For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220908:nRSH6928Ya&default-theme=true
RNS Number : 6928Y Spire Healthcare Group PLC 08 September 2022
Spire Healthcare reports its results
for the six months ended 30 June 2022
London, UK, 8 September 2022, 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 2022 ('the period' or 'H1 22').
Continued strong demand for private treatment; revenues exceeding pre-pandemic
levels
Summary Group results for the six months ended 30 June 2022
Six months ended 30 June (Unaudited)
(£ million) 2022 2021 Variance 2022 v 2021 2019 Variance 2022 v 2019
Revenue 597.9 558.2 7.1% 491.6 21.6%
Adjusted operating profit (Adjusted EBIT) 54.6 48.5 12.6% 51.4 6.2%
Adjusting items (5.6) (2.3) NM((1)) (0.4) NM
Operating profit (EBIT) 49.0 46.2 6.1% 51.0 (3.9%)
Profit / (loss) before taxation 3.0 4.7 (36.2%) 9.6 (68.8%)
(Loss) /profit after taxation (0.6) (16.9) NM 7.1 NM
Basic (loss) / profit per share, pence (0.1) (4.2) NM 1.8 NM
Adjusted profit / (loss) per share, pence ((2)) 1.1 (3.6) NM 1.8 (38.9%)
Adjusted EBITDA (3) 105.8 96.0 10.2% 96.8 9.3%
Adjusted FCF ((4)) 23.7 1.6 NM 25.9 (8.5%)
Capital investments ((5)) 38.8 36.3 6.9% 19.7 97.0%
Net bank debt ((6)) 227.8 306.3 25.6% 362.2 37.1%
1. Not meaningful
2. Adjusted profit / (loss) per share is stated before the effects of
Adjusting Items.
3. Adjusted EBITDA is calculated as Operating Profit, adjusted to add back
depreciation, and Adjusting items, referred to hereafter as 'Adjusted EBITDA'.
For EBITDA for covenant purposes, refer to note 15.
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. Capital investments include right of use assets.
6. Net bank debt is defined as bank borrowings less cash and cash
equivalents.
Included in our interim results are comparatives for both the prior year 2021 and 2019. This is to allow meaningful comparison as the Group operated under a COVID-19 NHS contract from the start of Q2 2020 through to the end of Q1 2021. Comparatives are against H1 2021 unless otherwise stated. Additional information in respect of the Balance Sheet and cash flow for the two periods can be found on our website:
www.spirehealthcare.com/investorrelations (http://www.spirehealthcare.com/investorrelations)
.
Financial and operating highlights
Strong revenue and Adjusted EBITDA in H1 significantly higher than
pre-pandemic levels
· Revenue up 7.1% vs H1 21 (up 21.6% vs H1 19), driven by strong
demand for private treatment
· Adjusted EBITDA of £105.8m up 10.2% vs H1 21 (up 9.3% vs H1 19)
despite some COVID-19 impacts
· Loss after taxation £0.6m (H1 21: loss of £16.9m; H1 19: profit
of £7.1m)
· Private revenue up by 21.6% vs H1 21 (up 30.9% vs H1 19) with
high growth in self-pay and return to growth in PMI
· Continued support for the NHS especially on 104-week waiting
patients and orthopaedics
· Managed significant operational pressures caused by the ongoing
impact of COVID-19
· Good cost management against the inflationary backdrop
· Reduced leverage - net debt / EBITDA covenant ratio of 2.2x at 30
June 2022 (from 2.3x at the end of FY21 and 3.0x at the end of FY19)
· Repaid £100m of bank loan and completed re-financing of the
Group's £325m funding facilities
Continued development of the business in line with strategy
· 98% of inspected hospitals and clinics currently rated 'Good' or
'Outstanding' by CQC or equivalent (end FY21: 90%; end FY19: 85%)
· Continued momentum in private mix, now representing 73% of total
revenue vs 65% in H1 21 (H1 19: 68%)
· New four-year agreement signed with Bupa, to provide services to
its UK health insurance customers through to March 2026
· Private GP services growing strongly with volume up 69% vs H1 21
(up 169% vs H1 19)
· Further good progress in the delivery of efficiency programmes;
on track to deliver at least £15m cost savings in 2022
· £38.8m capex investment in facilities and equipment, in line
with target range of 6-7% of revenue
· Recruited further new nurse apprentices; extended overseas nurse
recruitment programme
· Announced 5% workforce salary increases from 1 September, with in
year rises of over 16% for the lowest earners
· Continued progress towards target of becoming net carbon zero by
2030
Looking forward
· Significantly increased demand for healthcare with 6.7m people
nationally awaiting treatment
· Strong private growth in H2 22 after COVID-19 wave in July
· Improving profitability and strong cash conversion expected to
continue
· COVID-19 wave net impact of £6m in July; strong recovery in
August
· Investing in people to manage continuing shortage of healthcare
workforce
· Focusing on continued efficiency programme and existing cost
hedges
· Plans progressing to open community-based diagnostic and
treatment clinics and expand private GP provision
Current trading and outlook
Financial and operational performance has been strong during the first half,
despite the volatile operational impact of the ongoing COVID-19 pandemic on
Spire Healthcare's business. We are encouraged with the further growth of our
private patient revenues, continuing the trend shown in 2021. We expect to see
continued private revenue growth during the second half of the year, with
further profit and margin growth.
As previously indicated, successive COVID-19 waves are a risk to short-term
delivery, and the EBITDA impact of these in H1 alone was £25m. July 2022 was
particularly hard hit by the summer Omicron wave, with high incidence relating
to cancellations and absences which combined with patient, staff and
Consultant holidays. As a result, the net COVID-19 impact in July exceeds
expectation by £6m. The business continued to work hard to recover and as a
result volumes were strong in August.
In common with other businesses, the healthcare sector is facing inflationary
pressures. Our efficiency programme is progressing well and we have
successfully completed the underlying actions that will drive cost savings of
at least £15m in FY22. As a result of this and actions taken previously to
lock in supplier pricing over the medium term, we remain positive about our
ability to manage reasonable levels of inflationary risk, and were pleased to
expand margins in H1. Further self-help actions taken to offset inflationary
pressures include implementing price rises, managing our mix of services and
being selective in the choice of products we use.
Subject to the timing and severity of any future COVID-19 wave, our guidance
remains unchanged from that provided at the time of our FY21 results
announcement in March: 'Overall in 2022, we expect to see good revenue growth,
continued Adjusted EBITDA growth, and a further increase in ROCE, with an
improvement in margins.'
Justin Ash, Chief Executive Officer of Spire Healthcare, said:
"Fundamental changes are underway in UK healthcare, leading to strong growth
in Spire Healthcare's private revenues across both self-pay and PMI. I'd like
to thank all my colleagues across the Group for their continued efforts to
meet the strong demand for our services in what remains a challenging
operating environment for healthcare provision. Our revised strategy leaves us
well positioned to continue to help meet the nation's growing healthcare
needs. I am looking forward to the expansion of Spire Healthcare's proposition
into community-based clinics and extending our private GP provision, as we
continue to grow and deliver for all our stakeholders."
For further information please contact:
Spire Healthcare +44 (0)20 7427 9000
Angus Prentice - Interim Head 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 is a leading independent hospital group in the United
Kingdom, with 39 private hospitals and eight clinics across England, Wales and
Scotland.
Working in partnership with around 8,150 experienced Consultants, Spire
Healthcare delivered tailored, personalised care to almost 870,000 in-patients
and daycase patients in 2021, and is the leading private provider, by volume,
of knee and hip 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' or
'Outstanding' by the Care Quality Commission ('CQC') or the equivalent in
Scotland and Wales.
Spire Healthcare treats patients through a variety of routes including PMI,
self-pay and the NHS, providing the Group with diversified access to the
expected growth opportunities in the UK healthcare market, which faces
significant supply challenges as a result of NHS budget constraints and
increasing demand from a growing population with longer life expectancy.
Cautionary statement
This preliminary announcement contains certain forward-looking statements
relating to the business of Spire Healthcare Group plc (the "Company") and its
subsidiaries (collectively, the "Group"), including with respect to the
progress, timing and completion of the Group's development, the Group's
ability to treat, attract, and retain patients and customers, its ability to
engage Consultants and GPs and to operate its business and increase referrals,
the integration of prior acquisitions, the Group's estimates for future
performance and its estimates regarding anticipated operating results, future
revenue, capital requirements, shareholder structure and financing. In
addition, even if the Group's actual results or development are consistent
with the forward-looking statements contained in this preliminary
announcement, those results or developments may not be indicative of the
Group's results or developments in the future. In some cases, you can identify
forward-looking statements by words such as "could," "should," "may,"
"expects," "aims," "targets," "anticipates," "believes," "intends,"
"estimates," or similar words. These forward-looking statements are based
largely on the Group's current expectations as of the date of this preliminary
announcement and are subject to a number of known and unknown risks and
uncertainties and other factors that may cause actual results, performance or
achievements to be materially different from any future results, performance
or achievement expressed or implied by these forward-looking statements. In
particular, the Group's expectations could be affected by, among other things,
uncertainties involved in the integration of acquisitions or new developments,
changes in legislation or the regulatory regime governing healthcare in the
UK, poor performance by Consultants who practice at our facilities, unexpected
regulatory actions or suspensions, competition in general, the impact of
global economic changes, and the Group's ability to obtain or maintain
accreditation or approval for its facilities or service lines. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking statements made in this preliminary announcement will in fact
be realised and no representation or warranty is given as to the completeness
or accuracy of the forward-looking statements contained in this preliminary
announcement.
The Group is providing the information in this preliminary announcement as of
this date, and we disclaim any intention or obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Analyst and investor meeting
There will be an analyst and investor meeting today at 9am via Zoom webinar.
Please register in advance through this link:
https://spirehealthcare.zoom.us/webinar/register/WN_7PsBnqaqTPmJy0j2dI-PMA
(https://spirehealthcare.zoom.us/webinar/register/WN_7PsBnqaqTPmJy0j2dI-PMA)
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
H1 2022 has seen continued high demand for private healthcare, amidst rising
NHS waiting lists in the wake of the COVID-19 pandemic. At the latest count,
approximately 6.7m people await treatment through the NHS. COVID-19 continued
to have a major impact on the business during H1, but in a more way
inconsistent than in 2021, with high infection rates prevailing at certain
times during the first six months of 2022 and low rates at other times.
Against the backdrop of rising NHS waiting lists, demand from both self-pay
('SP') and private medical insurance ('PMI') patients, seeking prompt, safe
and effective diagnosis and treatment, remained strong. During the first half
of the year, private revenue accounted for 73% of Group revenue, compared to
65% in H1 21 and 68% in H1 19.
During Q1 22, in light of the uncertainties created by the Omicron variant of
COVID-19, we provided further assistance to the NHS under an arrangement
similar to that in Q1 21. Payment was by activity based on NHS tariff, with
minimum value underpins. NHS commissioning proved relatively modest during
this period.
Total admissions of 131,656 for H1 22 were 5,088 or 4.0% higher than H1 21 (vs
H1 19: 305 or 0.2% lower).
Our priority at all times is patient safety and clinical quality. Throughout
H1 22, we maintained many of the critical measures that we had put in place at
the outset of the pandemic to keep our sites COVID-19 secure and our
colleagues, Consultants and patients safe, in line with government guidelines.
Performance
Spire Healthcare delivered a solid performance in H1 22 with good revenue and
earnings growth, despite the significant challenges presented by the ongoing
COVID-19 pandemic and growing inflationary and workforce pressures.
At the Group's capital markets event on 29 June 2022, we announced our revised
Purpose and Strategy as follows:
Purpose - Making a positive difference to people's lives through outstanding
personalised care
Strategy - Help to meet UK Healthcare needs by running great hospitals and
developing new services
The Group's revised strategy is now centred on the following pillars:
· Drive hospital performance by continuing to grow our existing
hospital estate with increasing margins.
· Build on quality by maintaining strong quality and safety
credentials as a competitive advantage in all our activities.
· Invest in our workforce by recruiting, retaining and developing a
great workforce.
· Champion sustainability, aiming to become recognised as an ESG
leader in our industry.
· Expand our proposition by selectively investing to attract
patients and meet more of their healthcare needs.
· Deliver strong financial performance through financial discipline
supporting cash generation, targeted investment and improving ROCE /
shareholder returns.
Also at the capital markets event, we announced a new Financial Framework for
the Group comprising the following:
· Payor mix - 70-80% private, dependent on NHS commissioning
· Organic capex - 6-7% of revenue
· Cash conversion - c.100%
Continued revenue growth
Revenue in the first six months grew by 7.1% YOY to £597.9m and was 21.6%
ahead of 2019, driven by significant demand for private treatment. This was
also 9.1% higher than H2 21, providing encouraging evidence of the continued
high demand for the Group's services.
Consumer awareness of private healthcare continued to grow in the period.
During the period, we conducted several digital advertising and brand
awareness initiatives and it was encouraging to note the growth in SP and PMI
revenue which resulted. TV advertising has proved a key driver to brand
awareness, with nearly half of our target consumers now recalling seeing the
advertisements.
Private revenue rose by 21.6% to £439.3m during the first six months compared
to H1 2021 and was ahead of the pre-pandemic period in 2019 (vs H1 19: up
30.9%). Our focus on making SP easy and accessible helped support an
exceptionally high revenue growth of 34.0% YOY to £174.1m and a near doubling
since pre-pandemic levels (vs H1 2019: up 96.5%). We were pleased to see a
very strong performance in PMI early this year, with new patient volumes and
admissions recovering to pre-pandemic levels. Overall in H1 22, PMI revenue
growth, up 14.7% YOY to £265.2m (vs H1 2019: up 7.4%), fulfilled our
expectations of a return to growth in the insurance market.
At the end of H1 22, the Group announced that it has signed a new four-year
agreement with Bupa, to provide services to its UK health insurance customers
through to March 2026, with agreed pricing including capped inflationary
mechanisms during this period. The new contract builds on the Group's
excellent relationship with Bupa and will include progressive expansion of the
existing network of cancer specialist centres offered to Bupa customers and
the introduction of new pathways for musculoskeletal disorders.
Our payor mix of total revenue during H1 22 was 44% PMI, 29% SP and 24% NHS.
Comparable figures for H1 21 are 41% PMI, 23% SP and 33% NHS; for H1 19, 50%
PMI, 18% SP and 29% NHS, demonstrating the results of our deliberate shift in
payor mix during the period since 2019.
The overall revenue growth was in fact characterised by months of robust
activity, offset by severe disruptions when COVID-19 was at its peaks.
Activity volumes were negatively affected by the Omicron variant during the
first couple of months of the year, with increased levels of patient
cancellations, and absence of staff and Consultants caused by COVID-19 illness
and the need to self-isolate. We saw good improvement in volumes as the effect
of the Omicron variant reduced midway through the first half before a return
to a period of cancellations and related absences towards the end of the
period as COVID-19 surged once again, and this continued through July before
infection rates began to fall in August.
Overall volume rose 4.0% YOY during H1 and was marginally down (-0.2%)
compared to H1 19. Corresponding figures for SP are up 25.1% (up 51.8% vs H1
19); PMI up 15.0% (down 5.1% vs H1 19); overall private up 18.6% (up 10.7% vs
H1 19); and NHS down 20.6% (down 20.1% vs H1 19).
We have been actively managing our mix of business and pricing in SP. Growth
in ARPC across all income streams has been maintained. During the last quarter
of 2021, overall ARPC was consistently above £3k, compared with ARPC of
£2.6k in 2019. ARPC growth continued in H1 22.
NHS commissioning in the period was lower than the significant support
provided to the NHS by Spire Healthcare in 2020 and 2021 due to COVID-19. NHS
revenue during the first six months of 2022 was down 21.5% YOY at £145.6m but
slightly ahead of 2019 H1 by 1.3%. Our ARPC for NHS work during H1 22 was
£3,090, up 22.5% vs the first half of 2021 and an increase of 28.5% on the
level in H1 19. This reflects the NHS' policy of prioritising treatment for
those with the greatest clinical need, which are usually the more complex
cases, and Spire Healthcare's focus on a more complex mix. During H1 22, an
important focus of our NHS work was on supporting local trusts and systems in
helping to achieve the Government's target of treating, by the end of July,
all NHS patients who had waited longer than 104 weeks.
The encouraging growth in ARPC across all our payor groups is the result of
this ongoing focus on delivering a more complex mix of work in all payors, as
well as the increased control offered by the Group's new pricing system, which
allows central oversight and optimisation of SP pricing across Spire
Healthcare's hospitals.
Adjusted EBITDA growth despite ongoing COVID-19 disruption
Adjusted EBITDA of £105.8m for the six month period was up 10.2% on prior
year and 9.3% higher than the H1 2019 pre-pandemic comparator. This growth was
largely driven by the Group's strong volume growth, the increase in ARPC and
the higher proportion of patients coming from private payor groups. The
Adjusted EBITDA result was in line with plan and was delivered despite the
ongoing operational disruption caused by the COVID-19 pandemic. Our earnings
continue to be impacted by COVID-19 related costs, which amounted to £25m
during the period compared with £53m for the full year in 2021. The Group's
Adjusted EBITDA benefited from success of the Group's savings programme (see
details below).
As a hospital group, we continued to operate strict COVID-19 controls to
ensure the safety of our patients, Consultants and colleagues, and to reduce
the risk of COVID-19 outbreaks in our hospitals. As we described in our FY21
results, we analyse COVID-19 related costs into two categories: (1) Absence
and patient cancellations due to COVID-19; and (2) Other costs, such as
testing costs, consumables and staffing costs associated with changing the
operating model due to COVID-19.
Absence and patient cancellation costs are directly related to the prevalence
of COVID-19 in the wider population. These costs increased significantly
during January 2022, correlating with the emergence of the Omicron variant,
and again in March and late June when COVID-19 incidence rose significantly in
the wider population. The impacts, which vary with COVID-19 prevalence in the
community, include a significant element of absence and patient cancellation
costs, typically because it is often difficult to back-fill cancellations with
other patients at short notice, while there may be fewer Consultants and
colleagues who can cover. Inevitably, this means that that agency utilisation
and related costs are high during these times.
The Other COVID-19 cost element has stabilised at a lower level than that seen
in H2 21, and this reduction corresponds with the removal of social distancing
and testing requirements resulting from changes in Government policy during
the period. When the Government initially relaxed restrictions in society, we
maintained some of our precautionary measures, resulting in additional costs,
and when COVID-19 prevalence rose again in June and later, we reintroduced
some measures with associated costs. With changes in Government guidance, mask
wearing and colleague asymptomatic testing has been suspended at Spire
Healthcare save for the most vulnerable patients.
Since the end of the period, we saw another peak in COVID-19 incidence in the
community during July. The financial impact of this on the Group amounted to
£6m. This was significantly higher than that shown during peak period earlier
in the year as the disruption in July took place during a popular holiday
period, which meant that it was difficult to back-fill cancellations with
other patients at short notice, a situation compounded by fewer Consultants
and staff members available to cover.
Successfully navigating in an inflationary environment
As we described at the Group's capital markets event on 29 June 2022, high
inflation is a factor affecting all businesses including Spire Healthcare.
Clearly, demand will be dampened in many sectors, and Spire Healthcare's
private customers will of course not be immune to all the pressures ahead.
However, our research shows the typical private patient is able to access the
funds for private care and healthcare is a key spending priority. A majority
of our private patients remain insured via company schemes, a sector which has
also returned to growth; this provides the Group further resilience. As a
result, Spire Healthcare continues to deliver strong growth and we are well
placed as a leading operator in our market, not least as a partner in helping
the NHS reduce waiting lists. Our view of short and medium-term demand remains
positive.
We are successfully mitigating cost risks relating to the prevailing
inflationary pressures through a mix of our ongoing savings programme and by
actively managing our procurement effectively. In addition, we have the tools
and the potential to pass on a high proportion of inflation-driven cost
increases while responding to a dynamic pricing environment. We have
successfully completed the underlying actions that will drive cost savings of
at least £15m in 2022, and are now pursuing initiatives designed to secure a
similar level of saving over the course of 2023 and 2024.
The economic environment is of course a concern for our brilliant workforce.
We are pleased that Spire Healthcare's business momentum and our confidence to
deliver future growth has enabled us to make a salary increase award of 5%
(with 4% for the most senior roles) to all our permanent colleagues across the
Group from September 2022. For those in the lowest earning roles, this is an
addition to rises earlier in the year, delivering them a 16.6% increase over
the course of 2022. All colleagues are now on or above the real living wage
(and the London Living Wage for colleagues in and around London). We have also
announced the timetable for moving all colleagues onto a simplified salary
framework by September 2023.
Strong cash conversion enabling ongoing capex investment and further leverage reduction
The Group has continued to be cash generative and further reduced overall debt
levels during the period. Cash inflow from adjusted operating activities
during the period was £95.8m, which constitutes a cash conversion rate of
90.5% (H1 21: 89.3% conversion of £96.0m Adjusted EBITDA, H1 2019: 88.1%
conversion of £96.8m Adjusted EBITDA) from £105.8m Adjusted EBITDA and in
line with plan.
Capital investment in the first half of 2022 was £38.8m, in line with our
target range of 6-7% of revenue which we indicated at the recent capital
market event forms part of the Group's financial framework. Our capex budget
includes investment in significant capacity projects, such as the ongoing
major developments at Spire Yale and Spire Edinburgh, but also covers further
investment in patient care and digital transformation, the replacement of six
CT and MRI scanners this year, as well as refurbishment and maintenance work
in several hospitals.
Net bank debt at 30 June 2022 was £227.8m (vs £224.9m at 31 December 2021),
with a cash balance of £95.8m. During Q1 22, we paid down bank debt by £100m
as part of a successful re-financing of the Group's bank funding 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 for two years.
As a result of the above, the Group's leverage ratio continued to reduce,
resulting in a net debt / EBITDA covenant ratio of 2.2x at 30 June 2022 (from
2.3x at the end of FY21 and 3.0x at the end of FY19). This represents the
lowest level of leverage since 2016.
Dividend
We recently introduced a clear and sustainable dividend policy for the Group:
Dividends will typically be set at 25-30% of profit after tax, provided bank
leverage remains less than 2.5x. We expect to commence dividend payments in
2023, provided the Group continues to meet plan.
Building on quality
Patient safety remains our top priority. We continue to see improvement in our
regulatory ratings, with four hospital inspections completed in H1 22 across
Spire Healthcare services. All four hospitals were rated 'Good' by the CQC.
98% of our inspected hospitals and clinics are now rated 'Good' or
'Outstanding' by the CQC or the equivalent in Scotland and Wales, an
improvement from the 90% at 2021 year end and 69% at the end of 2016. We are
awaiting re-inspection of our one remaining site which has a 'Requires
Improvement' rating, which has not been inspected since 2016/17, in order for
us to demonstrate improvements made since then.
We continue to align our safer patient and colleague pathways to national
infection control guidance for England, Scotland and Wales and are proud to
continue to confirm there have been no cases of hospital-acquired COVID-19
infection across the Group.
Further developments within Spire Healthcare's medical and clinical practices
during the period include:
· The successful roll-out of electronic pre-operative assessment
(ePOA) across the Group last year has provided the benefits of a standardised
approach to pre assessment, greater consistency and allowed regular cross-site
cover when needed. Our IT team is currently working on further enhancements to
the system to widen its scope.
· A programme to access summary care records (SCRs) has been rolled
out across the Group in England which is mandated for all patients, allowing
for access to patients' past medical records to make more informed risk-based
decisions. The overall feedback has been very positive and this initiative
helps support safe assessment. We are working to access the same information
in Scotland and Wales.
· An upgraded safe staffing tool was implemented in June 2022,
which helps to safely reduce use of agency workers, bank staff and overtime,
the number of vacancies and to evidence safe and effective staffing on every
shift.
One of the more complex areas of treatment undertaken in Spire Healthcare
hospitals, attracting a higher ARPC, is oncology. Spire Healthcare has a
strong record of providing high quality oncology treatment and is well
respected for its services in this branch of medicine. It was therefore
gratifying and a source of great pride to learn that Spire Dunedin has been
awarded a level 5 (the highest standard) in their recent Macmillan Quality
Environment Mark (MQEM) assessment. MQEM assesses whether cancer services and
environments meet the standards required by people living with cancer. The
assessment includes the patient environment and the engagement of patients
during the review. We continue to support all of our sites providing cancer
treatments with this important accreditation.
Investing in our workforce
There is a shortage of skilled healthcare staff in the UK, which places
pressure on costs, especially agency usage, and can limit capacity. As a large
independent healthcare provider, Spire Healthcare recognises that it has key
roles to play in both helping to serve the healthcare needs of the population
and addressing the issue of the shortage of clinical staff across the UK
healthcare sector. The Group continues to work hard to recruit and retrain
colleagues and considerable attention is paid to development and retention
strategies aimed at ensuring that colleagues are offered genuine opportunities
to grow and develop their careers at Spire Healthcare.
Apprenticeship opportunities within the Group have for some time been a key
route in attracting and retaining new colleagues. We now have around 500
apprentices employed across a broad range of clinical and non-clinical
operations, with more than 5% of permanent employees being apprentices.
One of the Group's most successful initiatives aimed at building a talent
pipeline for its business and UK healthcare more broadly is the nurse degree
apprenticeship programme. Launched in early 2021 in partnership with the
University of Sunderland, the nurse degree apprenticeship is open to
applicants at all stages of work life, including school leavers, university
graduates and people looking to retrain. The programme combines university
study and workplace learning, and apprentices obtain a BSc degree at the end.
Feedback from nurse degree apprentices on the programme has generally been
very positive with most being highly engaged and enjoying the experience
afforded to them by Spire Healthcare. Our nurse apprenticeship programme
continues to grow, as does our overseas nurse recruitment programme.
Expanding our proposition
Running great hospitals is central to Spire Healthcare's business and is
fundamental to delivery of the Group's Purpose. However, the healthcare
industry in the UK has been experiencing rapid and fundamental changes since
the advent of COVID-19 and Spire Healthcare is responding to those changes. We
have plans to expand our proposition through selective investments in new
services that will attract new patients by meeting more of their needs.
One area in which Spire Healthcare is already developing is primary care,
which we believe has significant potential for the Group. Our research amongst
consumers and GPs reveals a growing dissatisfaction and frustration with the
current state of GP services, echoing many of the headlines we are seeing in
the media. We already have GPs working privately in most of our hospitals and
we are getting strong support from other GPs who want to work with us. Demand
for our private GP services grew in the period with volume up by 69% in H1 22
versus the same period last year. In response, we expanded further our Spire
GP service during the period and the recruitment of additional GPs is ongoing
in the second half of the year. The Spire GP model also aligns with our plans
to pilot clinics to meet the growing healthcare need in local communities. We
are also exploring opportunities to work with the NHS in this space, as well
as to develop a digital offering whereby patients can swap between the digital
service and the face-to-face service.
Championing sustainability
While many ESG/sustainability initiatives have already been in place, we took
the opportunity during the period to develop and articulate the Group's
sustainability strategy. Championing sustainability is now integral to the way
the Group operates and, as such, forms one of the pillars of the Group's
revised strategy. Our aim is to be recognised as an ESG leader in our
industry. Spire Healthcare's sustainability strategy is comprised of the
following elements:
· Engage our people and communities
· Operate responsibly
· Respect the environment
We continued to pursue a range of initiatives during the period which are
helping us to move towards our goal of becoming net carbon zero by 2030. These
include the replacement of gas-powered boilers, installation of electric
vehicle charging points and energy-efficient LED lighting, and effective waste
management. Due to the global volatility in the current energy market, our
supply of electrical energy has moved from green to brown which is a temporary
set-back to our progress, but alternative plans are being developed to keep on
track. In the spring, we were highly commended in the BusinessGreen Leaders
Awards in the Net Zero Strategy of the Year category.
Further details of progress made across the Group's various ESG/sustainability
initiatives will be reported on at the year end.
Financial review
Selected financial information
Six months ended 30 June (Unaudited)
2022 2021 2019
(£ million) Total before Adjusting items Adjusting Total Total before adjusting items Adjusting Total Total before adjusting items Adjusting Total
items
items
items
(note 10)
(note 10)
Revenue 597.9 - 597.9 558.2 - 558.2 491.6 - 491.6
Cost of sales (328.4) - (328.4) (304.1) - (304.1) (261.1) - (261.1)
Gross profit 269.5 - 269.5 254.1 - 254.1 230.5 - 230.5
Other operating costs (216.1) (5.6) (221.7) (206.2) (2.3) (208.5) (179.1) (0.4) (179.5)
Other income 1.2 - 1.2 0.6 - 0.6 - - -
Operating profit (EBIT) 54.6 (5.6) 49.0 48.5 (2.3) 46.2 51.4 (0.4) 51.0
Finance costs (46.0) - (46.0) (41.5) - (41.5) (41.4) - (41.4)
Profit / (Loss) before taxation 8.6 (5.6) 3.0 7.0 (2.3) 4.7 10.0 (0.4) 9.6
Taxation (4.4) 0.8 (3.6) (21.6) - (21.6) (2.6) 0.1 (2.5)
(Loss) / profit for the period 4.2 (4.8) (0.6) (14.6) (2.3) (16.9) 7.4 (0.3) 7.1
Adjusted EBITDA ((1)) 105.8 96.0 96.8
Basic (loss) / earnings per share, pence (0.1) (4.2) 1.8
Adjusted FCF((2)) 23.7 1.6 25.9
Capital investments((3)) 38.8 36.3 19.7
Net cash from operating activities 91.5 85.7 87.0
Net bank debt ((4)) 227.8 306.3 362.2
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 15.
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 Capital investments includes right of use assets.
4 Net bank debt defined as bank borrowings less cash and cash equivalents.
Included in our interim results are comparatives for both the prior year 2021 and 2019. This is to allow meaningful comparison as the Group operated under a COVID-19 NHS contract from the start of Q2 2020 through to the end of Q1 2021. Comparatives are against H1 2021 unless otherwise stated. Additional information in respect of the Balance Sheet and cash flow for the two periods can be found on our website:
www.spirehealthcare.com/investorrelations (http://www.spirehealthcare.com/investorrelations)
.
Revenue
Group revenues increased by 7.1% to £597.9m versus H1 2021 of £558.2m (21.6%
increase versus H1 2019 of £491.6m). The increase in revenue in H1 22 is
mainly driven by the strong performance of our private business, which
increased by 21.6% versus H1 2021 (30.9% versus H1 2019). Total NHS revenue
decreased by 21.5% to £145.6m versus H1 2021 of £185.4m (1.3% increase
versus H1 2019 of £143.7m) as the Group operated under a COVID-19 specific
NHS contract rather than its normal operating model in Q1 2021.
Revenue by location and payor
In the prior interim period, the Group did not provide a revenue split between
in-patient/daycase, out-patient and other for the six month period ended 30
June 2021. This is on the basis that, for Q1 2021, the Group operated under an
NHS COVID-19 contract rather than its normal operating model. The information
is therefore not considered meaningful to users.
Six months ended 30 June (Unaudited)
(£ million) 2022 2019 Variance %
(2022 -2019)
Total revenue 597.9 491.6 21.6%
Of which:
Inpatient 246.8 186.8 32.1%
Day case 170.0 149.0 14.1%
Out-patient 166.4 143.5 16.0%
NHS - COVID-19 1.7 - NM((1))
Other 13.0 12.3 5.7%
Total revenue 597.9 491.6 21.6%
(1 Not meaningful)
( )
( )
Six months ended 30 June (Unaudited)
(£ million) 2022 2021 Variance % 2019 Variance %
(2022 - 2021) (2022 -2019)
Total revenue 597.9 558.2 7.1% 491.6 21.6%
Of which:
PMI 265.2 231.3 14.7% 247.0 7.4%
Self-pay 174.1 129.9 34.0% 88.6 96.5%
Total Private 439.3 361.2 21.6% 335.6 30.9%
Total NHS 145.6 185.4 (21.5%) 143.7 1.3%
Other 13.0 11.6 12.1% 12.3 5.7%
Total revenue 597.9 558.2 7.1% 491.6 21.6%
( )
Cost of sales and gross profit
Gross margin for the first six months of 2022 is 45.1% compared to 2021 levels
of 45.5%, and 2019 levels of 46.9%. Cost of sales increased in the period by
£24.3m (£67.3m on H1 2019), or 8.0% (H1 2019: 25.8%), to £328.4m (2019:
£261.1m) on revenues that increased by 7.1% (H1 19: 21.6%). This is partly
due to increased costs as a result of increased agency spend due to COVID-19
related absences.
Cost of sales is broken down, and presented as a percentage of relevant
revenue, as follows:
Six months ended 30 June (Unaudited)
2022 2021 2019
£m % of revenue £m % of revenue £m % of revenue
Clinical staff 135.4 22.6% 126.9 22.7% 98.8 20.1%
Direct costs 140.8 23.6% 132.8 23.8% 110.7 22.5%
Medical fees 52.2 8.7% 44.4 8.0% 51.6 10.5%
Cost of sales 328.4 54.9% 304.1 54.5% 261.1 53.1%
Gross profit 269.5 45.1% 254.1 45.5% 230.5 46.9%
Hospital operating profit margin (gross profit less indirect hospital costs)
was 24.5% compared to 24.7% in June 2021 and 26.3% in June 2019, with indirect
hospital costs increasing by £6.6m from £116.4m in H1 2021 to £123.0m in H1
2022 (H1 19: £101.0m).
Other operating costs
Other operating costs for the six months ended 30 June 2022 increased by
£13.2m or 6.3% versus H1 21 to £221.7m. Adjusting Items included in
operating costs increased by £3.3m versus H1 21 mainly due to business
reorganisation and restructuring costs. Excluding Adjusting Items, other
operating costs have increased by £9.9m, or 4.8% to £216.1m (H1 2021:
206.2m). This increase is mainly driven by increased property and equipment
costs relating to increased electricity standing charges and depreciation. In
H1 2019, other operating costs were £179.5m, being 23.5% lower than H1 2022,
and excluding Adjusting Items, 20.7% lower at £179.1m.
Operating margin for the six months ended 30 June 2022 is 8.2% compared to
8.3% at H1 2021 and 10.4% at H1 2019. Excluding adjusting items, operating
margin is 9.1%, up from 8.7% at H1 2021, and down from 10.5% at H1 2019.
Adjusted EBITDA
Adjusted EBITDA for the Group has increased by 10.2% in the period from
£96.0m to £105.8m for H1 2022, and increased by 9.3% from H1 2019 Adjusted
EBITDA of £96.8m. The increase in H1 2022 primarily reflects increased
private revenue.
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 2022, the charge to the income statement is
£1.3m (H1 2021: £1.7m), or £1.5m inclusive of National Insurance (H1 2021:
£1.9m).
Adjusting Items Six months ended 30 June (Unaudited)
(£ million) 2022 2021 2019
Business reorganisation and restructuring 3.3 - -
Asset acquisitions, disposals, impairment and aborted project costs 1.9 2.6 0.3
Remediation of regulatory compliance or malpractice 0.3 (0.4) -
Hospital set up and closure costs 0.1 0.1 0.1
Total costs 5.6 2.3 0.4
Income tax credit on Adjusting Items (0.8) - (0.1)
Total post-tax Adjusting Items 4.8 2.3 0.3
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, costs of £3.3m have been incurred in the period.
Asset acquisitions, disposals, impairment and aborted project costs mainly
comprise costs in respect of Claremont. Following the acquisition of Claremont
Hospital in November 2021, the Group has incurred integration costs of £0.5m
in the period. In addition, on 31 March 2022, the Group acquired the remaining
non-controlling interest for £2.7m, of which £1.9m had been provided for in
FY21. Therefore, £0.8m is included in Adjusting items (refer to note 7 for
additional details). During the period an impairment of £0.5m was recognised
on the St Saviours property, classified as held for sale, as the sales price
less costs to sell on the property was lower than the carrying value. The sale
of the property is due to be completed in H2 2022. Other costs incurred mainly
relate to the final business transfer of the Sussex Hospital to the NHS Trust
which completed on 31 March 2022, as announced during FY21. In the prior
period, £2.8m relates to the attempted takeover bid by Ramsay Health Care,
offset by £0.4m of income as a result of shortening the Sussex lease (from 6
years to 1 year) following the agreement to transfer the business to the NHS
Trust in March 2022.
Remediation of regulatory compliance or malpractice costs includes amounts
paid to one of the Group's Insurers following the Court of Appeal hearing.
£13.0m was provided in FY21, with £13.3m being settled in FY22. The £0.3m
recognised in the period reflects this additional amount. In the prior year, a
credit of £0.4m was recognised following the settlement of costs to Spire
Healthcare from its insurer following the original judgment finding in favour
of the Group in FY20.
Hospital set up and closure costs mainly relate to the maintenance costs of
non-operational sites.
Finance costs
Finance costs have increased by £4.5m to £46.0m (H1 2021: £41.5m, H1 2019:
£41.4m). The increase is due to a one off charge of £3.1m in respect of
unamortised fees which were recognised in full following the refinancing of
the senior loan facility in Q1 2022 as well as increased finance costs related
to additional lease liabilities.
Taxation
The taxation charge for the six months ended 30 June 2022 is £3.6m (H1 2021:
£21.6m, H1 2019: £2.5m). This consists of a £nil (H1 2021: £nil, H1 2019:
£1.3) charge for corporation tax and a change of £0.5m (H1 2021: 19.3m, H1
2019: £1.2m) for the current year movement on deferred tax and £3.1m (H1
2021: £2.3m, H1 2019: £nil) adjustment in respect of previous periods to
deferred tax. The deferred tax charge in H1 2021 included a one off charge of
£17.7m as a result of deferred tax assets and liabilities being revalued from
19% to 25% following the Government's announcement to increase the corporation
tax rate which is due to take place on 1 April 2023. Whilst there is
speculation of a change to the corporation tax rate with the appointment of
the new Prime Minister, no change has been substantively enacted, and
therefore deferred tax remains valued at the 25%. Should a change in the rate
be enacted, the deferred tax assets and liabilities will be revalued at that
point.
Profit after taxation
The loss after taxation for the six months ended 30 June 2022 was £0.6m (H1
2021: loss £16.9m, H1 2019: profit £7.1m)
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 encourage 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) 2022 2021 2019
Operating profit / (loss) 49.0 46.2 51.0
Remove effects of: 5.6 2.3 0.4
Adjusting items
Depreciation 51.2 47.5 45.4
Adjusted EBITDA 105.8 96.0 96.8
Adjusted EBIT
Six months ended 30 June (Unaudited)
(£ million) 2022 2021 2019
Operating profit / (loss) 49.0 46.2 51.0
Remove effects of: 5.6 2.3 0.4
Adjusting items
Adjusted EBIT 54.6 48.5 51.4
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) 2022 2021 2019
Profit before tax 3.0 4.7 9.6
Remove effects of: 5.6 2.3 0.4
Adjusting items
Adjusted profit before tax 8.6 7.0 10.0
Taxation(1) (4.4) (21.6) (2.6)
Adjusted profit / (loss) after tax 4.2 (14.6) 7.4
Adjusted profit / (loss) after tax attributable to owners of the Parent 4.3 (14.6) 7.4
Weighted average number of ordinary shares in issue (No.) 401,391,262 400,842,733 400,828,739
Adjusted basic earnings / (loss) per share (pence) 1.1 (3.6) 1.8
(1) Reported tax charge for H1 2021 includes a one-off rate change impact of
£17.7m
Cash flow analysis for the period
Six months ended June (Unaudited)
(£ million) 2022 2021 2019
Opening cash balance 202.6 106.3 47.7
Adjusted operating cash flows 95.8 85.7 85.3
Adjusting items (4.3) - (0.1)
Income tax received - - 1.8
Operating cash flows 91.5 85.7 87.0
Net cash in investing activities (44.0) (29.5) (21.3)
Net cash in financing activities (154.3) (46.4) (55.0)
Closing cash balance 95.8 116.1 58.4
Operating cash flows before Adjusting items
The cash inflow from operating activities was £91.5m. After adjusting for
cash from Adjusting Items, the Adjusted operating cash flows were £95.8m,
which constitutes a cash conversion rate from £105.8m Adjusted EBITDA of
90.5% (H1 2021: 89.3% conversion of £96.0m Adjusted EBITDA, H1 2019: 88.1%
conversion of £96.8m). The net cash outflow from movements in working capital
in the period was £10.5m (H1 2021: £11.3m outflow, H1 2019: £11.8m
outflow).
Investing and financing cash flows
Net cash used in investing activities for the period was £44.0m (H1 2021:
£29.5m, H1 2019: £21.3m). Cash outflow for the purchase of Plant, Property
and Equipment in the period totalled £44.1m (H1 2021: £31.6m, H1 2019:
£21.5m), which included the refurbishment of the Shawfair Park hospital and
other building related works as well as investment in new flexible endoscopy
equipment and MRI or CT scanners.
Net cash used in financing activities for the period was £154.3m (H1 2021:
£46.4m, H1 2019: £55.0m). Cash outflows include the repayment of £100.0m of
the Group's senior finance facility as part of the refinancing agreement,
lease and bank interest paid of £47.1m (H1 2021: £39.2m, H1 2019: £35.9m)
and £7.3m (H1 2021: £7.2m, H1 2019: £9.1m) of lease principal payments. In
addition the Group acquired the remaining interest in Claremont in March 2022
resulting in a cash outflow of £2.7m, and received £2.8m, following the
issuance of new shares. In H1 19, £10.0m was paid as an interim dividend. No
dividends have been paid since the cancellation of the final dividend in 2019
as a result of the uncertainty caused by the COVID-19 pandemic.
Borrowings
At 30 June 2022, the Group has bank borrowings of £323.6m (December 2021:
£427.5m), drawn under facilities which are due to mature in February 2026.
As at
(£ million) 30 June 2022 (Unaudited) 31 December 2021 (Audited)
Cash 95.8 202.6
Bank borrowings 323.6 427.5
Bank borrowings less cash and cash equivalents 227.8 224.9
As announced by the Group on 25 February 2022, the Group entered into an
agreement on 24 February 2022 to refinance its Senior Loan Facilities. As part
of this exercise, and in recognition of the fact that the Group had
substantial cash reserves at 31 December 2021, the Group repaid £100m of the
Senior Loan Facility. As a consequence, the revised Senior Loan Facility was
set at £325.0m and the Group continued to have access to an undrawn Revolving
Credit Facility of £100.0m. This new arrangement has a maturity of 4 years,
with the Group having the option to extend by a further year. The financial
covenants relating to this new agreement are unchanged with leverage to be
below 4.0x and interest cover to be in excess of 4.0x. As at 30 June 2022 the
leverage measure stood at 2.2x and interest cover of 7.8x.
As at 30 June 2022, lease liabilities were £842.6m (December 2021: £837.8m).
Refer to note 16 for more detail.
Dividend
The Board will not be proposing an interim dividend. No dividends have been
proposed or paid since the start of the pandemic.
Related party transactions
There were no significant related party transactions during the period under
review.
Principal Risks
There are a number of risks facing the Group as disclosed in the 2021 Annual
Report. The Governance structures as described in the 2021 Annual Report for
the review and management of the Principal Risks remain the same. The Board
has decided that greater emphasis needs to be given to external risks facing
the organisation, as described below. The Board no longer considers four risks
reported in the 2021 Annual Report and Accounts as being Principal Risks,
being: Liquidity and Covenants; Insurance & Indemnity; Transformation;
and, Compliance & Regulation. Four new Principal Risks have been added
being Diversification & Disintermediation; Major Infrastructure Failure;
Antimicrobial Resistance and a Pandemic from a New Pathogen. The Board
anticipates that the Principal Risks described below in summary will remain
the same through to the year-end.
The Principal Risks fall into the following categories:
Clinical & Patient Safety Environment People Financial Corporate Governance Geopolitical Technology Social
Patient Safety & Clinical Quality Climate Change Workforce Macroeconomic Diversification and disintermediation Government & NHS Policy Information Governance and Security COVID-19/Pandemic
PMI market dynamics Supply Chain Disruption Major infrastructure failure Brand Reputation
Competitor Challenge Antimicrobial resistance
Pandemic from new pathogen
Below is a summary of the Principal Risks facing the Group with a description
of the material mitigations.
Risk Mitigation
Patient Safety & Clinical Quality
There is a risk to the provision of high quality patient care due to: We maintain the following controls to mitigate against a failure of patient
safety and clinical quality:
• A shortage of skilled workforce
• A reporting culture of openness and shared learning from Ward
• Clinical and non-clinical staff and Consultants failing to to Board, with a Freedom to Speak up Guardian ('FTSUG') at each site
follow guidelines, standards and policies resulting in patient harm
• Incident / red flag staffing reporting via a database with
• Failing to learn from incidents, complaints, mortality central oversight
reviews, patient feedback and Patient Notification Exercises
• Continually monitoring clinical standards, reporting progress
• Failure to act on findings from audits, clinical outcome via the Board's Clinical Governance and Safety Committee ('CGSC').
measures (including registry data), peer reviews and external inspections
• Integrated Quality Reporting based on a Quality Assurance
• Nosocomial COVID-19 infection Framework with a standard set of KPI's.
• Development of a Board Assurance Framework to assess risks
against clinical and medical strategic objectives.
• A schedule of robust and regular hospital audits including the
Patient Safety and Quality Reviews, with an action plan for improvement that
is monitored.
• Standard Operating Procedure for Patient Notification
Exercises that includes learning and continuous improvement methodologies.
• Colleague induction, clinical competencies requirements and
mandated training
• Reporting on clinical outcomes with workforce and Consultants
including the Chairs of hospital Medical Advisory Committees with a view to
driving up safety and performance.
Climate Change
Climate related risks have been identified through the emerging risk process. An estate wide condition assessment of roofs completed in 2021 has informed a
prioritised approach to capital investment to manage storm damage risk.
Our climate-related risks include:
• Severe Storm Weather events e.g. damage to roofs or flooding
Flood risk mitigation includes a continued periodic review of our estate in
• Prolonged spells of extreme ambient temperatures relation to existing and predicted flood risk zones.
• Energy price fluctuation (Decarbonisation requires changing
our energy sources: moving to more expensive zero-carbon electricity tariffs
and replacing gas-fired heat sources with more expensive electricity). Extreme ambient temperature risk mitigation includes an informed investment
plan for upgrade of failing and vulnerable plant. Design of the replacement
• Changes in laws and regulation, including failure to meet net and upgrade would account for the predicted increase in ambient temperature
zero targets and obligations (e.g. in financial covenants). 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 Heating, Ventilation & Air
Conditioning 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.
Net zero targets form part of the remuneration of the Executive Directors.
Workforce
There is a global shortage of nursing and allied healthcare practitioners. As The Group seeks to retain and recruit staff through a variety of mechanisms
the economy opened up in 2021, shortages of staff in new areas, for example including:
hotel services, have arisen. This has remained the case in 2022. In addition,
the Group has an ageing workforce. • A common purpose and a positive workplace culture
• Maintaining competitive pay and benefits
• A centralised recruitment process
• An overseas recruitment capability to secure skilled
healthcare workers from outside the EU where necessary
• Offering apprenticeship programmes to support the development
of clinical and non-clinical teams across the business
The Group manages immediate staff shortages through the use of agency and bank
workers.
Macroeconomic
The wider economic outlook for the UK remains unclear. The Bank of England The evidence available to us indicates that the COVID-19 pandemic has left
(BoE) is forecasting inflation remaining higher than recent levels (c. 13% on high levels of pent up demand for our services.
the CPI measure) in late 2022- early 2023 and remaining high in 2023. The BoE
is also forecasting the UK economy to decline from late 2022 and throughout
2023. The war in Ukraine has increased the volatility of food and energy
prices, and increased supply chain disruption. It is not clear at this stage The ability for patients to access private care does not appear to be
what HM Government's fiscal and monetary economic policy will be with recent constrained financially at this time. We understand that private medical
changes in Chancellor of the Exchequer and Prime Minister. insurance policy renewals and sales remain stable, and we have seen strong
growth in 2021 while waiting lists remain at record levels.
COVID-19 remains a disrupter to global supply chains, especially with the
Chinese Government still following its zero COVID-19 policy that has recently In response to macro inflationary pressure we will continue to benefit from a
led to significant shut downs of key economic zones in China. 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
Despite these macroeconomic headwinds the expectation is that the primary and seeks opportunities to mitigate inflationary increases.
growth drivers for healthcare will remain medium term, namely record NHS
waiting lists, stable/growing PMI lives covered and a growing self-pay market.
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.
PMI market dynamics
The PMI market remains concentrated, with the top four companies (Bupa, AXA, We work hard to maintain good relationships and a joint product/patient health
Aviva and VitalityHealth) having a market share estimated at over 85%. offering with the PMI companies, which, in the opinion of the Directors,
assists the healthcare sector as a whole in delivering high-quality patient
care.
We have individual contractual relationships for the provision of our services
with all the major PMI providers. These contracts come up for renewal on a
recurring basis. There is a risk that renewal of contract terms cannot be We ensure we have long-term contracts in place with our PMI partners to avoid
secured on historical terms. co-termination of contractual arrangements.
Service line tenders and the introduction of triage services are expected to We believe continuing to invest in our well-placed portfolio of hospitals
continue medium term as PMIs look to reduce costs. We also expect an increase provides a natural fit to the local requirements of all the PMI providers'
in directional networks. 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.
Competitor Challenge
We operate in a highly competitive market. New or existing competitors may We maintain a watching brief on new and existing competitor activity and
enter the market of one or more of our existing hospitals, or offer new retain the ability to react quickly to changes in patient and market demand.
services.
We consider that a partial mitigation of the impact of competitor activity is
In the current economic environment, there is a risk that the pressures on ensured by providing patients with high-quality clinical care and by
competitors results in irrational market behaviour manifesting itself in low maintaining good working relationships with GPs and Consultants.
pricing on tenders or self-pay.
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 are maintaining 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.
Diversification and disintermediation (New)
There is a risk that we will not be able to launch and scale new propositions Innovation Board bringing together CEO and executive committee members from
or services at sufficient pace to diversify and mitigate the risk of medical and clinical, commercial and finance, identifying healthcare trends
disintermediation. In addition, new digital healthcare services deliver lower and opportunities to develop new services.
margins and therefore contribution to existing services.
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.
Dedicated Director sourcing suitable target acquisitions, supported by expert
external financial and tax advisers.
Property Lead/team to handle assessment and acquisition of new physical assets
if numerous enough, or retained property advisors.
Government & NHS Policy
We expect NHSE to complete the establishment of regional Integrated Care Historically, we derived 70% of our revenues from PMI and self-pay patients
Systems (ICS) over the coming 18 months. Meanwhile Scotland and Wales will that provided a natural 'hedge' against exposure to Government and NHS policy.
broadly remain unchanged. It is uncertain how the creation of the new ICSs Post pandemic, we are seeing strong private revenues that are expected to
will affect referrals in NHS geographical areas. Our expectation is this will continue medium term.
become a combination of direct referrals from GPs, waiting list transfers and
an increasing use of block contracts.
The Group has successfully secured accreditation on the NHS Frameworks in
England, Scotland and Wales ensuring access to tender for future contracts.
There is a risk wider HM Government policy which is unfavourable to the
healthcare sector as a whole, e.g. future economic or employment policy.
Through the COVID-19 pandemic, we have increased our relationships with the
government via DoHSC, NHS England and NHS Improvement. Meanwhile hospitals
have also strengthened their relationships with the local NHS commissioners.
Working effectively with the new ICS in each our markets will be a primary
objective for hospital management teams.
Supply Chain Disruption
The widely reported disruption in the Global and UK supply chains because of a We run a centralised supply chain with a national distribution centre (NDC)
variety of factors, could lead to shortages of critical components or products and its own vehicle and driver fleet. Medical consumables, medicines and
within: prostheses are held at the NDC with an average of eight weeks supply.
• Medicines
• Consumables In 2021, and into 2022, we have had to respond to a number of product
shortages and global recalls, and we have seen some minor shortfalls in order
• Prostheses fulfilment. In all cases, our centralised procurement function has been able,
with the support of a permanent presence from the Clinical team, to find
• Food alternative supplies to maintain hospitals' activities.
• Green energy supply
• Medical gases 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.
Information Governance & Security
We have to maintain and manage a range of physical and digital data assets We have a governance structure, with Board oversight, that monitors the risk
including patient records, commercial information and staff data. and mitigations for information governance. To support the governance
structure we have a range of policies and practices covering information
governance. All staff have to complete annual mandatory training on
information governance and data protection.
Personal data has to be managed in compliance with the principles set out in
the Data Protection Act 2018 and the General Data Protection Regulations
(GDPR).
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
The level of risk to our IT architecture and systems continues to grow as the event of a successful cyber-attack.
volume of cyber security threats are increasing and becoming more
sophisticated.
We work with a number of industry leading technical partners to provide:
Healthcare and pharmaceutical organisations saw increased hostile cyber • Multiple layers of business protection through the use of
activity in 2020-21 because of the COVID-19 pandemic. We anticipate that the advanced detection and protection systems,
Healthcare sector will remain a higher risk sector from cyber-attacks.
• Regular third-party penetration testing on new and existing IT
systems.
Major Infrastructure Failure (New)
There is a risk that there is a failure of national infrastructure, e.g. the All our hospitals have a backup power source provided from diesel powered
national electricity grid; import channels for our UK based suppliers; fuel generators that operates major circuits of an hospital, but some key equipment
distribution, from a variety of causes including lack of resilience in is not covered, e.g. MRI scanners. Battery powered uninterrupted power is
national infrastructure, terrorist activity and action by state governments provided into specific equipment in theatres to ensure patients remain safe in
wishing to harm the UK. the event of a generator failure. These backup power sources are designed to
keep patients in the hospital safe, but are not a complete substitute for
mains power.
Our national distribution fleet refuel on a daily basis at the end of their
shifts to ensure resilient operational capability.
COVID-19/Pandemic
Repeated waves of infection occur from current or future variants of COVID-19 We have always followed UKHSA guidance throughout the pandemic as well as the
that risk overwhelming the NHS and forcing HM Government to re-introduce Infection Prevention Controls (IPC) set out in the NHSE's IPC Board Assurance
severe lock-down measures regionally or nationally. Framework regarding COVID-19. IPC performance indicators are reported to the
Executive Committee and Board on a regular basis.
IPC measures in place include testing of all staff working in or visiting
hospitals twice a week, following UKHSA guidance on screening patients
pre-admission before in-patient procedures, and local sites have outbreak
guidance in the event of a COVID-19 outbreak.
All healthcare staff will be offered COVID-19 booster jabs in Q4 2022. We will
also offer all staff flu vaccinations. We continue to educate and encourage
all our employees to have all the COVID-19 vaccinations they are entitled to,
and will encourage all employees to participate in future COVID-19 and flu
national vaccination programmes. Non-vaccinated colleagues are risk assessed
before working in clinical areas.
Brand Reputation
The COVID-19 pandemic has resulted in a substantial amount of positive media Our primary mitigations against damage to our brand reputation is through the
coverage for Spire Healthcare. good management of its principal risks, in particular:
Our brand presence within the consumer and NHS & HM Government is higher • Patient safety and clinical quality;
than at any point.
• Cyber security and data protection; and,
• Workforce.
Our brand reputation is interconnected with a number of other Principal Risks,
e.g. Clinical Quality and Patient Safety, Information Governance and Security. 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.
Our future growth depends upon our ability to maintain, and continue to
enhance, our reputation amongst patients, clinicians and other stakeholders.
As our brand presence grows, the risk increases that adverse events such as:
• patient notifications and recalls;
• mishandling of patient data; or,
• a breach of law or regulation
will have a more material impact on us.
Antimicrobial resistance (AMR) (New) We have in place:
A 2016 review on AMR found that at least 700,000 people - which is likely an • Executive level awareness of the Government's 5 year AMR
underestimate - die every year from drug-resistant infections worldwide, and strategy.
in the UK alone, there were 60,000 infections in 2018 and a 9% increase in
deaths (to 2,000) caused by drug-resistant infections between 2017 and 2018. • Participation in, and collaboration with, Government's
The UK published a new 5-year action plan to tackle AMR in 2019. This is, monitoring of AMR outbreaks.
however, a global issue and will require global collaboration and a focus on
ensuring a sustainable supply chain of drugs, as well as the correct use of • Requirement for clinicians to following guidance in line with
them in treating illnesses.* national guidelines on the prescribing of antibiotics in line with Government
guidelines.
• Access to up-to-date antimicrobial prescribing via online
*Source: HM Government 2020 National Risk Register (since withdrawn) systems and access to microbiologists at all sites.
• Appropriate investigations of post-surgery infections
including review of antibiotics.
Pandemic from new pathogen (New) We:
The emergence of new biological pathogens leads to an uncontrollable global • Maintain awareness of early warnings of potential pandemics
pandemic resulting in increased demand for Spire Healthcare to assist in from organisations like the WHO, Dept of Health, NHSE.
efforts and/or disruption/staff shortages.
• Have a developed Emergency Response Plan in line with the NHS
and our experience of managing the COVID-19 pandemic.
Directors' responsibility statement
Going Concern
The Group assessed going concern risk for a 12 month period through to 30
September 2023. As at 30 June 2022 the Group had cash of £96m, a Senior Loan
Facility of £325m and an undrawn Revolving Credit Facility of £100m. On 24
February 2022, the Group successfully refinanced its debt facilities with a
syndicate of existing and new Lenders. As part of the refinancing exercise
and in recognition of the fact that the Group had substantial cash reserves at
31 December 2021, the Group repaid £100m of the Senior Loan Facility. The
new arrangement has a maturity of 4 years, with the Group having the option to
extend by another year before the first anniversary of the February 2022
completion date. The financial covenants relating to this new agreement are
materially unchanged.
The Group has undertaken extensive activity to identify plausible risks which
may arise and mitigating actions, which in the first instance would include
management of working capital and constrained levels of capital investment.
Based on the current assessment of the likelihood of these risks arising by 30
September 2023, 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.
It should be noted that we are in a period of unprecedented geo-political and
macro-economic uncertainty. Whilst the Directors continue to closely monitor
these risks and their plausible impact, their severity is hard to predict and
is dependent upon many external factors. Accordingly the actual financial
impact of these risks may materially vary against the current view of their
plausible impact.
Each of the Directors confirms that, to the best of their knowledge:
· This condensed consolidated interim financial information for the
six months ended 30 June 2022 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 2021.
By order of the Board
Justin Ash Sir Ian Cheshire
Chief Executive Officer Chairman
7 September 2022
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 2022 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 21. 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 2022 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
7 September 2022
Condensed financial statements
Consolidated interim income statement
For the six months ended 30 June 2022
Six months ended 30 June (Unaudited)
2022 2021
(£ million) Note Total before adjusting Adjusting Total Total before adjusting items Adjusting Total
items
items
items
(note 10) (note 10)
Revenue 6 597.9 - 597.9 558.2 - 558.2
Cost of sales (328.4) - (328.4) (304.1) - (304.1)
Gross profit 269.5 - 269.5 254.1 - 254.1
Other operating costs (216.1) (5.6) (221.7) (206.2) (2.3) (208.5)
Other income 8 1.2 - 1.2 0.6 - 0.6
Operating profit 54.6 (5.6) 49.0 48.5 (2.3) 46.2
Finance costs 9 (46.0) - (46.0) (41.5) - (41.5)
Profit / (Loss) before taxation 8.6 (5.6) 3.0 7.0 (2.3) 4.7
Taxation 11 (4.4) 0.8 (3.6) (21.6) - (21.6)
Profit/ (Loss) for the period 4.2 (4.8) (0.6) (14.6) (2.3) (16.9)
Profit / (Loss) for the period attributable 4.3 (4.8) (0.5) (14.6) (2.3) (16.9)
to owners of the Parent
Loss for the period attributable (0.1) - (0.1) - - -
to non-controlling interests(1)
Loss per share (in pence per share)
- basic 12 1.1 (1.2) (0.1) (3.6) (0.6) (4.2)
- diluted 12 1.0 (1.1) (0.1) (3.6) (0.6) (4.2)
1. Loss for the year attributable to non-controlling interests was not
disclosed in prior year as it was immaterial.
Consolidated interim statement of comprehensive income
For the six months ended 30 June 2022
Six months to 30 June (Unaudited)
(£ million) 2022 2021
Loss for the period (0.6) (16.9)
Items that may be reclassified to profit or loss in subsequent periods 0.7 1.6
Profit on cash flow hedges
Taxation on cash flow hedges (0.1) (0.3)
Other comprehensive income for the period 0.6 1.3
Total comprehensive loss for the year, net of tax - (15.6)
Attributable to:
Equity holders of the parent 0.1 (15.6)
Non-controlling interests(1) (0.1) -
1. Loss for the year attributable to non-controlling interests was not
disclosed in prior year as it was immaterial.
Consolidated interim statement of changes in equity
For the six months ended 30 June 2022
(£ million) Notes Share capital Share premium Capital reserves EBT share reserves Retained earnings Total Non-controlling interests (1) Total equity
Hedging reserve
As at 1 January 2021 4.0 826.9 376.1 (0.8) (3.2) (496.4) 706.6 - 706.6
Loss for the period - - - - - (16.9) (16.9) - (16.9)
Other comprehensive profit for the period - - - - 1.3 - 1.3 - 1.3
Total comprehensive loss - - - - 1.3 (16.9) (15.6) - (15.6)
Share-based payments (net of tax) 20 - - - - - 1.7 1.7 - 1.7
As at 30 June 2021 4.0 826.9 376.1 (0.8) (1.9) (511.6) 692.7 - 692.7
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 - 0.6
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 - - - - - (0.5) (0.5) 0.5 -
Share based payments (net of tax) 20 - - - - - 1.1 1.1 - 1.1
Balance at 30 June 2022 4.0 829.7 376.1 (0.8) 0.1 (496.0) 713.1 (4.4) 708.7
1. Loss for the year attributable to non-controlling interests was not
disclosed in prior year as it was immaterial.
Consolidated interim balance sheet
As at
(£ million) Notes 30 June 2022 31 December 2021 (Audited)
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment 13 1,540.9 1,553.5
Intangible assets 14 334.8 334.8
Financial asset 3.2 2.3
1,878.9 1,890.6
Current assets
Inventories 39.1 40.2
Trade and other receivables 115.8 99.2
Cash and cash equivalents 95.8 202.6
250.7 342.0
Non-current assets held for sale 5 4.3 4.8
255.0 346.8
Total assets 2,133.9 2,237.4
EQUITY AND LIABILITIES
Equity
Share capital 4.0 4.0
Share premium 829.7 826.9
Capital reserves 376.1 376.1
EBT share reserves (0.8) (0.8)
Hedging reserve 0.1 (0.5)
Retained earnings (496.0) (496.1)
Equity attributable to owners of the Parent 713.1 709.6
Non-controlling interests (4.4) (4.8)
Total equity 708.7 704.8
Non-current liabilities
Bank borrowings 15 321.8 421.8
Lease liability 16 753.9 751.0
Derivatives 17 - -
Deferred tax liability 61.6 57.7
1,137.3 1,230.5
Current liabilities
Bank borrowings 15 1.8 5.7
Lease liability 16 88.7 86.8
Derivatives 17 - 0.7
Financial liabilities - 1.9
Provisions 18 27.6 44.8
Trade and other payables 19 166.7 159.1
Income tax payable 3.1 3.1
287.9 302.1
Total liabilities 1,425.2 1,532.6
Total equity and liabilities 2,133.9 2,237.4
Consolidated interim statement of cash flows
For the six months ended 30 June 2022
Six months ended 30 June (Unaudited)
(£ million) Notes 2022 2021
Cash flows from operating activities
(Loss) / profit before taxation 3.0 4.7
Adjustments for:
Depreciation 7 51.2 47.5
Adjusting Items 1.3 2.3
Share-based payments 20 1.3 1.7
Fair value movement on financial assets (0.9) (0.6)
(Profit) / Loss on disposal of property, plant and equipment 7 0.1 (0.1)
Finance costs 9 46.0 41.5
102.0 97.0
Movements in working capital:
(Increase)/Decrease in trade and other receivables (18.1) (5.5)
Decrease/(Increase) in inventories 1.1 2.3
Decrease in trade and other payables 23.7 (8.0)
(Decrease)/increase in provisions (17.2) (0.1)
Cash generated from operations 91.5 85.7
Income tax received - -
Net cash from operating activities 91.5 85.7
Cash flows from investing activities
Purchase of property, plant and equipment (44.1) (31.6)
Proceeds of disposal of Sussex assets (Adjusting Item) - 2.0
Proceeds of disposal of property, plant and equipment 0.1 0.1
Net cash used in investing activities (44.0) (29.5)
Cash flows from financing activities
Bank interest paid (13.3) (6.5)
Lease interest paid (33.8) (32.7)
Payment of lease principal (7.3) (7.2)
Payment of bank borrowings (100.0) -
Purchase of non-controlling interests (2.7) -
Proceeds from the issue of shares 2.8 -
Net cash used in financing activities (154.3) (46.4)
Net increase in cash and cash equivalents (106.8) 9.8
Cash and cash equivalents at beginning of period 202.6 106.3
Cash and cash equivalents at end of period 95.8 116.1
Adjusting items (note 10)
Adjusting items included in the cash flow (4.3) 2.0
Total Adjusting items (5.6) (2.3)
Notes to the preliminary announcement
1. General information
Spire Healthcare Group plc (the 'Company') and its subsidiaries (collectively,
the 'Group') owns and operates private hospitals and clinics in the UK and
provides a range of private healthcare services.
The 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 2022 was approved by the Board on 7 September 2022.
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 2021. 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 2021 has been
extracted from the statutory accounts which were approved by the Board of
Directors on 2 March 2022 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 a 12 month period through to 30
September 2023. As at 30 June 2022 the Group had cash of £96m, a Senior Loan
Facility of £325m and an undrawn Revolving Credit Facility of £100m. On 24
February 2022, the Group successfully refinanced its debt facilities with a
syndicate of existing and new Lenders. As part of the refinancing exercise
and in recognition of the fact that the Group had substantial cash reserves at
31 December 2021, the Group repaid £100m of the Senior Loan Facility. The
new arrangement has a maturity of 4 years, with the Group having the option to
extend by another year before the first anniversary of the February 2022
completion date. The financial covenants relating to this new agreement are
materially unchanged.
The Group has undertaken extensive activity to identify plausible risks which
may arise and mitigating actions, which in the first instance would include
management of working capital and constrained levels of capital investment.
Based on the current assessment of the likelihood of these risks arising by 30
September 2023, 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.
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 2021. 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 2022. These have not have had a material impact on the Group.
- Amendments to IFRS 3 Business Combinations - Reference to the
Conceptual Framework
- Amendments to IAS 16 - Property, Plant and Equipment: Proceeds
before Intended Use
- Amendments to IAS 37 - Onerous Contracts - Costs of Fulfilling a
Contract
- IFRS 9 Financial Instruments - Fees in the "10 per cent" test
for derecognition of financial liabilities
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 2021 with the
exception of the financial liability on business combination as the liability
has been settled during the period.
5. Non-current assets held for sale
Two properties remain as held for sale in the current period.
As at
(£ million) 30 June 2022 (Unaudited) 31 December 2021 (Audited)
Spire St Saviours property 3.2 3.7
East Midlands Cancer Centre property (Bostocks Lane) 1.1 1.1
Total assets held for sale 4.3 4.8
The Group has accepted an offer in respect of Spire St Saviours Hospital,
which closed in 2015, and the sale is expected to complete in H2 2022. It
therefore remains as classified as held for sale as at 30 June 2022. The
current sales price less costs to sell was less than the carrying value and
therefore an impairment of £0.5m has been recognised in Adjusting Items.
The Group's management have committed to sell a parcel of land at Bostocks
Lane as the Group has accepted an offer on the property. The sale is
considered highly probable and the assessment has not changed. It therefore
remains as classified as held for sale.
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) 2022 2021
Insured 265.2 231.3
NHS 145.6 185.4
Self-pay 174.1 129.9
Other 13.0 11.6
Total revenue 597.9 558.2
Group revenues increased by 7.1% to £597.9m versus H1 2021 of £558.2m. The
increase in revenue in H1 22 is mainly driven by the strong performance of
private patients, increased by 21.6% versus H1 2021. Total NHS revenue
decrease by 21.5% as the Group operated under a COVID-19 specific NHS contract
with a minimum volume guarantee in Q1 2021. NHS revenue in the period of
£145.6m (H1 2021: £185.4m) includes amounts arising from specific COVID-19
contracts of £1.7m (H1 2021: £57.6m).
7. Operating profit
Operating profit has been arrived at after charging / (crediting):
Six months ended 30 June (Unaudited)
(£ million) 2022 2021
Depreciation of property, plant and equipment 34.6 33.3
Depreciation of right of use assets 16.6 14.2
Lease payments made in respect of low value and short leases 6.7 6.7
Fair value loss on financial liability 0.8 -
Profit on disposal of property, plant and equipment(1) 0.1 (0.6)
Staff costs 233.9 220.7
(1 In 2021: £0.4m of the profit on disposal of Property, Plant and Equipment is included in Adjusting Items in respect of the shortening of the lease at Spire Sussex.)
In FY21, the Group acquired 100% of the voting shares of Claremont Hospital
Holdings Limited, which in turn owns 88.0% of the shares of Claremont Hospital
LLP. On acquisition the agreement contained a put option, on a change of
ownership, which allows the non-controlling interest holders to require the
majority interest, Spire Healthcare, to purchase all of their shares which was
valued at £1.9m at FY21. In March 2022, Spire Healthcare purchased the shares
for £2.7m resulting in a fair value movement of £0.8m in the period.
8. Other income
Six months ended 30 June (Unaudited)
(£ million) 2022 2021
Fair value movement on financial asset 0.9 0.6
Realised profit in respect of financial asset 0.3 -
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. £0.3m has been received in respect of this arrangement.
9. Finance costs
Six months ended 30 June (Unaudited)
(£ million) 2022 2021
Finance costs:
Interest on bank facilities 9.5 8.1
Interest on obligations under leases 36.5 33.4
Total net finance costs 46.0 41.5
10. Adjusting Items
Six months ended 30 June (Unaudited)
(£ million) 2022 2021
Business reorganisation and corporate restructuring costs 3.3 -
Asset acquisitions, disposals, impairment and aborted project costs 1.9 2.6
Remediation of regulatory compliance or malpractice 0.3 (0.4)
Hospitals set up and closure costs 0.1 0.1
Total Adjusting Items 5.6 2.3
Income tax charge / (credit) on Adjusting Items (0.8) -
Total post-tax Adjusting Items 4.8 2.3
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, costs of £3.3m have been incurred in the period.
Asset acquisitions, disposals, impairment and aborted project costs mainly
comprise costs in respect of Claremont. Following the acquisition of Claremont
Hospital in November 2021, the Group has incurred integration costs of £0.5m
in the period. In addition, on 31 March 2022, the Group acquired the remaining
non-controlling interest for £2.7m, of which £1.9m had been provided for in
FY21. Therefore, £0.8m is included in Adjusting items (refer to note 7 for
additional details). During the period, an impairment of £0.5m was recognised
on the St Saviours property, classified as held for sale, as the sales price
less costs to sell on the property was lower than the carrying value. The sale
of the property is due to be completed in H2 2022. Other costs incurred mainly
relate to the final business transfer of the Sussex Hospital to the NHS Trust
which completed on 31 March 2022, as announced during FY21. In the prior
period, £2.6m included costs of £2.8m, largely relating to the attempted
takeover bid by Ramsay Health Care, offset by £0.4m of income as a result of
shortening the Sussex lease (from 6 years to 1 year) following the agreement
to transfer the business to the NHS Trust in March 2022.
Remediation of regulatory compliance or malpractice costs includes amounts
paid to one of the Group's Insurers following the Court of Appeal hearing.
£13.0m was provided in FY21, with £13.3m being settled in FY22. The £0.3m
recognised in the period reflects this additional amount. In the prior year, a
credit of £0.4m was recognised following the settlement of costs to Spire
Healthcare from its insurer following the original judgment finding in favour
of the Group in FY20.
Hospital set up and closure costs mainly relate to the maintenance costs of
non-operational sites.
11. Taxation
Six months ended 30 June (Unaudited)
(£ million) 2022 2021
Current tax:
UK Corporation tax charge - -
Total current tax charge - -
Deferred tax:
Origination and reversal of temporary differences 0.5 1.6
Adjustments in respect of previous periods 3.1 2.3
Impact of rate change adjustment - 17.7
Total deferred tax charge 3.6 21.6
Total tax charge 3.6 21.6
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 2022. The Group has
separately calculated the tax rates applicable in respect of discrete items,
such as the vesting of the SAYE scheme, for the period. Adjustments in respect
of previous periods reflect true ups between the amounts disclosed in the
accounts to the final returns submitted with HMRC, with H1 2022 reflecting a
change in estimate in respect of corporate interest restrictions which has
impacted deferred tax.
The deferred tax charge in H1 2021 included a one off charge of £17.7m as a
result of deferred tax assets and liabilities being revalued from 19% to 25%
following the Government's announcement to increase the corporation tax rate
which is due to take place on 1 April 2023. Whilst there is speculation of a
change to the corporation tax rate with the appointment of the new Prime
Minister, no change has been substantively enacted, and therefore deferred tax
remains valued at the 25%. Should a change in the rate be enacted, the
deferred tax assets and liabilities will be revalued at that point.
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)
2022 2021
Loss for the period attributable to owners of the Parent (£ million) (0.5) (16.9)
Weighted average number of ordinary shares 401,519,952 401,082,216
Adjustment for weighted average number of shares held in the Employee Benefit (128,690) (239,483)
Trust (EBT)
Weighted average number of ordinary shares in issue (No.) 401,391,262 400,842,733
Basic loss per share (in pence per share) (0.1) (4.2)
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)
2022 2021
Loss for the period attributable to owners of the Parent (£ million) (0.5) (16.9)
Weighted average number of ordinary shares in issue 401,391,262 400,842,733
Adjustment for weighted average number of contingently issuable shares - -
Diluted weighted average number of ordinary shares in issue (No.) 401,391,262 400,842,733
Diluted loss per share (in pence per share) (0.1) (4.2)
As 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)
2022 2021
Loss for the period attributable to owners of the Parent (£ million) (0.5) (16.9)
Adjusting items (net of taxation) (see note 10) 4.8 2.3
Adjusted loss after tax (£ million) 4.3 (14.6)
Weighted average number of Ordinary Shares in issue 401,391,262 400,842,733
Weighted average number of dilutive Ordinary Shares 409,696,225 400,842,733
Adjusted basic earnings / (loss) per share (in pence per share) 1.1 (3.6)
Adjusted diluted earnings / (loss) per share (in pence per share) 1.0 (3.6)
13. 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 2022 656.3 123.3 159.8 10.9 950.3 603.2 1,553.5
Additions 6.1 9.8 10.3 2.1 28.3 10.5 38.8
Disposals and transfers (0.2) (0.3) 5.6 (5.3) (0.2) - (0.2)
Depreciation (9.0) (4.5) (21.1) - (34.6) (16.6) (51.2)
Net book value at 30 June 2022 653.2 128.3 154.6 7.7 943.8 597.1 1,540.9
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 2022 597.3 5.9 603.2
Additions 0.5 10.0 10.5
Depreciation (15.0) (1.6) (16.6)
Net book value at 30 June 2022 582.8 14.3 597.1
Impairment testing
The Directors consider property and property right of use assets for
indicators of impairment at least annually, or when there is an indicator of
impairment. When making the assessment, the value-in-use of the property is
compared with its carrying value in the accounts. The value-in-use was
calculated in line with the Group's forecast and sensitivities reflected in
the Intangible impairment review. Where headroom is significant, no further
work is undertaken. Where headroom is minimal, the property is reviewed in
more detail, reviewing the factors driving underperformance. No impairment
charge was taken in the period.
The value-in-use calculations require the Group to estimate cash flows
expected to arise in the future, taking into account market conditions. The
present value of these cash flows is determined using an appropriate discount
rate and market conditions covering the four and a half-year period to
December 2026. The Group has used a discount rate of 9.7% (2021 year end:
8.5%), adjusted for the effects of IFRS 16. A long-term growth rate of 2% has
been applied to cash flows beyond 2026.
Management identified a number of key assumptions relevant to the property
impairment calculations, being Adjusted EBITDA growth, which is impacted by an
interaction of a number of elements and assumptions regarding revenue, cost
inflation, capex maintenance spend, discount rates and terminal growth rates.
These variables are interdependent and the forecast cash flows reflect
management's expectations based on current market conditions. Management
undertook sensitivity and determined that should the discount rate increase by
30 basis points (bp) with all other assumptions remaining equal, sufficient
headroom would remain.
14. Intangible asset
(£ million) Total
Cost or valuation:
At 31 December 2021 & 30 June 2022 535.8
Impairment:
At 31 December 2021 & 30 June 2022 201.0
Carrying amount:
At 30 June 2022 334.8
At 31 December 2021 334.8
Impairment testing
The Directors treat the business as a single cash-generating unit for the
purposes of testing goodwill for impairment. The recoverable amount of
goodwill is calculated by reference to its estimated value-in-use. In order to
estimate the value-in-use, management has used trading projections covering
the period to December 2026.
Management identified a number of key assumptions relevant to the value-in-use
calculations, being revenue growth, which is impacted by an interaction of a
number of elements of the operating model, including pricing trends, volume
growth and the mix and complexity of discharges, assumptions regarding cost
inflation and discount rate. These variables are interdependent and the
forecast cash flows reflect management's expectations based on current market
trends.
The Group has used a discount rate of 9.7% (2021 year end: 8.5%), adjusted for
the effects of IFRS 16. A long-term growth rate of 2% has been applied to cash
flows beyond 2025.
A sensitivity analysis has been performed in order to review the impact of
reasonable, possible changes in key assumptions. For example, an increase of
100 basis points (bp) in the pre-tax discount rate, with all other assumptions
held constant, or, reducing the terminal growth rate to 1.50% in the period
beyond 2026, with all other assumptions held constant, would not result in an
impairment charge (H1 2021: nil impairment was booked).
15. 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 £100m of the Senior Loan Facility. The new arrangement has a
maturity of 4 years, with the Group having the option to extend by another
year before the first anniversary of the February 2022 completion date. The
financial covenants relating to this new agreement are materially unchanged.
For accounting purposes the loan and associated deferred and amortised fees
have been treated as an extinguishment under IFRS 9, as a result £3.1m has
been recognised within finance costs in the income statement.
As at
(£ million) 30 June 2022 (Unaudited) 31 December 2021 (Audited)
Amount due for settlement within 12 months 1.8 5.7
Amount due for settlement after 12 months 321.8 421.8
Total bank borrowings 323.6 427.5
Net debt for the purposes of the covenant test in respect of the Senior Loan
Facility was £229.2m (December 2021: £222.4m) and the net debt to EBITDA
ratio was 2.2x (December 2021: 2.3x). The net debt for covenant purposes
comprises the senior facility of £325.0m less cash and cash equivalents.
EBITDA for covenant purposes comprises Adjusted EBITDA for Last Twelve Months
(LTM) of pre-IFRS 16 Adjusted EBITDA of £111.3m (December 2021: 106.0m) less
the rental of a finance lease pre-IFRS 16 of £9.3m (2021: £9.1m).
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 2022 (Unaudited) 31 December 2021 (Audited)
Senior finance facility((1)) February 2026 2.05% 323.6 428.2
Revolving credit facility (undrawn committed facility) February 2026 100.0 100.0
(1. In the prior period the difference between the carrying amount of
the facility and the value of the debt repayment schedule is a modification
fee on the loan extension and is deferred and amortised in accordance with
IFRS 9 loan modification accounting. On refinancing in the current period,
these amounts have been accelerated and recognised in the Income Statement as
a result of the refinancing being treated as an extinguishment for accounting
purposes.)
Changes in bank borrowings arising from financing activities
(£ million) 1 January Cash flows Non-cash changes 30 June
Other(1)
2022
Bank loans 427.5 (113.4) 8.5 1.0 323.6
Total 427.5 (113.4) 8.5 1.0 323.6
(1. Other relates to fees incurred on the refinanced debt which are
deferred and amortised in accordance with IFRS 9 loan modification accounting.
Non-cash changes reflect interest charged on the loan.)
(£ million) 1 January Cash flows Non-cash changes Loan modification 30 June
2021
Bank loans 420.8 (6.5) 7.6 0.5 422.4
Total 420.8 (6.5) 7.6 0.5 422.4
16. 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 £842.6m
(H1 21: £750.6m), expire in various years to 2042 and carry a blended
implicit interest rate of 8.4% (2021: 9.0%). 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.
Changes in lease liabilities arising from financing activities
(£ million) 1 January Cash flows Non-cash changes Additions Disposals / modification 30 June
2022
Lease liabilities 837.8 (41.1) 35.4 10.5 - 842.6
Total 837.8 (41.1) 35.4 10.5 - 842.6
(£ million) 1 January Cash flows Non-cash changes Additions Disposals / modification 30 June
2021
Lease liabilities 749.5 (39.9) 33.4 9.8 (2.2) 750.6
Total 749.5 (39.9) 33.4 9.8 (2.2) 750.6
In the period, the Group recognised charges of £6.7m (2021: £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 £47.8m (2021: £46.6m). 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 (2021: 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.
17. Derivatives
The Group has a derivative contract in respect of an interest rate swap in
place:
As at
(£ million) 30 June 2022 (Unaudited) 31 December 2021 (Audited)
Amount due for settlement within 12 months - 0.7
Amount due for settlement after 12 months - -
Total derivatives - 0.7
The interest rate swap matured on the 22(nd) July 2022 resulting in an
insignificant carrying value as at 30 June 2022. The Group entered into new
interest rate swaps on the 25(th) July 2022. The movement in respect of
derivatives reflects £0.8m (December 2021: £1.2m) recycled in the period and
a £0.1m charge (December 2021: £0.4m credit) in fair value. All movements
are reflected within other comprehensive income.
18. Provisions
The movement for the period in the provisions is as follows:
(£ million) Medical Business restructuring Total
malpractice
and other
At 1 January 2022 42.0 2.8 44.8
Increase in existing provisions 3.2 0.5 3.7
Provisions released (0.2) - (0.2)
Provisions utilised (20.0) (0.7) (20.7)
At 30 June 2022 25.0 2.6 27.6
Medical malpractice relates to estimated liabilities arising from claims for
damages in respect of services previously supplied to patients. During the
period £3.2m was added due to additional claims received. Amounts are shown
gross of insured liabilities. Insurance recoveries of £7.6m (December 2021:
£7.4m) are recognised in other receivables. This drives the majority of the
movement in the Medical Malpractice provision with the exception of the
Insurer settlement. Following the Court of Appeal judgment in H2 2021,
relating to the ongoing legal action between the Group and its Insurer,
finding in favour of the Insurer, Spire Healthcare settled £13.0m in the
period which is reflected as utilised during the period.
Following the completion of the criminal proceedings against Ian Paterson, a
Consultant who previously had practicing privileges at Spire Healthcare,
management agreed settlement with all current and known civil claimants (and
the other co-defendants) and made a provision for the expected remaining costs
in FY20. The provision is being utilised, but no addition has been made in H1
2022. This provision remains subject to ongoing review following the
publication of the Public Inquiry report on Paterson issued on 4 February
2020, as the Group continues to assess the potential impact of the
recommendations, but no adjustment has been made to the overall project and
claims provision in this period. 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 2022, the remaining Business Restructuring and Other provisions
primarily includes non-patient claims made against the Group. The Group is
in the process of settling or defending such claims as appropriate.
Provisions as at 30 June 2022 are materially considered to be current and
expected to be utilised at any time within the next twelve months.
19. Trade and other payables
As at
(£ million) 30 June 2022 (Unaudited) 31 December 2021 (Audited)
Trade payables 65.6 51.7
Accrued expenses 54.4 52.6
Social security and other taxes 9.7 8.3
Other payables 37.0 46.5
Trade and other payables 166.7 159.1
Accrued expenses includes holiday pay accrued of £9.1m (December 2021:
£9.1m) 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 2022, the balance of payments on
account was £10.7m (December 2021: £9.9m), and other credit balances,
largely relating to NHS credits, were £21.4m (December 2021: £25.8m).
20. Share-based payments
The Group operates a number of share-based payment schemes for Executive
Directors and other employees, all of which are equity-settled.
The Group has no legal or constructive obligation to repurchase or settle any
of the options in cash. The total cost recognised in the income statement was
£1.3m in the six months ended 30 June 2022 (2021: £1.7m). 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 (2021: £0.2m).
A summary of additional schemes opened in the period are shown below:
Long Term Incentive Plan
On 14 March 2022, the Company granted a total of 3,097,060 options to the Executive directors and other senior management. The options will vest based on return on capital employed ('ROCE') (35%) targets for the financial year ending 31 December 2024, relative total shareholder return ('TSR') (35%) targets on performance over the three year period to 31 December 2024 and operational excellence ('OE') (30%) targets based on employee engagement targets and regulatory ratings for the current portfolio of hospitals, subject to continued employment. Upon vesting, the options will remain exercisable until March 2032. The Executive Directors are subject to a 2 year holding period, whilst other senior management are not.
Deferred Share Bonus Award
On 14 March 2022, the Company granted a total of 142,427 options to Executive
directors, with a vesting date of 14 March 2025. There are no performance
conditions in respect of the scheme and is subject to continued employment.
Sharesave scheme
On the 24 April 2022, the Company granted 3,800,557 options to employees with
a vesting date of 1 June 2025. There are no performance conditions in respect
of the scheme. Upon vesting, the options will remain exercisable for 6 months.
The IFRS 2 charge has been calculated using an adjusted Black Scholes model
with judgements including leavers of the scheme (employees who may cease to
save) and dividend yields.
21. 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 2021 sets out the Group's policies
and processes for measuring and managing risk. These have not changed
significantly during the period to 30 June 2022.
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 continues to be the largest risk
for the Group given the current economic uncertainty. The Expected Credit Loss
("ECL") as at June 2022 is £4.2m (December 2021: £4.1m).
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
2021.
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 2022 (£ million) 325.0 325.0 100.0
Effective interest rate (%) 3.19% 3.19%
31 December 2021 (£ million) 425.0 425.0 100.0
Effective interest rate (%) 2.96% 2.96%
The following derivative contracts were in place at 30 June 2022 (December
2021: £0.7 million liability):
(£ million) Interest rate Maturity date Notional Amount Carrying value Asset / (Liability)
Interest rate swap 1.2168% 22 July 2022 213.0m -
The fair value of the above instrument is considered the same as its carrying
value. In line with disclosures in note 30 of the 2021 Annual report and
accounts, the above instrument uses level 2 of the fair value hierarchy to
measure the fair value of the instrument. The interest rate swap matured on
the 22(nd) July 2022 resulting in the value of the derivative being
insignificant as at 30 June 2022.
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 2022
Variable rate instruments (0.3) 0.3 (0.3) 0.3
31 December 2021
Variable rate instruments (0.5) 0.5 (0.5) 0.5
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 2022 Maturity analysis
(£ million) Carrying amount Contractual cash flows Within 1 year Between 1 and 2 years More than 2 years
Trade and other payables 157.0 157.0 157.0 - -
Bank borrowings 323.6 383.8 13.7 16.8 353.3
Lease liabilities 842.6 1,789.6 88.7 89.0 1,611.9
1,323.2 2,330.4 259.4 105.8 1,965.2
Derivative interest rate swap - 0.1 0.1 - -
Total - 0.1 0.1 - -
Maturity analysis
31 December 2021
(£ million) Carrying amount Contractual cash flows Within 1 year Between 1 and 2 years More than 2 years
Trade and other payables 150.8 150.8 150.8 - -
Bank borrowings 427.5 449.6 12.8 436.8 -
Lease liabilities 837.8 1,819.3 86.8 87.0 1,645.5
Financial liability 1.9 1.9 1.9 - -
1,418.0 2,421.6 252.3 523.8 1,645.5
Derivative interest rate swap 0.7 1.2 1.2 - -
Total 0.7 1.2 1.2 - -
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 2022 (Unaudited) 31 December 2021 (Audited)
Committed undrawn revolving credit facility 100.0 100.0
Cash and cash equivalents 95.8 202.6
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 £33.6m (December 2021:
£29.1m).
Bases of valuation
As of 30 June 2022, except for the interest rate swap and the financial asset,
the Group did not hold financial instruments that are included in level 1, 2
or 3 of the hierarchy.
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 therefore
assesses forward looking information and appropriate discount rates and risk
factors to determine the fair value. Sensitivities are also taken into account
when reviewing the fair value.
As at 30 June 2022, 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 2022 Value as at 31 December 2021 Level 1 Level 2 Level 3
Financial assets at fair value through profit or loss
Profit share arrangement 3.2 2.3 - - 3.2
Financial liabilities at fair value through profit or loss and using hedge
accounting
Interest rate swaps - 0.7 - - -
Financial liabilities at fair value on acquisition of a subsidiary
Share put option - 1.9 - - 1.9
In the period, Spire Healthcare received a profit share in respect of the
financial asset of £0.3m. In addition a fair value movement of £0.9m 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. The movement on the share put option is fully realised as the
options were exercised during the period.
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR LDLLBLKLZBBV