increase for most staff, and extra to
bring all staff up to the living wage.
· Offering greater flexibility in employee's roles, including
encouraging them to move to our bank if they are to leaving permanent
employment.
· Responding to key employee metrics, for example providing a
network of trainer mental health first aiders.
· Continuous investment in our equipment, facilities, and services
to retain high-quality clinicians.
We seek to recruit staff through:
· A centralised recruitment processes
· An overseas recruitment capability to secure skilled healthcare
workers from outside the EU where necessary.
· Offering apprenticeship programmes to support the development of
clinical and non-clinical teams across the business.
· Building of local bank staff pools
The Group manages immediate staff shortages using agency and bank workers.
Inflation and wage inflation The COVID-19 pandemic has left high levels of pent-up demand for our services
that is expected to remain for some years.
The ability for patients to access private care does not appear to be
constrained financially at this time. We understand that private medical
insurance policy renewals and sales remain stable, and we have seen strong
growth in 2022-23 while waiting lists remain at record levels.
In response to macro inflationary pressure, we will continue to benefit from a
range of inflation mechanisms built into the PMI contracts and will benefit
from our ability to change Self Pay pricing quickly via our new pricing
engine. Our conversion rate from Out-patient appointment to In-patient
procedure remains stable. Procurement maintains a constant review of pricing
and seeks opportunities to mitigate inflationary increases.
In addition, we continue to respond to changing economic circumstances by
optimising our private and NHS funded work ensuring we are not over reliant on
one income source, supported by an efficient cost base.
We have responded to wage inflation by announcing to our staff early in 2023
that the 2023 general pay rise will be 5% for most staff, and more for those
near minimum wage.
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 on 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 e.g.,15 years. Further
mitigation measures include extreme weather warning protocol and Business
Continuity Plans to provide emergency loan HVAC plant.
Energy price risk mitigation includes energy efficiency measures to reduce
consumption and our Energy Hedging strategy which has seen all our current
energy requirements secured until October 2024.
Competitor challenge We maintain a watching brief on new and existing competitor activity and
retains the ability to react quickly to changes in patient and market demand.
We consider that a partial mitigation of the impact of competitor activity is
ensured by providing patients with high-quality clinical care and by
maintaining good working relationships with GP's and consultants.
We continue to invest in the brand and deliver an effective acquisition
capability both direct and via our partners in order to protect our market
position. We have also strengthened our pricing and tendering capabilities.
Despite the COVID-19 pandemic, we have maintained investment into the estate
and clinical equipment to differentiate our proposition.
We monitor the market for opportunities, should they arise, to acquire or open
facilities in specific geographies creating incremental volume.
Information governance & security We have a governance structure, with Board oversight, that monitors the risk
and mitigations for Data Governance and Cyber Security. To support the
governance structure, we have a range of policies and practices, and mandatory
staff training covering Data Governance 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
Brand reputation Our primary mitigations against damage to our brand reputation is through the
good management of its principal risks, in particular:
· Patient safety and clinical quality;
· Cyber security and data protection; and,
· 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.
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 eight weeks supply, medicines and prostheses are 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. Because of the Group's Brexit
planning, the Group does 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.
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.
Through the COVID-19 pandemic, we have strengthened our relationships with the
government via DHSC, NHS England and NHS Improvement. Meanwhile hospitals have
also strengthened their relationships with the local NHS commissioners. The
Integrated Care Systems (ICS's) 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
ICS's.
Our CEO, Justin Ash, was a member of the HM Government's working party on
reducing waiting lists.
Pandemic from new pathogen We:
· maintain awareness of early warnings of potential pandemics from
organisations like the WHO, Dept of Health, NHSE.
· have a developed Emergency Response Plan in line with the NHS and
our experience of managing the COVID-19 pandemic.
Diversification and disintermediation We have:
· An Innovation Board bringing together the CEO and Executive
Committee members of the medical, clinical, commercial and finance functions
to identify healthcare trends and opportunities to develop new services.
· A dedicated Director of Innovation and Proposition Development
sourcing specific opportunities to support the Group strategy, leading on
development, supported with dedicated IT and project resource.
· A Dedicated Director sourcing suitable target acquisitions
supported by an expert external financial and tax adviser.
· A Property Lead to handle the assessment and acquisition of new
physical assets with the support of retained property advisors.
Patient safety and clinical quality We maintain the following controls to mitigate against a failure of patient
safety and clinical quality:
· A reporting culture of openness and shared learning from Ward to
Board, with a FTSUG at each site
· Timely Incident reporting via a database with central oversight
and development of actions to ensure learning.
· Continually monitoring clinical standards, reporting progress via
the Board's Clinical Governance and Safety Committee ('CGSC').
· Quality and safety reporting based on a Quality Assurance
Framework with a standard set of KPI's.
· 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).
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 ensure we have long-term contracts in place with our PMI partners that
avoids co-termination of contractual arrangements.
We believe continuing to invest in our well-placed portfolio of hospitals
provides a natural fit to the local requirements of all the PMI provider's
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.
Major infrastructure failure All our hospitals have a backup power source provided from diesel powered
generators that operates major circuits of an hospital, but some key equipment
is not covered, e.g., MRI scanners. Battery powered uninterrupted power is
provided into specific equipment in theatres to ensure patients remain safe in
the event of a generator failure. These backup power sources are designed to
keep patients in the hospital safe but are not a complete substitute for mains
power.
Our national distribution fleet refuel daily at the end of their shifts to
ensure resilient operational capability.
In theory, NHS hospitals will still have to take emergency transfers so Trusts
should not withdraw SLAs but there may be increased frequency of delays to
emergency transfers. Mitigation plans are in place and rehearsed at hospitals
as delays have been experienced occasionally because of the periodically
overstretched ambulance service across the UK. The COO chairs a regular
multi-disciplinary winter planning meeting to co-ordinate response activities
to any infrastructure failures.
Antimicrobial resistance Our mitigations are:
· Executive level awareness of the Government's 5-year AMR strategy
· Participation in, and collaboration with, Government's monitoring
of AMR outbreaks
· Require clinicians to following guidance in line with national
guidelines on the prescribing of antibiotics in line with Government
guidelines.
· Access to up-to-date antimicrobial prescribing via online systems
and access to microbiologists at all sites
· Appropriate investigations of post-surgery infections including
review of antibiotics.
Directors' responsibility statement
Going Concern
The Group assessed going concern risk for the period through to 31 December
2024. As at 30 June 2023 the Group had cash of £75.7m, a Senior Loan Facility
of £325m and an undrawn Revolving Credit Facility of £100m. On 3rd March
2023, the Group exercised the option to extend the senior loan facility by a
further year, the arrangement matures in February 2027. 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 31
December 2024, together with their assessment of the planned mitigating
actions being successful, the Directors have concluded it is appropriate to
prepare the accounts on a going concern basis. In arriving at their
conclusion, the Directors have also noted that, were these risks to arise in
combination, it could result in a liquidity constraint or breach of covenant,
however, the risk of this is considered remote.
The Group has also assessed, as part of its reverse stress testing, what
degree of downturn in trading it could sustain before it no longer forecasts a
positive cash balance. This stress testing was based on flexing revenue
downwards with a consistent percentage decline in variable costs, whilst
maintaining the forecast of fixed costs. The testing did not allow for the
benefit of any action that could be taken by management to preserve cash. This
testing suggested that there would have to be at least a 44% fall in annual
revenue before the Group no longer forecast a positive cash balance. We do not
believe that such a reduction of income revenue is a plausible consequence of
the Group's identified principal risks.
It should be noted that we are in a period of 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.
Each of the Directors confirms that, to the best of their knowledge:
· This condensed consolidated interim financial information for the
six months ended 30 June 2023 has been prepared in accordance with UK adopted
International Accounting Standard 34 and Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the Company on a consolidated basis.
· The interim management report, which is incorporated into the
Chief -Executive Officer message, Operating Review and Financial Review,
includes a fair review of the information as required by:
· DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of the important events that have occurred during the six
months of the current financial year and their impact on the condensed
consolidated interim financial information and a description of the principal
risks for the remaining six months of the year; and
· DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first six months
of the current financial year and that have materially impacted the financial
position or performance of the Group during the period and any material
changes in the related party transactions described in the Group's Annual
Report and Accounts for the year ended 31 December 2022.
By order of the Board
Justin Ash
Jitesh Sodha
Chief Executive Officer Chief
Financial Officer
13 September 2023
Independent review report of Spire Healthcare Group plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the Consolidated interim income statement,
Consolidated interim statement of comprehensive income, Consolidated interim
statement of changes in equity, Consolidated interim balance sheet,
Consolidated interim statement of cash flows and related notes 1 to 24. We
have read the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 3, the annual financial statements of the Group are
prepared in accordance with UK adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London, UK
13 September 2023
Condensed financial statements
Consolidated interim income statement
For the six months ended 30 June 2023
Six months ended 30 June (Unaudited)
2023 2022
(£ million) Note Total before adjusting Adjusting Total Total before adjusting items Adjusting Total
items
items
items
(note 10) (note 10)
Revenue 6 676.5 - 676.5 597.9 - 597.9
Cost of sales (362.3) - (362.3) (328.4) - (328.4)
Gross profit 314.2 - 314.2 269.5 - 269.5
Other operating costs (247.5) (2.0) (249.5) (216.1) (5.6) (221.7)
Other income 8 1.1 - 1.1 1.2 - 1.2
Operating profit (EBIT) 67.8 (2.0) 65.8 54.6 (5.6) 49.0
Finance costs 9 (45.5) - (45.5) (46.0) - (46.0)
Profit before taxation 22.3 (2.0) 20.3 8.6 (5.6) 3.0
Taxation 11 (8.1) 0.5 (7.6) (4.4) 0.8 (3.6)
Profit / (loss) for the period 14.2 (1.5) 12.7 4.2 (4.8) (0.6)
Profit / (loss) for the period attributable 13.9 (1.5) 12.4 4.3 (4.8) (0.5)
to owners of the Parent
Profit / (loss) for the period attributable 0.3 - 0.3 (0.1) - (0.1)
to non-controlling interests
Profit / (loss) per share (in pence per share)
- basic 12 3.4 (0.3) 3.1 1.1 (1.2) (0.1)
- diluted 12 3.4 (0.4) 3.0 1.0 (1.1) (0.1)
Consolidated interim statement of comprehensive income
For the six months ended 30 June 2023
Six months to 30 June (Unaudited)
(£ million) 2023 2022
Profit for the period 12.7 (0.6)
Items that may be reclassified to profit or loss in subsequent
periods
Net gain on cash flow hedges (net of taxation) 3.4 0.6
Other comprehensive income for the period 3.4 0.6
Total comprehensive profit for the year, net of tax 16.1 -
Attributable to:
Equity holders of the parent 15.8 0.1
Non-controlling interests 0.3 (0.1)
Consolidated interim statement of changes in equity
For the six months ended 30 June 2023
(£ million) Notes Share capital Share premium Capital reserves EBT share reserves Retained earnings Total Non-controlling interests Total equity
Hedging reserve
As at 1 January 2022 4.0 826.9 376.1 (0.8) (0.5) (496.1) 709.6 (4.8) 704.8
Loss for the period - - - - - (0.5) (0.5) (0.1) (0.6)
Other comprehensive profit for the period - - - 0.6 - 0.6 0.0 0.6
Total comprehensive loss - - - - 0.6 (0.5) 0.1 (0.1) -
Issue of new shares - 2.8 - - - - 2.8 - 2.8
Purchase of non-controlling interests 22 - - - - - (0.5) (0.5) 0.5 -
Share-based payments (net of tax) 21 - - - - - 1.1 1.1 - 1.1
As at 30 June 2022 4.0 829.7 376.1 (0.8) 0.1 (496.0) 713.1 (4.4) 708.7
As at 1 January 2023 4.0 830.0 376.1 - 6.6 (485.7) 731.0 (5.9) 725.1
Profit for the period - - - - - 12.4 12.4 0.3 12.7
Other comprehensive profit for the period - - - - 3.4 - 3.4 - 3.4
Total comprehensive income - - - - 3.4 12.4 15.8 0.3 16.1
Dividends paid 13 - - - - - (2.0) (2.0) - (2.0)
Purchase of own shares by EBT - - - (3.1) - - (3.1) - (3.1)
Issue of own shares by EBT - - - 2.0 - (2.0) - - -
Additional interest acquired of non-controlling interests 22 - - - - - (3.2) (3.2) 3.2 -
Financial liability to acquire non-controlling interests 24 - - - - - (9.6) (9.6) - (9.6)
Share based payments (net of tax) 21 - - - - - 0.6 0.6 - 0.6
As at 30 June 2023 4.0 830.0 376.1 (1.1) 10.0 (489.5) 729.5 (2.4) 727.1
Consolidated interim balance sheet
As at
(£ million) Notes 30 June 2023 31 December 2022 (Audited)
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment 14 1,573.5 1,584.4
Intangible assets 15 345.8 345.8
Derivatives 18 6.8 5.0
Financial asset 7.8 4.6
1,933.9 1,939.8
Current assets
Inventories 42.4 40.6
Trade and other receivables 122.0 100.5
Derivatives 18 6.6 3.6
Cash and cash equivalents 75.7 74.2
246.7 218.9
Non-current assets held for sale 5 1.1 1.1
247.8 220.0
Total assets 2,181.7 2,159.8
EQUITY AND LIABILITIES
Equity
Share capital 4.0 4.0
Share premium 830.0 830.0
Capital reserves 376.1 376.1
EBT share reserves (1.1) -
Hedging reserve 10.0 6.6
Retained earnings (489.5) (485.7)
Equity attributable to owners of the Parent 729.5 731.0
Non-controlling interests (2.4) (5.9)
Total equity 727.1 725.1
Non-current liabilities
Bank borrowings 16 321.1 321.4
Lease liability 17 770.7 773.7
Deferred tax liability 67.4 56.2
Financial liabilities 24 9.6 -
1,168.8 1,151.3
Current liabilities
Bank borrowings 16 3.1 2.9
Lease liability 17 93.9 92.8
Provisions 19 17.2 21.7
Trade and other payables 20 171.4 164.5
Income tax payable 0.2 1.5
285.8 283.4
Total liabilities 1,454.6 1,434.7
Total equity and liabilities 2,181.7 2,159.8
Consolidated interim statement of cash flows
For the six months ended 30 June 2023
Six months ended 30 June (Unaudited)
(£ million) Notes 2023 2022
Cash flows from operating activities
Profit before taxation 20.3 3.0
Adjustments for:
Depreciation 7 50.1 51.2
Adjusting Items (0.9) 1.3
Share-based payments 21 1.5 1.3
Fair value movement on financial assets (0.7) (0.9)
(Profit) / Loss on disposal of property, plant and equipment 7 - 0.1
Finance costs 9 45.5 46.0
115.8 102.0
Movements in working capital:
(Increase) in trade and other receivables (20.7) (18.1)
(Increase)/Decrease in inventories (1.8) 1.1
Increase in trade and other payables 7.8 23.7
(Decrease) in provisions (4.5) (17.2)
Cash generated from operations 96.6 91.5
Income tax received - -
Net cash from operating activities 96.6 91.5
Cash flows from investing activities
Purchase of property, plant and equipment (31.0) (44.1)
Proceeds of disposal of property, plant and equipment 0.2 0.1
Movement in restricted cash (2.5) -
Net cash used in investing activities (33.3) (44.0)
Cash flows from financing activities
Bank interest paid (9.3) (13.3)
Lease interest paid (36.3) (33.8)
Payment of lease principal (11.1) (7.3)
Payment of bank borrowings - (100.0)
Purchase of non-controlling interests - (2.7)
Proceeds from the issue of shares - 2.8
Purchase of own shares (3.1) -
Dividends paid to equity holders of the parent 13 (2.0) -
Net cash used in financing activities (61.8) (154.3)
Net increase in cash and cash equivalents 1.5 (106.8)
Cash and cash equivalents at beginning of period 74.2 202.6
Cash and cash equivalents at end of period 75.7 95.8
Adjusting items (note 10)
Adjusting items included in the cash flow (2.9) (4.3)
Total Adjusting items (2.0) (5.6)
Notes to the 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 Company is a public limited company, listed on the London Stock Exchange
and is incorporated, registered and domiciled in England and Wales (registered
number 09084066). The address of its registered office is 3 Dorset Rise,
London, EC4Y 8EN.
The condensed consolidated interim financial information for the six months
ended 30 June 2023 was approved by the Board on 13 September 2023.
2. Basis of preparation
The condensed consolidated interim financial information has been prepared in
accordance with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority and with UK adopted International Accounting
Standard 34 "Interim Financial Reporting". It does not include all the
information required for full annual financial statements and should be read
in conjunction with information contained in the Group's Annual Report and
Accounts for the year ended 31 December 2022. The condensed consolidated
interim financial information has been reviewed, not audited.
The financial information contained in these interim statements do not
comprise statutory accounts within the meaning of section 434 of the Companies
Act 2006. Financial information for the year ended 31 December 2022 has been
extracted from the statutory accounts which were approved by the Board of
Directors on 1 March 2023 and delivered to the Registrar of Companies. The
report of the auditor on those accounts was unqualified, did not draw
attention to any matters by way of emphasis and did not contain statements
under section 498 (2) or (3) of the Companies Act 2006.
Going concern
The Group assessed going concern risk for the period through to 31 December
2024. As at 30 June 2023 the Group had cash of £75.7m, a Senior Loan Facility
of £325m and an undrawn Revolving Credit Facility of £100m. On 3rd March
2023, the Group exercised the option to extend the senior loan facility by a
further year, the arrangement matures in February 2027. 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 31
December 2024, together with their assessment of the planned mitigating
actions being successful, the Directors have concluded it is appropriate to
prepare the accounts on a going concern basis. In arriving at their
conclusion, the Directors have also noted that, were these risks to arise in
combination, it could result in a liquidity constraint or breach of covenant,
however, the risk of this is considered remote.
The Group has also assessed, as part of its reverse stress testing, what
degree of downturn in trading it could sustain before it no longer forecasts a
positive cash balance. This stress testing was based on flexing revenue
downwards with a consistent percentage decline in variable costs, whilst
maintaining the forecast of fixed costs. The testing did not allow for the
benefit of any action that could be taken by management to preserve cash. This
testing suggested that there would have to be at least a 44% fall in annual
revenue before the Group no longer forecast a positive cash balance. We do not
believe that such a reduction of income revenue is a plausible consequence of
the Group's identified principal risks.
It should be noted that we are in a period of unprecedented geo-political and
macro-economic uncertainty. Whilst the Directors continue to closely monitor
these risks and their plausible impact, their severity is hard to predict and
is dependent upon many external factors. Accordingly the actual financial
impact of these risks may materially vary against the current view of their
plausible impact.
3. Accounting policies
In preparing the condensed consolidated financial information, the same
accounting policies, methods of computation and presentation have been applied
as set out in the Group's Annual Report and Accounts for the year ended 31
December 2022 except for the application of new standards and amendments
mentioned below effective from 1 January 2023. The accounting policies are
consistent with those of the previous financial year and corresponding interim
period.
The annual financial statements of the Group will be prepared in accordance
with UK adopted International Accounting Standards (UK adopted International
Financial Reporting Standards ("IFRSs")).
New standards, interpretations and amendments applied
The Group has not early adopted any standard, interpretation or amendment that
was issued but is not yet effective, nor are they expected to have a material
impact on the Group.
The following amendments to existing standards were effective for the Group
from 1 January 2023. These have not had a material impact on the Group.
· Amendments to IAS 8 - Definition of accounting estimates
effective 1 January 2023
· International Tax Reform - Pillar Two Model Rules - Amendments to
IAS 12 effective 1 January 2023 but not required for interim periods ending on
or before 31 December 2023.
· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2 effective 1 January 2023
· Amendments to IAS 12 - Deferred tax related to assets and
liabilities arising from a single transaction effective 1 January 2023
· IFRS 17 - Insurance contracts effective 1 January 2023
4. Significant judgements and estimates
The preparation of the condensed consolidated interim financial information
required management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amount of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
The significant judgements and estimates used in the application of the
Group's accounting policies are the same as those described in the Group's
Annual Report and Accounts for the year ended 31 December 2022 with the
exception of those estimates used in the assessment of the medical malpractice
provision in connection with the Ian Paterson claims which are subject to
ongoing review.
5. Non-current assets held for sale
One property remains as held for sale in the current period.
As at
(£ million) 30 June 2023 (Unaudited) 31 December 2022 (Audited)
East Midlands Cancer Centre property (Bostocks Lane) 1.1 1.1
Total assets held for sale 1.1 1.1
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 classified as held for sale.
6. Segmental reporting
In determining the Group's operating segment, management has primarily
considered the financial information in the internal reports that are reviewed
and used by the executive management team and the Board of Directors (in
aggregate the chief operating decision maker) 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 wider customer (payor) group is shown below:
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Insured 306.6 265.2
NHS 170.5 145.6
Self-pay 178.4 174.1
Other 21.0 13.0
Total revenue 676.5 597.9
Group revenues increased by 13.1% to £676.5m (2022: £597.9m). The increase
in revenue is mainly driven by the strong performance of our private business
and in particular the recovery by PMI patients, which increased by 15.6%.
Total NHS revenue increased by 17.1% to £170.5m (2022: £145.6). Revenue of
£6.7m included in other relates to revenue generated by the Doctors Clinic
Group which was acquired in December 2022.
7. Operating profit
Operating profit has been arrived at after charging / (crediting):
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Depreciation of property, plant and equipment 32.5 34.6
Depreciation of right of use assets 17.6 16.6
Lease payments made in respect of low value and short leases 8.8 6.7
Fair value loss on financial liability - 0.8
Profit on disposal of property, plant and equipment - 0.1
Staff costs 257.7 233.9
8. Other income
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Fair value movement on financial asset 0.7 0.9
Realised profit in respect of financial asset 0.4 0.3
Total other income 1.1 1.2
The fair value movement in respect of the financial asset was recognised to
reflect the on-going profit share arrangement with Genesis Care which arose as
part of the sale of the Bristol Cancer Centre in 2019. Profits of £0.4m have
been realised in respect of this arrangement.
9. Finance costs
Six months ended 30 June (Unaudited)
6(£ million) 2023 2022
Finance costs:
Interest on bank facilities 8.7 4.8
Amortisation of fee arising on facilities extensions/borrowing costs ((1)) 0.5 0.6
Accelerated amortisation and loss on extinguishment of loan((1)) - 3.1
Refinancing fees - 1.0
Interest on obligations under leases 36.3 36.5
Total net finance costs 45.5 46.0
(1. Borrowing costs of £5.0m on the refinancing of the senior facility and
£0.9m on the extension of the facility were capitalised to the senior finance
facility, these are being amortised. In the prior year £3.1m of borrowing
costs were charged to the profit and loss on the extinguishment of the old
loan.)
10. Adjusting items
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Business reorganisation and corporate restructuring costs 1.6 3.3
Asset acquisitions, disposals, impairment and aborted project costs 0.4 1.9
Remediation of regulatory compliance or malpractice - 0.3
Hospitals set up and closure costs - 0.1
Total Adjusting items 2.0 5.6
Income tax charge / (credit) on Adjusting items (0.5) (0.8)
Total post-tax Adjusting items 1.5 4.8
Adjusting items comprise those matters where the Directors believe the
financial effect should be adjusted for due to their nature or amount, in
order to provide a more comparable measure of the Group's underlying
performance.
During H2 21, the Group announced a strategic, group wide initiative that
impacts the operating model of the Group to allow a more efficient governance
and reporting structure, as well as a drive on digital functionality. As a
result of this initiative, additional costs of £1.6m have been incurred in
the period. This initiative will be implemented over several phases and to
date costs of £7.3m have been incurred. The initial phase of the initiative
was completed in 2022, the estimated time frame to overall completion being
the end of 2024.
Asset acquisitions, disposals, impairment and aborted project costs mainly
comprise costs in respect of Doctors Clinic Group as costs are incurred to
integrate the Group into the Spire Group. 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.
11. Taxation
Six months ended 30 June (Unaudited)
(£ million) 2023 2022
Current tax:
UK Corporation tax credit (1.4) -
Total current tax credit (1.4) -
Deferred tax:
Origination and reversal of temporary differences 9.5 0.5
Impact of adjusting items (0.5) -
Adjustments in respect of previous periods - 3.1
Total deferred tax charge 9.0 3.6
Total tax charge 7.6 3.6
The tax charge for the period has been calculated using an estimate of the
effective annual rate of tax for the full year. This has been applied to the
pre-tax profits for the six months ended 30 June 2023. The Group has
separately calculated the tax rates applicable in respect of discrete items,
such as the vesting of the SAYE scheme and release of the Claremont tax
provisions, for the period.
During the period, the UK government substantively enactment of the
Organisation for Economic Co-operation and Development's Global Anti-Base
Erosion Model Rules (Pillar Two), applicable to accounting periods beginning
on or after 31 December 2023. For H1 2023 the Group has adopted the
International Accounting Standards Board's temporary exemption from recording
deferred taxes for Pillar Two. The Group expects to fall within the UK scope
of these rules (Qualifying Domestic Minimum Top Up Tax) and at this stage is
in the process of assessing the impact and are actively monitoring the
development of the rules and associated guidance.
12. Earnings per Share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary
shares outstanding during the period.
Six months ended 30 June (Unaudited)
2023 2022
Profit / (loss) for the period attributable to owners of the Parent (£ 12.4 (0.5)
million)
Weighted average number of ordinary shares 404,042,101 401,519,952
Adjustment for weighted average number of shares held in the Employee Benefit (270,626) (128,690)
Trust (EBT)
Weighted average number of ordinary shares in issue (No.) 403,771,475 401,391,262
Basic profit / (loss) per share (in pence per share) 3.1 (0.1)
For dilutive earnings per share, the weighted average number of ordinary
shares in issue is adjusted to include all dilutive potential ordinary shares
arising from share options.
Six months ended 30 June (Unaudited)
2023 2022
Profit / (loss) for the period attributable to owners of the Parent (£ 12.4 (0.5)
million)
Weighted average number of ordinary shares in issue 403,771,475 401,391,262
Adjustment for weighted average number of contingently issuable shares 5,837,070 -
Diluted weighted average number of ordinary shares in issue (No.) 409,608,545 401,391,262
Diluted profit / (loss) per share (in pence per share) 3.0 (0.1)
In H1 2022 the weighted average number for contingently issuable shares would
be anti-dilutive, they are excluded from the above. However, 8,304,963 shares
are potentially dilutive in the future.
The Directors believe that EPS excluding adjusting items ("adjusted EPS")
better reflects the underlying performance of the business and assists in
providing comparable performance of the Group.
Reconciliation of profit to profit excluding adjusting items ("adjusted
profit"):
Six months ended 30 June (Unaudited)
2023 2022
Profit / (loss) for the period attributable to owners of the Parent (£ 12.4 (0.5)
million)
Adjusting items (net of taxation) (see note 10) 1.5 4.8
Adjusted profit after tax (£ million) 13.9 4.3
Weighted average number of Ordinary Shares in issue 403,771,475 401,391,262
Weighted average number of dilutive Ordinary Shares 409,608,545 409,696,225
Adjusted basic earnings per share (in pence per share) 3.4 1.1
Adjusted diluted earnings per share (in pence per share) 3.4 1.0
13. Dividends
Six months ended 30 June (Unaudited)
2023 2022 2023 2022
Amounts recognised as distributions to equity shareholders Pence per share Pence per share £million £million
Ordinary shares
Final dividend for the year ended 31 December 2022 0.5 - 2.0 -
Total dividends 0.5 - 2.0 -
14. Property, plant and equipment
(£ million) Freehold property Leasehold improvements Equipment Assets in the course of construction Sub-total Right of use asset Total
Net book value at 1 January 2023 652.0 120.3 163.5 30.2 966.0 618.4 1,584.4
Additions 3.2 3.8 19.9 4.1 31.0 5.1 36.1
Adjustments to ROU - - - - - 3.3 3.3
Disposals and transfers 2.9 13.1 (0.5) (15.7) (0.2) - (0.2)
Depreciation (6.1) (4.8) (21.6) - (32.5) (17.6) (50.1)
Net book value at 30 June 2023 652.0 132.4 161.3 18.6 964.3 609.2 1,573.5
The net book value of land is £156.3m (December 2022: £156.3m). The Group
has pledged nine of its freehold properties as security for the senior finance
facility, and the net book value of these properties is £160.9 (December
2022: £157.6m). There were no borrowing costs capitalised during the period
(2022: Nil).
Right of use assets are included in the following property, plant and
equipment categories:
(£ million) Leasehold Property Equipment & motor vehicles Total
Net book value at 1 January 2023 601.8 16.6 618.4
Additions 0.5 4.6 5.1
Adjustments to ROU 3.3 - 3.3
Depreciation (15.3) (2.3) (17.6)
Net book value at 30 June 2023 590.3 18.9 609.2
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 on key assumptions.
In order to estimate the value-in-use, management has used trading projections
covering the period to December 2027 from the most recent board approved
strategic plan. The variables in the cash flows are interdependent and
reflect management's expectations based on past experience and current market
trends, taking 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 considers 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 four and a half 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 is one property triggered for detailed review in the period owing to the
relatively lower level of headroom. Management has performed a sensitivity
analysis on this property 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 four and a half year period underlying the
value in use reflect a growth in EBITDA. EBITDA is based on a number of
elements of the operating model over the longer-term, including pricing
trends, volume growth and the mix and complexity of procedures and assumptions
regarding cost inflation. The sensitivity analysis identified that a
reasonably possible change that would result the elimination of headroom for
the property as shown in the table below.
The Group has used a pre-tax discount rate of 11.1% including the effect of
IFRS 16. The sensitivity analysis identified that a reasonably possible change
in the pre-tax discount rate, would result in the elimination of headroom as
shown in the table below.
For the property triggered for review 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.
Headroom (the amount that recoverable amount exceeded the carrying amount) EBITDA growth for the four and half year period Sensitivity for decrease of EBITDA growth per annum Sensitivity for increase of the pre-tax discount rate sensitivity
Property CGU 1 £2.5m 2% - 20.5% 15.2% 374 bps
A long-term growth rate of 2.0% has been applied to cash flows beyond 2027
based on long term view of inflation, revenue growth and market conditions.
Capital maintenance spend is based on historic run rates and our expectations
of the Group's requirements. The sensitivity testing identified no reasonably
possible changes in the capital maintenance and long-term growth rates that
would cause the carrying amount of any CGU to exceed its recoverable amount.
As a result, management believe that some of the key impairment review
assumptions constitute a major source of estimation uncertainty as they
consider that there is a significant risk of a material change to its estimate
of these assumptions within the next 12 months.
15. Intangible asset
(£ million) Total
Cost or valuation:
At 31 December 2022 & 30 June 2023 546.8
Impairment:
At 31 December 2022 & 30 June 2023 201.0
Carrying amount:
At 30 June 2023 345.8
At 31 December 2022 345.8
Impairment testing
The Directors have reviewed goodwill for indicators of significant impairment
since the most recent financial year end. As at 31 December 2022 the
recoverable amount of goodwill exceeded the carrying amount by c. £400m.
Since the 2022 financial year end there have been no indicators of impairment
and therefore management have not performed a detailed impairment calculation
for the interim period.
16. Bank Borrowings
The bank loans are secured on fixed and floating charges over both the present
and future assets of material subsidiaries of the Group. On 24 February
2022, the Group successfully refinanced its debt facilities with a syndicate
of existing and new Lenders. As part of the exercise and in recognition of
the fact that the Group had substantial cash reserves at 31 December 2021, the
Group repaid £100.0m of the Senior Loan Facility. During the period, the
Group exercised the option to extend the facility by a further year. There
have been no modifications to the agreement terms as a result. The new
arrangement has a maturity of February 2027. The financial covenants relating
to this new agreement and the extension are materially unchanged. The loan is
non-amortising and carries interest at a margin of 2.05% over SONIA (2022:
2.05% over SONIA).
As at
(£ million) 30 June 2023 (Unaudited) 31 December 2022 (Audited)
Amount due for settlement within 12 months 3.1 2.9
Amount due for settlement after 12 months 321.1 321.4
Total bank borrowings 324.2 324.3
Net debt for the purposes of the covenant test in respect of the Senior Loan
Facility was £249.3m (December 2022: £250.1m) and the net debt to EBITDA
ratio was 2.1x (December 2022: 2.2x). The net debt for covenant purposes
comprises the senior facility of £325.0m less cash and cash equivalents.
EBITDA for covenant purposes comprises Adjusted EBITDA for Last Twelve Months
(LTM) of pre-IFRS 16 Adjusted EBITDA of £130.3m (December 2022: £123.9m)
less the rental of a property lease pre-IFRS 16 of £9.8m (2022: £9.5m).
Terms and debt repayment schedule
The maturity date is the date on which the relevant bank loans are due to be
fully repaid, as at the balance sheet date.
The carrying amounts drawn (after issue costs and including interest accrued)
under facilities in place at the balance sheet date were as follows:
(£ million) Maturity Margin over SONIA 30 June 2023 (Unaudited) 31 December 2022 (Audited)
Senior finance facility February 2027 2.05% 324.2 324.3
Revolving credit facility (undrawn committed facility) February 2027 100.0 100.0
( )
Changes in bank borrowings and lease liabilities arising from financing
activities
(£ million) 1 January Cash flows Non-cash changes(1) 30 June
Additions(1) Other
2023
Bank loans 324.3 (9.3) 9.2 - - 324.2
Lease liabilities 866.5 (47.4) 36.3 8.4 0.8 864.6
Total 1,190.8 (56.7) 45.5 8.4 0.8 1,188.8
(1. Non-cash changes reflect accrued interest charged on the loan
and interest charge on lease liabilities. Amortised fees of £0.5m are
included in non-cash changes for bank loans.)
(£ million) 1 January Cash flows Non-cash changes Additions 30 June
Loan modification
2022
Bank loans 427.5 (113.4) 8.5 - 1.0 323.6
Lease liabilities 837.8 (41.1) 35.4 10.5 - 842.6
Total 1,265.3 (154.5) 43.9 10.5 1.0 1,166.2
17. Lease liability
The Group has finance arrangements in place 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 £864.6m
(H1 22: £842.6m), expire in various years to 2042 and carry a blended
implicit interest rate of 8.4% (2022: 8.4%). Rent in respect of hospital
property leases are reviewed annually with reference to RPI, subject to
assorted floors and caps. The discount rate used is calculated on a
lease-by-lease basis, and based on estimates of incremental borrowing rates.
In the period, the Group recognised charges of £8.8m (2022: £6.7m) of lease
expenses relating to short term and low value leases for which the exemption
under IFRS 16 has been taken. Cash outflows in respect of these are materially
in line with the expense recognised, resulting in a total cash outflow for all
leases of £56.2m (2022: £47.8m). The Group has not made any variable lease
payments in the year. The Group is not a lessor for any leases to external
parties. There have been no (2022: no) sale and leaseback transactions in this
period.
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 the current period.
18. Derivatives
The Group has a derivative contract in respect of an interest rate swap in
place:
As at
(£ million) 30 June 2023 (Unaudited) 31 December 2022 (Audited)
Amount due for settlement within 12 months 6.6 3.6
Amount due for settlement after 12 months 6.8 5.0
Total derivatives 13.4 8.6
The Group entered into interest rate swaps on 25 July 2022. The movement in
respect of derivatives reflects £1.5m (December 2022: £1.2m) recycled in the
period and a £6.3m credit (December 2022: £8.1m credit) in fair value. All
movements are reflected within other comprehensive income.
19. Provisions
The movement for the period in the provisions is as follows:
(£ million) Medical Business restructuring Total
malpractice
and other
At 1 January 2023 19.4 2.3 21.7
Increase in existing provisions 0.6 - 0.6
Provisions utilised (3.6) (1.0) (4.6)
Provisions released (0.5) - (0.5)
At 30 June 2023 15.9 1.3 17.2
Medical malpractice relates to estimated liabilities arising from claims for
damages in respect of services previously supplied to patients. Amounts are
shown gross of insured liabilities. Insurance recoveries of £4.9m (December
2022: £5.4m) are recognised in other receivables.
Following the completion of the criminal proceedings against Ian Paterson, a
Consultant who previously had practising privileges at Spire Healthcare,
management agreed settlement with all current and known civil claimants (and
the other co-defendants) and made a provision for the expected remaining costs
in FY20. The provision is being utilised as expected, and no addition has been
made in H1 2023. This provision remains subject to ongoing and active review
following the publication of the Public Inquiry report on Paterson issued on 4
February 2020. 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.
The provision in relation to the Ian Paterson costs has been determined before
taking account of any potential further recoveries from insurers.
As at 30 June 2023, Business Restructuring and Other provisions primarily
includes non-patient claims made against the Group. The Group is in the
process of settling or defending such claims as appropriate.
Management have sought external counsel, where appropriate, to determine the
appropriate provision levels.
Provisions as at 30 June 2023 are materially considered to be current and
expected to be utilised at any time within the next twelve months.
20. Trade and other payables
As at
(£ million) 30 June 2023 (Unaudited) 31 December 2022 (Audited)
Trade payables 66.1 67.2
Accrued expenses 60.7 58.4
Social security and other taxes 10.7 9.7
Other payables 33.9 29.2
Trade and other payables 171.4 164.5
Accrued expenses includes holiday pay accrued of £6.0m (December 2022:
£5.2m) due to staff deferring leave to maintain operations throughout the
COVID-19 pandemic.
Other payables includes an accrual for pensions and payments on account.
Revenue in respect of payments on account are not recognised until the
performance obligation has been met. At June 2023, the balance of payments on
account was £9.3m (December 2022: £11.9m), and other credit balances,
largely relating to NHS credits, were £21.4m (December 2022: £28.2m).
21. 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 recognised in the income statement was
£1.5m in the six months ended 30 June 2023 (2022: £1.3m). Employer's
National Insurance is also 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 period was £0.2m (2022: £0.2m).
A summary of additional schemes opened in the period are shown below:
Long Term Incentive Plan
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 2026 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 2034. The Executive Directors are subject to a 2 year holding
period, whilst other senior management are not.
Deferred Share Bonus Award
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.
22. Non-controlling interest
On 5 May 2023 Spire Healthcare Limited acquired an additional 24.9% interest
in Montefiore House Limited in consideration of the release and discharge of
outstanding liabilities. Prior to this agreement the Group held a 50.1%
interest. The Group now owns 75% of this entity. The accumulated interest
relating to the 24.9% interest acquired in Montefiore has therefore been
reclassified to retained earnings. In addition, the Group entered into an
agreement in which both parties can exercise an option for Spire to purchase
the remaining 25% interest in the subsidiary at a future date. Refer to Note
24 for more detail.
23. Financial risk management and impairment of financial assets
The Group has exposure to the following risks from its use of financial
instruments:
· credit risk;
· liquidity risk; and
· market risk.
Note 30 in the Annual Report and Accounts 2022 sets out the Group's policies
and processes for measuring and managing risk. These have not changed
significantly during the period to 30 June 2023.
Credit risk and impairment
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group's receivables from
customers and investment securities.
Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the individual
characteristics of each customer. The Group's exposure to credit risk from
trade receivables is considered to be low because of the nature of its
customers and policies in place to prevent credit risk occurring in normal
circumstances. A large proportion of revenue arise from insured patients'
business and the NHS. Insured revenues give rise to trade receivables which
are mainly due from large insurance institutions, which have high credit
worthiness. The remainder of revenues arise from individual self-pay patients
and Consultants. Individual self-pay patients continue to be the largest risk
for the Group given the current economic uncertainty. The Expected Credit Loss
("ECL") as at June 2023 is £5.2m (December 2022: £5.0m).
The Group establishes an allowance for impairment that represents its expected
credit loss in respect of trade and other receivables. This allowance is
composed of specific losses that relate to individual exposures and also an
expected credit loss component established using rates reflecting historic
information for payor groups, and forward looking information. Given the
continued economic uncertainty, the Group has considered the provision
required, specifically for self-pay patients and maintained an adjustment to
the provision accordingly, which is in line with the position at December
2022.
Investments
The Group limits its exposure to credit risk by only investing in short-term
money market deposits with large financial institutions, which must be rated
at least Investment Grade by key rating agencies.
Interest rate risk
Interest rates on variable rate loans are determined by SONIA fixings on a
quarterly basis. Interest is settled on all loans in line with agreements and
is settled at least annually.
Variable Total Undrawn facility
30 June 2023 (£ million) 325.0 325.0 100.0
Effective interest rate (%) 5.23% 5.23%
31 December 2022 (£ million) 325.0 325.0 100.0
Effective interest rate (%) 3.19% 3.19%
The following derivative contracts were in place at 30 June 2023 (December
2022: £8.6 million asset):
(£ million) Interest rate Maturity date Notional Amount Carrying value Asset / (Liability)
Interest rate swap 2.7780% February 2026 243.8m 13.4
The fair value of the above instrument is considered the same as its carrying
value. In line with disclosures in note 30 of the 2022 Annual report and
accounts, the above instrument uses level 2 of the fair value hierarchy to
measure the fair value of the instrument.
Sensitivity analysis
A change in 25 basis points in interest rates at the reporting date would have
increased/(decreased) equity and reported results by the amounts shown below.
This analysis assumes that all other variables remain constant.
Profit or loss Equity
(£ million) 25bp increase 25bp decrease 25bp increase 25bp decrease
30 June 2023
Variable rate instruments (0.3) 0.3 (0.3) 0.3
31 December 2022
Variable rate instruments (0.2) 0.2 (0.2) 0.2
Liquidity risk
The following are contractual maturities, as at the balance sheet date, of
financial liabilities, including interest payments and excluding the impact of
netting arrangements:
30 June 2023 Maturity analysis
(£ million) Carrying amount Contractual cash outflow/ (inflow) Within 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years More than 5
Trade and other payables 160.7 160.7 160.7 - - - - -
Bank borrowings 324.2 418.9 25.2 26.7 23.8 343.2 - -
Lease liabilities 864.6 1,784.8 93.9 94.0 94.2 92.6 92.9 1,317.2
Financial Liability 9.6 10.7 - 10.7 - - - -
1,359.1 2,375.1 279.8 131.4 118.0 435.8 92.9 1,317.2
Derivative interest rate swap (13.4) (15.0) (6.6) (5.2) (3.2) - - -
Total 1,345.7 2,360.1 273.2 126.2 114.8 435.8 92.9 1,317.2
Maturity analysis
31 December 2022
(£ million) Carrying amount Contractual cash flows Within 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years More than 5
Trade and other payables 154.8 154.8 154.8 - - - - -
Bank borrowings 324.3 394.4 20.2 22.1 20.5 331.6 - -
Lease liabilities 866.5 1,819.1 92.8 93.2 93.6 92.2 92.2 1,355.1
1,345.6 2,368.3 267.8 115.3 114.1 423.8 92.2 1,355.1
Derivative interest rate swap (8.6) (9.2) (2.9) (3.6) (2.1) (0.6) - -
Total 1,377.0 2,359.1 264.9 111.7 112.0 423.2 92.2 1,355.1
Capital management
At the balance sheet date, the Group's committed undrawn facilities, and cash
and cash equivalents were as follows:
As at
(£ million) 30 June 2023 (Unaudited) 31 December 2022 (Audited)
Committed undrawn revolving credit facility 100.0 100.0
Cash and cash equivalents 75.7 74.2
Capital commitments
Capital commitments comprise amounts payable under capital contracts which are
duly authorised and in progress at the balance sheet date. They include the
full costs 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 balance sheet date were £25.6m (December 2022:
£27.0m).
Bases of valuation
Management assessed that cash and short-term deposits, trade receivables,
trade payables and other current liabilities approximate their carrying
amounts largely due to the short-term maturities of these instruments. The
carrying value of debt is approximately equal to its fair value. During the
period, there were no transfers between the levels in the fair value
hierarchy.
A derivative is a financial instrument whose value is based on one or more
underlying variables. The Group uses derivative financial instruments to hedge
its exposure to interest rate risk. Derivatives are not held for speculative
reasons. Fair values are obtained from market observable pricing
information including interest rate yield curves and have been calculated as
follows; fair value of interest rate swaps is determined as the present value
of the estimated future cash flows based on observable yield curves.
The financial asset reflects a profit share arrangement with a partner. There
are no market observable prices for the valuation. Management uses the
expected present value technique - method 2 in determining the fair value of
the arrangement. Management uses forward looking and historical trends of the
partner's gross profits, growth rate, risk factors and an appropriate discount
rate to determine the fair value. Sensitivities are also taken into account
when reviewing the fair value.
As at 30 June 2023, the Group held the following financial instruments
measured at fair value. There has been no change in the hierarchy categories
during the period.
Instruments measured at fair value
(£ million)
Value as at 30 June 2023 Value as at 31 December 2022 Level 1 Level 2 Level 3
Financial assets at fair value through profit or loss
Profit share arrangement 5.3 4.6 - - 5.3
Financial liabilities at fair value through profit or loss and using hedge
accounting
Interest rate swaps 13.4 8.6 - 13.4 -
In the period, Spire Healthcare received a profit share in respect of the
financial asset of £0.4m. In addition a fair value movement of £0.7m was
recognised in the income statement, and remains unrealised. The movement on
the interest rates swaps related wholly to fair value movements and is
unrealised.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique.
- Level 1: quoted (unadjusted) prices in active markets for identical assets
or liabilities;
- Level 2: other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either directly or
indirectly, and
- Level 3: techniques which use the inputs which have a significant effect on
the recorded fair value that are not based on observable market data.
24. Financial liabilities
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
performance and the Group multiple. The option can be exercised between 2 - 5
years. The expected future cash flow to settle the obligation is discounted at
the Group cost of debt of 7.6%. 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 NCI 9.6 -
Carrying amount at 30 June 9.6 -
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