Spire Healthcare Group plc (LON:SPI), a leading independent healthcare group in the UK, has today announced its preliminary results for the year ended 31 December 2023.
Summary group results for the year ended 31 December 2023
| Year ended 31 December | |||
| £m | 2023 | 2022 | Variance |
| Revenue | 1,359.0 | 1,198.5 | 13.4% |
| Adjusted operating profit (Adjusted EBIT) | 130.4 | 105.6 | 23.5% |
| Adjusting items included in operating profit | (4.2) | (10.2) | NM |
| Operating profit | 126.2 | 95.4 | 32.3% |
| Profit before taxation | 34.6 | 3.9 | NM(1) |
| Profit after taxation | 27.9 | 8.2 | NM |
| Basic profit per share, pence | 6.8 | 2.1 | NM |
| Adjusted profit per share, pence (2) | 7.9 | 4.2 | 88.1% |
| Adjusted EBITDA (3) | 234.0 | 203.5 | 15.0% |
| Adjusted FCF (4) | 48.0 | 28.0 | 71.4% |
| Net bank debt (5) | 315.7 | 250.1 | 26.2% |
| Net bank debt / EBITDA covenant ratio | 2.2 | 2.2 | – |
1. Not meaningful
2. Adjusted profit / (loss) per share is stated before the effects of Adjusting Items.
3. Adjusted EBITDA is calculated as Operating Profit, adjusted to add back depreciation, and Adjusting items, referred to hereafter as ‘Adjusted EBITDA’ refer to page 11. For EBITDA for covenant purposes, refer to note 17.
4. Adjusted FCF (Free Cash Flow) is calculated as Adjusted EBITDA, less rent, capital expenditure cash flows and changes in working capital after adjusting for one-off items which are not related to the normal trading activity of the business. Rent cash flows are defined as interest on, and payment of, lease liabilities. Capital expenditure cash flows are defined as the Purchase of plant, property and equipment.
5. Net bank debt is defined as bank borrowings less cash and cash equivalents.
Financial and operating highlights
Strong financial performance with revenue and earnings significantly ahead of prior year
· Revenue(6) up 13.4% vs FY22 to £1,359.0m, driven by increasing demand for private healthcare
· Private revenue up 9.5% vs FY22 to £959.7m (FY22: up 14.5%), with strong growth in PMI
· Adjusted EBIT up 23.5% vs FY22 to £130.4m and Adjusted EBITDA up 15.0% vs FY22 to £234.0m
· Operating profit up 32.3% vs FY22 to £126.2m, delivered in a period of macroeconomic uncertainty and in an inflationary environment
· For the Hospitals Business (6) revenue up 10.8% vs FY22, Adjusted EBITDA margin increased to 17.6% (FY22: 17.0%)
· ROCE(7) increased to 7.5% (FY22: 6.2%)
· Net bank debt / EBITDA covenant ratio maintained at 2.2x at 31 December 2023 (end FY22: 2.2x) after acquisition of Vita Health Group
· Recommended final dividend of 2.1 pence per ordinary share (FY22: 0.5 pence per ordinary share)
Continued development of the business in line with strategy
· 98% of inspected locations currently rated ‘Good’ or ‘Outstanding’ by regulators in England, Scotland and Wales (end FY22: 98%)
· Acquired Vita Health Group, a provider of mental and physical health services in England, for a net cash consideration of £73.2m (see note 24)
· £15m cost savings achieved as planned; another £60m targeted by the end of 2026, of which at least £15m will be targeted in 2024
· £84.4m capex (FY22: £90.1m), including a new outpatients and diagnostic centre at Yale, cardiac services at Manchester and Nottingham, and investment in new clinics at Abergele and Harrogate
· Progress towards target of becoming net carbon zero by 2030
6. Unless otherwise stated numbers quoted refer to the Group. The Hospitals Business relates to business operations performed at hospital sites. All other Group operations are referred to as ‘New Services’ and include the Doctors Clinic Group (DCG), Vita Health Group (VHG) and the clinics. Revenue and earnings from New Services were not material in FY23. From FY24, New Services will be presented separately. Refer tp page 11 for alternative performance measures.
7. Return on capital employed (ROCE) is the ratio of the group’s Adjusted EBIT to total assets less cash, capital investments made in the last 12 months and current liabilities. The ROCE outcome includes the impact of the acquisition of Vita Health Group (VHG) in October 2023 and is stated after taking its actual profit contribution to the Group for the period to 31 December 2023, adjusting for a full year effect to annualise the effect of VHG as it has not contributed a full 12 month EBIT to the Group. Refer to page 12.
Current trading and outlook
Since the year end, Spire Healthcare has continued to trade in line with management expectations. Management remains confident of reaching the medium-term targets that were set at the Group’s Capital Markets Day in 2022.
In 2024, the Group is planning for another year of strong overall demand. Private Medical Insurers (PMIs) are reporting strong increases in policies written, particularly in corporate, and Spire management expects this trend to continue. Management believes this will result in more outpatient activity, which often leads to more inpatient and daycase treatment.
Management anticipates modest self-pay (SP) revenue growth in 2024, driven mainly by average revenue per case (ARPC) and mix management. The Company is observing certain patients who had previously visited as self-paying customers now coming to Spire hospitals with PMI coverage, and we anticipate that this trend will continue.
The Group’s NHS work saw strong growth in 2023, and in the period ahead, there could be increased commissioning. Spire Healthcare continues to be well placed to help the NHS address record waiting lists.
Spire is targeting another year of strong EBITDA growth, with Adjusted EBITDA guided to be in the range £255m to £275m for the current financial year. This includes an EBITDA contribution from VHG of c.£10m and more than £100m revenue, as previously disclosed. The actual Group outcome will depend on a number of factors. Supporting factors include growth of the private business, acceleration of digitalisation/ savings, new services and NHS commissioning. Potential factors which may impede the Group’s progress include consumer sentiment, the economy, excessive inflation, high incidence of respiratory illnesses and NHS budgetary constraints.
Justin Ash, Chief Executive Officer of Spire Healthcare, said:
“This is a strong set of results, delivered during a period of macroeconomic uncertainty and in an inflationary environment, demonstrating that our strategy and execution is working. The high-quality diagnosis and treatment we provide in our hospitals continued to meet the demand for fast access to care throughout 2023, while we broadened our range of services to meet more of people’s healthcare needs out-of-hospital, in the community and at home. This enabled us to care for over one million patients for the first time, over the year.
“Our number one priority will always be quality of care and patient safety, which underpins our market penetration and consultant support. We have demonstrated that we can keep this focus whilst driving efficiencies, generating profit and margin improvement, and delivering long-term shareholder value. Our strong financial performance in 2023 and our confidence in the future, underpins the board’s recommendation of a full year dividend of 2.1 pence per share, up significantly over the prior year. I thank all our colleagues and consultant partners for their tremendous contribution.
“2024 will be a key year as we continue to transform the business. Through our programme of investments in digital platforms, we will be driving further change and improvement, benefiting patients and colleagues, and generating significant efficiencies. Our new services will become material contributors to our operations and financial results, as we strive to provide a more integrated healthcare offering. I am excited about our prospects for 2024 and look forward to contributing in even greater measure to the nation’s health in the year ahead.”
Operating review
Overview
Spire Healthcare delivered strong financial and operational performance during 2023, producing a year of profitable growth. All headline metrics rose materially year-on-year (YOY) with increases in revenue, volume, average revenue per case (ARPC), EBITDA, EBIT and PBT. The performance was in line with management’s expectations and delivered against a background of high inflation and economic complexity. The Group’s ongoing focus on cost management, with c.£15m saved during the year, resulted in a strong YOY profit growth, with Adjusted EBITDA of £234.0m (FY22: £203.5m) and profit before tax of £34.6m (FY22: £3.9m).
Revenue in FY23 was up 13.4% to £1,359.0m (FY22: £1,198.5m), driven by increasing demand for private healthcare, which remained strong throughout the year. Admissions were up by 5.3% to 276,705. 2023 saw particularly high demand from private medical insurance (PMI) patients. The Group’s self-pay (SP) business remained robust with volumes exceeding pre-pandemic levels. SP revenue was up YOY, delivered through a strong focus on mix, where it targeted more complex, higher margin treatments in orthopaedics, while scaling back in areas such as cosmetics.
Going forwards, the Group will present numbers separately for its Hospitals Business and New Services – Vita Health Group (VHG), Doctors Clinic Group (DCG) and the clinics. The New Services, VHG in particular, have lower EBITDA margins but because they have lower capex requirements, they will have good flowthrough to PBT. Adjusted EBITDA margin for the Group’s Hospitals Business was 17.6%, up 0.6ppts compared to prior year. The Group’s cost base in 2023 included £6m of IT costs that relate to cloud-based products that are not capitalised. Adjusted EBIT margin for the Hospitals Business was 9.9% for the period, up from 8.8% in FY22. Spire management has now laid the platform for further margin development to achieve the Group’s medium-term Adjusted EBITDA margin target of at least 21% and Adjusted EBIT margin target of more than 13% for its Hospitals Business.
Occurrences of COVID-19 and other respiratory illnesses do still occur, affecting patients, colleagues and consultants, but are now part of normal business and we are managing the associated costs accordingly. The ongoing shortage of skilled healthcare workers in the UK and around the world showed little signs of abatement during the period but we continue to manage this well. It is particularly pleasing to note that staff turnover fell and colleague engagement scores increased YOY at Spire Healthcare.
The Group responded well to the external environment in the period. Despite high UK inflation prevailing through most of 2023, affecting input costs and wages, Spire succeeded in growing the business and increasing profits through careful management of pricing, mix and cost management.
Further good progress was made during 2023 to implement the strategy to expand the Group’s healthcare offering. In October 2023, Spire Healthcare acquired VHG for a net cash consideration of £73.2m. VHG is the largest independent NHS talking therapies provider and delivers musculoskeletal and dermatology services, as well as corporate and occupational health services. The integration of DCG, a provider of occupational health and GP services, which we acquired towards the end of 2022, continued during 2023, together with the rollout of the Group’s new clinics. As the Group’s broader healthcare offering continues to be developed, income from this area will become increasingly material to the Group’s performance.
The Group is pleased to announce a recommended final dividend of 2.1 pence per share (FY22: 0.5 pence per share), reflecting the Board’s confidence in the long-term prospects of the business.
Managing the business successfully against a backdrop of inflation and economic complexity
The Group delivered a strong performance across almost every area of the business in 2023. Revenue and earnings grew YOY, which was particularly creditable given a backdrop of high inflation affecting input costs and wages. Adjusted EBIT rose by 23.5% to £130.4m during FY23 compared to prior year and Adjusted EBITDA by 15.0% to £234.0m. For the Hospitals Business, Adjusted EBITDA was up 14.8% vs FY22 to £233.8m and Adjusted EBITDA margin increased to 17.6%.
Group Profit before tax for FY23 was £34.6m, up significantly on the £3.9m recorded in FY22.
Spire Healthcare delivered cost savings of c.£15m during 2023 as planned. Key cost-saving initiatives included the refinement of best practice establishment models for hospital operations, the ongoing reorganisation of hospitals into hubs, sharing of resources and procurement savings. Improvements in productivity enabled us to reduce FTE per admission. Another £60m of cost savings is targeted by the end of 2026, of which at least £15m will be targeted in 2024.
The Group continues to benefit from energy commodity prices fixed in 2021 until Q3 2024, and management anticipates an additional £2m of expenditure in Q4 24 when these lapses.
As a people business, the support and investment in Spire Healthcare’s workforce is critical to the health of the Group’s business and to delivering good patient outcomes. Wage rate pressure remains an ongoing consideration for Spire Healthcare and for healthcare services in the UK more broadly. Several workforce initiatives were initiated or continued during 2023 (further detail below) and this led to a YOY improvement in staff retention and an increase in colleague engagement. The Group also benefited from a reduction on the use of agency staff per admission.
Overall, management believes that the benefits secured from the above actions, combined with the strategic focus on securing more complex work and the Company’s ability to adjust SP pricing and PMI pricing contractual arrangements, provide adequate self-help levers to enable the Group to prosper and deliver profitable, sustainable growth.
Strong cash conversion enabling ongoing capex investment and M&A
Net bank debt at 31 December 2023 was £315.7m (vs £250.1m at 31 December 2022), with a cash balance of £49.6m (vs £74.2m at 31 December 2022). The increase in net bank debt over the period reflects the acquisition of VHG financed by a combination of cash and debt. The Group entered an interest rate hedge in July 2022, resulting in 75% of the risk from the senior loan facility being mitigated until April 2024, after which 50% will be hedged until February 2026. The Group’s funding facilities were extended by one year to February 2027.
Net debt / Adjusted EBITDA covenant ratio remained flat at 2.2x as at 31 December 2023 and 2022, even though bank debt has increased due to the acquisition of VHG.
The Group continued to be cash generative during the period. Cash inflow from adjusted operating activities during the period was £228.2m (FY22: £188.1m) which constitutes a cash conversion rate of 98% (FY22: 92% conversion).
Capital investment in FY23 was £84.4m (FY22: £90.1m), in line with the Company’s full-year target range of 6-7% of revenue. Investment in the year includes the new outpatients and diagnostic centre at Yale, investment into cardiac services at Manchester and Nottingham, ophthalmic services at Cambridge, our new clinics, continued major hospital refurbishment programmes and investment in new equipment, including further roll-out of robotic surgical capability.
The strong operational performance of Spire Healthcare in the period resulted in Adjusted EBIT rising by 23.5% YOY to £130.4m, leading to a material improvement in ROCE, up by 1.3ppts to 7.5%. (The ROCE has been adjusted for VHG to reflect that it has not contributed a full 12 month trading result to the Group’s consolidated financial results.)
Our market
The demand for private healthcare – from GP and diagnostic services to hospital treatment, occupational health and talking therapies – remained strong in 2023, with patients seeking prompt, safe and effective diagnosis and treatment. Demand from SP patients continues to significantly exceed pre-pandemic levels, while the growth in the PMI business is being driven by increased awareness among employers and employees of its benefits in helping people remain in good health.
A number of key trends are affecting our market:
1. Population profile
The growing and ageing population and greater prevalence of long-term conditions continue to be underlying factors putting pressure on the UK’s healthcare resources.
2. NHS waiting lists
NHS waiting lists have grown to record levels, rising to 7.6m pathways in December 2023, up from 7.2m in December 2022, with some people waiting on more than one pathway. The difficulty for patients lies not only the length of the lists, but also the length of time people are waiting for diagnoses and treatments.
3. Private market
Demand for SP healthcare fell slightly from historic highs in 2023, but demand remains strong, particularly in our core specialities of hip and knee surgery. Since the pandemic, PMI penetration has grown significantly – the most recent LaingBuisson data states that c.7.4m lives are now covered by private medical cover, and 3.5m each by health cash plans and dental benefit plans.
4. Healthcare workforce
The UK healthcare sector continues to face a severe skills shortage. Attracting and retaining the best people remains a challenge for all healthcare providers, both public and private. Rates for agency staff are also rising, presenting a further challenge.
5. Economic environment
Following sharp rises in inflation in the UK in 2022, the rate fell late in 2023, but remains much higher than the Bank of England’s target of 2%. Cost-of-living pressures are still having a major impact on many people’s disposable income, and higher interest rates have become a factor for individuals and businesses everywhere. Our core customer is generally more affluent and more insulated against rising costs, while our older self-funding customers are mostly far less affected by mortgage increases.
6. Role for employers in healthcare
It is increasingly understood that employers have a role to play in improving the health of their employees, to enhance the health, protection and wellbeing of people at work. As a consequence, employers are increasing the provision of PMI for their employees. Our occupational health (OH) services are seeing continued demand for employee health support, and VHG is seeing increased demand from employers for the mental health and MSK services it provides.
Driving our Purpose and Strategy
In 2022, Spire Healthcare widened its Purpose to ‘making a positive difference to people’s lives’, while broadening our offer of outstanding personalised care to more people in a wider range of settings. We now aim to be involved in people’s healthcare across both pre- and post-hospital care, providing support to local communities and responding to increasing demand for the broad range of healthcare services beyond hospital-led treatments.
Our strategy is supported by five key pillars:
· We will drive hospital performance, through consistent growth in our existing hospital estate with increasing margins.
· We will build on quality and patient safety to make it a competitive advantage in all our activities.
· We will continue to invest in our workforce through strong recruitment, retention and development programmes.
· We will champion sustainability, as we aim to be recognised as a leader in our sector.
· We will develop new services through selective investments that will attract new patients by meeting more of their healthcare needs.
All this will help us focus on delivering a strong financial performance with a particular emphasis on cash generation, investment, improving our margin and return on capital, and delivering strong shareholder returns.
Driving hospital performance
The core of Spire Healthcare’s business remains the efficient operation of its 39 hospitals. Overall, hospital performance during the year was strong. Ongoing significant demand for safe, high quality treatment underpinned growth in hospital revenue. Overall admissions and revenue were higher than in FY22, with in-patient and day case admissions 5.3% ahead of prior year.
Private admissions grew by 3.6% during the 12-month period compared to prior year, with private revenue ahead by 9.5%.
PMI revenue grew by 14.3% vs FY22 to £615.7m, reflecting an increase in referrals as demand for PMI grew. Volume of PMI patients, including admissions and outpatient procedures, was up 10.1% vs FY22, with admissions up 10.5%.
SP revenue was up YOY by 1.8% to £344.0m with volumes maintained at levels significantly higher than pre-COVID. SP admissions and OP procedures reduced by 6.3% versus FY22. The overall SP market declined. We have maintained the high levels of revenue from 2022, with ARPC increasing 10.1%. This revenue has been delivered with management of mix and price. We have used our digitised pricing engine to generate increased ARPC and revenue, and we have reduced volumes in cosmetics. We continue to invest selectively in high quality ophthalmology services but have remained disciplined on pricing in a competitive market.
Spire Healthcare continued to support the NHS to reduce waiting lists during the period. It contributed to the Government’s Elective Recovery Taskforce, which was set up to make better use of the country’s healthcare capacity, and welcomed the emphasis on promoting patient choice which was an important part of the Taskforce’s recommendations. NHS revenue grew in 2023 by 15.5% to £341.1m compared to last year, while the NHS tariff increased by 4.1%. We had increased referrals through the electronic referral system (eRS). Overall NHS volumes, including admissions and outpatient procedures, were up 6.1% YOY with admissions up 9.4%. Orthopaedic volumes were up 14% YOY and now comprise c.58% of all Spire NHS referrals.
The private proportion of total revenue during FY23 was 70.6% (FY22: 73.1%), 72.3% of hospital revenue (FY22: 73.2%). This aligns with our aim for private revenue to be in the range of 70-80%.
The average revenue per case (ARPC) rose by 6.3% to £3,381. In SP, management has control over pricing and actively manages it using the Group’s digitised pricing system. Spire Healthcare’s PMI prices are adjusted annually in Q1 / Q2 each year and contain mechanisms linked to inflation, as well as pricing incentives to capture increased patient flow from insurance partners. Compared to FY22, PMI ARPC was up 5.1% to £2,896, SP up 10.1% to £4,356 and NHS up 8.4% to £3,392.
Spire Healthcare launched a new, successful multichannel brand-building campaign in September 2023, focusing on patients’ desire to get back to their lives by having their health conditions diagnosed and treated – “the sooner you’re better, the better”.
Building on quality
Delivery of patient safety and high-quality patient care is central to Spire Healthcare’s operations and embedded in our purpose and culture. A significant proportion of the Group’s operational and capital expenditure is centred on the delivery of first class healthcare service. 98% of our inspected hospitals and clinics are currently rated ‘Good’ or ‘Outstanding’ by the Care Quality Commission (CQC) or the equivalent in Scotland and Wales. Three CQC inspections were performed in 2023: Nottingham – Outstanding (previously Outstanding); Methley Park – Good (previously Good); and the Orth Team Centre – Good (initial inspection). We are awaiting re-inspection of Spire Alexandra, the one remaining site which has a ‘Requires Improvement’ rating, and which has not been inspected since 2016/17. 93% of Spire Healthcare’s patients rate the Group’s care as ‘Outstanding’, up 1ppt vs FY22, while 83% of the Group’s consultant partners rate its care as ‘Very Good’ or ‘Excellent’, up 5ppts vs FY22.
Management continues to prepare for rollout of the new Patient Safety Incident Response Framework (PSIRF), a new approach to responding to patient safety incidents across the healthcare sector, which will enable us to investigate events, when they do happen, in a more responsive and inclusive way.
Investing in our workforce
With the ongoing shortage of skilled healthcare staff in the UK and international market, Spire Healthcare has continued to invest heavily in its workforce in line with our strategy.
A number of training and development courses were delivered during 2023 as part of a programme to equip current and future leaders of the business. This included a range of apprenticeship programmes for clinical and non-clinical colleagues, and almost 4% of permanent colleagues are in apprenticeship roles.
Spire Healthcare supported eligible colleagues with a 5.5% salary increase from 1 September 2023, with a 3% rise for colleagues eligible for a bonus, on top of a 5% rise in 2022 for most eligible colleagues. At that point, the Group’s lowest paid colleagues moved in-line with the Real Living Wage. In our annual survey of colleagues, 81% recorded that they were proud to work for Spire Healthcare, up 1ppt versus FY22.
Spire Healthcare brought recruitment in-house during H1 2023, which is leading to improved filling of vacancies and has already generated over £0.5m of savings. Management is very encouraged that the combined investments in the workforce are leading to a material reduction in colleague leaver rates, to the lower levels we sustained before the pandemic. The Group’s 12-month turnover rate was 15.1% in the year to 31 December 2023, down from 18.8% in the year to 31 December 2022.
Championing sustainability
Championing sustainability is core to the Group’s strategy and important to our success and future, and we continue to implement the sustainability strategy we launched in 2022. The sustainability strategy covers Spire Healthcare Limited only at this stage; we anticipate working to bring the rest of the group under the same plan.
In 2023, we made further progress towards achieving net zero carbon status by 2030, with investment during the year in the removal of piped nitrous oxide systems, the installation of new solar panels, increasing recycling and generating carbon reduction through the effective management of our waste, and the optimisation of our building management systems. Waste is managed more efficiently with 35% (FY22: 30%) now recycled and we have saved 27,000 litres of water in a trial at two hospitals. The intensity of the Group’s carbon emissions reduced by 12% in 2023 compared to prior year (down 13% in 2022). We are planning to install solar panels on all our hospitals, with most of the work completed in 2024, enabling us to make further progress towards net zero.
Expanding our healthcare proposition
While running great hospitals remains central to Spire Healthcare, management is responding to the rapid and fundamental changes taking place in the UK healthcare landscape by making selective investments in new services that are designed to attract new patients and meet more of their healthcare needs. Spire Healthcare wants to take a more proactive role in its patients’ care before and after a stay in hospital. More than that, the Company wants to be with people throughout their whole healthcare journey. Further progress towards this ambition of being a more integrated healthcare provider was made during the year.
The acquisition of VHG, with a customer base of 16 NHS integrated care boards and more than 200 corporate clients, enables the Group to expand its capabilities into low-acuity mental health. In addition, it provides synergies with the relationships it has already built with corporate and PMI customers, and occupational health businesses. VHG comes to the Group with outstanding customer feedback, a proven management team, and a strong track record in winning new contracts – several of which will come online in early 2024.
The ongoing integration of DCG, which was acquired in late 2022, progressed well during 2023. Company management has restructured the business into two units, Spire Occupational Health and London Doctors Clinic (LDC).
Spire Occupational Health continues to develop in line with the Group’s plan. Management’s focus during 2023 has been on integrating the two OH businesses previously within DCG, Soma Health and Maitland Medical, and rebranding them as Spire Occupational Health, and the integration is ongoing in 2024. We also continued to retain and win new clients including the University of Worcester and F1.
During the year, Spire Healthcare focused the LDC business in London and South East England, and closed four LDC clinics in Manchester and Birmingham. The Group has since opened five new clinics in our core target areas of Bank, Chiswick, Fulham, Hampstead and Islington. LDC made a small loss in 2023 due to investment in new clinics. The business is expected to reach profitability in 2024.
Spire Healthcare’s GP services have continued to grow in recent years, with patients attracted by a high-quality service offering efficient access to a GP near to where they live, or virtually. Patients also value the longer appointment times that enable a fuller examination and discussion of their medical needs with the GP. Taken together, the Spire GP and LDC businesses now constitute a large, nationwide private GP network with 18 rapid-access LDC clinics in Greater London and Spire GP in most hospitals, together delivering around 8,000 GP appointments each month.
The Group’s previously disclosed plans to target 10 new medical clinics to meet the growing healthcare needs in our communities, advanced during 2023. We opened the first of the Company’s clinics at Abergele, North Wales earlier this month. Work to open a second clinic at Harrogate is underway. The clinics offer ambulatory care, enabling the Group to build in efficiencies from the start. Some of the clinics will follow an ‘outreach’ model, opening close to existing hospitals and enabling the Group to move some of its outpatient functions and minor treatments away from its hospitals. Others will be in completely new parts of the country where the Group does not currently have a presence, enabling Spire Healthcare to meet the healthcare needs of more people, and to build relationships with new consultants.
Dividend
The Directors of Spire Healthcare have recommended the payment of a final dividend of 2.1 pence per share for the year ended 31 December 2023. Subject to shareholder approval at the forthcoming Annual General Meeting on 9 May 2024, the dividend will be paid on 21 June 2024 to shareholders of the Company at the close of business on 24 May 2024. This payment is in line with the Group’s clear and sustainable dividend policy whereby dividends will typically be set at 25-35% of Profit After Tax, provided bank leverage remains less than 2.5 times.
Board changes
Debbie White and Natalie Ceeney joined the Board as independent non-executive directors on 1 February 2023 and 1 May 2023, respectively. Debbie White took over from Martin Angle as the Board’s Senior Independent Director on 12 May 2023. Professor Dame Janet Husband was appointed Vice Chair from 1 March 2023.
Financial review
Selected financial information
| Year ended 31 December 2023 | Year ended 31 December 2022 | |||||||
| (£m) | Total before Adjusting items | Adjusting items (note 9) | Total | Total before Adjusting items | Adjusting items (note 9) | Total | ||
| Revenue | 1,359.0 | – | 1,359.0 | 1,198.5 | – | 1,198.5 | ||
| Cost of sales | (734.8) | – | (734.8) | (660.1) | – | (660.1) | ||
| Gross profit | 624.2 | – | 624.2 | 538.4 | – | 538.4 | ||
| Other operating costs | (497.4) | (6.7) | (504.1) | (435.8) | (10.2) | (446.0) | ||
| Other income | 3.6 | 2.5 | 6.1 | 3.0 | – | 3.0 | ||
| Operating profit | 130.4 | (4.2) | 126.2 | 105.6 | (10.2) | 95.4 | ||
| Finance income | 1.4 | – | 1.4 | – | – | – | ||
| Finance costs | (93.0) | – | (93.0) | (91.5) | – | (91.5) | ||
| Profit before taxation | 38.8 | (4.2) | 34.6 | 14.1 | (10.2) | 3.9 | ||
| Taxation | (6.4) | (0.3) | (6.7) | 2.5 | 1.8 | 4.3 | ||
| Profit for the period | 32.4 | (4.5) | 27.9 | 16.6 | (8.4) | 8.2 | ||
| Profit for the year attributable to owners of the Parent | 31.8 | (4.5) | 27.3 | 17.0 | (8.4) | 8.6 | ||
| Profit for the year attributable to non-controlling interest | 0.6 | – | 0.6 | (0.4) | – | (0.4) | ||
| Adjusted EBITDA (1) | 234.0 | 203.5 | ||||||
| Basic earnings per share, pence | 6.8 | 2.1 | ||||||
| Adjusted FCF (2) | 48.0 | 28.0 | ||||||
| Net cash from operating activities | 215.5 | 180.1 | ||||||
| Net bank debt (3) | 315.7 | 250.1 | ||||||
1. Adjusted EBITDA is calculated as Operating Profit, adjusted to add back depreciation, and Adjusting items, referred to hereafter as ‘Adjusted EBITDA’ refer to page 11. For EBITDA for covenant purposes, refer to note 17.
2. Adjusted FCF (Free Cash Flow) is calculated as Adjusted EBITDA, less rent, capital expenditure cash flows and changes in working capital after adjusting for one-off items which are not related to the normal trading activity of the business. Rent cash flows are defined as interest on, and payment of, lease liabilities. Capital expenditure cash flows are defined as the purchase of property, plant and equipment.
3. Net bank debt is defined as bank borrowings less cash and cash equivalents
Revenue
Group revenues increased 13.4% to £1,359.0m (2022: £1,198.5m). The increase is driven by demand for private healthcare which remained strong throughout the year. The group’s self-pay business remained robust with revenue up YOY delivered through a strong focus on mix, where it targeted more complex, higher margin treatments in orthopaedics, while scaling back in high volume but low value areas such as ophthalmology and cosmetics.
Included in other revenue is £31.4m related to new Services of which £18.3m of revenue relates to our recent acquisition of VHG and £13.1m (2022: £0.1m) relates to The Doctors Clinic Group acquired in the prior year. Revenue and earnings from new Services were not material in FY23. From FY24, new Services will be presented separately.
Revenue by location and payor
| (£m) | 2023 | 2022 | Variance %(2023-2022) |
| Total revenue | 1,359.0 | 1,198.5 | 13.4% |
| Of which: | |||
| Inpatient | 535.5 | 487.5 | 9.8% |
| Daycase | 399.9 | 348.0 | 14.9% |
| Out-patient | 365.4 | 333.1 | 9.7% |
| Other | 58.2 | 29.9 | 94.5% |
| Total revenue | 1,359.0 | 1,198.5 | 13.4% |
| Of which: | |||
| PMI | 615.7 | 538.7 | 14.3% |
| Self-pay | 344.0 | 338.0 | 1.8% |
| Total Private | 959.7 | 876.7 | 9.5% |
| Total NHS | 341.1 | 295.4 | 15.5% |
| Other1 | 58.2 | 26.4 | 120.5% |
| Total revenue | 1,359.0 | 1,198.5 | 13.4% |
1. Other revenue includes fees paid to the group by consultants (eg for the use of group facilities and services) and third-party revenue (eg pathology services to third parties) and rehabilitation, counselling and physiotherapy revenue from the recent VHG acquisition.
Cost of sales and gross profit
Gross margin for the year is 45.9% compared to 2022 of 44.9%. Cost of sales increased in the period by £74.7m or 11.3% to £734.8m (2022: £660.1m) on revenues that increased by 13.4% (2022: 8.3%). Increased costs are due to inflationary pressures, increased agency costs and continued wage rate expansion. The margin was higher in 2023 due to increased private volumes, and careful management of pricing, mix and cost savings.
Cost of sales is broken down, and presented as a percentage of revenue, as follows:
| 2023 | 2022 | |||
| Year ended 31 December | Year ended 31 December | |||
| £m | % of revenue | £m | % of revenue | |
| Clinical staff | 304.1 | 22.4% | 275.3 | 23.0% |
| Direct costs | 312.4 | 23.0% | 280.3 | 23.4% |
| Medical fees | 118.3 | 8.7% | 104.5 | 8.7% |
| Cost of sales | 734.8 | 54.1% | 660.1 | 55.1% |
| Gross profit | 624.2 | 45.9% | 538.4 | 44.9% |
Other operating costs
Other operating costs, excluding adjusting items have increased by £61.6m, or 14.1% to £497.4m (2022: £435.8m). The main driver is increased staff costs due to continued wage rate expansion and other inflationary pressures. Depreciation for the year was £103.6m (2022: £97.9m). The increase is in line with expectations and is largely due to additional leases relating to medical equipment and RPI increases on properties. As disclosed in 2022, the prior year benefits from a reduction in charge of £6.6m (2022: £2.9m) as a consequence of a revision of the useful life and residual value policy in respect of freehold properties so that it more closely aligned with external benchmark information. The useful life was extended from a maximum of 50 years to a maximum of 60 years, and the group has set the residual value equal to 20% of cost (previously nil).
Adjusting items included in operating costs are explained below. Other operating costs including Adjusting items for the year ended 31 December 2023 increased by £58.1m or 13.0% to £504.1m (2022: £446.0m)
Operating margin for the year ended 31 December 2023 is 9.3% (2022: 8.0%). Operating margin, excluding adjusting items is 9.6%, up from 8.8% at 2022.
Adjusted EBITDA
Adjusted EBITDA for the group has increased by 15.0% in the period from £203.5m to £234.0m for 2023. The increase is due to continued growth in private revenue and good cost management.
Share-based payments
During the period, grants were made to executive directors and other employees under the company’s Long Term Incentive Plan. For the year ended 31 December 2023, the charge to the income statement is £3.7m (2022: £2.3m), or £4.1m inclusive of National Insurance (2022: £2.6m). Further details are contained in note 27 of the Annual Report and Accounts.
Adjusting items
| Year ended 31 December | ||
| (£m) | 2023 | 2022 |
| Business reorganisation and corporate restructuring costs | 2.0 | 4.5 |
| Asset acquisitions, disposals, impairment and aborted project costs | 3.1 | 4.3 |
| Remediation of regulatory compliance or malpractice costs | (0.9) | 1.1 |
| Hospitals set up and closure costs | – | 0.3 |
| Total pre-tax Adjusting items | 4.2 | 10.2 |
| Income tax credit charge on Adjusting items | 0.3 | (1.8) |
| Total post-tax Adjusting items | 4.5 | 8.4 |
Adjusting items comprise those matters where the directors believe the financial effect should be adjusted for, due to their nature, size or incidence, in order to provide a more accurate comparison of the group’s underlying performance.
Asset acquisitions, disposals, impairment and aborted project costs of £3.1m mainly relate to asset acquisitions. In October 2023, the group acquired 100% of the share capital in Vita Health Group Limited for a net cash consideration of £73.2m as part of its strategic investment in its broader healthcare offering. The costs of acquisition of £2.5m have been incurred in the period. Costs for integration are expected to continue into FY24. £0.4m of integration related costs have been incurred following the acquisition of Doctors Clinic Group in December 2022.
In the prior year, the costs mainly related to Claremont Hospital and the purchase of the remaining non-controlling interest, and an impairment of £0.5m was recognised on the St Saviours property which was sold in H2 2022.
During H2 21, the group announced a strategic, group wide initiative that impacts the operating model of the group to allow a more efficient governance and reporting structure, as well as a drive on digital functionality. This initiative will be implemented over several phases. In the period, £2.0m (2022: £4.5m) has been incurred. The initial phase of the initiative was completed in 2022, with the majority of the project completed in 2023. It is expected that some costs will be incurred in 2024 as the project enters into the next strategic phase.
The group has recognised a credit of £0.9m during the year in respect of Remediation of Regulatory Compliance or Malpractice Costs relating to Paterson. This comprises £2.5m funds received from its insurer and £0.9m reduction in provision which had been held to resolve the matter. This is offset by an increased separate provision in respect of Paterson by £2.5 million (2022: £0.9 million), which relates to a detailed patient review initiative which commenced in 2021, supporting patients of Paterson. During 2023 the group has re-evaluated the expected cost of completing this complex project, and its associated settlement of patient claims.
Hospital set-up and closure costs in the prior year mainly relate to the maintenance costs of non-operational sites.
Net finance costs
Net finance costs remain flat at £91.6m (2022: £91.5m). This is due to the effectiveness of the interest rate swaps, interest income on bank deposits offset by increased interest on the draw down of the revolving credit facility and a one-off charge of £3.1m in the prior year in respect of unamortised fees which were recognised in full following the refinancing of the senior loan facility.
Taxation
The effective tax rate assessed for the year, all of which arises in the UK, differs from the standard weighted rate of corporation tax in the UK. The reconciliation of the actual tax charge to that at the domestic corporation tax rate is as follows:
| Year ended 31 December | ||||
| (£m) | 2023 | 2022 | ||
| Profit before taxation | 34.6 | 3.9 | ||
| Tax at the standard rate | 8.1 | 0.7 | ||
| Effects of: | ||||
| Expenses and income not deductible or taxable | 3.2 | 8.2 | ||
| Tax adjustment for the Super-deduction allowance | (0.8) | (2.6) | ||
| Impairment charge in respect of held for sale assets (not tax deductible) | – | 0.1 | ||
| One-off impact of revision to useful economic life and residual value of freehold property portfolio | – | (9.0) | ||
| Adjustments to prior year | (4.2) | (1.8) | ||
| Difference in tax rates | 0.2 | 0.1 | ||
| Deferred tax not previously recognised | 0.2 | – | ||
| Total tax charge/(credit) | 6.7 | (4.3) | ||
Corporation tax is calculated at 23.5% (2022: 19.0%) of the estimated taxable profit or loss for the year. The effective tax rate on profit before taxation for the year is 19.4%, although not truly reflective of the current year position as a result of adjustments to the prior years (2022: not meaningful as a result of adjustments in respect of prior years and movements on deferred tax which are not directly linked to profit). Excluding the adjustments to prior years in 2023, the effective tax rate is 31.5%. The adjustments to prior years includes the recognition of a deferred tax asset in respect of Corporate Interest restrictions which has recognised a credit of £3.3 million through adjustments to prior years for deferred tax purposes, as well as the recognition of deferred tax on acquired losses of £1.9 million in respect of an acquisition. In the prior year, the group reassessed the useful life and residual value of its freehold property portfolio. This resulted in a one-off deferred tax credit of £9.0 million.
Deferred tax is detailed in note 23 of the annual report.
Profit after taxation
The profit after taxation for the year ended 31 December 2023 was £27.9m (2022: £8.2m).
Alternative performance (non-GAAP) financial measures
We have provided alternative financial information that has not been prepared in accordance with IFRS. We use these alternative financial measures internally in analysing our financial results and believe they are useful to investors, as a supplement to IFRS measures, in evaluating our ongoing operational performance. We believe that the use of these alternative financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in comparing our financial results with other companies in the industry, many of which present similar alternative financial measures to investors.
Alternative financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with IFRS. Investors are encouraged to review the reconciliation of these alternative financial measures to their most directly comparable IFRS financial measures provided in the financial statements table.
Adjusted EBITDA, Adjusted EBIT and Hospital Business Adjusted EBITDA margin
| Year ended 31 December | |||
| (£m) | 2023 | 2022 | |
| Operating profit | 126.2 | 95.4 | |
| Remove effects of:Adjusting items before interest and tax | 4.2 | 10.2 | |
| Adjusted EBIT | 130.4 | 105.6 | |
| Depreciation | 103.0 | 97.9 | |
| Amortisation | 0.6 | – | |
| Adjusted EBITDA | 234.0 | 203.5 | |
| For the Hospital Business | |||
| Revenue | 1,327.6 | 1,198.5 | |
| Adjusted EBITDA | 233.8 | 203.5 | |
| Adjusted EBITDA margin | 17.6% | 17.0% | |
Adjusted profit after tax and adjusted earnings per share
Adjustments have been made to remove the impact of non-recurring items.
| Year ended 31 December | |||
| (£m) | 2023 | 2022 | |
| Profit before tax | 34.6 | 3.9 | |
| Adjustments for:Adjusting Items – operating costs | 4.2 | 10.2 | |
| Adjusted profit before tax | 38.8 | 14.1 | |
| Taxation(1) | (6.4) | 2.5 | |
| Adjusted profit after tax | 32.4 | 16.6 | |
| Profit for the year attributable to owners of the parent | 31.8 | 17.0 | |
| Profit / (loss) for the year attributable to non-controlling interests | 0.6 | (0.4) | |
| Weighted average number of ordinary shares in issue (No.) | 403,648,886 | 402,679,296 | |
| Adjusted earnings per share (pence) attributable to the parent | 7.9 | 4.2 | |
1. Reported tax charge for the period adjusted for the tax effect of Adjusting Items
Return on capital employed
Return on capital employed (‘ROCE’) is the ratio of the group’s Adjusted EBIT to total assets less cash, capital investments made in the last 12 months and current liabilities. In the current year the calculation annualises the EBIT of the VHG acquisition as it was not part of the group for the full year. The calculation of return on capital employed is shown below:
| Year ended 31 December | ||
| (£m) | 2023 | 2022 |
| Adjusted EBIT | 130.4 | 105.6 |
| Adjusted: for full year pro-forma effect of VHG acquisition | 6.8 | – |
| Adjusted EBIT pre VHG | 137.2 | 105.6 |
| Total Assets | 2,288.1 | 2,159.8 |
| Less: Cash and cash equivalents | (49.6) | (74.2) |
| Less: Capital investments | (84.4) | (90.1) |
| Less: Current Liabilities | (317.6) | (283.4) |
| Capital Employed | 1,836.5 | 1,712.1 |
| Return on capital employed % | 7.5% | 6.2% |
Adjusted Free Cash flow
| Year ended 31 December | ||
| (£m) | 2023 | 2022 |
| Adjusted EBITDA | 234.0 | 203.5 |
| Less: Lease payments | (100.2) | (93.7) |
| Less: Cash flow for the purchase of property, plant and equipment | (84.4) | (87.7) |
| Less: Working capital movement | (15.5) | (15.0) |
| Less: Adjustments for non-recurring items | 14.1 | 20.9 |
| Adjusted FCF | 48.0 | 28.0 |
Cash flow analysis for the period
| Year ended 31 December | ||
| (£m) | 2023 | 2022 |
| Opening Cash balance | 74.2 | 202.6 |
| Operating cash flows before recurring items and VHG | 228.2 | 186.5 |
| Less: Adjustments for non-recurring items and VHG | 9.9 | – |
| Operating cash flows before Adjusting Items and income tax paid | 218.3 | 186.5 |
| Net cash flow from Adjusting Items (included in operating cash flows) | (2.7) | (6.4) |
| Income tax paid | (0.1) | (0.1) |
| Operating cash flows after operating Adjusting Items and income tax | 215.5 | 180.0 |
| Net cash flow from Adjusting Items (included in investing cash flows) | – | 3.2 |
| Net cash in investing activities | (84.0) | (87.2) |
| Cash outflow for acquisition of subsidiary | (73.2) | (11.4) |
| Investing cash flows after investing Adjusting Items | (157.2) | (95.4) |
| Net cash in financing activities | (82.9) | (210.3) |
| Financing cash flows after financing Adjusting Items | (82.9) | (213.0) |
| Closing cash balance | 49.6 | 74.2 |
Closing cash balance
The group’s year end cash balance stood at £49.6m, which reflects a reduction of £24.6m against the prior year balance of £74.2m. This movement contains two significant one-off items being the acquisition of VHG for a net cash consideration of £73.2m and a cash inflow of £40m from the draw down of the revolving credit facility. Further detailed information on the cash flow during the period is set out in the following sections.
Operating cash flows before Adjusting items
The cash inflow from operating activities before tax, Adjusting items and VHG was £228.2m (2022: £186.5m), which constitutes a cash conversion rate from £232.2m Adjusted EBITDA pre VHG of 98% (2022: 92% conversion of £203.5 Adjusted EBITDA). The net cash outflow from movements in working capital in the period was £15.5m (2022: £15.0m outflow).
Investing and financing cash flows
Net cash outflow in investing activities for the period was £157.2m (2022: £95.4m). The cash outflow relates to the net cash consideration paid for the acquisition of VHG of £73.2m and the purchase of plant, property and equipment in the period totalled £84.4m (2022: £87.7m). Capital investment in the year includes the new outpatients and diagnostic centre at Yale, investment into cardiac theatres at Manchester and Nottingham, ophthalmic services at Cambridge and continued major hospital refurbishment programmes.
Net cash used in financing activities for the period was £82.9m (2022: £213.0m) Cash outflows include interest paid and other financing costs of £90.0m (2022: £94.6m), and £27.2m (2022: £18.5m) of lease liability payments and £3.1m for the buyback of shares to settle share awards. This is offset by an inflow of £40m from the draw down of the revolving credit facility.
Borrowings
At 31 December 2023, the group has bank borrowings (inclusive of IFRS 9 adjustments) of £365.3m (2022: £324.3m), drawn under facilities which mature in February 2027.
| Year ended 31 December | ||
| (£m) | 2023 | 2022 |
| Cash | 49.6 | 74.2 |
| Bank borrowings | 365.3 | 324.3 |
| Bank borrowings less cash and cash equivalents | 315.7 | 250.1 |
During the year, the group exercised its option to extend the senior loan facility by a further year. The financial covenants and agreement terms relating to this agreement are unchanged, with leverage to be below 4.0x and interest cover to be in excess of 4.0x. As at 31 December 2023 the leverage measure stood at 2.2x (2022:2.2x) and interest cover of 8.5x (2022: 8.5x).
As at 31 December 2023 lease liabilities were £891.7m (2022: £866.5m).
Dividend
The directors of Spire Healthcare Group have recommended the payment of a final dividend of 2.1 pence per share for the year ending 31 December 2023. Subject to shareholder approval at the forthcoming Annual General Meeting on 9 May 2024.
Related party transactions
There were no significant related party transactions during the period under review.
